Government works for the rich (1981)

From the January 1981 issue of the Socialist Standard

Any government which undertakes to administer the capitalist system is committed to do so in the interests of the ruling class as a whole. On the rare occasions when it is not considered to do so we can expect to see attempts made to bring it back into line. Generally speaking this is done fairly quietly, away from the public gaze, but if the soft approach is not successful, even a Tory government can have its knuckles openly rapped by its paymasters, the British capitalists.

However, despite the power they possess through their ownership of the means of life, the masters cannot quite do all that they would like. They are always looking to reduce real wages in order to increase profit margins, but have to consider the possibility of industrial action, and also to ask themselves whether the workforce could still operate sophisticated modern technology on reduced pay. For instance many US airframe companies — Boeing, Grumman and Northrop — operate non-union shops. Although this enables management to make unchallenged arbitrary decisions, these companies still have to pay high wages, especially to contract labour. They do not like to do this, but they have to in order to keep their present portion in the face of competition. Equally the capitalists would like a fairly large pool of unemployment to assist in keeping labour docile, but not if it means a decrease in productive effort. The unemployed worker is useful in curbing the wage demands of those in work, but it creates no surplus value and the dole which keeps him until he is next required is a charge on profits through taxation.

These considerations have influenced much of the domestic politics of post-war British governments — once called “Butskellism” after two Chancellors of the Exchequer, Rab Butler (Tory) and Hugh Gaitskell (Labour), who pursued almost identical policies in the early 1950s. During the period of exceptionally low unemployment which lasted, apart from a few brief intervals, until the 60s, the ruling class, while never really happy about the situation, gradually adjusted. The policy of deliberately inflating the currency ensured that the workers had to take the initiative and press for an increase in the monetary value of their wages in order to maintain their living standards.

Attacks on the “dangers” and “misuse” of trade union power also increased at this time. The theory that the Unions were “running the country” has at no time had any real basis, but clearly if they have some success in their function of defending living standards, so will the irritation of the capitalist class increase and attacks on the unions become more frequent. By the 50s it had become less common for a capitalist spokesman to openly call for an increase in unemployment, but frustration at the prevailing situation showed itself in attacks on “overmanning”, “feather bedding”, “restrictive practices” and “obtuse trade unionism”.

When thinking of how individuals, on taking office, tend to abandon their unacceptable (to the capitalists) views, attention is usually focussed on Labour Party leaders. MacDonald, Attlee, Strachey, Bevan, Wilson and others, considered “unsafe” prior to election, have in their turn followed polices approved by their masters. The play The Governor (stage, radio, television and film in turn) shows this process operating on an ex-docker who was appointed governor of a colonial island. Coming with “unacceptable” ideas, he had some initial success in small matters, for instance the food consumption at banquets was reduced. However, when a “crunch” situation developed in the form of a dock strike, he found himself in a position in which, despite earlier protestations, he saw no alternative to using armed force against workers. This kind of pressure can, however, be applied to “right wingers” also if required, and can be seen operating in the case of the present Thatcher administration. Interest groups normally among the most influential of Tory supporters are strongly criticising the government and insisting on a change in policy. The fact that this is being done so openly probably means that earlier, quieter approaches have been tried and resisted, in turn suggesting a more than usual degree of division.

Very few will need reminding of the most obvious difference between the present day and the 50s and 60s when “Butskellism” was the policy of successive governments. The effect of the present recession is more keenly felt because so many were deceived into thinking that this could not happen again. Other important changes have however taken place. To those capitalists whose wealth is bound up in North Sea oil the viability of other British industries is less important. Membership of the EEC has led some capitalists to see Europe rather than Britain as their economic unit. The City, the banks and the financial houses benefit from high interest rates and the strong pound and are always able to switch investments from the strugglers to more profitable concerns. These interests find the Thatcher policies acceptable and they are doubtless among those encouraging her to “stand firm”. They are among the keenest advocates of cuts in the workers’ living standards as they have less to fear from industrial disrutption due to strikes and lockouts.

In the Butskell days there was a widespread feeling that things could continue much as they were, with only minor modifications, and that everybody would gradually become better off. These thoughts could not of course continue into the present depression and they have been replaced by the opposite feeling — that we cannot go on indefinitely as we are, and that much more in the way of change is required. Particular frustration is expressed from the types who are forever bemoaning “the loss of the Empire” and, inevitably, “trade union dictatorship”. They are not in general even petty capitalists, consisting of a motley collection of retired colonels, hard-pressed “middle managers”, and so on. However they are almost all Conservative supporters and capitalist political parties require votes at election times. This frustration, and the feeling that changes must be made, led to support for a programme which the Tories presented as being significantly different from those previously pursued. In the United States similar tendencies have probably contributed to the election of Ronald Reagan and his entourage, who also say that they will make big changes.

Having been elected by the people who in the main wanted more “extreme policies”, it is not wholly surprising that the government claims to have attempted to carry some of them out. Unemployment had of course reached a high level already: now Thatcher says that her policies should be continued because “when recovery comes it will be a real recovery”. The real intention is to ensure that there is no return to the low unemployment of the 50s so that even at the peak of the next boom there will be enough out of work to keep British capitalism “fully competitive”.

Already we are seeing wage settlements well below price rises (“showing greater realism” is the current catchphrase), thus achieving what the previous Labour government had failed to do with their attempted 5 per cent limit. The government proposals to restrict trade union freedom of action can thus be given a lower priority. The statements that “we are determined above all to conquer inflation” are dishonest, for if the government, and many previous governments for that matter, had really wanted to tackle inflation, they could have done so by reducing the number of bank notes in circulation.

This government’s policies may be “wild” and “extreme” by recent standards but they are not as extreme, from the capitalist viewpoint, as they would have appeared it attempted twenty years ago. There are many items in the Thatcher package which British capitalists must approve, things which they have wanted to do for a long time but dare not while employment was “overfull”. The criteria which decide what is acceptable and what is extreme to the masters change with changing circumstances. But one thing remains unchanged. Capitalism, not the “moderation” or “extremism” of this or that government, is the cause of the recession and all the other problems which the system brings to us.

E. C. Edge

The life story of a labour careerist (1981)

Patrick Gordon Walker

From the January 1981 issue of the Socialist Standard

In every pouch and crease of his lugubrious face Patrick Gordon Walker — who died last month — was a flesh and blood discouragement of the idea that there is much joy in the life of a dogsbody of capitalist politics.

Much ponderous energy was invested in building his career, which at the end dissolved into catastrophe. He made a reputation in a number of unwanted ways —Foreign Secretary for only three months, and at that without a seat in Parliament; the loser of two safe Labour constituencies in rapid succession; an apparently helpless victim of an overtly racist election campaign. Wearily, his days were ended in the quiet obscurity of a life peer.

Child psychologists might look for an explanation of Gordon Walker’s career in his parentage; his father was both a Fabian and a High Court judge in India, which may have conditioned the young Gordon Walker into the reflexes of reconciliation so useful to anyone seeking to make their name in politics. Further conditioning came at public school and at Oxford, where he was a receptive student and later a history tutor.

After a wartime stint as a propagandist at the BBC Gordon Walker had learned enough to come into the House of Commons, at a by-election at the safe Labour seat of Smethwick. Almost at once he was made Parliamentary Private Secretary to Herbert Morrison, one of the dominant leaders in the Attlee government, and about a year later he was a junior minister at the Commonwealth Relations Office. That government was supposed to be leading a war-weary British working class to socialism and Gordon Walker came to the conclusion that this task would be better in the hands of Ernie Bevin. He joined with George Brown in a clumsy attempt at a putsch to replace Attlee with Bevin but when Brown, from his own account, cheerfully went off to tell Bevin to get ready to move into Number Ten, he was crushed by Bevin’s angry and contemptuous rejection. But the incident did not seem to injure Brown’s career, nor that of the more subtle Gordon Walker.

It was during Labour’s long years in the wilderness, while the working class were gratefully voting for one dose after another of Tory capitalism, that Gordon Walker established himself as shadow Foreign Secretary. George Brown was clearly hurt at this treachery by his fellow conspirator; he had wanted the job himself and did not take too kindly to the idea that anyone should double cross him:

  I had discussed with Gordon Walker what I was thinking of doing and had said that I was going to ask to be allowed to do Foreign Affairs. He gave me no indication that he was interested in the job himself. (In My Way.)

As it turned out, Brown might have had a narrow escape; Gordon Walker’s readiness to do anything led him into opposing the Conservative Commonwealth Immigration Bill of 1962. This was during a brief, bizarre period in which the Labour Party pretended that they were opposed to racism and were concerned for international unity. Gordon Walker seemed to be out of touch with his constituents, who at that time were actively seeking scapegoats for the stresses of Birmingham’s industrial and urban capitalism and who found them too readily in the coloured immigrants who had concentrated in some parts of the constituency. Their member’s pose as a man of principled opposition to racist laws was not popular where his votes came from.

By the time of the 1964 election the Tory campaign in Smethwick, orchestrated by their candidate Peter Griffiths, was well under way, playing upon baseless anxieties with slogans like “If You Want A Nigger For A Neighbour, Vote Labour”. Seemingly unaware of the full significance of what was .going on, Gordon Walker plodded stoically to defeat. After the result the TV men asked the unsavoury Griffiths what his maiden speech would be about. “Widows’ pensions”, nasally lisped the new member for Smethwick.

Of course, the workers of Smethwick were being quite unfair; Labour had stopped opposing immigration controls as early as January 1963, when they voted in the Commons for the continuation of the Commonwealth Immigration Act. In the election which cost Gordon Walker his seat their policy was clear: “. . . in view of the need to limit the number of immigrants entering Britain, immigration control will be retained.” (When Labour Wins, 1964.) And when they were in power, Labour were better than their word; they not only kept the controls but strengthened them. In this matter, as in most others, there was nothing to choose between Labour and the Tories.

Harold Wilson, however, was not to be deterred. He had appointed Gordon Walker as Foreign Secretary and, whatever the voters of Smethwick said, Foreign Secretary he would stay. In the House there was uproar as Wilson invited Tory leader Douglas-Home, famous for his bone-headed affability, to regard Peter Griffiths as a “Parliamentary leper”. Perhaps because he was so affable, Douglas- Home did not make the same suggestion to Wilson about some of his supporters — like Ray Gunter —who were pressing for tighter immigration control, nor about the Labour clubs where, as zealous sleuths from the press revealed, coloured people were either banned or frozen out. What would Hugh Gaitskell — who in a sense had started it all by suggesting that the Labour Party was on to a good thing by opposing the Immigration Bill —have made of it?

Doggedly, Wilson propelled his Foreign Secretary towards what was to be his great defeat. First, Wilson forced Labour MP Reg Sorensen out of his comfortably held seat at Leyton and into the House of Lords so that Gordon Walker could fight the by-election there. Sorensen, who had built up a strong personal following at Leyton, did not want to go. When the by-election came, the MPs had just put up their pay at the same time as the government were insisting that an increase in pensions would have to be delayed for some months — hardly the sort of propaganda a government of capitalism thrives on. There was a lot of anger at the railroading of Sorensen and the stigma of Smethwick was still perceptible about Gordon Walker. Less than 60 per cent of the electorate voted and Gordon Walker converted a Labour majority of nearly 8000 into a Tory one of 205.

George Brown, trying to reconstruct British capitalism at his Department of Economic Affairs, was annoyed at the reshuffle caused by the Leyton result: “If Patrick Gordon Walker”, he commented sniffily, “Had done us the favour of holding Leyton and thereby remained Foreign Secretary, there would have been no shuffle just then . . .” It was in effect the end of Gordon Walker’s career. Wilson gave him a few odd jobs, like going on a “fact finding” tour of the Far East with special emphasis on Vietnam. Whatever “facts” he found there did not persuade the Labour government to stop supporting the war; the best he could think of to say was that in Vietnam “. . . there could be neither victory nor defeat . . ." And when he wrote that he was not thinking about the workers and peasants on both sides who were dying and suffering in Vietnam, in the cause of their master classes. Although he came back to the Commons in 1966, and held some government posts, Gordon Walker’s ambitions were at an end. It might have been a relief to him, to be made a life peer in 1974 and to join all those other Labour lords whose leathery intellects provide a convenient, protective distortion of historical facts.

They must need it; there was nothing in the career of Gordon Walker, nor of the governments of which he was a member, to justify any pride or even satisfaction. The crises of capitalism swamped those governments just as they have all governments; Labour ministers contested with workers over wages and working conditions; they supported — and sometimes engaged in —the wars of capitalism and their immigration policy was as restrictive as it needed to be, to persuade racist workers to vote for them. It was a sordid story, summed up in a Fabian Society study of Labour in power (Labour And Equality, 1980) by Peter Townsend: “. . . people in all parts of the Labour movement . . . did not want to believe that their expectations had not been fulfilled because that would have threatened life long political beliefs.”

The lesson for the Labour Party from Gordon Walker at Smethwick and at Leyton was not to stand for political principle, not to struggle against anti-working class prejudices, not to campaign for an international unity of workers for a happier, saner world. The lesson they applied — for they had learned it a long time before —was to protect their votes by pandering to political ignorance and to prejudice, to fashion their policies not to help workers understand society but to accept a degraded position in it.

Workers who don’t understand capitalism are easy prey to any prejudices; it is, they think, simpler to turn upon a scapegoat rather than to examine their problems for their cause. Such people are the very stuff of Labour support; the Labour Party dare not encourage them to an awareness of their class interests because that would be suicidal for them as a party. So if that ignorance sometimes recoils upon them, as it did in the case of Gordon Walker, they have no grounds for complaint. Only the innocent can protest; and in the desperate history of capitalism none can bear more guilt than the Labour Party.

Ivan

Facing The Music (1981)

From the January 1981 issue of the Socialist Standard

A few months ago the BBC faced a boycott by members of the Musicians Union unless it dropped plans to axe five orchestras. The walk-out of 41,000 men and women meant that top rock and pop stars would not appear and no freelance musicians would work on the radio or TV.

Among criticisms of the BBC’s action was the following from Radio Times: “Fleet Street still exists: many feel that the production of live music adds more to the quality of life than the constant purveying of doctored news of wars, disasters, crimes, etc. from every part of the world . . . If we are to have cuts, let’s see the back of the rubbishy Radio 1 disc-jockies. For young musicians who study every day to achieve an ambition in music, the disbandment of five top orchestras casts yet another shadow over the grim prospects of the big, bad world outside.” In reply, the Director-General of the BBC, Mr Trethowan, pointed out that some people who disliked pop had urged the abolition of Radio 1, but that this had the largest audience of all radio networks. “Its programmes are by far the cheapest”, he said, “and now we have more orchestras than we need”.

So what of the often-heard statement that devotion to work and study leads to the fulfilment of one’s potential? Well, you can get a professional training at the colleges of music —at a price. Promising kids are brought along providing their parents are well enough off, and frequent examinations and concerts by National Youth Orchestras are held at the “Royal Schools”. This doesn’t square at all with the promise of 1964 when a minister with responsibility for the Arts was established. At that time the government declared that its role was “not to dictate taste or to restrict the liberty of even the most unorthodox and experimental of artists”.

What sort of life is it, then, for the ten per cent or so of those who pass the candidate’s examinations at colleges of music? Like most workers, the musician experiences more downs than ups. In the 30s and 40s players slept in freezing railway stations or in the halls where they had played. In 1943 they won pension rights but in the mid-fifties the London Philharmonic became insolvent and the players lost their pensions and their contracts. In 1971 they got government grants—17 per cent of the budget—but still had no pensions to look forward to. The cuts of 1980 have been the last in a series of blows. Capitalism pays the piper and calls the tune.

Charles Kincaid

‘Militant’ Confusion About Inflation (1981)

Pamphlet Review from the January 1981 issue of the Socialist Standard

The West London supporters of Militant (the Trotskyite group which still believes in infiltrating the Labour Party) have recently republished a pamphlet, which first appeared in 1977, entitled Inflation and the Financial System.

It begins by explaining, using arguments first developed by Marx in Value Price and Profit, how a rise in wages leads to a decrease in profits rather than an increase in prices and goes on to draw the correct conclusion that

  “since we have a paper currency which is not convertible into gold, inflation is caused by the printing of paper money in excess of the actual requirement of circulation.”

So far so good—very good in fact. Things start to go wrong, however, when the pamphlet discusses credit. After explaining how the modern credit system originated in the discounting of trade bills issued by capitalist enterprises to overcome the cash problem that would otherwise have arisen out of the time-lag between production and sale, it goes on

  “So far we have assumed that the banks, the main lenders of money, have only lent money which actually exists in their vaults in the form of deposits so that total, overdrafts are never greater than total deposits.”

This was a valid assumption, since how can a bank lend money it does not have? But we are then told:

  “Actually this is not the case. Banks found at a very early stage in their development that much of the money deposited with them lay untouched from one year’s end to another. As the main holders of money in society people had full confidence that if they allowed a customer an overdraft the money actually existed in the bank to back it up. As the main holders of money they were sorely tempted to base themselves on this confidence to lend out more money than actually existed in their vaults.”

This is absurd. To talk of banks lending out “more money than actually existed in their vaults” and, later on, of them lending “much more than they borrow” is to indulge in the purest currency crankism. It is Alice-in-Wonderland economics.

Banks are intermediary financial institutions which make profits by borrowing money at one rate of interest and then re-lending it at a higher rate. They can only lend what has been deposited with them (less in fact, as we shall see) and possess no magical ability to lend “extra money conjured out of nowhere”, as the pamphlet puts it.

It is quite true that banks do not have to retain all the money deposited with them in the form of cash. If they did, they would never be able to make any profit, since it is only by re-lending, at a higher rate of interest, the money they have in effect borrowed from their depositors that they make profits. Experience showed that, in normal times, they needed to retain only about 10 per cent of the money deposited with them as cash to meet the withdrawals their depositors were likely to wish to make in any period of time. The other 90 per cent was thus available for re-lending and it is this that is the’ source of the money loaned by banks.

Of course, if for some special reason depositors wish to withdraw as cash more than 10 per cent of what they have collectively deposited, then the bank is in trouble. The extra money won’t be there as it has been lent out, or rather it exists but as a loan and not as cash.

This proportion of deposits which must be retained in cash form is known as the “cash ratio”. In Britain, the Bank of England required, until a few years ago, the Big Four clearing banks (Midlands, Lloyds, Barclays and National Westminster) to maintain this ratio at 8 per cent. Now they are required to maintain a “liquid assets ratio” of around 30 per cent (see later).

Militant’s West London supporters have completely misunderstood what the cash ratio is. If this ratio is 10 per cent, it means that for every £100 deposited the bank must retain £10 as cash and that the amount available for lending is £90. It does not mean that the bank, on receiving a deposit of £100, can retain all of this as its cash basis and lend up to the amount of which £100 is 10 per cent, or £1000.

If banks could lend £1000 for every £100 deposited with them then there would be virtually unlimited credit. The Militant supporters believe that this could in theory happen but argue that the government intervenes to impose a limit: the liquidity ratio we have just mentioned. This is the proportion of assets which has to be held in “liquid” form, which can be very quickly converted into cash. The liquid assets which in Britain go to make this up are, besides the 8 or so per cent held as cash (notes and coins and non-interest bearing deposits with the Bank of England), so-called “money at call” lent to the Discount Houses on a daily basis and Treasury Bills nearing maturity.

The other assets of banks in Britain consist of what are called in banking circles “advances” and “investments”. Advances are loans made to capitalist enterprises and to private individuals. Investments are the banks’ holdings of long-term government bonds. It is clear that Militant’s West London supporters think that the government bonds held by banks serve as backing for the loans they) make:

  “Since the ‘liquidity ratio’ is 28% and since government securities count as a backing asset for every £100 of gilt-edged the banks buy they can issue about £350 in overdrafts and make money out of them as well.”

Here in black and white is the mistake we mentioned earlier over the cash ratio though in this case it is about the liquidity ratio. For the “about £350” is amount of which £100 is 28 per cent. Just as a cash ratio of 8 per cent means that 8 per cent of the money deposited with a bank has to be retained as cash, so a liquidity ratio of 28 per cent means that 28 per cent of deposits have to be held in liquid form. In neither case does it mean that the amount a bank can be lend can more than has been deposited with it.

In any event, the proportion of “investments” (government bonds) to “advances” (loans, overdrafts) is not the 28 per cent liquidity ratio as the pamphlet seems to suppose, but is a quite different ratio which varies depending on the higher interest rate is to be got from holding government bonds or from lending to firms and individuals.

Since the Trotskyites are so confused on other issues (Russia, leadership etc) it comes as no surprise to us that they am confused about money and credit too. In fact we fail to understand all the fuss earlier this year about the “Militant tendency” being in the Labour Party. In view of their confusion we would have thought that the Labour Party was good a place as any for them to be.

Adam Buick

Editorial: Gulf Crisis (1998)

Editorial from the January 1998 issue of the Socialist Standard

Last month’s Gulf crisis demonstrated once again that the alliance for the Gulf War effort has effectively crumbled. Saddam Hussein expelled US/UN weapons inspectors from Iraq leading to the US, supported by Britain, threatening military action. But states such as France and Russia sought to undermine their stance–culminating in Russia offering Iraq a diplomatic way out of the crisis.

Since the end of the Gulf War the sanctions imposed on Iraq have really taken their toll on the Iraqi economy and the working class. This, of course, could potentially threaten the regime and Saddam needs to get the sanctions lifted as quickly as possible realising that the Gulf War alliance has ended and that any crisis would create a split between states such as France and the US. His ability to play off one against the other worked as once again the desperate Iraqi situation has been put on the agenda with France and Russia (amongst others) keen to bring Iraq into the world economy and moreover to provide capital to invest in Iraqi oilfields.

And here is the rub. The Gulf situation is just an expression of the competitive rivalry between the major powers in the age of “each against all”. By keeping Iraq as a “bogeyman” it allows the US a legitimate interest in the region. It’s always worth remembering that just prior to the Gulf War Iraq was backed as the region’s policeman–primarily to contain Iran. Despite everything, this is still the case. The US needs Saddam and has no intention of getting rid of him. The US strategy is one of keeping Iraq weak but just strong enough to handle any internal or external threat to the regime.

The idea that the US–backed by Britain–is the true defender of democracy against dictatorship, of civilisation against barbarism, is the sickest of jokes. Saddam could not have survived without the protection of the world’s largest gangster organisation–the United States. And just as in the Gulf War it is the impoverished and half-starved Iraqi working class that has paid the price. Like the working class everywhere it has no friends either in barbarian dictators or their supposedly “democratic” and “civilised” opponents.

Voice From The Back: The cost of living (1998)

The Voice From The Back Column from the January 1998 issue of the Socialist Standard

The cost of living (1)

A Smethwick woman who was heavily in debt plunged 100 feet to her death from a tower block flat seconds after council bailiffs called to evict her. (Evening Mail, 5 November.) Police and Sandwell Council officials said that the woman owed nearly £1,500 in rent arrears alone and her death was being treated as suicide. Council bailiffs discovered the woman’s body outside the Ashcroft tower block off Windmill Lane, Smethwick, after forcing the door of her 11th floor flat to evict her.

The cost of living (2)

Diamonds are supposed to be a girl’s best friend, but they are also a cat’s. (Daily Telegraph, 7 November.) Leah, a lilac Burmese, has just taken delivery of a £20,000 diamond-encrusted collar.The collar, of 40 diamonds on a 24 carat strip, is a gift from her owners, David and Jill Atkinson. They initially contented themselves with a diamante version, but then became convinced that a cat raised in luxury at their home in Pendle, Lancs, would quickly realise it was a fake. There was also the fact that Leah’s canine companions, two afghans, a borzoi and a black labrador, had £2,000 coats.

For the record

A recent study by the Institute of Fiscal Studies, Inequality in the UK, says that on virtually any measure poverty has increased dramatically over the past two decades, hand in hand with affluence for some.The richest 10 percent of the population now enjoys the same level of income as that brought home by all the poorest half of the country’s households put together.

The peacekeepers

When the UN went to war against general Mohamed Farrah Aidid, between June and October 1993, American helicopters fired on hospitals, houses and civilian crowds, killing hundreds of unarmed people. After an attack in which 71 died, the head of the UN mission, Admiral Jonathan Howe said, “We knew what we were hitting: it was well planned.” When Alex de Waal challenged a US military attorney on these points, his answer was that the Geneva Convention did not apply to UN forces, on the technicality that the UN itself was not a signatory to the Convention (Guardian, 30 October).

The market lures, ko

This brings us to the Eighties and Nineties. For the first time this century, investing truly became a one-way bet, regardless of when the investment was made. Due to this incredible rally, price-earnings ratios rose to abnormally high levels. Dividend yields, which is how the City relates the size of the dividend to the price of the share, hit abnormally low levels normally associated with the start of a stock market collapse. In the past, such excesses were always followed by a large drop. But financial commentators invented fanciful theories such as “new paradigm”, high productivity and global competition to suggest that this would not happen this time. Last week it did so (Financial Mail on Sunday, 2 November).

Where now?

Perhaps Ecstasy doesn’t make you depressed; perhaps stress and frustration are just symptoms of late 20th-century living. And at least Ecstasy provides a temporary escape route. But when kids are smoking puff by 14 and dropping pills by 16, they may also be disillusioned by 19 or 20. And if the Ecstasy dream really is over, if clubs are no longer our temporary utopias, if the drugs really don’t work any more, where do we all go now? (Big Issue, 3-9 November).

Stifling protest

Last summer, a new import from the USA reached these shores: ”strategic law suits against public participation BP launched a lawsuit against Greenpeace for the £1.4 million it claimed it had lost as a result of the group’s occupation of a test-drilling rig near the Shetland islands. If the organisation would not pay, BP said, it would hold three members of Greenpeace’s staff personally liable. American companies tend to charge protesters with defamation, conspiracy or criminal liability, and the cases can drag on for years.The courts often dismiss them, but the legal costs and the charges themselves are increasingly enough to deter protesters and stifle dissent. This is why they are popularly called “strategic” law suits. Big corporations, like McDonalds in their suit against the two campaigners, can afford the costs. Reformists can’t.

Very fishy

A report published recently by the Ministry of Agriculture, Fisheries and Food found that taking cod liver oil at the recommended dose would more than double the exposure to dioxins and PCBs for toddlers, school children and adults. (Earth Matters, Autumn 1997.) But the MAFF report concluded that despite its findings, it was still “safe” to take cod liver oil. Dioxins and PCBs are not only carcinogenic but have been show to disrupt our hormonal systems.

Only kidding

Even as Tony Blair is calling on Britain to become a “beacon for the world”, the Guardian (2 October) reports that quite legal orders are being taken in a Hampshire town for UK-made mortar launchers, voice-print truth phones, grenades, disrupter cannon, carbon dioxide guns, explosives, “blunt trauma vests” and civilian surveillance systems.

That Sinking Feeling (1998)

From the January 1998 issue of the Socialist Standard

If there is one thing that the current British Chancellor and his predecessor are agreed about it is that Britain currently enjoys the most favourable economic conditions witnessed in decades. Around the wider developed world, economists and politicians of various kinds have been speaking of the dawn of a new golden age, based on an economic and cultural paradigm shift never previously encountered.

Anatole Kaletsky in the Times has summed up this prevailing economic orthodoxy well:

  “. . . new paradigm theories can be divided into two quite separate kinds. One type asserts that the long-term sustainable rate of growth in the American (or British or world) economy has increased because of globalisation, technology or some other exogenous boom. The other type claims nothing about the trend rate of growth, but merely says that economies can now operate at lower levels of unemployment than in the 1970s and 1980s without inflation getting out of control” (12 September)

The first of these theories is the most exciting, but at the same time, the one that is most obviously and demonstrably false. No-one who has examined growth statistics for the major capitalist states since World War Two could possibly think otherwise unless their job was to provide propaganda and not dispassionate analysis. Growth statistics for the world’s oldest capitalist state–Britain–and for the world’s largest economy–America–give the lie to this misleading propaganda straight-away, demonstrating a post-war trend observable in most other major states too. The long-term growth rate for the major world economies has not been rising–it has been falling fairly steadily. This is illustrated in the table below:

In what are now the European Union countries annual GDP growth averaged nearly 5 percent in the 1960s. During both the 1970s and 80s this had fallen to under 2.5 percent. This decade it has so far been barely 1.5 percent.

Much has been said about the now dilapidated state of many of the so-called “tiger economies” in recent weeks. Falling growth rates in Japan are a good illustration of the underlying difficulties that are now rising to the surface in the entire Pacific Rim. Japan’s heady 1960s annual growth rate of 10 percent had declined by the 70s and 80s to the 3-4 percent range. Average annual growth so far in the 1990s is under 1.5 percent.

The world growth rate has also fallen, though not by as much as in the major economies because of the comparatively sharp growth of some the remaining Asian states and a handful of developing states in Africa and South America. It is these states which have been able to undercut the major economic powers in the production and sale of many primary and manufacturing products, largely because of the subsistence wages paid to the working class there.

Prices

The idea that the major economic powers can now operate at lower levels of unemployment before inflation takes off is also incorrect. It is in part based on the erroneous belief–introduced into bourgeois economics by the “Phillips curve” analysis beloved of economics students everywhere–that somehow a trade-off exists in the capitalist economy between unemployment and price rises. This was in actual fact an analysis discredited in the 1970s and which is no more relevant now than then.

Persistent price rises in the capitalist economy occur when the government pushes more currency into circulation than is warranted by increases in real growth. In other words, more token representatives of value are pushed into circulation than new value actually produced. Under the influence of John Maynard Keynes economists and governments across much of the world since the Second World War have persistently issued an excess of currency, leading to rising prices year on year. Coupled with the massive oil price hikes this led to particularly large price rises in the 1970s and 80s. Price rises in the 1990s have tended to be more modest on average. This has principally been a product of the world slump and the massive indebtedness still overhanging the world economy, which has acted as a drag on accumulation. If it was not for the continuing process of currency inflation going on in countries like Britain, prices would actually have been falling not continuing to rise slowly. In effect, currency inflation has outweighed what would have been the negative effect on prices during the slump. (A similar process took place during and after the 1974-5 slump and then 1980-2). This time, the amount of unliquidated debt is so huge that the overall price level, relatively, has only crawled upwards, while some prices such as in the property market, have fallen significantly.

Unemployment rates

The view that unemployment rates are somehow lower now at each peak of the economic cycle is pure fantasy. Unemployment across the EU is currently running at about ten percent. This is not historically a low figure. Compared to the 1950s and 60s it is positively astronomical. The countries most successful at reducing unemployment have co-incidentally been the countries which have made the most significant changes to the way in which the unemployment total is calculated. These are the United States and the UK. After 30 changes in the UK alone since the mid 1980s the claimant count is now significantly lower than the unemployment total otherwise would have been. The official unemployment figure is just under 1.5 million at the time of writing, though the real total is commonly estimated as being 150,000-300,000 higher (some put the true figure much higher still). To put this into perspective, when unemployment rose to over 1 million for the first time in the UK in the post-war period, during the early 1970s, there were mass demonstrations across the country.

Huge numbers of the jobs actually created in countries like the US and UK have been part-time or short-term contract jobs. In the US in particular, millions of part-time jobs have been created while the take-home wages of huge swathes of the American working class have declined even on their levels of 20-5 years ago.

Paper tiger

There has, of course, at least until recently, been the dynamism of the so-called “tiger economies” in the Far East for the supporters of capitalism to point at. They do not seem to be pointing in their direction at the moment, however. The growth of these economies has been very real and much that has been said about them is true–or at least was. The problem is that no capitalist state can seriously expect spectacular, or even uninterrupted growth, in anything like the long-term. The history of the capitalist system demonstrates that a time always comes when the drive to expand production and profit in some sectors of the economy comes up against the limits of the market at any one time. The difficulties created by excessive and disproportionate growth in these sectors can be papered over for a time by the extension of credit. This is stored up capital gleaned by the financial institutions from previous circuits of production and which can then be redistributed and used as an advance against the sale of future commodities. It is, in effect, an advance of stored-up value against the anticipated production of new value.

The advance of credit mostly keeps capitalism running smoothly and speeds up greatly its circuits of production. The problem arises when–as always happens as the boom reaches its peak–credit is being advanced effectively as a life-belt to those enterprises in serious difficulties because they have produced too much for their available market. The more credit is advanced, and the longer this process continues, the more serious the necessary “correction” will have to be. If financial institutions keep extending credit to unprofitable enterprises, they will all go under, not just the latter. This is what has happened in the Far East.

The bubble burst initially in the regions strongest economy, Japan, at the turn of the decade where the stock market fell by over 60 percent, property prices collapsed and where short-term interest rates were reduced to 0.5 percent in a futile attempt to stimulate economic activity. But still the banks and brokerage firms ploughed money into essentially unprofitable schemes and enterprises. The result has been, after a period of apparent abatement, bank collapses and failures among the brokerage houses. Japan’s fourth largest brokerage house, Yamaichi, recently collapsed with liabilities estimated at $24 billion, followed by Japan’s seventh largest bank. Several other banks and securities firms are reported to be in severe financial trouble.

The same difficulties that have beset Japan have spread alarmingly among the other Far East economies, particularly Malaysia, Thailand, Kong Kong, and worst of all, South Korea. The financial bubble in these states, which has been an integral part of the so-called “Asian Way” of economic development, is now exacting its revenge. Legendary Morgan Stanley investment strategist Barton Biggs has summed up the situation beautifully:

  “The heralded Asian Way is something of a joke. The Asian Way, it turns out, has a lot less to do with education, hard work and family values and a lot more to do with pegging your currency, borrowing a lot of money in dollars, plowing it helter-skelter into relatively unproductive capital investment and real estate projects of dubious merit owned by the elite, corrupting your politicians by involving them in the stock market bubble and assuming everyone is going to live happily ever after” (Guardian, 24 October).

Ridiculously overvalued stock markets in Asia and in many other parts of the world are a reflection of the fact that financial speculation and growth in stock market investment bears no real relation to value production in the real economy. The stock markets may have boomed, but the productive economy has not entered into some golden new period, has not experienced a ‘paradigm shift’ and has not been able to supersede the boom-slump cycle.

At some time the world financial bubble will burst, bringing stock prices back into line with the slothful realities of the productive sphere of the economy. Stock markets growing at 20 or 30 percent annually when growth is barely two or three percent (and real manufacturing growth less still) is simply not something that is going to last. Sooner or later–as on all previous occasions–there will be a correction. Whether the situation in the Far East will be the catalyst for this process or not is impossible to say. What can be said with a fair degree of certainty, however, is that the more the fault lines are papered over and hidden, the greater the eventual damage will be.

Dave Perrin

Chinese capitalism (1998)

Book Review from the January 1998 issue of the Socialist Standard

‘Chinese Provinces in Reform’, by David Goodman (ed). Routledge, 1997.

One consequence of the change from state capitalism to a mix of state and private ownership that has been taking place in China over the last few years has been an increase in decentralisation. There is now more political and economic decision-making at the provincial level—but since many provinces have a population of over 40 million, this means it is still a long way from local policy-making. It is the aim of this book to study some of the differences in political and economic impact of the reforms in various parts of China. Through the thicket of statistics and acronyms, some interesting points do emerge.

Provinces in the north have generally received less in the way of investment from abroad than southern provinces which are nearer to overseas markets. Liaoning, for instance, has a lot of state-owned heavy industry which is inefficient and has large debts. Some such factories have been made bankrupt, and since unemployment pay and pensions are basically provided by enterprises rather than the state, past and present workers inevitably suffer. In other state-owned factories which provide accommodation for workers, flats went unheated in the winter because the companies could not afford to buy coal. No wonder there were some (small-scale) demonstrations by workers. But the coastal city of Dalian has become a centre for Japanese investment: it is only four hours from Tokyo by plane, and offers cheap and well-qualified labour—some companies like Canon and Toshiba have set up factories there.

Shanghai, the largest city in China, in effect has provincial status on its own. Between 1990 and 1994, over half a million people there lost their jobs in state companies through redundancy. A kind of unemployment benefit has been introduced, but it is not enough to support a person. So inequality has increased noticeably, with the other end of the scale perhaps being marked by the one percent of Shanghai’s population who have mobile phones. Interestingly, though, there are not yet enough wealthy consumers there to support up-market department stores.

But no doubt, as China’s private capitalist class expands, there will soon be a Harrods to satisfy their whims.

Paul Bennett

“Their Country Needs You” (1998)

From the January 1998 issue of the Socialist Standard

At the moment we have adverts appearing on television, encouraging young people to join the armed forces, each one portraying the state killing machine as a force for worldwide benevolence.

The Air Force’s advert, which contains the above slogan shows scenes of helpless civilians, clearly meant to be in the former Yugoslavia, being helped by a British air force aid drop. Isn’t it lovely? “Join the Air Force, save the world.” But let’s look further into what the armed forces really are doing in the former Yugoslavia, and exactly how benevolent the military presence there is.

First, we have to penetrate the fog of media obfuscation and deceit on these matters. There are two big lies, that mutually reinforce each other. The first is the idea that the people of Bosnia are like mad dogs, driven by centuries of ethnic tension to hate and kill one another, and that it was only the suppressing force of the Titoist dictatorship that stopped this war from erupting sooner. How often have we seen British journalists on our screens resignedly despairing at the war, and wondering how people who used to be friends and neighbours could suddenly turn upon one another, and perpetrate such gross atrocities? How often have they glibly explained it away as part of ancient ethnic hatred, spreading back to the Middle Ages? This hides the real cause of the war, and thus protects those truly guilty from facing the accusation of responsibility.

The Second Big Lie follows on from this: that the only way to bring peace to the region was to return a suppressing force, and to enforce a deal upon the peoples there, a benevolent military intervention with the sole aim of bringing peace and rebuilding the devastated region; that “we” are only interested in helping the poor and afflicted of the region, and “our” military presence is a truly selfless act (just as the US invasion of Vietnam was a selfless act to bring peace and freedom there); their country literally does need us, and without us the mad dogs will be at one another’s throats once again.

Local power elites

To dispel the first lie requires a simple examination of the recent history of the former Yugoslavia. In the early eighties Yugoslavia was a relatively prosperous state-capitalist country, with strong, functioning federal institutions, and a decent welfare state. However, its economy was on the wane, and so it was forced to take an IMF loan, which came with an accompanying economic restructuring scheme that involved selling off state assets. Repaying the loan and meeting the interest payments meant that the state had to cut back on welfare benefits, as we have seen happen in so many other countries.

Many workers went without wages, the welfare institutions began to crumble, and as industry after industry began to falter an increasing proportion of the working population found themselves unemployed, leading to a strong degree of discontent. These are precisely the conditions in which hatred can find a good breeding ground, as desperate workers search around looking for someone to blame for their misfortune.

This situation need not have developed into war since working class hatred does not lead to war, it is the conflicting interests of the ruling classthat does this. As Yugoslavia became more and more impoverished the Federal government had less and less money, and began to deny funds to the regional state governments–a clear threat to the power elites of each of those states (since the power elite in a state capitalist country is dominated by the political bureaucracy, which relies on this money for its economic and power base). Economic impoverishment, plus a denial of their source of power, left the political elites with little room for manoeuvre. They hitched a lift onto growing popular discontent, and used the helplessness and despair of the workers to their own ends.

The spate of nationalist secessions (some of which worked to the favour of Western capitalist interests, such as Germany, which hastened to recognise the breakaway Croatia) brought the local elites into open competition for the region’s resources, and as is often in capitalism competition escalated to its ultimate expression, warfare. The so-called ethnic war in Bosnia was essentially a war over property (as all nation states are just an expression of property).

None of this in itself proves that the West is being anything less than benevolent by intervening in Bosnia. There are however, three very strong reasons why this intervention is based on more that simple kind-heartedness.

First, the need for regional stability. The chaos and potential danger of the Balkan war escalating and dragging other people in was too great. The potential for having even more refugees coming across the borders and flooding into Europe was too much for our masters to bear. As long as the region remained unstable and politically tense it was a threat to the local markets, and to our masters’ sources of profits.

Second, there are the power games of our masters: imperial spheres of influence. Each imperial nation/bloc has an area that the others recognise as its zone in which to operate, and traditionally Yugoslavia and eastern Europe has been the stomping ground of the USSR/Russia. Remember the way in which President Yeltsin warned against NATO military intervention? This was an area where his bunch of capitalists were supposed to be in charge. The US, however, have long had a policy of penetrating their influence into Eastern Europe, and since 1980, particularly Yugoslavia. In this respect the Western occupation of Yugoslavia is beneficial more to the US world political hegemony than it is to the inhabitants of that country.

Third, there is the usual and most elemental reason for any activity by capitalist powers: profit. As noted above, the Yugoslav economy had collapsed, and was now open to penetration by Western capital. Most of the former Yugoslavian states are heavily in debt, in fact Bosnia and Croatia will be heavily in debt until the middle of the next century, becoming debt-slave nations. British forces have been sent in to re-enforce Western entry into that sphere of influence, and guarantee their markets for British business.

Occupation

Bosnia is now effectively under Western occupation. The fig leaf of Bosnia’s democratic procedures falls apart very quickly under any form of scrutiny and shows itself to be an even greater pretence than elsewhere. Whilst there is a parliament, the supreme arbiter on the Dayton agreement, and therefore of any executive decision in Bosnia, is the Western appointed High Commissioner. Further, as part of the enforcement of the Dayton principles, foreign police (the IPTF–International Police Task Force) are being used rather than locally accountable forces. When a country is ruled by an appointed foreign bureaucrat, and their laws are enforced by foreign police, most people would call that colonial rule.

The amount of imperial penetration into Bosnia is even greater, because the local ruling class has been stripped of control over its own economy: all the financial institutions of Bosnia are Western controlled, and the Bosnia governments has no control over fiscal policy. Western capital is remaking Bosnia in its own image, and only when this is finished will it leave the new economy to run itself.

It is curious, given the importance given to the whole Bosnian war and its outcome by the Western media, how few of the details of Dayton were examined by mainstream journalists. We were told it would end the war, and that it would partition Bosnia, but the rest was left unexamined. Could there be some reason for this?

The Bosnian Serbs, and their “hard-liners”, have become the official enemy for daring to call the NATO force in Bosnia an occupation force. As far as Socialists see it the Serb hard-liners are just as bad and exactly the same as their imperial rivals, except they’ve lost out. So we now see them vilified in the Western media. At the moment there is a new film out in the US in which it is a Serbian terrorist that has got hold of the nuclear missile that the hero has to find. It makes a change from Arab terrorists. Serbian protesters in Bosnia are “thugs” while democracy campaigners in Belgrade are “demonstrators”. This is not to say that they are not, but to draw attention to the difference in treatment those who oppose and those who favour Western interests receive.

Western forces seized the transmitters to Bosnian Serb television, because it was “controlled by hard-liners”. It did this to ensure “fairness” in the elections there, because biased television was a threat to the victory of Plavsic, who the West supported. The amount of double-think required to report this must have been terrific: NATO is interfering in the elections, to ensure “fairness” i.e., that their chosen candidate had a better chance of winning!

Neither when NATO broadcast counter television signals from planes, nor when it shut down the television stations did Western journalists raise any objection based upon the freedom of the press. They just went along with the line that it was necessary to do this to protect the “peace process”. The truth is that NATO forces were being used to interfere in the elections to try to ensure a friendly government was put in place, and weaken the grip of a hostile local power elite, to ensure that Western market penetration could continue. Speaking of market penetration, Volkswagen have just opened up a factory in Bosnia, using the empty space in the Bosnian economy to get hold of cheap resources, and even cheaper, desperate, workers.

The Yugoslav war has been a twentieth century tragedy. The tragic heroes (the ordinary people) denied a voice, a role even, left just to die in silence while a whole cast of villains marched around the stage. There can be no doubts about who and what is to blame for this war. Behind the masks of kindliness worn by the villains of the piece lay the identical and twisted face of the god of Mammon, of capitalism. This war was a natural part of the continual war of capitalism, and its victims sacrifices to the cause of profit.

Pik Smeet