Cooking the Books: A Thirst for Profits (2015)

The Cooking the Books Column from the April 2015 issue of the Socialist Standard

A study has confirmed that you can bring a horse to water but you can’t make it drink. Or, rather, its modern equivalent that you can reduce interest rates but you can’t make capitalist firms invest.

The study, published last year by three US business studies academics, found that over the period from 1952 to 2010 there was no consistent relationship between interest rates and corporate investment. Corporate investment did not go up when interest rates were low and did not go down when interest rates were high (LINK).

So, what did influence business investment? ‘It turns out’ said the press release on the study, ‘that healthy profits and stock prices are the strongest predictors of corporate investment.’ To Marxian socialists this is rather obvious: the capitalist economy is driven by the quest for profits; so capitalist firms invest when they consider that their investment will bring them a profitable return; an indication that good profitable investment opportunities exist will be that the economy is growing and that firms are already making good profits. Or, as the press statement reported the lead author saying:

  ‘“What corporations really respond to is what sort of profit outlook they face, and the general environment for growth,” Kothari says, noting that investment also closely correlates with gross domestic product growth. Practically speaking, the results make sense in that companies have more money to invest, more investment opportunities, and more pressure to spend from investors when things are good; all those factors dry up when the economy slows down.’

But there is a downside to this, as the study also found. When the profitable investment outlook is good, capitalist firms act as if this is not going to stop, with the result that they come to invest too much in relation to market demand, so provoking an economic downturn and a consequent fall in profits and profitable investment opportunities:

  ‘The research reveals that corporate executives have their own foibles, including a propensity to over-invest at exactly the worst time in the economic cycle. While profits and stock prices rise before a spike in corporate investment, both decline almost immediately afterward.’

The authors are at a loss to explain this apparently irrational behaviour:

  ‘The main reason for the negative relationship between capital expenditure spikes and business performance, Kothari believes, is a behavioural one: irrational exuberance. “As stocks and profits go up, corporations keep investing,” he says. “But rather than stopping at an appropriate point in time, they go a bit too far. If they had stopped at the right point, it could have been great.”

But is this behaviour – keeping on investing while the prospects for profit-making are good – really irrational? Capitalist firms are all competing against each other for profits. For one firm to stop investing when the profit-making outlook is good would be to risk letting its rivals take a share of its potential market. It is that that would be irrational.

In any event, how could capitalist firms know when to stop investing and, if they did, how could they reach a collective decision to all do this. Given the anarchy of capitalism they can’t do either. Once a capitalist horse has started drinking you can’t stop it.

50 Years Ago: Profits Before Life (1963)

The 50 Years Ago column from the May 1963 issue of the Socialist Standard

“The profits will not allow it.”

Rarely has the plain, tragic truth been so bluntly stated by a capitalist as on April 28th in the Westminster Coroner’s Court.

The Coroner was holding an inquiry into the “accident” that took place upon a building in course of erection in High Holborn.

Two and a half tons of iron was being hoisted by a crane “made to take three tons.” “Everything was brand new.”

Henry James Matthews a lad of 18, acting as a crane signalman, was killed as the result of the chain of the crane breaking.

After the poor lad's brother had given evidence, the Coroner called a member of the firm that made the chain.

After great difficulty the Coroner got the makers to give evidence. The secretary of the company that supplied it offered the Coroner some certificates, but said that he knew nothing about the chain itself.

The Coroner was forced to remark that “it seems a very casual way of doing things when a man's life is at stake.”

Finally a member of the manufacturing firm told the Coroner that he had been asked to attend “to listen to the evidence.” He was asked by the Coroner: “After testing do you go over the chain to see if there are any cracks?”

The answer was a remarkable indictment of this cursed system of society, for he said: 

“NO. THE PROFITS WILL NOT ALLOW OF IT”!

“ I am not talking about profits,” retorted the Coroner, “ I am talking about the safety of human life.”

After some further questions the Coroner was led to say: “You are perfectly well aware of what you are talking about. It is no use trying to befool me. You are trying to ride round the subject.”

A link of the chain was handed to the witness and he was asked why, although the link had snapped, it showed no signs of fracture. All he could say to the point was: “It shows no signs of fracture.”

The Coroner said that “looking at the surface of the link you can see it is not a fracture, and that the metal had never been properly welded.”

Frederick John Parkes, Factory Inspector, said that the quality of the workmanship of the link was very bad indeed and that the metal was defective. It had not been properly welded.

Even the representative of the building company had to confess that he “found the rest of the chain not perfect.”

(from the May 1913 issue of the Socialist Standard)

Branch News (1963)

Party News from the May 1963 issue of the Socialist Standard

The Annual Conference is over and now is the time when outdoor propaganda really starts, and what better aid for success in this field is to have available a big and well-produced Socialist Standard to help spread the word of Socialism. This May issue has been prepared with this end in view and if everyone who normally takes one or two copies each month, at least doubled that quantity we should have sold the whole issue. A well worth achievement!

Glasgow Branch is contesting the Municipal Election in Woodside during May and the Branch members with their usual enthusiasm have been busy canvassing and holding many indoor and outdoor meetings. It is hoped that this issue of the Standard will help them in their task.

The Mid-Herts Group founded last year has been holding meetings at intervals in homes of members. A regular meeting place has been obtained and a programme of lectures and discussions is planned. This summer, some members of the Group intend to help Paddington Branch in the running of outdoor meetings at Stevenage. An “Any Questions” meeting was held by the Group at Welwyn on April 3rd. This was well attended and very successful. Good literature sales and collection resulted.

The third meeting of the three-branch effort (Paddington, Bloomsbury and Ealing) takes place at the small Conway Hall, Red Lion Square on Monday, May 13th at 7.30. There is ample room and again the meeting will be Any Questions. It is hoped that refreshments will be available. Bloomsbury Branch is organising this meeting.

Please note the May Day meetings (on May 1st and May 5th), good support by members will mean good meetings. Members please co-operate and support the speakers.

The severe winter curtailed Wembley Branch Socialist Standard canvassing efforts, but with the better weather, the recent sluggishness and inertia have given way to renewed activity. The May Socialist Standard will have special attention, and several evening canvasses have been planned in addition to the usual ones at weekends. Again, in support of the Special number we have arranged a public meeting at Barham Park on May 20th. Subject—of course— “Housing”. Every branch member is asked to support this very important meeting and see that it is well publicised. There will at least be leaflets, distributed well in advance, and the usual local press adverts.

Other events in the offing are two propaganda trips to Southsea in June and August, a film show, and the opening of outdoor meetings at Earls Court alternate Fridays, commencing June. Full details will be announced as they are known. Watch the Socialist Standard for these, also for the dates and titles of future branch discussions and lectures (suspended recently to make way for Annual Conference business). Finally, well designed posters advertising the branch's regular meetings are still displayed prominently on two of the Wembley Railway Stations and we shall try to keep them there for as long as we can. Who knows, perhaps some of our many visitors will in future be disgruntled victims of Dr. Beeching’s axe.

We are receiving a number of enquiries from readers in North East England, and have also received two applications for membership. It has been suggested by members of Central Branch, living in the Newcastle-on-Tyne vicinity that a Discussion Group might be established. Would readers and sympathisers, interested in forming such a Group, please submit their name and address to the Central Organiser at H.O. so that the matter can be considered.

Phyllis Howard

Arguing with President Trump (2019)

From the World Socialist Party of the United States website

On February 5 our great flag-hugging president Donald Trump stood before Congress and delivered his State of the Union Address. Among other things he said:

  Here, in the United States, we are alarmed by new calls to adopt socialism in our country. America was founded on liberty and independence — not government coercion, domination, and control. We are born free, and we will stay free. Tonight, we renew our resolve that America will never be a socialist country.

Standing behind him, Ms. Nancy Pelosi, speaker of the House of Representatives and a Democrat, nodded vigorously in approval as he said this. President Trump was expressing a bipartisan consensus shared by most Democrats as well as Republicans. 

How would a socialist respond to this, if given the chance?

Was America founded on liberty and independence?

Very well, America was founded on liberty and independence. But whose liberty to do what? And whose independence from who?

The United States was founded by free English colonists who sought independence from the British crown and certain liberties or rights (such as the right not to be taxed without representation and the right to trial by jury). In other respects, however, full liberty and independence were enjoyed only by the wealthiest of the colonists. Then as now, many Americans were dependent for their livelihood on employers. Debtors were dependent on their creditors. 

What liberty or independence did the black slaves have? Or the white indentured servants, who paid for their passage across the Atlantic with seven years’ labor under conditions so harsh that they might or might not survive? Or the native people in the areas occupied or coveted by the colonists? After all, George Washington’s Revolutionary Army fought not only to free the colonists from British rule but also to conquer the tribal lands of the Iroquois League and Ohio Union. [See Barbara Alice Mann, George Washington’s War on Native America (University of Nebraska Press, 2009).]

So it is true that America was founded on liberty and independence – for some. It is equally true that America was founded on slavery, dependence, and genocide – for others.  

Are we free today?

How free are Americans today? Perhaps, as President Trump claims, we are all ‘born free.’ But as Jean-Jacques Rousseau observed: ‘Man is born free, and everywhere he is in chains.’ 

Slavery has been officially abolished, but many people still live in conditions not far removed from slavery: 2,300,000 in jails and prisons, others forcibly confined and drugged in mental hospitals, victims of human trafficking, illegal immigrants held at the mercy of their employers and working for very little or even nothing. 

The majority of the population – those of us who have to sell our ability to work in order to earn a living – can count ourselves at best partially free. How free are you if for at least 40 hours a week, or double that if you work two jobs, you are controlled by a manager or supervisor and ultimately by a boss? How free do you feel? 

Only those whose wealth and property income enable them to live in comfort without working for a boss can be considered truly free. President Trump, whose net worth is estimated at $3.1 billion, certainly falls into this category, as do Ms. Pelosi and the other 50 or so members of the congress addressed by President Trump who own assets of $10 million or more. President Trump’s meaning becomes much clearer when we realize that by ‘we’ he has in mind, mainly if not exclusively, he and his fellow capitalists. 

When is ‘government coercion, domination, and control’ bad?

President Trump’s denunciation of ‘government coercion, domination, and control’ seems to be at odds with the real policy of his government. Are we really expected to believe that the current US government never coerces, dominates, or controls, either at home or abroad? For example, when it imposes sanctions on Venezuela and freezes its assets in order to create a crisis that can serve as a pretext to bomb and invade that country and seize its oil and other resources, surely that has something to do with ‘government coercion, domination, and control’? 

No. Because it is mainly capitalists who need to be protected from government coercion, domination, and control. The Maduro government in Venezuela stands accused of trying to coerce, dominate, and control domestic and foreign capitalists. Economic and even military action to oust that government is not therefore itself ‘government coercion, domination, and control’ but action against ‘government coercion, domination, and control.’

By contrast, should a government agency try to stop a corporation dumping poisonous or flammable waste into the public water supply, thereby encroaching upon its ‘liberty and independence,’ that is a flagrant exercise of ‘government coercion, domination, and control’ – of capitalists. We may rest assured, of course, that no abuse of this sort will occur while the agency is headed by a Trump appointee.

Calls to adopt socialism?

What ‘calls to adopt socialism’ is President Trump talking about? Is it the World Socialist Movement that ‘alarms’ him? I suspect not. Our movement is not yet large enough to give him cause for alarm. He and his colleagues are probably discomforted by the fact that they now have ‘socialists’ sitting among them in Congress. Exactly how many ‘socialists’ is unclear. Only a handful of congresspeople openly call themselves ‘socialists.’ However, according to McCarthyite sources many more are closet socialists. One especially vigilant commentator claims that all 81 members of the Congressional Progressive Caucus are ‘socialists,’ ‘progressive’ supposedly being a codeword for ‘socialist.’ The uncertainty must be nerve-wracking for right-thinking congresspeople, who must worry about inadvertently smiling at a ‘socialist’ or even, God forbid, shaking hands with one. 

True, there is nothing new about having even an avowed ‘socialist’ in Congress: Bernie Sanders has been there since 2007. But they may have found it easier to tolerate a lone socialist. And an avuncular and urbane figure like Bernie presumably disturbs them less than the new crop of impertinent and combative young women, some of them with almost unpronounceable foreign names like Tlaib and Ocasio-Cortez.  

I am inclined to reassure President Trump that his alarm is premature. The ‘socialism’ of these ‘progressive Democrats’ is not of the full-bloodied kind, entailing the dispossession of the capitalists and the transfer of their productive assets to common ownership and democratic control. Their ‘socialism’ is of the milk-and-water variety – the ‘socialism’ advocated by groups like the Democratic Socialists of America, with which quite a few of the ‘progressive Democrats’ appear to be affiliated. 

It would be more accurate to call such ‘socialists’ social reformers. They accept world capitalism, with its world market and great power competition, as givens. They never even talk (at least in public) about replacing it with a new system. Their ideal is capitalism on the West European and especially Scandinavian model. They seek merely to regulate the worst abuses – destabilizing financial speculation, for example — and implement programs like ‘Medicare for All’ and a ‘Green New Deal.’ The most far-sighted capitalists recognize that such reforms would make the capitalist system more stable and sustainable.  

The trouble is that American capitalists, unlike their West European counterparts, have never had to accustom themselves to the presence of moderate ‘socialists’ in government (arguably with the exception of a few years in the 1930s under President Franklin Delano Roosevelt). They have not learned how to tame, manipulate, and work with such people. Especially in recent decades, with neo-liberalism in the ascendant, they have grown used to having everything their own way. The prospect that soon they may have to make a few compromises comes as a shock to them.

Nevertheless, the capitalist system has repeatedly shown itself quite capable of co-opting and absorbing ‘progressive’ social reformers. Will today’s social reformers prove an exception? We shall see. 

Stefan