Voice From The Back: Come Clean, Queenie (2009)

The Voice From The Back Column from the February 2009 issue of the Socialist Standard

Come Clean, Queenie

  “Voice-recognition lie detectors are to be used by two Welsh councils in an attempt to crack down on benefit fraud. People in Flintshire and the Vale of Glamorgan on housing and council tax support will have their speech patterns analysed when claims are reviewed. The Department for Work and Pensions (DWP) is piloting the 12-month scheme in 18 local authorities across Wales and England. However, some critics claim it could deter genuine claimants. Benefits cheats cost the UK taxpayer an estimated £400m a year. A pilot scheme was initially introduced among seven English councils, but has been extended and includes Wales for the first time. Details were announced as part of the Welfare Reform Bill during the Queen’s Speech on Wednesday.” (BBC News, 4 December) This will be hailed by all supporters of capitalism as an excellent wheeze to foil impoverished claimants, but what will happen when the Queen phones up for an increase on her benefits in the civil list? Presumably the lie detector will be switched off for non-impoverished claimants.

A Suicidal Society

 Workers are often told how lucky they are to be workers instead of capitalists, but capitalists themselves don’t believe that piece of nonsense. With the downturn in the capitalist market place many capitalists face the prospect of losing their privileged class position and finding themselves in the ranks of the working class. The prospect is so awful that some of them can’t face it and commit suicide. “Kirk Stephenson, the 47-year-old New Zealand-born chief operating officer at the private equity firm Olivant, died instantly when he was hit by a train at Taplow station in Buckinghamshire, on September 25 last year. A jury returned a verdict of suicide. …Rene-Thierry Magon de la Villehuchet, 65, a French financier, locked the door of his New York office last month, swallowed sleeping pills and slashed his wrists with a craft knife. … Paulo Sergio Silva, 36, a trader for the brookerage arm of the Brazilian banking giant Itau, shot himself in the chest during the afternoon trading session in San Paulo’s commodities and futures exchange in an apparent suicide attempt in November. … One of Europe’s most influential industry magnates has thrown himself in front of a train after his business empire began to crumble. Adolf Merckle, the 74-year-old head of a conglomerate that employs thousands in Britain and elsewhere in Europe, killed himself on Monday.” (Times, 7 January)

Production For Use

We are all used to “letters to the editor” in the national press that deal in crass trivialities, so it was a great pleasure when we came across this exceptionally perceptive letter. “Music as product placement is certainly a dismal vision (The sullying of our songs, 16 December). But the old business model for music inside capitalism is nothing to feel nostalgic about. John Harris suggests that downloading makes music worthless. No, just priceless! If everything (not just downloads) was free it all might actually be valued that bit better. I suggest we should embrace the concept of production for use, by raising our horizons beyond just the digital world to – in the words of John Lennon – imagine no possessions. Brian Gardner, Glasgow” (Guardian, 19 December)

Desperate Times

With the US automobile industry in recession many desperate ideas are being considered – the Keynesian notion of government intervention – the increase of pensions and welfare payments to stimulate demand, but here is the most extraordinary “solution” of all – prayer! “Pentecostal Bishop Charles H. Ellis III, who shared the sanctuary’s wide altar with three gleaming sport utility vehicles, closed his sermon by leading the choir and congregants in a boisterous rendition of the gospel singer Myrna Summers’s “We’re Gonna Make It” as hundreds of worshipers who work in the automotive industry — union assemblers, executives, car salesmen — gathered six deep around the altar to have their foreheads anointed with consecrated oil. While Congress debated aid to the foundering Detroit automakers Sunday, many here whose future hinges on the decision turned to prayer. Outside the Corpus Christi Catholic Church, a sign beckoned passers-by inside to hear about “God’s bailout plan”. (New York Times, 7 December) The sad truth is that despite the desperate prayers of Detroit workers capitalism is a system based on slumps and booms and no amount of hymn singing is going to save their jobs.

Pathfinders: Darwin in the pink (2009)

The Pathfinders Column from the February 2009 issue of the Socialist Standard

Darwin in the pink

It seems fitting, in the year of Darwinius Laudatus, that the new incumbent of the White House is stuffing his team with scientists and proclaiming that science is top of the agenda again. Well, it won’t bring on socialism, but at least those who seemed obsessed with visions of a new religious Inquisition in the West can stop worrying for the moment. Nature too is sticking two fingers up at creationists who have problems struggling with the facts of life, by recently producing two entirely new species that, as they say, you couldn’t even make up. One, a bizarre pink iguana, happens to live on the one Galapagos island Darwin didn’t manage to visit  The other is a mirror-eyed spook-fish in the deep ocean with an entirely novel means of discerning sharp images using light reflector arrays (New Scientist, 10 January). Advocates of Intelligent Design will easily explain pink iguanas (God was having a camp day) but in the case of the highly complex mirror mechanism, the obvious question would be: why did our Intelligent Designer not do things the easy way and just have the fish live somewhere it could see by normal means? Recent footage has also emerged of a unique venomous mammal, the Hispaniolan solenodon, suspected of being the last surviving relic of a branch of mammalia with a very uncuddly characteristic. Will ID supporters kindly explain why The Creator can’t seem to make up his mind, and keeps producing hybrid experiments that look suspiciously random and unplanned? Whatever next, a mammal that lays eggs?

Biofuels at bedrock in ratings

Speaking of random and unplanned, capitalism can usually be relied on to filter out all the smart solutions and pick the dumbest, amid a fanfare of speeches about innovation and progress. It seems hardly a moment since biofuels were the ingenious answer to everyone’s oil crisis. Now a new study suggests that they are the worst possible way of dealing with the problem, even taking coal or nuclear power into account (SciDev, Biofuels bottom of the heap in impact study, 7 January)

Why so popular a solution then?  Because it was cheap, the land was already in cultivation for something else, and it was a zero-tech, zero investment changeover. Wind power comes out best, which is perhaps no surprise. If we were to plant wind turbines in every government meeting room in the world, we could probably get all our energy for free.

Free is cheaper

Now where have we heard that one before? It’s nice to see that the digerati are still plugging the idea that because costs are heading towards zero soon everything will be free, citing such free services as Google by way of example. Chris Anderson, editor of Wired magazine, is the latest to put this no-longer-very-revolutionary idea in his new book Free: the Future of a Radical Price (BBC Radio 4, In Business, 8 January). Of course, he means everything digital will be free. About the real world of food, clothing and heating he has no comment to make. No doubt it will comfort the refugees of Darfur that they can access free pictures of food whenever they like.  What Anderson and his colleagues could usefully do is extrapolate from their own cosily self-absorbed cyberworld to ask what socialists ask – couldn’t we do the same thing for tins of beans as terabytes? After all, production costs in material goods also have a tendency to fall over time. Besides, there is also the question of what you mean by free. Users don’t pay to use Google, but two Google searches are as carbon heavy as boiling a kettle, and the global IT industry produces as much greenhouse gas as the global airline industry (BBC Online,  ‘Carbon cost’ of Google revealed, 12 January).

PC I-Plod

One thing which is patently becoming less rather than more free is the matter of civil liberties, with police being encouraged by a new European directive to spend more time hacking into the public’s private computers (BBC Online, Police ‘encouraged’ to hack more, 5 January). Not that it will do them much good. Even if your firewall doesn’t keep them out, they probably couldn’t use the information anyway because they have no way to prove they didn’t put it there themselves. That’s if they don’t lose the information first. Anyone paranoid enough to believe that Big Brother has already arrived will feel a heartwarming glow at the latest in a long line of government security boobs. When the National Hi-Tech Crime Unit was shut down and replaced by the Serious Organised Crime Agency in 2006, the government did not bother to keep the old NHTCU webname and it was bought by a German company. However, the government forgot to mention this to anyone, so whenever any agency including the BBC attempted to tip off the government about suspected cyber-fraud or other criminal japes, they were in fact sending this potentially explosive information to a private commercial enterprise (New Scientist, 3 January).

Paddy Shannon

Letter: God on our side? (2009)

Letter to the Editors from the February 2009 issue of the Socialist Standard

Dear Editors

Having just read with interest the article God and the Market (November’s Socialist Standard) I felt that socialists may like to hear my views and opinions.

As an adult, I made the conscious decision to be baptised. That was ten years ago, and ever since then I have struggled with my faith because of the blatant hypocrisy that we all know exists within the Church. Indeed, Robert Tressell’s portrayal of the Church in The Ragged Trousered Philanthropists is, in my opinion, not too much of an exaggeration. Jesus Christ and his disciples spoke very plainly about the familial relationship of all people under our parent God, the requirement for “Children of God” to be peacemakers (Matthew 5:9), to shun riches (Matthew 6:24; Luke 16:13; Acts 8:20; 1 Timothy 6:10; Hebrews 13:5) and to care for all people (1 Corinthians 13; 1 John 4:7-21). Such is the true Christian faith: it does not seek the division of humanity in any way. True Christian faith, I believe, is socialist.

But Church practice is very different from the way it should be, as you all know. The Church, the faithful bride of Christ, has unwittingly embraced capitalism and is unable (or its leaders are unwilling) to escape from its grasp. These leaders, among other things, commit “daylight robbery” by sending out “tax-collectors” with bright shining plates during each act of worship to take money from their “beloved” flocks, and they celebrate (or, as they say, “Remember”) the inhumanity of war and support future killing among siblings, even going as far as “blessing” destructive weapons (e.g. battleships). At the heart of each spiritual community is the local church, and how many local churches resemble market places? How would Jesus react to such things (Matthew 21:12-13; Mark 11:15-17; Luke 19:45-46; John 2:13-16)?

To be fair there are groups within the Church who do remain faithful. These include the Pax Christi movement, Tearfund and the Mothers’ Union. But unfortunately, the humanity of such groups as these is hidden within the shadows of the Church’s capitalist image within the world.

From its earliest beginnings, the Church applied the pious practice of lending without adding interest. But it wasn’t long before Church authorities saw this practice as “bad for business”. In the same way, I wander how long it will be before the greed of Archbishop Rowan Williams of Canterbury and the Anglican Bishop Wallace Benn of Lewes (who claimed that the credit crunch is God’s punishment for society’s obsession with money (Premier Radio News, 29th October 2008)) resurfaces and they change their minds.

Paul Boyce, 

Lincoln

Reply: 

We agree that what evidence there is seems to show that the first christians practised a form of what Kautsky in his Foundations of Christianity called “a communism in articles of consumption”, but it also shows that they were more interested in the world “to come”, which they believed to be imminent, than in changing the corrupt (as they saw it) world in which they lived. The case for socialism, as the common ownership and democratic control of the means of production, is a secular doctrine based on the facts of the situation today and not on quotations from the sacred texts of one particular religion,

 – Editors.

The politics of poverty in Zambia (2009)

From the February 2009 issue of the Socialist Standard

The sudden collapse of copper prices and the consequent depreciation of the Zambian currency, the kwacha, has meant that the election promises made by the newly-elected MMD President of Zambia, Rupiah Banda, won’t be achieved in the space of three years before the 2011 general election.

The recent increase in meali meal prices from K56,000 to K75,000 per breakfast bag (25kg) led to riots in Kitwe.

  President Banda seems to be a man devoid of pragmatic ideas and that can be instanced when he appointed the discredited veteran politician Vernon Mwaanga as parliamentary chief whip. Indeed, Mwaanga and Banda were early groomed by the first President Kenneth Kaunda. Mwaanga had served in every administration ever since 1964. He was only dismissed by the last President Mwanawasa in 2007. Mwaanga is a wealthy and respected Tougha tribesman.

  Most people in Zambia feel that Banda has brought UNIP back into power—Banda was a staunch UNIP politician (foreign minister in 1972) and was living in retirement ever since the exit of the UNIP government in 1991. he only came into active politics in 2006 when the late Mwanawasu appointed him as vice-president.

  Unexpected was the dismissal of the versatile finance minister Nyanda Magande together with the outspoken female minister of local government, Silver Masebo. Indeed, the reconstituted cabinet is a pale-faced assemblage of yes men.

  The MMD government has lost touch with the vast majority of Zambian workers and it seems that Rupiah Banda’s government will be subjected to unexpected economic crises that will jeopardise his chances of winning the 2011 general election.

  But what many workers and students in Lusaka and the copper belt mining towns do not understand is the fact that the current economic and social problems confronting them cannot be resolved by the opposition Patriotic Front leader Michael Sata. There isn’t any political difference between the ruling MMD and PF. Both Banda and Sata are old and tired wealthy politicians seduced by political and economic privileges. The sudden collapse of copper prices has led to widespread job losses (redundancies) in the mining sector. It is just in such unforeseen economic misfortunes that many irate workers think that the PF leader can create economic wonders. Economic liberalisation entails free market economy in which demand and supply comes to determine commodity prices. The government of the day cannot impose itself upon the market to fix a minimum price. That is why the increase in meali meal prices cannot be restrained by the MMD government.

  In 1991, Western-sponsored economic growth programmes impact negatively upon the ordinary Zambian workers and peasants—economic growth in Zambia is enjoyed by the foreign industrial elites (through tax exemptions).

  Gross inequalities in the distribution of income and wealth mark the political, racial, ethnic and religious frustrations taking place in many countries in Africa today. The only way-out is a classless, stateless and moneyless society—socialism.

Kephas Mulenga

Keeping up with the Joneses (2009)

From the February 2009 issue of the Socialist Standard

Cooking the Books: Free money for everyone? (2009)

The Cooking The Books column from the February 2009 issue of the Socialist Standard

There’s nothing like a slump for currency crank ideas to flourish. The contradiction between unused resources and unmet needs is so glaring that the solution seems to be to give people more money to spend (whereas it’s to produce just for use, not for sale, so making money redundant).

 One such theory, popular in the last Great Depression of the 1930s, was “Social Credit”, as expounded by Major Douglas (1879-1952). This was a proposal for the State to take over the role of the banks in supposedly creating purchasing power and using the profits that would otherwise have gone to the banks to pay all citizens a “social dividend”. As this is based on the idea that banks can “create credit” out of nothing by a mere stroke of the pen, which the current credit crunch has exploded, this is not so popular this time.

 Another such theory was that of Silvio Gesell (1862-1930). Basing himself on the experience of the Great Depression of the 1880s (yes, there’s been more than one), his proposal to get people to spend was that currency notes should gradually devalue if they were not spent within a given time. He was to be the Finance Minister in the short-lived Munich Soviet of 1919. Keynes, who had a soft spot for currency cranks, wrote: “I believe that the future will learn more from the spirit of Gesell than from that of Marx” (General Theory, p. 355)

 Though probably more influenced by the vouchers issued by the chain stores than by Gesell, the economic journalist Simon Jenkins has been plugging a similar idea in his regular column in the Guardian. He wants the government to give consumers “three-month spending coupons, say of £300 a month.” He thinks this giving people vouchers they have to spend within three months is a better way of getting people to spend than cutting taxes or increasing benefits which they could save.

 An extra £300 a month to spend for everybody! A party could win an election by promising that. The proposal is feasible but, if it ever comes in, it won’t be at that level, as can be seen from Taiwan. According to the Taipei Times (19 December):

  “Every citizen and foreign spouse qualifying for the voucher will receive six red-colored vouchers with a face value of NT$500 each and three coffee-colored NT$200 vouchers in a ‘lucky envelope’ with ‘Happy New Year’ in Chinese characters on it to symbolize auspiciousness. The government will distribute the NT$3,600 in consumer vouchers on Jan. 18, one week ahead of the Lunar New Year to boost spending.” (LINK).

At the time of writing 3600 Taiwan dollars is worth £74. As the vouchers have to be spent by the end of September, that’s about £8 a month (rather less than £300) or £2 a week. Wow!

 All these more or less cranky proposals are based on the mistaken assumption that a country can avoid a slump by increasing spending. Let’s have some common sense from Marx:

  “It is sheer tautology to say that crises are caused by the scarcity of effective consumption, or of effective consumers. The capitalist system does not know any other modes of consumption than effective ones, except that of sub forma pauperis or of the swindler. That commodities are unsaleable means only that no effective purchasers have been found for them, i.e., consumers (since commodities are bought in the final analysis for productive or individual consumption). But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working-class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working-class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and “simple” (!) common sense, such a period should rather remove the crisis.” (Capital, Vol II, Chapter 20, section 4).

Darwin and the Intelligent Design Brigade (2009)

From the February 2009 issue of the Socialist Standard

Evolution is perhaps the strongest theory in modern science, but still the most controversial. Why after all this time does it still generate such ferocious opposition?

“Christian Right Lobbies To Overturn Second Law Of Thermodynamics"

The second law of thermodynamics, a fundamental scientific principle stating that entropy increases over time as organized forms decay into greater states of randomness, has come under fire from conservative Christian groups, who are demanding that the law be repealed.

 Calling the second law of thermodynamics “a deeply disturbing scientific principle that threatens our children’s understanding of God’s universe as a benevolent and loving place,” they are spearheading a nationwide grassroots campaign to have the law removed from high-school physics textbooks. The plan has already met with significant support in the state legislatures of Kansas, Oklahoma, Missouri, Tennessee, Georgia, and Mississippi.”

 Before you start worrying, this was a satirical item from The Onion, back in 2000, aimed at religious people who reject Darwinian evolution. However it’s not really an exaggeration. Religious fundamentalists who reject evolutionary theory are also rejecting geology, astronomy, Einsteinian and Newtonian physics, in fact the whole body of scientific knowledge going back to first principles, and replacing it with a couple of anonymous books and a God who, as Bill Hicks pointed out in relation to dinosaur fossils, must be a liar and a practical joker.

 Yet these religious people don’t choose to attack Newton, or the theory of gravity, or light, or quantum physics. Why evolution specifically? If you haven’t already seen it, try watching Judgment Day: Intelligent Design on Trial (2007), which is freely available online. This is an award-winning documentary describing the headline-grabbing court case between parents and the School Governors in Dover, Pennsylvania in which the governors were trying to force creationist ideas into biology classes and the parents were trying to stop them.

 In the end the parents won, and the creationists were humiliated. But as you follow the interviews with protagonists on both sides of this celebrated case,  you begin to see what it is that motivates those on the religious side of the debate. It is fear.

 They are afraid that without God as first cause there really is no relevance to life. They fear that science is taking the heart out of the human experience and replacing it with numbers. They fear that a world with no meaning is a world with no mercy.

 It was fear that originally incited the famous campaigning reformer William Jennings Bryan to take the prosecution case in the Scopes Monkey Trial of 1925, fear that naked social darwinism would rampage across any possibility of social justice, would justify the worst excesses of unrestrained capitalism. This was the fear – and the profound misunderstanding of Darwinism – which drove Christians to break themselves against the juggernaut of science, and continues to drive them today.

 It would be, from a scientific or a socialist perspective, so easy to laugh at these people as superstitious children. After all, they cannot win. Despite the recent avalanche of anti-religious books from the likes of Dawkins, Michael Shermer, Christopher Hitchens and others, there is no real danger of a return to a religious Dark Age. Of course they are wrong. Of course their arguments are ludicrous.

 At the same time it is possible to feel some compassion for the fear and the desperation these, mostly ignorant and uninformed, people have, confronted with a world they don’t understand and in which they feel utterly helpless. Science to them is gas chambers, nuclear bombs, death rays, spy satellites and mind control. Wild stories about Earth-eating black holes and ‘strangelets’ guaranteed front-page coverage worldwide for the switching on of the Large Hadron Collider, an event only normally of interest to particle physicists.

 People fear what they don’t understand, and in general society is scientifically illiterate, a situation many scientists find worrying. In public surveys on the supposedly dangerous substance Dihydrogen Monoxide (DHMO), which can corrode iron and kill humans if inhaled, up to 90% of respondents voted that it should be banned (DHMO = H20).  (Source: New Scientist, 27 Sept 2008, p.76).

 Socialists should care about the religion versus science debate because the theory of socialism is built on scientific principles, and anything which threatens rationality and evidence-based thinking must be anathema. However we should also be capable of seeing the larger picture. This isn’t really about Darwin, or the laws of physics.

 This is about people who need to have a reason to go on living, which capitalism isn’t giving them. It’s about people’s need to believe in something, which capitalism doesn’t supply or has taken away. And it’s about having some hope for the future, of which capitalism has none. The world really does need some intelligent design, but in its business of living, not in its biology.

 Socialists, as atheists, have to understand what some scientists seem unable to grasp, that the battle of ideas is not just a battle of the mind, it’s a battle for the heart. We can no more win hearts with economic methodology than scientists can with peer-reviewed research. If we scoff at notions of ‘spirit’ or ‘soul’ because these things are not measurable in laboratory experiments, we utterly miss the point. The desperate argument of creationism is at one level a comedy of human stupidity. But at a deeper level it is a tragedy, the pathos of a human condition adrift and desolate in a world which cares only about money and believes in nothing at all. This is what Moslems and Christians despair about, and this is something with which we can surely empathise. This is the ‘sigh of the oppressed’ in the heartless world of the 21st century. Despite appearances to the contrary, capitalism is slowly and methodically destroying religion. What we need to do, as socialists, is recognise the emotional vacuum this is creating, and strive to fill it, before something infinitely worse does.

Paddy Shannon

What Darwin said (2009)

From the February 2009 issue of the Socialist Standard

 There are two misunderstandings about Darwin. First, that he invented the idea of evolution and, second, that he put forward a theory of the origin of life. He did neither. Evolution – the idea that existing forms of plants and animals had evolved from earlier forms – existed before Darwin. What Darwin did was to provide a convincing theory as to how the different species of plants and animals had come about. He said nothing about the origin of life, only that an original life-form must have existed (however it might have come into existence). Darwin’s theory was that evolution came about through natural selection. In fact the term “Darwinian” is more appropriately applied to the theory of natural selection than to the theory of evolution.

 Before him, some people including his grandfather, Erasmus Darwin, had realised that existing species must have evolved from previously existing species. A study of the classification of life-forms by Linnaeus in the 18th century into Kingdoms, Orders, Genera and Species, based on the physical similarities between them, suggested this. But earlier evolutionists could not offer a convincing explanation as to how this came about.

  Perhaps the most famous pre-Darwinian theory was that of Lamarck, who argued that new species came about through characteristics acquired during lifetime being transmitted to descendants – the theory of the inheritance of acquired characteristics. Thus, for instance, giraffes evolved as a previous animal stretched its neck from generation to generation. The theory is not true, as can be seen from the Jews. They’ve been circumcising their sons for thousands of years but no Jew has ever been born without a foreskin. Actually, it wasn’t really such a laughable theory that could be dismissed in this way.

  Lamarck was a serious scientist and it was a valid hypothesis. In fact it was the main one going till Darwin came up with his theory 150 years ago. Engels in his The Part Played by Labour in the Transition from Ape to Man accepted it when he was talking about the diet of humans (and foxes) leading to them changing. Even Darwin, although a severe critic of Lamarck, was prepared to backtrack a little and conceded that it might have played a minor role in the evolution of species. Opponents of the “you can’t change human nature” argument were also attracted by it.

 Lamarck was on the right track about the evolution of giraffes. It did come about gradually as he supposed, but not directly. Giraffes evolved over generations as animals with longer and longer necks survived better. Similarly, with those who saw that human behaviour did, and could, change: humans can inherit acquired characteristics but not biologically, only culturally, through learning.

 

 Farmers – and pigeon fanciers (with whom Darwin associated in his research) – had known long before Darwin that they could create new forms of existing plants and animals by selective breeding. Darwin’s argument was that the same process had happened in nature over a long period of time – with nature doing the selecting – and that this had resulted in all the various life-forms that did exist (and had existed) as evolved forms of the original life-form. A separate “species” (as opposed to a “race” or a subspecies which was what farmers and pigeon-fanciers were creating) came into being when its members were not able to breed with the life-form from which they evolved or with other life-forms which had arisen from it. This was Darwin’s theory of the origin of species.

  Another misunderstanding about Darwin arises from the phrase “the survival of the fittest”, which he did use. It is often seen as meaning the survival of the physically fittest, i.e. of the strongest, but the word “fittest” was not being used in this sense in this context. It meant rather the “aptest”, or the “most fitted” to a particular environment, and it meant that relatively more of their offspring survived than did those of the less apt.

 

 Darwin did not know, any more than the farmers and pigeon-fanciers, how selection worked. He suspected that there must be some cause of the minute changes that nature worked upon but couldn’t explain how they arose. The solution was left to later scientists who, following up research by an Austrian monk, Gregor Mendel, who was experimenting at the same time as Darwin with sweet peas, came up with the gene as the unit of inheritance, with the small changes being caused by inexact copies of genes being made in certain individuals. The combination of Darwin’s theory of natural selection and the gene theory is known as the “modern synthesis” and is what is defended by present-day defenders of evolution such as Richard Dawkins and other popular science writers, even though some of them have been tempted to turn “Darwinism” into a general theory of the “survival of the aptest” in all fields and not just to the evolution of species of living things.

Adam Buick

Child Benefits (2009)

From the February 2009 issue of the Socialist Standard

In times of economic insecurity, nothing calms the nerves better than a good moral panic.

The last recession coincided with the media interest in the James Bulger murder, and the British media and sanctimonious politicians have recently found plenty of reasons for moralising, with the investigation into the death of “Baby P” in Haringey and the Karen Matthews prosecution for kidnapping her own daughter.

  The Baby P case in particular fuelled many column inches split between sermonising about human nature and trying to find a person to blame: anything but a serious examination of childcare inside capitalism. Within hours of the blame being squarely laid at the convenient door of supposedly incompetent employees of a failing council department, a Home Office survey was published showing how the (thankfully) rare incidence of child fatality is in fact just the tip of the iceberg. While approximately 1.5 million children are considered possibly at risk of deprivation or abuse, councils have the resources to actively monitor less than 2 percent of these. To find causes then we need to look beyond blaming individuals for the situation.

  It may seem simplistic to blame the treatment of Baby P and Karen Matthews’ daughter on this social system rather than on the immediate family in each instance. It is a complicated picture for sure, but we shouldn’t ignore the wider picture: the economic hardship of the majority inside capitalism, the atomised and alienated nature of much of our social interaction, and the anti-human values that flourish where profit comes first. We should perhaps not be surprised at the depths to which some stoop as adults when they have grown up in a society that materially and psychologically deprives and abuses humanity.

  Certainly it’s not just working class children that can suffer emotional abuse from their parents. While the media used these events as an excuse to go to town on the so-called underclass, blaming single mums on benefits for most of the world’s problems, it is worth noting one notable extended family which is full of single parents and are significant recipients of state benefits. The family Windsor might look a tad out of place on the sort of estates typified by TV’s “Shameless”, but despite their economic privilege, they are still far from being a good example of healthy emotional functioning.

  But no matter how many “good parenting” books you guiltily read, it’s harder to bring up happy children if you lack space, or the road outside is noisy and dangerous, or there’s no park nearby, or the nearest toddler’s group or GP surgery requires a bus ride to access. There is a mountain of evidence that poorer communities generally suffer more from such environmental or “community safety” issues.

  Children may well be “innocent”, “our future” and other such sentimentalised slogans, but more significantly they are also an immense hindrance to the smooth operation of the system of production for profit. The care and attention children need just doesn’t square easily with the time commitment demanded by employment. Despite ever-increasing standards of living (at least if measured by how flat your screen is, or how many different channels you can watch the latest “UK’s Worst-Behaved Kids” TV show on), the working week always seems to come in at around 40 hours. This allows just enough time for sleep, to feed yourself, and otherwise recover before the next shift.

  Inadequate childcare provision has been recognised by the government as a reason why some women (usually) give up work to bring up their child full-time. This undoubtedly helps the child’s emotional health and happiness. Unfortunately it reduces the productivity of UK plc. This has prompted a range of government measures to try and encourage employers to make the workplace more flexible for parents.

  Labour has made much of its 1999 commitment to reduce child poverty. it’s probably not too much of an exaggeration to say that this promise (to halve child poverty by 2010) has been the carrot dangled in front of the Labour membership that allowed it to go along with the many downsides of the last 10 years in government. Foremost amongst these of course was the Iraq War (which doesn’t appear to have done much for child poverty in that country). But of course it’s only UK kids that the government is concerned about. And not even all of them.

  The Labour government is clearly significantly less interested in the care of the kids of the unemployed. After all, in their own carefully-constructed phrase, it is only “hard-working families” that get their support. The rest can pretty much rot. A few days after the Haringey report findings were published, the government detailed their intention to get single mothers on benefits to sit lie detector tests to get them back to work within 12 months of the birth. This means forcing 12 month-old children into full-time childcare for up to 40 hours per week. The government’s own commissioned research indicates the long-term damage – in terms of emotional attachment, security, anger management and ability to form healthy relationships in later life – that childcare (i.e. away from primary care-giver) of over 16 hours per week can do to infants under three years of age. Remember the boast about “joined-up government”?

  Government promises are all very well, but it’s the economy that usually decides whether a political reform will stick. While Labour has made great play of how much it has prioritised child poverty in its ten years in office, numerous reports in the last few months have shown just how little impact this effort has made, and how structural poverty is inside capitalism.

One of the main criticisms that world socialists have of attempts to reform the insane system called capitalism, is that gains obtained one year may disappear when the economy dips, and you find yourself back at square one again. That looks to be what is happening as we enter a period of recession. A slump is the market’s way of correcting a serious failing – that is, the diminishing levels of profit returning to the owning class. That recalibration must occur inside capitalism, regardless of the damage to be incurred by those dependent on the state, such as children, the unemployed and the poor.

  The government’s 2010 target will probably then be missed, and by a long shot – the best part of a million children. The government’s response? – to boast of another target, a bigger target. This time they promise full eradication of child poverty by 2020. An impressive objective perhaps but so what? – if someone tells you a small lie and you find them out, it’s hard to be impressed if they respond by telling you an even bigger lie.

  The council workers involved in these recent “Broken Britain” news items, those whose job it is to mop up the human victims of the profit machine, were variously described as “failing”, “incompetent”, “not fit for purpose”. These adjectives should instead be directed at this social system, and at a quite fundamental level. Let’s not forget that – as unsympathetic and deluded an individual as she appears to be – Karen Matthews would simply not have kidnapped her daughter if it weren’t for her confidence (very well-placed as it turned out) that her unwitting accomplices in the media would be likely to stump up a £50,000 reward to keep the story on their front pages.

Brian Gardner

No socialism (2009)

Pamphlet Review from the February 2009 issue of the Socialist Standard

‘Capitalism’s New Crisis: What Do Socialists Say?’ By Chris Harman. Socialist Workers Party, 2008. £1.50.

The author writes of capitalism “The key question is what is going to replace it . . . To finally get rid of capitalist crises, in short, you have to get rid of capitalism.”

With such promising revolutionary sentiments, you would surely expect some discussion of the socialist future, some mention (however brief) of common ownership, democratic control, production for use not profit. Not a bit of it. Harman offers instead ‘A People Before Profit Charter’, a ten-point mish-mash of reformist measures such as wage increases, more tax on big companies, less tax on the poor, no to the BNP.

The pamphlet has section headings which include free market failure, slump, boom and crisis, and the debt economy. These concepts sound familiar because they are scattered liberally in the broadsheet dailies, the weekly journals, radio and TV programmes that comment on the problems that “business” and hard-working men and women have to face. This pamphlet has some value in bringing together the various critiques of capitalism and the reforms that are offered to improve the system despite persistent past failures. It has no value at all in promoting revolutionary thought and action to change the system from capitalism to socialism.

Stan Parker

Obituary: Charlie Lawrence (2009)

Obituary from the February 2009 issue of the Socialist Standard 

We report with sadness the death of Charlie Lawrence in Australia on 12th January at the age of 89. Charlie was born in England but as a young boy emigrated to Western Australia with his family in the 1920s where they ran a dairy farm. This was part of the Group Settlements project on virgin land. It was hard work but he loved the life there but the depression of the 1930s saw the family in financial trouble and they returned to England.

During the war Charlie worked for a time in ‘directed labour’ but decided this was not for him after being too close to bombing raids near where he was working. He took this so personally that he decided to go ‘on the run’, rather than face military service or more directed labour.

It was while he was working at Woking Power Station in 1939 that Charlie met the Socialist Party in the person of a member, George Nuttall, who was the works fitter there. George talked about the party’s case for socialism and its analysis of capitalism. Charlie joined the party in 1944 as a member of the old Paddington Branch and attended meetings and lectures. He always recalled the very big meetings held at the old Metropolitan Theatre in the Edgware Road just after the war.

Charlie was the catalyst for no less than six of his siblings becoming socialists – possibly a record in this Party. One of these siblings was Pieter Lawrence (see obituary May 2007 Socialist Standard). Charlie returned to live in Australia in the 1960s and although not very active in the WSP of Australia, remained a staunch socialist to the end. Sympathy is extended to his family both in Australia and in the UK.

Phyllis Hart

50 Years Ago: “Class Collaboration in Communist China” (2009)

The 50 Years Ago column from the February 2009 issue of the Socialist Standard 

From The Trade Union Law of the People’s Republic of China it can be seen that the workers of “New China” are unable to organise in genuine Trade Unions; that they are not allowed to call strikes whatever their grievances may be, and that the so-called Trade Union affiliated to the “All-China Federation of Labour” are Unions mainly in name only, similar to Hitler’s “Labour Front” in pre-war Germany.

China’s “Trade Unions” are allowed to negotiate. But that is all. Their main functions, according to Article 9, of The Trade Union Law of the People’s Republic of China, are to organise the workers to support the laws of the government, carry out the policies of the government; to get the workers to adopt a new attitude towards labour—that is, to observe “labour discipline,” to organise “labour emulation campaigns and increase production to ensure the fulfilment of the production plans; to protect public property; to oppose corruption and bureaucracy and to fight “saboteurs” in enterprises operated by the State.

In privately-owned enterprises the Trade Unions must help in developing production, “benefiting both labour and capital”—in other words, increasing the exploitation and subjection of the Chinese working-class. The outlook for the masses of China is indeed bleak.

(From article by Peter E. Newell, Socialist Standard, February 1959)

Greasy Pole: Standing out in the crowd (2009)

The Greasy Pole column from the February 2009 issue of the Socialist Standard 

  “Doing things sober is no way to get things done”

Only the most demandingly optimistic – or perhaps the most seriously deluded – could have expected anything original to spring from Tony Blair’s infamously airy assurance that his governments would be tough on crime and tough on the causes of crime. In unashamed voter appeal, the process of ascertaining, and then dealing with, the causes of such a massive social problem was made to sound very simple. Except that it ignored the direct co-relation between crime and the poverty which is inescapable in this society of privilege and alienation. There was no need for an expertly number-crunching statistician, or a professor of history, to cast doubt on Blair’s assumption that crime could be diminished through brushing up some of the more threatening housing estates, or manipulating the benefits entitlement system to make it even more baffling than before. Blair’s dream was that crime could be refashioned from an electoral liability into a vote winner.

But that first part of Blair’s promise – to ensure that appropriately punitive measures would be taken to repress crime – has been rather more fertile than the second. So we have had ten years of new laws flooding onto the Statute Book; as the lawyers have thrived thousands of new offences have been created, harsher penalties have been applied by the courts and the prisons have been full to bursting. In the background are the plans for a new generation of titanic prisons – in the building of which the contractors will thrive – to accommodate the predicted rise in demand for cell spaces. The fact that none of these panic-stricken measures has been effective has only served to stimulate more, equally false and doomed, supposed remedies.

Humiliation

The latest of these lays it down that offenders who have been sentenced to a spell of what used to be called Community Service must, while working under that Order, wear brightly visible jackets on the back of which, to distinguish them from men emptying refuse bins or mending telephone lines, the words “Community Payback” – of a minimum size laid down in some official circular – must appear. The idea is that when the offenders are working – scrubbing off graffiti, clearing undergrowth in the park, sorting goods in a charity shop – they will be openly identified as people who have broken the law.  This example of what Blair meant by getting tough on crime did not meet with universal approval; there were those, including organisations benefiting from the work, who objected to what they saw as the offenders’ public humiliation – as outdated as the stocks and the pillory and excessive, when the work ordered by the Court was punishment enough. Some members of the Labour Party might have wondered about their place in an organisation they had joined on the assumption that it would deal with something as sensitive as crime in a manner which would be, before all else, humane. They could not have expected that their party would be more concerned with gaining the approval of the leader writers of the Daily Mail.

Predictably, the government denied any intention other than to re-assure the voters that offenders are being suitably punished. Justice Minister David Hanson put it:  “The public expects to see justice being done and this is what the jackets achieve”. He did not dwell on the fact that those who are allocated under Community Payback to work in public places are, except in very rare cases, not guilty of the kind of offences serious enough to make “the public” particularly anxious to witness their punishment. A recent example was the case of 22 young people who were sentenced by an Essex District Judge to periods of between 50 and 90 hours Community Payback. Many of them had impressive academic records and are already voluntarily engaged in community work. Members of the Plane Stupid group, their offence was to disrupt flights out of Stansted Airport by blocking the runway; “I accept,” said the Judge “There is an honourable tradition of peaceful protest in this country, and long may it continue. But…”

Tsar Of All She Surveys

More to the taste of David Hanson and other Labour ministers is Louise Casey, currently known as the Criminal Justice System Tsar, whose CV includes spells as the Homelessness Tsar, ASBO Tsar and Respect Tsar. Casey responded incandescently, and predictably,  to those who expressed reservations about the jackets by alleging that they are “on the side of the criminal rather than the victims ”. She is something of a controversial figure, remembering herself as a “restless teenager” who longed to leave home .During her time as ASBO Tsar she raised a few ministerial eyebrows by telling an audience of senior civil servants, chief constables and the like “I suppose you can’t binge drink any more because lots of people have said you can’t do it. I don’t know who bloody made that up; it’s nonsense…doing things sober is no way to get things done”. Warming to her theme about the professional advantages of inebriation, the Respect Tsar suggested that some ministers might perform better if they “turn up in the morning pissed.” It says a lot about New Labour’s views on the effects of capitalism on its people, that its government employs someone like Casey to pressgang us into official ideas of acceptable behaviour.

Typical of capitalism’s many and varied assaults on human well-being, crime is a massive, extremely nasty problem which causes loss, distress and fear to workers who are already under the pressures of survival. But that can also be said about the events and policies which are massively more damaging to human community but are unpunished because they are perfectly legal. Today’s examples of this are the wars in Iraq, Afghanistan and Gaza and the devastating poverty in the recession. Those who, as capitalism’s leaders, organise and defend these outrages are tricksters. It would be consistent, if not crucially constructive, for them to have to parade their impotence, dishonesty and malice by publicly wearing something instantly recognisable. Like a jacket? But it would be difficult to think of wording for it to carry, adequately to express their wretched futility. 

Ivan

Socialist souvenirs (2009)

Book Review from the February 2009 issue of the Socialist Standard

'Les souvenirs de Charles Bonnier. Un intellectuel socialiste européen à la belle époque'. Ed. Gilles Candar. Septentrion, Paris.

In a footnote that Engels added to the 4th German edition in 1891 of his The Origin of the Family, Private Property and the State he mentioned that “a French friend and admirer of Wagner” did not agree with a remark of Marx’s about the early family. The friend in question was Charles Bonnier, who at the time was a young man in his late 20s (he was born in 1863 and died in 1926).

Bonnier was a member of the French Workers Party and a personal friend of its leading figure, Jules Guesde. Because of his knowledge of German he represented the party at international congresses. He had originally planned to pursue an academic career, in linguistics, in Germany but was barred under Bismarck’s notorious Anti-Socialist Law. Instead, he went to England where he lived from 1890 to 1913, teaching in schools and to students in Oxford and, later, as a professor in French Literature at Liverpool University.

These memoirs (in French) are not all that political but he does have comments on the personalities of the leading lights of the Second International who he met, not just Engels but Wilhelm Liebknecht, Eduard Bernstein and Paul Lafargue. We learn that Eleanor Marx kept a number of black cats and that Engels had a nephew-in-law who was a Tory.

Adam Buick

General Engels (2009)

Book Review from the February 2009 issue of the Socialist Standard

John Green: Engels: a Revolutionary Life. Artery £10

Engels is often seen as playing very much second fiddle to Marx. But, as John Green points out, he brought to their partnership a greater first-hand familiarity with working-class life and capitalist production and commerce. While not as readable as Francis Wheen’s biography of Marx, this book is still both interesting and informative.

Before reading Green, I had not properly appreciated how much military experience Engels had. In 1848-9 he took part in the ‘revolutionary’ (in fact democratic and anti-Prussian) uprisings in the Rhineland, seeing action on several occasions. These events led to his long interest in military matters, to his being named as military adviser to the Paris Commune, and to his nickname (among Marx’s daughters, for instance) of ‘The General’. They also resulted in the Prussian government’s naming him as a wanted man, and eventually to his decision in 1850 to work in the Manchester office of the firm part-owned by his father.

From his previous time in England had come his famous work The Condition of the Working Class in England. Now Engels was forced to work in the company office, though he managed to live a double life, one as a businessman and one as an activist with his companions Mary and Lizzie Burns. While formally an employee, he received a share of the firm’s profits (over £1000 in 1859), much of which he forwarded to Marx, and on his death he left the then-tidy sum of £25,000.

Green makes an interesting observation to do with the German word wissenschaftlich. This is usually rendered in English as ‘scientific’, as in ‘scientific Socialism’, but it can equally well mean ‘theory-based’, which has fewer connotations than ‘scientific’.

This would have been a better book if Green had simply chronicled his subject’s life and ideas. Unfortunately, his Leninist sympathies have induced him to include some observations that are at best superfluous and at worst downright misleading. He starts off badly by comparing Engels to Che Guevara: two good-looking young men from well-off families who supposedly took the side of the oppressed.

Engels’ military ideas helped Trotsky, Mao and Che, it’s claimed, and the League of Communists, which he joined in 1847, worked on the basis of democratic centralism, which later became a cornerstone of Leninist parties. The Bolshevik concept was in fact far more centralist than democratic, and Green just ignores Marx’s and Engels’ insistence on workers liberating themselves, a principle rejected by Leninists and all would-be leaders.

So a mixture of a good biography and some dodgy political pleading.

Paul Bennett

Pieces Together (2009)

The Pieces Together column from the February 2009 issue of the Socialist Standard

SIGN ON OR STARVE

Sgt. Ryan Nyhus spent 14 months patrolling the deadly streets of Baghdad, where five members of his platoon were shot and one died. As bad as that was, he would rather go back there than take his chances in this brutal job market. Nyhus re-enlisted last Wednesday, and in so doing joined the growing ranks of those choosing to stay in the U.S. military because of the bleak economy. "In the Army, you're always guaranteed a steady paycheck and a job," said the 21-year-old Nyhus. "Deploying's something that's going to happen. That's a fact of life in the Army — a fact of life in the infantry." In 2008, as the stock market cratered and the housing market collapsed, more young members of the Army, Air Force and Navy decided to re-up. (Yahoo News, 2 December)

BEGGING FOR WORK

"Paul Nawrocki says he's beyond the point where he cares about humiliation. That's why he weekly takes a 90-minute train ride to New York, where he walks the streets wearing a sandwich board that advertises his plight: The former toy-industry executive needs a job. "Almost homeless," reads the sign. "Looking for employment. Very experienced operations and administration manager." Wearing a suit and tie under the sign, Nawrocki -- who was in the toy industry 36 years before being laid off in February -- stands on Manhattan corners for hours, hoping to pass resumes to interested passers-by." (CNN.com, 6 December)

HALLELUAH IT'S A SLUMP

"The sudden crush of worshipers packing the small evangelical Shelter Rock Church in Manhasset, N.Y. — a Long Island hamlet of yacht clubs and hedge fund managers — forced the pastor to set up an overflow room with closed-circuit TV and 100 folding chairs, which have been filled for six Sundays straight. In Seattle, the Mars Hill Church, one of the fastest-growing evangelical churches in the country, grew to 7,000 members this fall, up 1,000 in a year. At the Life Christian Church in West Orange, N.J., prayer requests have doubled — almost all of them aimed at getting or keeping jobs. Like evangelical churches around the country, the three churches have enjoyed steady growth over the last decade. But since September, pastors nationwide say they have seen such a burst of new interest that they find themselves contending with powerful conflicting emotions — deep empathy and quiet excitement — as they re-encounter an old piece of religious lore: Bad times are good for evangelical churches." (New York Times, 14 December)

ANOTHER LABOUR FAILURE

"Social deprivation, child poverty and long-term reliance on benefits in parts of Britain are not alleviated or are increasing a decade after Labour pledged reforms to tackle them, a report shows. Many of the poorest households are not being reached by government initiatives to tackle deprivation, with most key measures now making no progress. Of the 56 poverty indicators tracked by the Joseph Rowntree Foundation, including the number of children in low-income families, young adults unemployed and children excluded from school, three quarters have stalled or are getting worse." (London Times, 8 December).

Cooking The Books: Have the Tories gone Marxist? (2009)

The Cooking The Books column from the February 2009 issue of the Socialist Standard

Since the onset of the present crisis, as we have noted, Marx has been mentioned many times in the papers. One of the oddest must be a photo in the (London) Times (8 January) of the Tory Leader, David Cameron, with the caption “David Cameron has lined up with Marx and the Church of England”.

The photo was used to illustrate an article by the paper’s financial guru, Anatole Kaletsky, in which he argued that the way to stop the depression getting deeper was to follow Keynes’s advice and encourage people to spend more. But how can David Cameron, the Church of England and Marx be placed in the same boat? Because, says Kaletsky, all three don’t think much of the government’s policy of trying to spend its way out of the crisis.

True, they don’t, but for quite different reasons.

The Church doesn’t like people pursuing the acquisition of material things and so is opposed to the government encouraging people to spend more on this. In fact, they probably want us all to consume less.

David Cameron claims to believe that the policy won’t work. He wants a different policy to be pursued, but only with him as Prime Minister.

Marxists, like Marx, are not interested in proposing policies for governments to pursue. We say that, whatever the policy they pursue, they cannot make capitalism work in the interest of the majority class of wage and salary workers. We add that, in any event, once a crisis develops, an increase in government and personal spending cannot make it any shorter than it is otherwise going to be.

Crises only come to an end when stocks have been cleared, inefficient businesses eliminated, asset values have depreciated and real wages and interest rates fallen, so restoring the rate of profit, the incentive to produce (and the brake on producing) under capitalism.

Printing more money (or, what amounts to the same thing, the government borrowing money from itself), as an inflation of the currency, is likely to lead simply to rising prices while production continues to stagnate. “Stagflation”, as it has been called.

Cameron – of course – does not accept this. He has a different explanation for the crisis: that it was caused by the policies of the Labour government, and so can be ended by a new government pursuing a different policy. This is just the stuff of the game of parliamentary politics, based on the illusion that governments can, and do, control the way the economy works. But they don’t.

If Brown is being blamed for causing the crisis it’s partly his own fault. When the economy was expanding he was keen to claim the credit. He even made the ridiculous boast that he had ended the boom-slump cycle. Now that things have gone wrong, he’s blaming the international economic situation. This is true, but he – and politicians generally – can’t have it both ways. They can’t claim credit for the good times and blame world events for the bad times. Actually, it’s the uncontrollable world economy that’s responsible for both.

We hold no brief for Brown, but the Tories’s claim that the present crisis is made in Britain, that it’s “Gordon Brown’s crisis”, is not true. It’s not the government’s fault. It’s capitalism’s. It’s capitalism’s crisis, and the answer is not to change the government but to get rid of capitalism.

Smoke and Mirrors: The Bend Some and Hedges Effect (2009)

From the February 2009 issue of the Socialist Standard

The fiasco surrounding the $50 billion hedge funds run by Bernard Madoff has been another illustration of the current instability at the heart of capitalism’s financial apparatus.

Hedge funds try to bend the normal financial rules of the market in whatever way possible, though it appears Madoff went too far in what could be the world’s biggest ever fraud. A massive investigation is under way into how Madoff set up and maintained a giant ‘Ponzi scheme’. These schemes take their name from Charles Ponzi, an Italian immigrant to Boston in the US who, during the early 1920s, set about spreading rumours of lucrative investment opportunities he was involved in. These supposedly guaranteed what the Wall St Journal exposed as impossibly high returns, when in reality most of the underlying investments did not exist and Ponzi merely took people’s money and used some of it to pay dividends and other returns to existing investors, while creaming the rest off for himself. This was able to continue as long as new investors were attracted to the schemes. When the flow of new investors stopped, the schemes imploded.

Although an investigation by the Securities and Exchange Commission in the US is currently taking place into the precise nature of Madoff’s actions, he has apparently confessed that the steady above-average returns that characterised his operation did not reflect the underlying reality and that, over time, his funds became an elaborate sham. There is now a mammoth scramble by wealthy investors, charities and financial institutions to try to recover whatever little may be left of their original investments, with these investors notably including funds managed (or held in custody) by major banks like UBS, HSBC and RBS. Indeed, Bank Medici reportedly had $3 billion invested with Madoff and because of this has now been taken over by the Austrian government (Financial Times, 3rd January).

Hedge funds
The Madoff affair is in many respects but the latest (and most spectacular) disaster to afflict the little-understood world hedge fund sector. Until last year, the most infamous previous case of a financial disaster involving a hedge fund was in 1998 when what had become the world’s biggest hedge fund at the time – Long-Term Capital Management – went bust. This had been headed by a team that included two Nobel Prize winners for economics, experts in the pricing and risk-assessment of complex financial instruments. But after years of stellar returns in the 1990s the fund collapsed and had to be bailed-out by a consortium of 50 investment banks put together by the then Chairman of the Federal Reserve, Alan Greenspan. The banks had already invested so much in LTCM (and loaned it so much money) that their own capital would have been seriously jeopardized by the losses incurred and Greenspan had to step in to help them in a way that was a precursor of recent actions during the 2008 financial crisis.

The collapse of LTCM demonstrated that those who viewed hedge funds as an esoteric but peripheral phenomenon were living in the past. Hedge funds had by this time become a hugely significant, if secretive, part of capitalism’s financial operations, with the ability to exert an influence on markets well beyond that of many governments. This had previously been demonstrated to those paying attention by George Soros and his Quantum Fund, which in 1992 had made $2 billion betting against sterling in the European Exchange Rate Mechanism, forcing the UK out of the ERM and metaphorically ‘breaking the Bank of England’ in the process, with government intervention unable to stop the slide of sterling against the deutschmark.

So, given the ascendancy of hedge funds in recent years and the recent media fascination with them, what do they really do and why are they deemed to have so much financial power?

Hedge fund strategies
While the public conception of hedge funds is that they are highly risky investment vehicles that aim at spectacular returns for their investors, this isn’t entirely true in every respect. Indeed, hedge funds gain their name from strategies aimed at ‘hedging your bets’, so that in theory the risk associated with one activity can be mitigated, at least in part, by others. Most hedge fund managers are not interested in relative performance measured against an accepted benchmark. In this sense, they do not aim to beat an index like the FTSE 100 or the S&P 500 in the US in the way that other investment managers running more conventional operations like unit trusts and investment trusts do (whereby, say, an annual return of minus 20 per cent would be considered a good relative performance if the market had fallen by more than 30 per cent as it did last year). Instead, hedge fund managers generally seek ‘absolute returns’, which are positive returns in any sort of market conditions.

Most, though certainly not all, hedge fund strategies are equity-based involving stock market investment, and hedge funds generally aim to try to secure returns noticeably better than the long-term annual average return from shares (which in most major western countries has tended to be in the 8-10 per cent range). This is another reason wealthy investors find them so attractive.

The strategies adopted by hedge funds to achieve this type of performance in all market conditions fall into various categories, the most common of which are the following:

Long/short equity, which involves buying shares in some companies in the hope they will go up (‘going long’), but shares in other companies in the hope they will fall (‘going short’), thereby hedging the bet. Going short usually involves borrowing shares and immediately selling them only to buy them back cheaply later when their price has fallen so that they can be returned to the original lender and the difference kept as profit. Sometimes this type of long/short strategy involves ‘pairs trading’, such as going long on BP but short on Shell in the belief that the former oil stock is undervalued compared to the latter.

Arbitrage, based on a variety of techniques and strategies used to exploit market pricing inefficiencies (for instance, a company like Shell is quoted on more than one stock exchange and there can be temporary discrepancies in the price quoted in Euros in Holland compared to the price quoted in sterling in London). Fixed income arbitrage funds try to exploit pricing inefficiencies in bond markets and this was the main strategy used by Long-Term Capital Management until its collapse. LTCM took the view, backed up by various mathematical models they had developed, that bond yields tend to converge over time. More often than not this is true, though not always – as they were to find out during the Russian debt and currency crisis of 1998 when traders took flight from Russia, sold risky investments and bought into the relatively safety of US Treasury Bills instead.But LTCM had bought low-priced and high-yielding Russian government securities, while at the same time selling short high-priced and low-yielding US Treasuries, in the expectation that their yields would converge over time. This was because they assumed that investors attracted by high-yielding Russian securities would buy them en masse, push their prices up and so reduce their yields, while selling the relatively unattractive US Treasuries, raising their yields. Charles Geisst pointed out in his excellent Wall Street: From Its Beginnings to the Fall of Enron that ‘the idea of converging yields evaporated overnight as the Russian obligations fell precipitously in price and the Treasuries gained as a result of the flight to quality. The fund was on the wrong end of both sides of the trade’ (p.380), a calamitous end for the Nobel Prize-winning economists.

Event-driven strategies, which can involve buying shares in the expectation that a company merger or takeover is likely, or which can involve buying into distressed assets (these are avoided by most investors so there is more likelihood of significant mis-pricing and the opportunity to buy assets at a knock-down price). Often hedge funds will buy the debt of a distressed company as a prelude to taking it over and/or liquidating it for a profit.

Macro-strategies, which are based on taking positions on what is likely to happen in the global economy. George Soros’s Quantum Fund has specialised in these macro-strategies, taking huge, credit-fuelled bets on the direction of currencies and commodities, for instance, and in doing so exerting more economic power than many governments can muster.

Quant strategies, which are based on complex mathematical models, and which can involve elements of the other strategies named above as well as short-term trading designed to profit from minute-by-minute and second-by-second price fluctuations.

What all these hedge fund strategies have in common is that they involve speculation to varying degrees as opposed to investment for the long-term, and typically involve significant amounts of leverage too (hedge funds often borrow in multiples of many times their own value as a way of maximizing their returns - for example, returns from arbitrage activities would often be minute if it wasn’t for the amount of leverage used). And unsurprisingly, these are two of the main reasons hedge funds are often considered to be risky, if not unstable, influences within the market economy.

Hedge fund structures
In truth, the risk hedge funds present to the operation of the market economy’s financial system isn’t solely because of what they do, though it is true enough that regulated investment vehicles like unit trusts and investment trusts are legally unable to adopt many of the strategies hedge funds use. The main issue with hedge funds, exposed once and for all by the Madoff scandal, is that they are largely unregulated entities for the secretive and super-rich, and as such are open to all sorts of abuses, attempting to bend the investment ‘rules’ at will under the guise of innovative practice.

Most hedge funds are restricted to investors – who on investing usually become limited partners – with at least $1,000,000 (excluding their main residence), i.e. they are for capitalists only. They are also limited in terms of the number of investors who are allowed to join the fund. This is to avoid the restrictions and regulations placed by governments on other investment vehicles designed for mass participation and has been a way for hedge funds to slip ‘under the radar’ of the regulators. Most hedge funds – registered offshore for tax reasons and run as private investment partnerships – are covered by little in the way of investor protection and are barred from advertising or being sold to retail investors. Aside from withdrawing their investments (there are often restrictions on this too) hedge fund investors have little practical control over the managers, usually even less so than other collective investment vehicles like investment trusts which have shareholders and an elected board of directors answerable to them and which have to issue transparent annual reports, regular trading updates and so on.

The basic hedge fund structure appears to have changed little since they first appeared in the early 1950s, having been pioneered principally by Alfred Winslow Jones in the US, though many others – such as Warren Buffett before he developed his huge publicly quoted Berkshire Hathaway investment vehicle – established comparable private funds at a similar time. Annual management fees are high, typically 1 or 2 per cent of capital under management, with another 20 per cent of annual returns over and above an agreed threshold, explaining why in recent years many high-flying fund managers working for the big investment banks have been so keen to leave and set up their own hedge funds.

The role of hedge funds
Hedge funds, like private equity, have emerged in the present economic crisis as some of the ‘bad guys’ of the financial world, almost as if a capitalism without them would somehow be sane and humanitarian. Small investors in retail banks in the UK that have had to be nationalised or merged railed last year against the hedge funds for shorting bank stocks, driving their prices ever lower. It was clear that this would have happened anyway though as was illustrated when the share price slides didn’t stop when the shorting of financial shares was prohibited by government order.

There is always a place in capitalism for scapegoats, especially those as rich as most hedge fund managers have been (and as unpleasant as some of them no doubt are). But this detracts from the real issue which is the instability and chaos that lies at the heart of the money/prices/profits system itself. Capitalism without hedge funds is just as brutish and nasty as capitalism with them – and the irony is that if you accept the rationale of the capitalist economy, hedge funds and other speculators, contrary to much popular opinion, play a useful role.

Capitalism’s financial markets are the lubrication for the entire capitalist economy. These markets depend on liquidity and frequent trading to accurately match buyers and sellers at any one moment in time. If trading is thin, this matching of trades becomes difficult if not impossible, whether in shares, bonds, commodities, or more complex financial instruments. If, for example, shareholders investing via the stock market all used a ‘buy and hold’ strategy and didn’t generally sell their shares for long periods after buying them, the equity markets would be stifled and trading difficult. This is why hedge funds and speculators more generally perform a useful role for the system – they are one of the main ways of ensuring sufficient liquidity for it to be able to function properly.

Their growth in size and influence, especially in the last 15-20 years, has been phenomenal, explained by their potential attractiveness to capitalist investors aiming for a steady but above average return, and their attractiveness to fund managers because of their flexibility and fee structures. The number of hedge funds in existence now runs into the thousands, with London’s Mayfair being nick-named ‘hedge fund alley’. According to the Financial Times (31st December), hedge fund assets under management have grown from less than $50 billion in 1990 to around $1,900 billion last year, making them a hugely significant economic force.

The current financial turmoil, however, has seen the biggest outflow of assets invested in hedge funds for decades, a sum estimated at $400-500 billion from January to November 2008. Lack of credit and high interest rates have meant that a great many hedge funds have had to de-leverage, reducing their debt as quickly as they can and selling their assets at the best prices they can get in falling markets. And as investors withdraw their money on the back of faltering returns, this has had the knock-on effect of hedge funds also having to sell their assets to meet redemptions, creating a vicious downward spiral for equity prices in particular, called ‘forced selling’. This was the cause of much (if not most) of the massive waves of selling on world stock markets last September and October, with quite unprecedented levels of market volatility over a sustained period.

Due to this de-leveraging and forced selling at low prices, several hedge funds have already gone bust and there will surely be more to come. In addition, because they were so highly leveraged, the unpredictable volatility in equity, bond and credit markets has ensured that some funds have just folded under the onslaught, including some of the macro and quant funds that should, in theory, have been able to capitalize on these situations.

As hedge funds operate in such a competitive market, those that don’t perform get shut down or merged with others (so much so that around 60 per cent of hedge funds are no longer around within five years of their inception). The financial crisis will almost certainly ensure that this figure increases further. Also, there are already indications that hedge funds will be the next target of the regulators and so it would seem that the great hedge fund bonanza is over, at least for now.

As for Mr Madoff, he will have done the cause of hedge funds no good either as their lack of transparency has been illustrated as starkly as it could possibly have been. Many capitalists will no doubt now be looking elsewhere to invest their wealth – so long as another Mr Madoff hasn’t made off with it first.

DAP