Greece, Austerity, and Capitalism (2015)

From the August 2015 issue of the Socialist Standard

When Syriza won the elections in Greece in January on a 'No to Austerity' platform left-wing opponents of austerity throughout Europe were delighted. ‘If they can do it, so we can’, they chanted. Yes, but do what? Saying 'No' to austerity is one thing. Ending it is another.

Why there is austerity

Knowing how capitalism works, we were sceptical; maybe Syriza could mitigate austerity a little for some workers, but end it, no. 'Austerity' , i.e. cutting back on government spending, is a policy that all governments are obliged to apply when capitalism is in one of its periodic downturns, at least if they don't want to make the situation worse.

The capitalist economy is driven by business investment and businesses only invest with a view to making a profit. A slump is an expression of the fact that, for one reason or another, production on the previous scale is no longer profitable. The only way that capitalism can get out of a slump is if profitability is restored. The main way this comes about is through the devaluation of capital assets: some firms go under and their assets pass cheaply to rivals, which means that less profit needs to be made to achieve the previous rate of profit on capital invested.

Another factor increasing profitability is the fall in labour costs: with higher unemployment there is a downward pressure on wages. The government can help by reducing taxes on profits as businesses are only interested in after-tax profits. But, as in the end all taxation falls on profits and property by being passed on to them wherever it initially falls, it isn't just by decreasing direct taxes on profits that the government can help. It can also reduce taxation generally by cutting its own spending, including on 'welfare' and 'benefits' for workers, undoing past social reforms.

Besides the pressure to reduce taxation to help restore profitability, governments are under an additional pressure in a slump to cut their spending. With the fall in economic activity there is also a fall in their tax receipts.

All this is why governments can be legitimately said to be 'obliged' to pursue a policy of austerity in a slump. Of course governments have the power, both in law and in theory, to decide not to do this. But the consequence would be that they would make things worse, by prolonging and perhaps deepening the slump in economic activity.

More government spending no way out

Those who say that a government should refuse to impose austerity in a slump offer a seemingly plausible and common sense argument: as total purchasing power falls in a slump, increase government spending to compensate and that will get the economy growing again. Surely, reducing it only makes matters worse? If capitalism was a system driven by paying demand this might make sense. But it's not. It's driven by business investment for profit. It's the effect of increased government spending on this that's relevant. The key question is: where is the government to get the extra money to increase its spending from?

As governments don't produce anything themselves (except marginally if they happen to directly operate some profit-seeking business) there are only three possible sources: taxation, borrowing, or the printing press.

Since all taxation falls in the end on profits, increasing it will have an adverse effect on business investment for profit, which is what drives the capitalist economy.

Borrowing needn't have this effect, but the interest on the extra borrowing would have to come out of taxation (as would in the end repaying the loans).

Printing more money might give a temporary boost to production, but would eventually lead to a rise in prices, creating other economic problems such as making exports more expensive and so less competitive; imports would be cheaper so threatening the jobs too of workers employed by businesses producing for the home market.

So, however financed, government spending in a slump is not a way out of it. When tried, as with the Labour governments in Britain in the 60s and 70s and with Mitterrand in France in the early 80s, it hasn't worked. The economic situation got worse and the governments which tried it had to resort to austerity. Basically, both theory and practice demonstrate that there is no way in a slump in which a government can avoid imposing austerity without making things worse.

Greek debts

The Greek state was hit particularly hard by the crash of 2008 because, with the drop in economic activity that followed, its revenue from taxes fell while its debt – what it owed those who had lent it money by buying its bonds – increased as, like other states, it had to borrow money to bail out its banks.

Critics have blamed the scale of the problem on the profligacy of the Greek State, even on the Greek people in general, for borrowing and spending money recklessly. But it takes two to tango and in the period up to 2008 banks from other European countries were buying Greek government bonds as part of the general lending spree which nobody thought would end. If there were reckless spenders there were also reckless lenders. But the economic boom did end and it is this that has caused the Greek sovereign debt problem. In fact the various Greek bail-outs are aimed at bailing out the Greek government’s creditors as well as the Greek government.

Other European countries, whether or not they were in the Eurozone or even the EU (think Iceland), suffered from a similar problem, even if not on the same scale, and adopted austerity to try to deal with it.

The Eurozone is basically an agreement between the EU Member-States involved to maintain a fixed exchange rate between their currencies, all renamed the euro. To do this the member-states must pursue broadly similar economic and monetary policies. In a slump, austerity. This is imposed by capitalism but, because it has been made a condition for Eurozone countries to borrow money from other Eurozone countries, it appears to be imposed by the Eurozone. This has led – misled – some anti-austerity campaigners in Greece and elsewhere into blaming austerity on  being in the euro and not being in capitalism and into imagining that this could be avoided if their country exited the euro. This, for instance, is the position of Costas Lapavitsas, professor at the School of Oriental and African Studies in London who was elected a Syriza MP in January, as expressed in his frequent articles in the Guardian. 'Forget the euro, Greece needs a new currency' he commented on the Greek deal. This, he claimed 'would also allow the government to finally get started on a productive reconstruction of the economy' (13 July).

But it's a delusion. If Greece withdrew from the euro, it still could not escape austerity. It would just take a different political form and could even be worse. Tsipras and most of Syriza seem to have realised this or at least were not prepared to put it to the test and preferred to have it imposed from Berlin. And just where would the money to finance ‘a productive reconstruction of the economy’ come from? Maybe Lapavitsas is thinking of the same sort of state-capitalist siege economy as in Cuba (or formerly in Russia and East Europe), as if that avoids austerity.

Incompatible with capitalism

According to Nigel Farage the deal imposed on the Greece government 'shows that national democracy and membership of the Eurozone are incompatible' (Times, 14 July). Others, from the left as well as the right, have made the same point, but it's misleading. If Greece withdrew from the Eurozone – or if Britain withdrew from the EU – the trappings of 'national democracy' would be restored, but what its 'sovereign' government would be able to do would still be restricted by the pressures of capitalism in a slump. Austerity would still be the order of the day, only it would now be decided by an independent decision of a government exercising unrestricted sovereignty.

The Greek deal does show an incompatibility between democracy and capitalism. The Greek people voted 'No' to austerity twice – when they elected the Syriza government in January and when they voted OXI in the 5 July referendum – but it made no difference. They still got austerity. The people may propose, but capitalism disposes.

It's not just carrying out democratically-made decisions that is incompatible with capitalism. It's also meeting human needs. In April the Greek parliament appointed a Truth Committee on Public Debt (on which Trotskyist economists such as Eric Toussaint and Michel Husson were appointed, as if Syriza wasn't stuffed full of its own left-wing economists). In its preliminary report in June (http://cadtm.org/Preliminary-Report-of-the-Truth) it argued that most of the Greek debt was 'illegal, illegitimate and odious' and suggested that these were grounds for repudiating it which would hold up in court (which planet are they living on?). One section, on 'The impact of the “bailout programme” on human rights', argued that, because repaying and servicing it imposed savage cuts on people's education, health, housing and other basic needs, it infringed their 'human rights' under UN and other charters. This is an excessively legalistic way of putting it, but the general point is valid: austerity does mean that human needs are ignored and come to be met even less than normally.

Capitalism is incompatible with meeting basic human needs too. In fact, austerity is a prime example of the capitalist imperative to put Profits before People.

There is a lesson in Syriza’s abysmal failure to even mitigate austerity in Greece, let alone end it. It’s that as long as capitalism is in a slump it can’t be ended. All the articles by left-wing economists saying that it can are not worth the paper they are printed on. All the (quite legitimate) protests and demonstrations against austerity are misdirected when they call on governments to end austerity. This is an impossible demand. All this energy would be more effectively directed instead at replacing the capitalist system of class ownership and production for profit by a socialist system of common ownership, democratic control and production directly to meet people’s needs. Only then will austerity be ended forever. Only then will what people vote for be able to be carried out.

Adam Buick

Why We Oppose Labour Leaders. (1912)

From the May 1912 issue of the Socialist Standard

The attitude of the Socialist Party toward leaders and the following of leaders seems to create a deal of mental disturbance, ranging from gentle indignation to double-distilled essence of Satanic malevolence, within those whose peculiar constitution demands a leader to look up to, worship, and follow.

Such injured innocents, and such injured people who are far from being innocents, seem to imagine that our opposition to leaders and followers is prompted by sheer cussedness and spleen, and grounded upon anything but reason and judicial consideration.

But it may be possible to give, within the limits of a short article, some reasons for our undeniably bitter hostility to all that savours of leadership, which will be sufficiently cogent to modify in some degree the criticism levelled against us, even if they fail to convert immense numbers to our view.

Now in the first place, the movement for working-class emancipation is unique in this respect—it is a movement for the emancipation of the only class in society that remains to be emancipated. The significance of this is easily grasped. So long as, in the struggle of classes, the class immediately seeking emancipation was not the only subject class; so long, that is, as there a class below them, the achievement of the particular revolution of the period by no means depended upon the class-consciousness of the majority of those fighting for it. On the other hand, in such circumstances there was always a class to be made the tools of those seeking emancipation, and therefore to be kept in ignorance of the true interests of their class.

In such case, while the success of the revolution depended upon the class-consciousness (or knowledge of their class interests) of the revolutionary section of society, it found either a helpful or a stumbling block, in the class below.

For this reason the revolutionary class had much to gain from leading their dupes into battle on their account, but this did not absolve the former from the necessity of themselves attaining class consciousness, as a class, before any very serious effort could be made to attain social domination.

With the modern working-class the thing is entirely different. They have no class below them on whom to foist a fraudulent conception of class interests, and from whom to draw support and assistance in the struggle. All their strength must be of themselves and in them themselves. All their militant might must be based upon the knowledge of their class position and the logical course dictated by that position.

Therefore at the very outset it is seen that the need for leaders does not exist. Only those who do not know the way require to be led, and this very fact makes it inevitable that those who are led will be entirely in the hands of those who lead.

The working class can only find emancipation through Socialism, which implies the overthrow of the present ruling class and their social system. The only possible human instruments in the prosecution of the struggle for this end are those who understand the working-class position in society, realise that only Socialism can lift them from that position, and who desire that the proletariat shall be so lifted. Broadly speaking, only members of the working class will come in this category.

The class-unconscious mobs, therefore, whom the "leaders" place themselves at the head of, can never be effective factors in the struggle for working-class deliverance. It is often said that the leaders are in advance of the led, but in the broader sense this is not true. Lading, after all, must be by consent. So it happens that the "leader" can only lead where he is likely to be followed. Hence, so far is the leader from being in advance of the mob, that he is only the reflection of its collective ignorance.

As it is true that mens' political actions are, broadly speaking, determined by their conception of their economic interests, it follows that would-be leaders must persuade those they would lead that the interests of the latter lie the direction they desire to lead them. Here is the crux of the whole business. The political activities of the "leaders" will be determined by their economic interests—and what guarantee is there that these interests will coincide with those of the mob they invite to follow them?

It is not to be supposed that the interests of all members of the working class under all conditions and in all circumstances are identical. The shipwrights on the Tyne, for instance, are the competitors to those on the Thames, and the interest of every unemployed worker is, up to a certain point, opposed to those who are taking the wages he aspires to take.

In like manner the economic interest of the "labour leader," as such, may be opposed to that of those he "leads." The interest of the latter is certainly their emancipation from wage-slavery by the only road—the institution of the Socialist system of society. The interest of the "labour leader," as such, lies in his maintaining his position as a labour "leader."

Granted that these interests have not been shown to be necessarily antagonistic. It is not essential to insist that they are. It is sufficient that they may be, and this no logical person can deny without doing violence to his convictions.

No what are the facts concerning the economic interests of labour "leaders"? In the first place their bread and butter, in typical cases, depends upon their activities as labour "leaders." It is to their interest, therefore, to remove as far as possible the element of doubt and insecurity concerning their livelihood by constituting themselves the bosses of their mobs, instead of being their servants. This they contrive to do by the simple expedient of dividing their followers against each other. Hence they dare not assist their followers to arrive at a true conception of their class interest, for that, if it did not result in their immediate overthrow by the vast bulk of ignorance on which they batten, would replace confusion with unanimity and knowledge that would never submit to be bossed or "led."

So in actual fact the interests of leaders and led are diametrically opposed, insomuch that the knowledge which is essential to working-class emancipation must inevitably abolish leaders, and establish working-class effort on the faith and confidence in the intellect and ability of the working-class.

It is part of the necessary work of a Socialist organisation to point out this divergence between the interests of the workers and those who aspire to lead them, and to seize upon every instance and opportunity of illustrating and proving the contention that labour "leaders" are, and necessarily must be, misleaders.

The Socialist and the true Democrat does not place faith in leaders. He knows that the only hope lies in the intelligence and courage and energy of the working class as a class, and all his hope, all his faith, all his trust, rests in the working class.

A. E. Jacomb

Editorial: Seven Lean Years (2015)

Editorial from the August 2015 issue of the Socialist Standard

It is now seven years since the global economic crisis erupted that led to what is known euphemistically as the Great Recession. Overinvestment had brought about a crash in the housing market, in which poorer homeowners were unable to pay their home loans and newly-built houses could not be sold. The downturn spread to the rest of the economy, and with the sharp fall in production and employment that ensued, governments suffered a fall in tax revenue. Banks that had been lending heavily in this market found themselves laden with toxic loans that were not going to be repaid and were in danger of becoming insolvent. To avoid this, governments have had to step in and bail them out.

Governments had come to incur substantial budget deficits and to be saddled with large amounts of debt. Hence, the so-called era of austerity was ushered in, where governments introduced policies of mainly cutting expenditure on public and welfare services and raising some taxes. The impact of this austerity has largely fallen on the working class. Indeed, in the last few years, many capitalists have increased their wealth.

In the Eurozone, countries such as Ireland, Portugal, Spain, Italy and Greece had to seek bail outs from the Troika (The European Commission, The European Central Bank (ECB) and the International Monetary Fund). In return for cash, these countries have had to follow tough austerity policies. Greece has been particularly badly affected. Its people have had to endure five years of sharp falls in their living standards.

Of course, governments won't admit that the need for austerity measures arise from a crisis in the market system. They usually blame their predecessors or the fecklessness of the working class. The last coalition government in the UK, for instance, blamed overspending and financial mismanagement by the previous Labour government.

Some have argued that if the rich were made to pay more taxes, we could avoid austerity. This misses the point that austerity measures are not just about improving the government's finances. It is hoped that by reducing the cost of running the state, and along with the fall in real wages that occur during a recession, the prospect of higher profits will encourage capitalists to invest more in production.

Movements have arisen which seek to challenge austerity. The Podemos movement in Spain, the People's Assembly in the UK and the Syriza coalition of different parties in Greece. In January of this year, Syriza were elected to office on a platform of rejecting Greece's bailout terms, opposing further cuts in public services and pensions and calling for debt relief. In response, Greece's creditors set out new bailout terms which offered no debt relief and would entail further cuts in public expenditure and reductions in pensions. On 5 July, 61 percent of those voting rejected these terms in a referendum called by the government. Despite this, Greece's creditors imposed tougher terms and after strong pressure from the ECB and other Eurozone finance ministers, the Greek government caved in and the new terms were ratified by the Greek Parliament.

In the UK, aside from the Scottish Nationalist Party, the Green Party, Sinn Fein and other smaller parties, Jeremy Corbyn, MP for Islington North and a contender in the current Labour leadership contest, has pledged to oppose austerity. Were he, in the unlikely event, to become Prime Minister and try to put his policies into practice, he would find resistance from the markets. Investors would require a higher rate of interest before lending to the Government and there would probably be a run on the pound. He would be forced to make a climb down.

What this era of austerity has clearly shown, particularly in the case of Greece, is that in capitalism human welfare does not only come second place to profits, but it sometimes has to be sacrificed to it.