"People's capitalism" — a fraud (1987)

From the February 1987 issue of the Socialist Standard

In the nineteenth century and until comparatively recently workers who were able to save deposited their spare cash in the Post Office Savings Bank and other savings banks and received a small but steady rate of interest on it. The present government has changed all that. At a cost of some hundreds of millions of pounds, including that of a massive advertising campaign, several million workers have been persuaded to become shareholders in British Gas and other formerly nationalised industries now privatised. The bait for the worker-shareholders is that the current stock-exchange price of the shares is appreciably higher than what they paid for them. There is of course no guarantee that the high share prices will last. Depending on the trading experience of the particular company and on the certainty that at some time there will be another big fall of all share-prices, the initial gain may disappear.

For the Tory Party the expectation is that many of these worker-shareholders will feel that they have an interest in voting for the Tories at the next election and on this ground alone the cost will be money well spent. But it has much wider implications, affecting as it does the question of the position of the working class in relation to capitalism.

The socialist case, in the words of our Declaration of Principles, is that society as at present constituted is based on the ownership of the means of living (land, factories, railways etc) by the capitalist or master class and the consequent enslavement of the working class, by whose labour alone wealth is produced. And that, therefore, there is an antagonism of interests manifesting itself as a class struggle, between those who possess but do not produce and those who produce and do not possess.

In the last resort the owning class depend for the protection of their privileged position on political power, their control of the machinery of government, including the armed forces. But from the time when the working class obtained the franchise and could determine the result of elections, the owning class and their tame philosophers and economists have devised all sorts of plausible theories to create confusion in the minds of the workers to prevent them from seeing capitalism as it really is. The aim of all the theories has been to deny the existence of a class struggle between possessors and non-possessors and to maintain that workers and capitalists are all members of society having the same interests, any differences there are being merely those of degree.

One of the theories dealt with savings. Adam Smith and Senior represented the way in which the capitalists accumulate capital as forms of abstinence and self-denial. As if there is really any similarity between the savings of workers with wages often little above subsistence, and the wealth and position of people with incomes running into hundreds of thousands of pounds a year. Sir William Ashley, an economic historian who knew about the way capitalism developed in Britain and who was an adviser to the Tory Party, wrote about that “abstinence" and "self-denial" theory in his The Economic Organisation of England (page 157).

Phrases like these have occasioned no little mirth: it is hard to discover self-denial or parsimony, as the world understands these words, in the processes by which modern capital is most largely accumulated.

But Ashley's recognition of the facts has done nothing to prevent modern apologists for capitalism from still using the arguments of Adam Smith and Senior.

Marx showed that the working class are exploited. The apologists for capitalism also use the term exploitation, but with a different meaning. For them only those workers are exploited whose wages are abnormally low. It is Marx's unique contribution to economic theory to show that exploitation takes place when the wages are what the trade unions would describe as "fair", that is wages negotiated with a trade union. The difference between Marx and the rest of the economists relates to what wages represent. The apologists for capitalism say (and a great majority of workers accept) that wages are payment for the workers' labour, so that a wage of £150 for a week is payment for, say, a 40 hour five day week. What the worker sells to the capitalist is not labour but his mental and physical energies, called by Marx, the worker's "labour-power". The capitalist pays to the worker a wage, which is the market price of labour power, and the capitalist then has the use of this labour- power. It is, however, the capacity of labour-power that it can create a value greater than a worker's wage. The worker in, say, three or four days, adds a value equal to the whole wage for the week and the rest of the week is unpaid labour for the benefit of the capitalist. Marx called this additional amount "surplus value", out of which come the industrialist's profits, the interest paid on any borrowed money and the rent of land where the factory owner does not also own the land. In this conception wages are prices, the price of labour-power, like the prices of other commodities bought by the capitalist. Only on Marx's theory is it possible to give a credible explanation of the sources from which profit, interest and land rent are derived.

If we accept the view that wages are fair payment for the workers' week's work, where do profits, interest and rent come from? So the apologists for capitalism have to invent other explanations. One was that the capitalist is paid for organising activities, in the capacity as manager of the enterprise. This had a certain plausibility, when the capitalists actually worked as managers of small firms. Marx pointed out that those capitalists were not owners of capital because they were managers, but were managers because of their ownership of capital. But it makes no sense in the modern world of big business where there may be tens of thousands of shareholders, none of whom ever sets foot inside the concern, and where all the managerial and organising functions are carried on by paid workers.

It is not even true that the shareholders as a body appoint the board of directors and therefore have ultimate control of company policy. In a typical big company, elections to the Board of Directors are not decided by the number of shareholders but by the size of their shareholdings. A company may have 20,000 shareholders but the huge shareholdings of a few individuals or, say, an insurance company can completely outvote the thousands of shareholders each of whom holds only a few hundred shares.

This puts into proper perspective the Tory myth that the creation of millions of small shareholders is going to change the structure and policy of British Gas and other such companies. The worker who withdraws a few hundred pounds from a bank or building society and buys a few shares instead, does not thereby become a controller of the company or enter into the ranks of the capitalist class. It will not make any difference to the fact that accumulated wealth of all kinds is concentrated in the hands of a small minority of the population.

Then there is the question, are not workers who own a few shares participating in the exploitation process? Are they not, in effect, capitalists? This is a very old issue. It was dealt with by Marx in Volume I of Capital, where he showed that the mere possession of a sum of money does not make the possessor a capitalist. For that, there must be present conditions enabling the money to be used for the employment — that is, the exploitation — of workers and for the accumulation of capital. (See Capital. Kerr edition. Vol I. Chapter XXXIII). And if the would-be capitalist is to be able to live above the level of a low-paid worker and not have to work in the business. Marx calculated how large is the sum of money needed to meet the cost of employing a sufficient number of workers and of providing the necessary means of production (pages 336-338). In relation to these realities of capitalism, the trivial sums of money received by workers as interest on savings, as profit on the sale of their handful of British Gas shares, or as dividends if they choose to keep the shares, are quite negligible. Of course these facts will not deter capitalism's academic hacks from pretending that in principle there really is no difference between owning £100 and being a multi-millionaire.

Where does the Labour Party stand on all this? They are among the apologists for capitalism. They reject Marx's theory of exploitation and deny that all forms of income from ownership come from surplus value, the unpaid labour of the workers. They made a quite indefensible separation between industrial profits on the one hand and interest on the other. Ramsay MacDonald once secretary of the Labour Party and Prime Minister in two Labour governments set out the theory in his Socialism, Critical and Constructive. Basing it on the writings of R. H. Tawney, MacDonald wrote:

When labour uses capital and pays it its market value, property is defensible: when capital uses labour and retains as its reward the maximum share in the product upon which it can keep its grip, property is devoid of a sure defence.

In line with this theory the Labour Party's "socialism" is capitalism as before but with the capitalist share-holders, now subject to the ups and downs of profit, changed into holders of government stocks providing a guaranteed fixed interest. Meanwhile the Tory government sets out to encourage an opposite change-over, replacing the workers' guaranteed interest on his savings with the ups and downs of profitability on company shares. Nothing to upset the capitalist class in either policy.

Edgar Hardcastle