State Banking in Australia (1934)

From the July 1934 issue of the Socialist Standard

Another Quack Remedy 

In the Glasgow Forward (October 21st, 1933), Tom Johnston takes G. D. H. Cole to task for omitting to mention the results of State banking in Australia in his recently published work, “What Everybody wants to know about Money."

As Mr. Johnston seems highly incensed at this omission one would expect that he would have supplied the deficiency and would have tried to show what good things State banking has achieved for the workers of Australia. But Tom deserves the carrot for modesty, for he does not even attempt it. For the benefit of those workers who are always being lulled to political sleep by references to Australia's magnificent “socialistic" examples, let us speak for ourselves. First let us give a few facts.

The biggest State-controlled Bank in Australia is the Commonwealth Bank. It was established in 1911 and has been a profitable concern for the Government ever since. Up to the 20th anniversary the aggregate profits were: —

General Bank  . . .        . . . £6,943,942 11 9

Savings Bank  . . .        . . .   2,781,995 19 9

Rural Bank  . . .        . . .      328,078 11 2

    Total                              £10,054,017    2    8

These figures are exclusive of the note issue branch. These profits have been distributed as follows: — 

To Capital Account       . . .  £4,000,000 0 0

Reserve Fund . . .   . . .            1,406,580 13 3

Rural Bank Reserve . . . 164,039 5 7

Savings Bank Reserve . . . 658,382 3 10

National Debt Sinking Fund 2,660,975 14 5

      Total                                 £10,054,017       2    8

These figures are from the Commomuealth Year Book and Labor Daily Year Book. They show that nearly one-third of the profits went into the National Debt Sinking Fund.

A common claim made on behalf of the Bank is that the profits go to lighten the “people’s burden" by helping wipe off the National Debt. But that is the crux of the whole matter, how does wiping off the National Debt help the workers. Reducing the National Debt reduces the amount of interest payable to bondholders, and thus enables the Government to reduce taxation. Reduced taxation, however, does not help the workers, but only the propertied class. What the workers get is their wages. If, owing to reduced taxation, the workers' cost of living is reduced, their pay is reduced likewise. It is on that rock that all the reformist schemes for bettering the workers’ condition under Capitalism are wrecked. As a prominent advocate of debt reduction by means of a capital levy (Mr. Pethick Lawrence) once admitted, it was merely a redistribution of wealth among the wealthy only.

If therefore State banking is a success it is as an adjunct of Capitalism. According to Senator Barnes, Labour Party, “The Commonwealth Bank has made a profit of 31 million pounds since its establishment." (Melbourne Herald, February 5th, 1934.) In the book of the Commonwealth Bank (an official publication by C. C. Fawkner) we are told that “The bank's policy was not to enter into aggressive competition with the existing financial institutions, and this was shown by determining the rates of interest on fixed deposits at ½  per cent. below those quoted by the leading trading banks." (p. 42.) And so that our masters could facilitate their business, “the rate fixed (for overdrafts) by the Commonwealth Bank had a marked effect in keeping down interest rates, to the benefit of the commercial mid business community throughout Australia." (p. 42.)

Some of the chief functions performed by the Commonwealth Bank have been Raising War Loans, Financing Naval Projects, Building Railways, Financing War Expenditure, Financing Pools for wheat, wool, etc.

Bank Loans to House Purchasers

One of the main functions of the State Savings Bank (Victoria) was the financing of home-building under what is known as the Credit Foncier system. Under the_Act of 1920, authority is given to the Commissioners to purchase and build houses for persons who have an income of not more than £400 per annum, and who do not own a house. The limit is, if the house be of wood, £1,000, and of brick, stone, or concrete, £ 1,300.

The interest charged was 6¼ per cent., and the terms of payment allowed for the paying off of the house in 26 years. The funds for this branch of the Bank's operations were raised by the issue of Credit Foncier Debentures, which were guaranteed by the Government of Victoria.

The net profit for the year 1928-29 was £34,032, and for 1929-30, £24,591. These profits are allocated for the purpose of meeting any losses that may occur. Savings Bank debentures pay 5¼ per cent. (1940) and 4½ per cent. (1936). The interest on these debentures comes out of the 6¼ per cent. paid by the workers who are purchasing their homes, and should this source fail, the Government foots the bill.

“Of the 46,100 loans in the Credit Foncier Department 58 securities were in the possession of the Bank at June 30th, 1930, on which the indebtedness was £34,183. To September 11th, 1930, 22 of these had been sold, reducing the number to 36 and the amount to £19,847. During the year, 86 properties were sold for £65,876, and resulted in a small loss (£1,412), but an amount of £1,162 which had been written off in former years, was recovered.” (Victorian Year Book, 1929-30.)

As the depression became worse, the number of houses reverting to the banks owing to the inability of the purchasers to keep up their payment increased rapidly. In 1930-31 the number in possession of the Bank at June, 1931, was 315, about seven out of every 1,000.

So great did the number of reversions to the Bank become that the figures were conveniently concealed from the public by not being published in the annual reports; Some idea of the huge increase can be gained when it is learned that a separate department was set up in the Bank to cope with it. Besides, owing to the inability of the Bank to dispose of many of the re-possessed houses, it was deemed wiser to leave the tenants in charge rather than risk the deterioration which accompanies an untenanted dwelling. Inquiries at the Bank reveal a reticent attitude with regard to particulars pertaining to this side of its activities.

In South Australia a similar position obtained.

Just prior to the depression the Board of Management of the State Bank of South Australia reported "that for the year ended June 30th, 1928, 106 houses reverted to the Bank through tenants being unable to continue payments or through their vacating premises because of inability to pay. The properties are now being sold by the Bank. The number of reverted properties for the previous year was 78.” The position in South Australia is said to be even worse than Victoria! !

In New South Wales, owing to political tactics by both State Labour Government and Federal Nationalist Government, the State Savings Bank had to close its doors altogether, and the business was taken over by the Commonwealth Bank. Pending an agreement being arrived at as to the terms of taking over, many depositors were forced on to the dole.

The foregoing facts could have been easily obtained by Mr. Johnston had he any desire to show some of the “results of the State Banks in Australia.” Mr. Johnston has a lot to learn about State Banking in so far as it affects the working class.

Let us ask Mr. Johnston a few questions. .

In what way do the floating of war loans, the financing of wheat pools, the building of State Railways, and the granting of big overdrafts at low rates of interest, improve the position of the working class ?

How much better off are those workers who began to purchase homes under the Credit Foncier System only to lose them (as they would have, had they bought them off private institutions), when the depression deprived them of their jobs?

Is not the. abolition of the Capitalist system and all its appendages more in keeping with working-class interests, and would not the Johnstons, the Coles, and others of their ilk, be better occupied in helping to establish Socialism? We know that the whole Capitalist system, including the banking system, has got to go before the workers come into their own. And with all due modesty we say to Mr. Johnston, "It's never too late to learn.”

W. J. Clarke

(Socialist Party of Australia.)

These Foolish Things: Nuclear capability—is power (1995)

The Scavenger column from the August 1995 issue of the Socialist Standard

Nuclear capability—is power

China has tested a new intercontinental ballistic missile, diplomats said yesterday, marking another crucial step towards superpower status for the country amid mounting American and Asian concern over its future geopolitical rôle. Coming two weeks after China’s May 15 nuclear test, the new missile is believed capable of reaching the US west coast, and most of Europe. China’s new 0.3 megaton nuclear warhead is expected to become operational next year, Pentagon sources said. (Guardian, 1 June.)

Don't you just love being in control?

Brian Mawhinney, the Transport Secretary, personally vetoed the publication of recent research which shows that children from low-income families and of ethnic origin are most likely to be involved in road accidents. The deaths and serious injuries of children are still rising in spite of an overall downward trend in deaths against an increase in traffic.

Surprise, surprise

“. . . the Labour Party has embraced the need for a ‘dynamic market economy’ in its new statement of values.

The question for voters when they next go to the polls is which of the main parties can oversee British capitalism most effectively.” Richard Thomas and Larry- Elliott (Finance Guardian, 1 April).

Ruling class priorities

“In 1913 Great Britain was at the height of her power and dominion. One-third of the surface of the globe—and three-quarters of all the ships that sailed the oceans—flew the Union Jack.

And the provision in the budget for the Royal navy was 11 times that for the social services.

Eighty years on, these figures are almost reversed. The Navy can draw on less than one-twelfth of the amount dispensed in ‘benefits’. . . we have got into a position where single mothers now get £5.29 billions (far more, in case anyone is interested, that the cost of Trident in the same year).”, Alan Clark, Mail on Sunday, 11 June).

Market forces

There will be no cod left in the North Sea within five years as a result of a political failure to deal with the problem of overfishing, Mark Tasker a British delegate to the North Sea Protection Conference, said yesterday, (Guardian, 8 June).

Class war casualties

The number of industrial accidents in the West Midlands has soared during the past year.

New figures released by the Health and Safety Executive show that the number of major accidents reported throughout the West Midlands jumped by more than 70 percent to 1,088 during the last year, {Evening Mail, 28 April).

Just an ordinary ruler

The Princess of Wales wants her son to be given as normal an upbringing as possible. She will be delighted, therefore, that Prince William has passed his entrance examination for Eton and, like every other normal boy in Britain, will soon be hurrying to his lessons in a black morning coat, white shirt and waistcoat. There will be ten pupils in most of his classes.

Economic oppression

More then 700,000 people have lost their homes since the repossession crisis began in 1990.

The Scavenger

Building profits versus building homes (Part 2) (1984)

From the Winter 1984 issue of the World Socialist

Link to Part 1.

Housing reform and the profit motive

Housing is probably the one basic need which, were it properly satisfied, would be the most conducive to good emotional and mental health. It is, surely, very pleasant and soothing to relax among pleasant and agreeable surroundings.

The fact remains that such a happy situation only applies to the small minority of the population who have the means to buy beautiful homes. The vast majority suffer a housing problem of one sort or another, whether it be living in slums or near slums or being plagued by the fears and insecurities caused by trying to pay off a mortgage.

Governments do initiate various housing reforms to try to solve these problems, but these always fail. Why is failure so total, especially when the materials, know-how and labour power exist to adequately deal with the problem of providing decent housing for all?

Is it because of stupid or corrupt politicians? Many people believe so and view a particular government's shortcomings in the light of the various abilities and characters of its leading members. But in actual fact these factors play a very subsidiary part and make no fundamental difference. Some politicians and civil servants, assigned various tasks, may be very well-meaning and in some respects efficient, but in the final analysis fail because they cannot succeed.

Under capitalism all production, government-initiated or not, is with a view to profit, not the satisfaction of human needs, material and recreational. Since the profit motive is the very life-blood of the capitalist system, it logically follows that government housing programs will also be introduced with a view to providing a profit for some capitalist group or other. Whether or not the politicians involved be good guys or con-artists is immaterial, because the financial institutions putting up the money for these reforms want a return (sometimes a large one) for their investment.

Urban ruin for profit

Never could the profit motive in a housing reform be so blatantly obvious as in the US Government's National Housing Act of 1968. This Act merged the Federal Housing Authority (FHA) with the Department of Housing and Urban Development (HUD). Many new laws were introduced as part of this act and the whole thing was launched in an avalanche of hype and ballyhoo to the effect that the government would assist every poor working stiff to buy and easily pay for a really nice house. Things didn't exactly work out like this.

FHA began as a product of the 1930s depression. People could not then get mortgages because financial institutions were afraid to loan money after tens of thousands of homes foreclosed when the buyers had no money to continue paying for them. The purpose of FHA was to be a government insurance company. It didn't make mortgages or loan money for them, but it insured the finance company that loaned the money against losing it if the tenants (one can hardly call them house-owners) defaulted. Part of the interest payments on the loan went to paying the insurance for these cases of default.

One of the 1968 housing reforms allowed the FHA to branch out from mortgage insurance into subsidising interest payments on mortgages. Ostensibly this was to benefit the poorer home-buyer but in practice, due to the generous depreciation terms offered to encourage private investment in housing, it became a subsidy to well-to-do taxpayers looking for a tax loss to offset against their other income. This meant that many small time real-estate companies, loan sharks and other sundry tricksters which are part of capitalist society could enter into get-rich-quick schemes at the expense of the home-buyer. Admittedly we are dealing with illegal as well as legal capitalists here but often the dividing line is blurred, particularly where FHA-HUD was concerned.

A typical situation that occurred under FHA-HUD was when a real-estate operator would buy a property for $6,000, put in $1,000 worth of repairs and then sell it for $10,000, loaning this to the buyer against a mortgage on the property. The speculator would then sell the mortgage to an investor looking for a loss-making asset. As the investor wished to record a loss his interest was to let the property fall into decay. The fall guy in this was of course the home-buyer who found himself on an endless trip of payments for a slum house.

The "success" of FHA-HUD in this respect has been well described by Brian Bayer in his Cities Destroyed for Cash (published by Fallet, Chicago, in 1973). Basing himself on observations made on his travels through such major cities as Detroit, New York, Chicago, Philadelphia, Saint Louis as well as smaller cities like Seattle and Lubbock, Texas, he described a typical situation:

Half and more of the houses on any given block are boarded up with plywood squares. The gutters hang, rain washes through holes in the roof. Ruined by the elements and gutted by thieves, the houses seem to be disintegrating like the stumps of rotted trees. Fires at night cremate the remains. The next day the family moves out and another house is abandoned and eventually destroyed.

In other words, the FHA-HUD program was not screwed up by ignorance, stupidity and carelessness, or just not caring. It was virtually a deliberate program of urban ruin for profit.

Shady practices

One may wonder why people didn't just rent instead of buy (or attempting to), the answer being that the government told them they would help and that they were encouraged by real-estate and financial companies who said it would be easy.

The methods of these companies weren't exactly the kind that would be openly recommended by the Chamber of Commerce. To establish credit for the potential house-buyer they would get blanks of income tax forms, make up false information and submit this as part of the application for a mortgage. Under FHA-HUD regulations a certain amount of money was required to be on hand, therefore these companies would deposit their own funds in the name of the purchaser (the bigger the mortgage the more proportionately the deposit); so when the check was made the purchaser qualified. The information in the tax forms showed up when there was a credit check. So with a good income, good credit and funds in the bank, the purchaser got a house, and of course the funds were removed from the bank as soon as he did.

Though in many cases people were taken advantage of by their naivety and gullibility, and in many other instances home-buyers knowingly entered into shady deals, all of this is part of the normal functioning (if one can use the word normal) of the capitalist system, and prevails in every country.

It may sound surprising that anyone was able to make much money considering the defaults, but the premise was simply to get rich quick. When one buyer defaulted the real-estate operator could always sell quickly to another at a higher price. This could continue until they found a taxpayer looking for a tax loss to hold the baby; by which time they'd made a killing. The end result was a worse slum than before. Parts of the Bronx, Brooklyn, Harlem and East Detroit are evidence of this.

It should be clear to anyone who studies the reasons things occur in society that all investment, hence production, is with a view to profit, and that the need for profit is so acute in such a competitive jungle of a society as capitalism that it doesn't matter how a business makes a profit, as long as it makes one.

It is pointless, and one would be on a totally wrong premise, to moralise. It is not a question of right or wrong, moral or immoral, good or bad, but of the need to understand the economic workings of capitalism and how it cannot function in the interest of the working class—and what socialism is and how it will solve the major social problems.

When Socialism is established

When socialism is established it will be necessary to set up councils at local, regional and global levels for the administration of social affairs in every aspect of productive activity. Also there will have to be councils whose function will be to co-ordinate the work of the various specific councils. The majority of the people in a local area will make decisions affecting that area specifically, the people in a certain region will make decisions for that region and everyone will make global decisions.

This will mean that everyone must have access to vast amounts of knowledge, concerning what each area produces, where it is stored, how what is needed can be got from one place and moved to another. All this knowledge can be stored in computers which can be hooked up to the TV system, so that people can receive whatever knowledge they wish by pushing a button.

When it comes to voting on specific issues people need go no further than their living room. Even today TV stations invite viewers to phone in their verdicts on alternative programs. The results, which depend on what number is dialled, are quickly computer translated and announced in only a few minutes. If this is possible under capitalism, one can imagine the tremendous advantages that can be made in a socialist society when people will be able to utilise the technology built up under capitalism as well as improve on it.

People could, if they wanted to, check and see how a certain project was progressing by tuning into a computerised-TV-News media, so that whatever was happening could be under the constant scrutiny of society as a whole.

First priorities for housing

When socialism is established it will first have two important projects concerning housing. One will be to find homes for the millions throughout the world who have none. The other will be to clear the world of the horrible slums and shanty towns in which so many of its population live. Therefore an enormous world-wide reconstruction project would begin which would involve the democratic participation of nearly everyone, in one way or another.

It would have to be decided, what region and what local area requires houses, how many, what type or style, what materials they will be made from and how much of each is required. Obviously, with this will go the many and various decisions concerning town planning, roads, recreational facilities, shopping centres (though we may not call it shopping then). Though the work involved may require many people, they will be forthcoming from all the occupations made redundant by the overthrow of capitalism, such as production for war and anything concerning finance, advertising, etc. Schools for training and re-training people in the various skills will be set up, and as far as the productive work goes they will have the machinery capitalism has created plus whatever advances on this the first members of socialist society will make.

People with specific skills related to housing, or those who wish to learn them, can give their names and lists of skills to an administrative office similar to present man-power or labour exchange offices and can be notified where their skills can be used.

In the longer run: an end to urban crowding

After socialism has solved the initial task of clearing away capitalism's rubble in every respect (feeding, clothing, housing, educating, clearing away pollution, curing curable diseases, etc), then it will be apparent that the change in society will be more than just production for use instead of profit, but will entail vast changes from top to bottom in every part of society. Nowhere will this be apparent more than over how we group in communities. Cities as we know them today will probably no longer exist as people won't want or need to be condensed in a particular area.

When starvation has been stopped and when every human being has a roof over their head, then socialist society can turn to satisfying people's needs in a more sophisticated way, and this will certainly be the case in housing.

Whenever there is a need for a new type of house, a town or a building for the use of the community, architects will submit plans and models which can be voted on by the community as a whole in a given area. Though there may be competition between the various architects and planners, it will be from the premise of who can best beautify the locality. One can be certain that there will be new types of dwellings. Along with the disappearance of cities as we know them will also go the high-rises, those up-turned shoe-boxes where people are crammed in like sardines, to be replaced with buildings where people can at least live like humans.

With whatever changes in the family structure the new social conditions will create will also come a need for new types of homes; there may be a type of communal home. And it may be that the design of a building will be determined by its functions, its given physical environment and the materials to be used.

Whatever the case, people will be able to choose their home to suit their.own particular needs concerning physical comfort and recreational requirements.

Who would not want such a society? So why not organise politically "for its speedy establishment?

Ray Rawlings (Canada)

Sting in the Tail: The bubble bursts (1995)

The Sting in the Tail column from the July 1995 issue of the Socialist Standard

The bubble bursts

Bradley Stoke, near Bristol, is Europe’s largest private housing development where in 1988 people queued overnight to buy houses before they were even built.

After all, house prices were rocketing and this, along with mortgage tax relief, made buying a house seem like a sound investment, so buyers took out mortgages in the belief that they could always sell at a profit.

Then came the recession. People lost their jobs and tax relief was cut. Many homes were re-possessed and house prices tumbled. Bradley Stoke became the negative equity capital of Britain and residents renamed it “Sadly Broke”. On top of this, professor Doug Woods of the Manchester Business School predicts that house prices will stay depressed for another 20 years!

Of course, no one can be certain what any market will be like one year from now let alone 20, but what does look certain is that the agony will continue for many workers who, like those in Bradley Stoke, fell for the guff about "a property-owning democracy”.

Panel in a muddle

Remember the panel of “seven wise men” appointed by the Government in 1993 to advise it on the economy? And remember how one of them announced after their very first meeting that the other six hadn’t a clue about how the economy worked?

At their latest meeting the panel, now only six, deliberated over what the government should do about interest rates:

“Three of the Chancellor's six independent advisers believe he made a 'tactical error' in not raising rates this month. The three ‘wise men’ say the current 6.75 percent will have to rise. . . but two others oppose further rises and the sixth expect the cost of borrowing to fall. ” (Ceefax 23 May.)

Setting-up the panel was just a political stunt to reassure the public following the ERM debacle of 1993, so the government never had the slightest intention of paying any heed to what the panel would say, and it isn’t hard to see why.

Unhappy minority

A Mr Allen Hancock in the USA has been publishing a quarterly More Than Money since 1993. He is a compassionate man who produces this publication to comfort a forgotten minority of US society—the filthy rich.

Inheriting $500,000 in 1988 from his oil-rich grandfather, Mr Hancock found himself "feeling isolated, embarrassed and encumbered”. According to a recent Cornell University study, over the next 20 years $4,800 billion will be inherited in the USA and Mr Hancock is worried about the recipients.

“One third of that wealth will go to just one percent of the population, amongst whom the average will be some $1.6 million. That is going to create a lot of stress and even unhappiness, Mr Hancock argues. " (Times, 12 April.)

As the unhappy inheritors don’t seem liable to give away this money burden, don't you think a compassionate working class should abolish the stuff for them?

Elementary, My Dear Whitehouse

We are all familiar with the deductive methods of the fictitious Sherlock Holmes. Unfortunately modern detectives are not quite so logical.

In the Observer (21 May) there appeared a report of the career of a real live detective Paul Whitehouse, Chief Constable of Sussex. Mr Whitehouse is an unusual policeman. He and a contemporary were the first Cambridge graduates to enter the police for 20 years. He is also unusual in that he can make deductions based on facts, even if these are rather obvious to socialists without the benefits of a Cambridge education:

“I started in Hartlepool. I couldn't help but notice that crimes were mostly being committed by the poorer people, who lived in the poorest areas. That is an interesting starling point. "

His deductive powers are somewhat less than Holmesian though, for he obviously understands less about policing in capitalism than Alan Clark:

“Alan Clark (the former Defence Minister) would say that we are here as servants of the ruling class. I would say we are here as servants of the people. ”

A look in the future

Those wearing red rosettes were happily chanting “easy, easy” while those with the blue rosettes looked on in dismay. Rival fans at a football match? No, only Labour and Tory activists on TV after the recent local elections.

“A great night for Labour” chorused the pundits, but party leader Tony Blair warned his followers that the night could well be Labour's high point. It probably was. If Labour wins the next (general) election and takes on the task of administering British capitalism then what can we expect to see?

First, the initial euphoria will evaporate as the new government struggles in vain to provide the jobs, security, improved social services, benefits, etc. which the voters were led to expect.

Next, public anger and media hostility, now aimed at the Tories, will be turned on Labour. Its popularity will slump in the opinion polls, seats will be lost at by-elections, Labour councillors will be ousted in droves from town halls, and finally there will be exultant Tories and dismayed Labourites on TV after a future election.

Pieces Together: Out of sight, out of mind (2009)

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

Out of sight, out of mind

“From the steam grates of Pennsylvania Avenue to the porticoes of the city’s grand buildings, homeless Washingtonians who live inside the nation’s tightest security zone are being encouraged to decamp during the inauguration for shelters in the city’s outer neighborhoods. The security sweeps will probably begin Monday. Buses will make one-way trips to two of the District’s largest shelters, which will remain open round-the-clock, said D.C. Council member Tommy Wells (D-Ward 6).”Everyone has to be out of the perimeter by then,” Wells said.” (Washington Post, 15 January)

Growing old disgracefully

“Miriam Gorman wanted to retire more than a year ago, but steep financial losses in her retirement savings mean the 71-year-old bookkeeper now plans to work on indefinitely. ‘I would have preferred to retire at the end of 2007, and then I was thinking at the end of this year, and now maybe it’s next year. I really don’t know,’ said Gorman, who’s been with an advertising company in Bethesda, Maryland, for 15 years. Across America, older workers are postponing retirement plans, dismayed by huge losses in the value of the investments they had depended on to fund their retirement. The U.S. recession has compounded the problem, with home values too low to provide the nest egg many seniors need and interest rates on safer assets close to zero.” (Yahoo News, 17 January)

Hard times

“Think pawnshops, and you probably conjure up old jewelry, desperate customers, and seedy storefronts. Hardly, it would seem, the ingredients for innovation. Yet amid recession, the country’s largest chain, Cash America International (NYSE:CSH – News), is using the credit-crunch boom time to lure new customers and expand. To woo the growing number of consumers facing a credit squeeze, Cash America is boosting the amount of short-term loans it offers online, and is adding a cash-advance feature to electronic payroll cards. Such cards are gaining popularity among employees with poor credit, or those without traditional bank accounts.” (Yahoo News, 5 February)

Mortgage misery

“One house was repossessed every ten minutes in the third quarter of last year as the rate of seizures almost doubled, the Financial Services Auithority said yesterday. The City regulator said that 13,616 homes were repossessed in the three months to September last year, a 92 per cent rise on the third quarter of 2007. There was also a rise in the number of homeowners in arrears, indicating that hundreds of thousands of borrowers could lose their homes. The FSA said that 340,000 borrowers were behind on mortgage repayments, a 10 per cent rise compared with the previous quarter of last year and a 24 per cent rise on the same period in 2007.” (Times, 23 January)

Voice From The Back: Big bucks and big bangs (2011)

The Voice From The Back column from the June 2011 issue of the Socialist Standard

Big bucks and big bangs

The Times publishes a science magazine called Eureka which featured a debate on the issue of “Does military funding compromise science?” Arguing the case for the affirmative was Harry Kroto, winner of the Nobel Prize for Chemistry, 1996, who revealed some devastating facts about the extent of the stockpiling of nuclear weapons. “In my Science and Society lectures, I implore future physicists not to make ‘better’ atomic bombs. There are already more than 20,000, enough to destroy the human race many times over. I implore future chemists not to make ‘better’ napalm, and show them the iconic image of the burning Vietnamese girl that shames chemistry. I implore future engineers not to make ‘better’ landmines, and show pictures of African children playing football on crutches because they have lost a leg in a blast” (Sunday Times, 19 April). Harry, we agree with you very much but, unfortunately it is not up to scientists, who are in present-day society sponsored by big business, to change the world; it is up to us the working class.

The class division

It was the sort of news item that would have appealed to “Disgusted, Tunbridge Wells” or some such Daily Mail reader. “Too fat, too drunk, or just too lazy to work – but not to claim benefit. More than 80,000 people are too fat or too dependent on alcohol or drugs to work, according to official figures released today. The first breakdown of medical assessment for more than two million people on long-term sickness benefit shows that 42,360 of claimants are alcoholics while more than 37,000 are drug abusers. A further 1,830 are too obese to hold down a job” (Times, 21 April). No mention is made of the rest of the 2 million that are on long-term sickness benefit, but even more strikingly no mention is made of the capitalist class. Here is a class that has never worked, has no intention of ever working – in some cases for several generations – and whose benefits are somewhat greater than the £94 a week doled out to the working class as sickness benefit. Some of them are depicted in the national press coming out of expensive night clubs stoned out of their minds, but this is reported as the high jinks of the playboys and playgirls. It is all good fun, but it is doubtful if £94 would buy a round of drinks for them and yet that is supposed to be sufficient to keep a chronically ill worker for a whole week.

The wasteful society

Socialists often highlight the wastefulness of capitalist society. The waste of human lives with the premature deaths of millions of people from the lack of clean water. The waste of human usefulness, with millions forced into unemployment. The waste of the world’s natural resources in the mad scramble for profits. The plight of millions of homeless and the inadequately housed should be contrasted with this piece of wastefulness by a member of the useless capitalist class. The property dealer Vincent Tchenguiz has recently put his £25m villa in St. Tropez up for sale, and according to one friend , “Vincent bought the villa five years ago but he’s spent only one night there.” Really, one night? “Really, he always stays on his yacht.” So, why have a seven-bedroom pad with extensive staff quarters? “It’s for overflow guests. There’s not always enough room on the boat so they stay at the house.” Of course (Sunday Times, 8 May).

Fine words and harsh reality

Politicians are wonderful at coining words at election times but a little less wonderful on delivering on electoral promises. Mr Cameron has promised us all a wonderful future in his ‘Big Society’, but we should be aware of the outcome of Mrs Thatcher’s promised ‘Property-owning democracy’. “The number of homes repossessed in Britain increased by 15 per cent in the first quarter of the year as unemployment and the cost of living continued to rise. The Council of Mortgage Lenders said that 9,000 homes were repossessed in the first three months of this year compared with 7,000 in the final quarter of last year” (Times, 13 May). Rising unemployment and homelessness – a strange sort of property-owning democracy.

Progressing backwards

One of the illusions much favoured by politicians is that inequalities are gradually disappearing thanks to their wonderful efforts, but the reality is somewhat different. “After a jarring leap upwards during the industrial collapse of the 1980s, the gap between rich and poor has, with brief interruptions, been trending higher. By the tail-end of Labour’s time in office, the Gini coefficient, a measure of inequality, was at its highest since comparable figures began in 1961… Britain still ranks just after the United States among the leading Western economies in terms of the gulf between rich and poor” (Times, 2 May).

Bubble troubles (2008)

From the May 2008 issue of the Socialist Standard

The intoxicating US housing boom has come to an end. Now the economic hangover has arrived.

With the collapse of the housing boom in the US what is likely, at the very least, is a prolonged crisis of the credit system. And as credit greases the wheels of capitalism this is no laughing matter for the capitalist class.

The Federal Reserve has been doing its best to ease the pain—the pain for the investment banks, that is. Barkeeper Ben Bernanke announced on March 11 that the Fed intends to generously fund the banks “rehab,” loaning them the incredible sum of $200 billion in return for the tainted “mortgage-backed securities” as collateral. This is very much like a doctor who prescribes a little hair of the dog to an alcoholic as a “cure” for a hangover. At best, such bailouts will probably only buy a bit of time.

And not very much time at that—judging from the recent string of collapses in recent weeks. On March 7, the investment fund Carlyle Group Corp. announced that it was unable to meet $37 million in margin calls from its lenders and a few days later it was reported that the 85-year-old investment bank Bear Stearns, which suffered huge hedge fund and mortgage-related losses, is being bought out by JPMorgan Chase in a fire sale, with money loaned by the Fed.

Far from calming the financial waters, the actions of the Fed have drawn attention to the severity of the crisis and also accelerated the decline of the dollar. Somehow, the system as a whole—the once inebriated economic body and its battered financial organs—will have to expel the vast quantities of toxic loans that are clogging it up. When other countries face this dilemma, the US has always the first to prescribe a bit of shock therapy, making use of capitalism’s natural function of regurgitation. For some reason or another, though, the US policy makers are sentimental when it comes to their own venerable financial institutions.

The US government that hasn’t lifted a finger to assist the massive number of workers who face foreclosure, but has acted quickly to pump money into the accounts of those who have made a good living picking the pockets of those workers. The direct impact of the crisis involving “subprime loans” (once more accurately referred to as “predatory loans”) has already led to hundreds of thousands of foreclosures, with the overall number of foreclosures up 79 percent in 2007 alone. Clearly, the US policy makers have every intention of shifting as much of the pain from the crisis onto the working class as is economically and politically possible.

Empty wealth

Some cold comfort to workers from the crisis, however, is that it rips great holes in some of the smug arguments that economists and politicians have tried to pass off as “common sense” (and which seemed plausible enough during the long speculative boom in the US that basically stretches all the way from the mid-1990s until recent months). For instance, it is becoming increasingly self-evident that the prices of many “commodities” lack any real basis and are thus “fictitious” prices to a large extent.

There is an important distinction, in other words, between the products of labour, which are the basis of any society and happen to take the form of commodities in a capitalist society, and the wide variety of things that have a price and thus take the commodity-form but are not the product of labour and thus lack intrinsic value. When capitalism is humming along, no one is very concerned with whether what is being bought and sold has intrinsic value or not, so long as it can be sold on the market. Thus, “mortgage-backed securities”—to take one example—were as good as gold for many years.

Now that the housing bubble has collapsed, however, such securities are being shunned, as it is clear that a great number of borrowers will be unable to meet their mortgage payments. The “value” (=price) of this commodity has plummeted, wiping out a vast amount of wealth that existed on paper, while leaving a hard lump of debt behind.

It is hardly surprising that people flock to gold during a crisis. That behaviour is not motivated by a human love of shiny metal objects. Rather, gold has served as the “general equivalent” or money historically precisely because gold has intrinsic value as a product of labour and that that value exists in a form that is inherently more durable and divisible than most other products of labour. 

In short, a crisis reveals the crucial distinction between commodities in the fundamental sense (as the capitalistic form of products of labour) and commodities in the purely formal sense (as anything with a price). Call it the revenge of the labour theory of value.

There is some irony in the collapse of the housing bubble revealing the distinction between intrinsic value and mere price. Because one of the initial attractions of the housing market to investors, after their dizzying experience with stock-market gambling, was that it appeared to be terra firma. After a vast amount of paper wealth was wiped out of 401k (retirement) plans and mutual funds circa 2000, it seemed that real-estate was a secure investment in a tangible asset.

But to describe a house as having intrinsic value turns out to only be a half-truth. Sure, the house itself has intrinsic value, like any other commodity in the fundamental sense just described, according to the socially necessary labour expended to produce it. In other words, the house’s value (as a structure) stems from the value of the building materials used and the amount of labour expended to assemble them.

However, in addition to the house itself, the price of the land upon which it is built represents a large part of the overall price—and the bulk of the price in the case of large urban areas. And that land has no intrinsic economic value (apart from whatever labour was necessary to clear trees or previous buildings out of the way so that construction could commence), only a price determined, since its supply is fixed, by the paying demand for it. In this sense, real-estate prices are a reflection—more than anything else—of the purchasing ability of the prospective buyers. So it is no surprise that those prices rose rapidly along with the increasing abundance of cheap credit.

Buyers in each particular housing market tried to convince themselves why the price of their own house would never fall (whether because of the desirability of their neighbourhood, the solid construction of the house itself, the strong local economy, or some other reason), but in fact there is no intrinsic value around which the price must gravitate, meaning that there is much room for the price to rise, or indeed, fall.

Profit-creation

Another central (but often ignored) fact which a crisis helps shed some light on is the origin of profit. During a speculative bubble, when mutual funds or housing prices are steadily rising, profit seems to arise magically from the very act of investment. No one is too bothered to ponder how this feat of alchemy is achieved. When the bubble eventually bursts, it may dawn on some that the actual creation of profit—rather than the mere transfer of money from one wallet to another—involves more than simply letting go of funds and then waiting for an even bigger sum to return in boomerang-like fashion.

And if the person bothers to investigate the matter further, it would become clear that profit is generated in the production process. It is there that surplus-value is generated as the difference between the value of the labour-power the workers sell to capitalists in return for their wages and the value those workers add to the commodities produced through their actual labour. In contrast, much of the profit that appeared to be created during the boom was in fact an expression of the expansion of debt.

The housing boom, like the stock market boom that preceded it, was praised as a way for workers to move up the social ladder, and it seemed that there was enough profit to go around to swell the ranks of the capitalist class. From today’s perspective, however, we see that workers are left in a worse situation than ever following the speculative boom, facing foreclosures and wiped out retirement funds. The only upward mobility in the end was for the money itself, which was coaxed out of the pockets of workers to pad the salaries of the much heralded “financial wizards.”

Granted, in any speculative bubble the expansion of consumption goes hand-in-hand with an increase in productive activity, but it is certainly not the case that the enormous gains made through speculation in certain activities reflect or correspond to an expansion in surplus-value created via production. Rather, the increase in the “value” (=price) of real-estate, stocks, or whatever the mania is centred on is fed by the speculation itself. Prices go up as more money is thrown at the object of speculation, and with those rising prices even more money is invested. But there is nothing to sustain the high prices once the speculative demand dries up. This is quite different from an increase of investment in productive activity that results in products containing surplus-value that are sold to realize a profit.

A comparison to eating, rather than the earlier hangover analogy, may highlight the distinction between mere speculation and investment in production. Simply put, speculation is not all that different from a person who consumes a large amount of food without performing any physical activity whatsoever. The result, unless the person enjoys a remarkable metabolism, is weight gain.

During the housing boom, the economy swallowed a tremendous amount of credit that for the most part was not directed towards productive activity, and this inevitably led to a flabby result. The speculative feast was good fun for those who partook of it, but now the heavy debt burden is making it hard for the capitalist economy to function, with the credit crisis also hindering investment in productive activities.

But it is not as if a “muscle-bound” capitalism is a lovely state of affairs either. As mentioned earlier, the surplus-value that arises from productive activity is nothing more than unpaid labour extracted from the working class. So there is no profit without exploitation.

A “fundamentally strong” capitalism (as it is called by those critical of finance capital but enamoured by capitalism itself) may conjure up an image of a healthy organism, but really it is more appropriate to picture a young Arnold Schwarzenegger prancing around the stage of a Mr. Universe contest clad only in his over-inflated muscles and surreal suntan. It is not true health or strength, but just the appearance of it. And just as Arnie worked out incessantly in the pursuit of muscles for their own sake, without any concern for their actual use, the productive activity under capitalism is only a means of building bigger and bigger profits, rather than being primarily a way to produce material wealth to meet the needs of society’s members in accordance with their collective and democratic will. There are all sorts of side-effects from the mad pursuit of profit, both in the short- and long-term, similar to how Mr. Schwarzenegger’s steroid-fuelled body-building in his younger years resulted in open-heart surgery by the time his muscles had sagged with age. 

Workers cannot be indifferent to a crisis, no matter how much we are disgusted by the predictable pendulum swing between “boom” and “bust” (and the sudden mood swings it causes among our capitalist rulers), because our lives can be directly influenced by today’s financial turbulence. But at the same time, we have no interest whatsoever in thinking up ways to put capitalism “back on track” or make it “healthy” again. Even when the system is in tip-top shape it works directly counter to the interests of workers.

The crisis will not miraculously or mechanically turn every worker into a socialist, as some pseudo-Marxists fervently hope, but it does at least create a situation where socialists may find workers more willing to consider an alternative to capitalism. It is up to us, as socialists, to present that alternative in a convincing way based on our understanding of the essential nature and limitations of the capitalist system.

Michael Schauerte

These Foolish Things: Wage Slave (1996)

The Scavenger column from the April 1996 issue of the Socialist Standard

Wage Slave

“I went to my bank three days before Christmas expecting that about £170 had been paid into my account, but I found only a fiver had been put in . . . "The man (who does not wish to be named) claims he told the agency of the long-standing engagement (to attend his pub soccer team’s Christmas party).

When he failed to report for work, ASC invoked clause eight of the contract: “Should you fail to turn up for any assignment without giving reasonable notice . . . your remuneration will be reduced to £1 per day for any work carried out previously and not yet paid, irrespective of hours worked” (Guardian, 1 February).

Demonstrating power

Education and Employment Minister Eric Forth told the Commons that some of the [Newbury bypass] protesters had been refused benefits because their demonstrations meant they were not available for work. Daily Mail. 18 January.

Poverty

Nearly 1,000 families lost their homes each week last year, according to figures published yesterday by the Council of Mortgage lenders which showed repossessions rising again. Repossessions increased to 49,410 in 1995 from 49,210 in 1994—ending a four-year decline since they peaked at 75,540 in 1991. Guardian, 1 February.

Economics in Wonderland

Financial crisis is such a regular occurrence at Eurotunnel that it is hard to remember the company being in any other state . . . There is no reason Sir Alastair Morton and his crew should want a full financial reconstruction since it would mean recognising the underlying economic reality: that Eurotunnel equity has no value at all. Part of the function of a board of directors is to sustain at least some hope of some value for shareholders, even if this is at some indefinite point in the future. Charade this may be, but bankers have some interest in going along with it. They are already guaranteed every penny of money the project generates over and above its operating costs. . . .

Just trust the Market

Commercially, price wars are nearly always pointless . . . in petrol retailing it is questionable whether even the motorist gains . . . the petrol price war will create petrol deserts in large parts of rural and inner-city Britain as Esso. BP, Shell and the supermarkets battle it out and small retailers close. Independent, 18 January.

A pound of flesh

Gavin [Morrey], who quit work 18 months ago with chronic shoulder injuries, contacted the bank [Barclays] because he was unable to pay his £124-a-month mortgage. He gets just £80 a week disability allowance and his wife. Sue, earns £134 a week on a production line. The couple, who are supporting their 16-year-old student son Grant, were asked to list their weekly outgoings . . . [the Bank’s letter) read: “We appreciate sight of your income and expenditure details which give some indication of your financial position. We would have thought that sufficient economics could be made in respect of food and personal expenses to enable you to fulfil your contractual commitments” (News of the World, 31 December).

The Scavenger

Running Commentary: Property-Owning Democracy? (1987)

The Running Commentary Column from the March 1987 issue of the Socialist Standard

Property-Owning Democracy?

Remember the Tories' 1983 election promise of turning Britain into a "property-owning democracy"? The prospect of "owning” their own house was undoubtedly an attractive proposition to many workers fed up with the insecurity of renting their homes from unscrupulous landlords or penny-pinching councils. However for many the dream has turned into a nightmare. As fewer council houses are built and fewer properties are available to rent, many people have been forced to "choose" a mortgage, which the building societies have been only too pleased to give them.

But having encouraged people to become home owners, the government has now decided to punish those home-owners who have the misfortune to become unemployed. New rules have just been introduced which will mean that anyone who becomes unemployed will have only half their mortgage interest paid while they are in receipt of Supplementary Benefit and only for the first four months of unemployment. Under the old rules all the interest (but not the capital) was paid. This is bound to increase the rate of repossessions. Already one in ten homeless families are homeless because their home has been repossessed due to mortgage default.

Families faced with the prospect of unemployment and inability to pay their mortgage may decide to sell up to avoid arrears and repossession. If they do, however, the local authority would have no obligation to rehouse them since they would be deemed to be "intentionally homeless”.

For workers in this situation the security promised by the slogan "property-owning democracy" has turned out to be as illusory as it is for those who depend on paying rent in order to keep a roof over their heads.

It Pays to Advertise

It is even more profitable if you can get someone who has nothing to gain to pay you for the privilege of so doing!!

Strange as it may seem, the same person who objects strongly to paying a few pence for a carrier bag printed with the name of a supermarket, will pay pounds to advertise something else.

Guinness started the fashion years ago. In return for a cheque made out to them for the correct amount (something like 20 guineas if memory serves) you would receive a sweater with 'GUINNESS' — not even the toucan —  emblazoned across the front. Today for £18.95 you may buy a plain wool sweater by post; this price is already considerably higher than for a similar garment bought across the counter. However, for only an extra £ 1, you can have' The Times' discreetly embroidered on the left-hand side. Of course, if you don't have the odd £20 to spare, you can go downmarket and buy a Coca Cola — or if you prefer, a Pepsi — T-shirt. Slightly upmarket again, you could, in gold on black, advertise Biba. If you really want to dredge the bottom, feature the Sun with the screaming front page headline 'SID VICIOUS DEAD. Punk Star Killed By Overdose'.

One T-shirt we have not yet seen is the one advertising the fact that we are all being killed by an overdose — of capitalism!


Gorbachev the democrat?

"We need democracy like we need air to breathe", said Gorbachev in a speech to the ruling Central Committee. What he means by "democracy" is that there will be more than one candidate standing for office in elections and a bit more public debate with officials prepared to admit from time to time that things occasionally go wrong, that there are shortages and production quotas aren't always fulfilled.

Well it's better than nothing. But no-one should be conned into believing that the new, reforming Russian leadership is really concerned about giving ordinary Russian workers a voice in decision-making. What Gorbachev is undoubtedly concerned about is the failure of the Russian economy. Giving people a little in relatively unimportant areas is a time-honoured way of getting them to give back a lot more.

If Russian workers are made to feel that they do have a voice, that they are listened to, then it is quite possible they will be conned into working harder and producing more wealth for the Russian ruling class. A little bit of political liberalisation will not affect the fundamental division of Russian society into those with wealth and power and those without, unless Russian workers recognise that fundamental division and then exploit the small window of opportunity that Gorbachev has opened for their own political ends.


Bullets on the beat

Officially Britain has an unarmed police force. Unofficially things are rather different. A curious incident involving a car chase down the M1 which ended when the car being pursued ran out of petrol and shots were fired, led to revelations that for the past eight years traffic police patrolling the Nottinghamshire section of the M1 motorway, the A1 and Nottingham city centre have been carrying guns.

Charles McLachlan, Chief Constable of Nottinghamshire, said at a press conference:

  The vehicles are double-manned and weapons are carried in a locked container in the vehicle. They are two pistols, a pump-action shotgun and body armour. They are not allowed to take these weapons from the container which is permanently locked, without approval from a senior police officer.

No doubt this was meant to reassure people. But these words sound rather hollow given the trigger-happy mentality of certain armed police as shown by a series of tragic incidents over the last six years in which people have been "accidentally” shot by armed police.

One of the most disturbing aspects of the militarisation of the police is that the decision to arm police officers is not taken in public after debate and discussion but instead is made behind closed doors by the police themselves. As such decisions are deemed to be "operational" even the elected police authorities, to whom the police are nominally responsible, do not have to be consulted or even informed.

Debt is a four-letter word (1990)

From the December 1990 issue of the Socialist Standard

In a speech which did not dominate the discussion in pubs and work canteens the Governor of the Bank of England recently revealed how anxious and angry he is about the state of the nation.

"Some people", he moaned, "are undoubtedly in difficult situations . . . they feel vulnerable and confused . . . The distress suffered by individuals and their families is obviously a matter of concern for all of us . . ." He was not talking about impoverished bankers with their begging bowls obstructing the free passage in the City of London nor about pathetic landowners developing claustrophobic tendencies when they are shut up in their stately homes with only a few thousand acres around them. What stimulates the anxiety of the Governor is the growth of what he calls consumer credit, but which others might call living on tick, which he says has doubled over the last ten years:

  Thrift has gone out of fashion. Indeed the all-to-prevalent outlook on life has become I want it, and I want it now.

These sentiments would have been well received in Downing Street, by a prime minister who has such fond memories of her father's dour parsimony and whose professed ambition is to run British capitalism like a thrifty housewife who never gets in debt. The only snag is that the credit boom has happened while the thrifty housewife has been in charge, even if the Chancellor who did so much to help her is now increasingly denounced as a reckless wastrel. It is not new for a moral issue to be made of debt: this governments contribution to this particular piece of hypocrisy has been to link it with what it has called the dependency culture—of single mothers passing their responsibilities on to the state, of scroungers battening on to a naively generous Department of Social Security, of hypochondriacs absorbing almost the entire resources of the National Health Service.

Tally men and credit cards

It is not convenient to this theory that people who rely on earning a wage for their living can hardly avoid getting into debt and that it has been like this for a long time. A lot of today's consumer credit would once have been supplied by the less exotically named tallyman with his bicycle and his mini-ledger and through the "cheques"—credit vouchers—often sold by churches who took a commission on the repayment by instalments. Now these same functions are performed through credit cards, mail order, HP agreements, bank overdrafts and the like. This is not to mention one of the most common forms of modern debt—the mortgage which, according to the Governor, has grown even faster than the other types of credit and which has widely replaced rental as the most available method for a worker to get somewhere to live. At the lower end of the poverty scale, this government has recently created a new tribe of debtors in the social security claimants who are now forced to grovel for a loan from the DSS if they need things like clothes or furniture, where before they were likely to get an outright grant.

But this nation apparently seething with debtors is not a happy place where everyone is getting everything they want now because they can't be bothered to save for it, through the benevolence of the money-lending institutions. A survey of the situation in 1989 carried out by the Policy Studies Institute, Credit and Debt in Britain, found that more than ten per cent of families in the UK were is arrears, some of them with multiple problem debts. The average arrears amounted to £600. which may not be much to the Governor of the Bank of England but is a mountainous sum to a single parent family or someone who is unemployed. In these days of the mortgaged home, rent arrears remain a serious problem; the survey said that over a million families were in trouble over rent last year.

There is no happier news about mortgages, which have long been fondly advertised as the way to a secure home. "Mortgage misery" is a phrase which has been overworking in the headlines of the popular press lately. It encapsulates the kind of evidence published in August by the Council of Mortgage Lenders—that the number of mortgages in arrears of six to twelve months was 95,030 in the first six months of 1990. compared to 58,040 in the same period last year. Mortgages more than 12 months behind rose from 12,030 to 18,750. Those friendly banks and building societies, who have put so much effort into assuring us that their main concern is to help us get a roof over our heads, have responded to this situation by taking the roof back, with the rest of the house. Repossession cases numbered 7,390 in the last half of 1989; in the first half of this year they reached 14,390—almost double. A spokesman for Barclays Bank said (he was trying to be helpful). "Anyone who is having difficulties shouldn't just ignore them . . ." as if it were possible to ignore the trauma of repossession, of being homeless. "We've advised him to go the the council's homeless person's unit", said a local Citizen's Advice Bureau of one man with a pregnant wife and two children who owes £3,500 to a building society. "He’ll have to prove real financial and personal difficulty before they rehouse him”.

Capitalist debts

At the same time we have been hearing of many other cases of people who, whatever the Governor of the Bank of England may think, wanted something now and were willing to get into debt for it. There is a crucial difference between these people and those who fall behind with the mortgage, or can't pay for the fridge they got on HP, or have to apply for a loan from the DSS and that is the scale of what might be called their operations. The Parkfield group, which had investments in engineering, property and entertainments, recently crashed owing £288 million of which £27 million is unlikely ever to be repaid. News Corporation, the huge media conglomerate controlled by Rupert Murdoch whose British papers have worked so hard to keep Thatcher in power and in so many other ways to titillate working-class delusions. has a "long-term” debt of A$7.58 billion (£3.22 billion). The vast and complex empire of Robert Maxwell, who was once a Labour MP and who is still extravagant enough to call himself a socialist, has debts of over £1.5 billion. It is the same story with other groups whose reputations rest on the charisma—or should it be the media hype associated with one person such as Brent Walker and Saatchi and Saatchi. When capitalism was in boom these people were revered as super intellects who had done the impossible—they had produced infinite profitability even if the proceeds were not available to all those readers of the Sun and the Mirror who so admired them. Sales went on soaring and the groups snapped up one expansionary deal after another. It seemed it would never end.

That was all very well as long as profits kept rising and interest rates were low but as the situation changed the extravagant debts of these groups put them under a lot of pressure. Many famous company names—Coloroll. British and Commonwealth—were extinguished while others—Laura Ashley—struggled on. Among the most spectacular of recent struggles has been Polly Peck whose chairman and chief executive, Asil Nadir, has been under scrutiny by the Serious Frauds Office. Polly Peck controlled over a third of the press in Turkey, it owned the Sansui hi-fi company and Russell Hobbs Kettles. Most famously it also owned Del Monte, the canned fruit firm which ran those TV ads in which Mediterranean peasants waited anxiously in the early morning sun for the Man from Del Monte to sample the fruit and give the go-ahead for it to be picked for canning . . . Polly Peck borrowed about £570 million to buy Del Monte: its total debts were estimated at around £1.3 billion and Asil Nadir anxiously grovelled to the Turkish government to help rescue him before disaster, not to mention the boys from the SFO, overtook him.

These debts put into proportion the problems of mortgage, HP and rent arrears. The working class, who depend on employment for their living, need to borrow money—sometimes to survive, sometimes to buy something which the Governor of the Bank of England and Margaret Thatcher's father would no doubt regard as a luxury like a TV set or a washing machine. At one time they did this through "cheques" or tallymen or the pawnbrokers who lent small amounts on the flimsiest of security such as a man's best (and only) suit. There was always a certain stigma attached to these methods—tallymen did not advertise themselves and there was nothing brazen in the manner of those who slipped into the pawnbrokers on a Monday. But this does not apply to credit cards or bank overdrafts or mortgages: in most cases these are seen as evidence that a worker has arrived at some sort of economic maturity: they have solved the problem of poverty and can read the financial press with the same interest as a Maxwell or a Nadir. Not many people regard themselves as members of the working class when in the company of their Flexible Friend.

But capitalism can wipe out delusions as fast as it promotes them. Facing reality can be a painful business, for the worker whose dream of a secure home turns into a nightmare of council bed-and-breakfast accommodation and possibly for the tycoon whose financial juggling act falls into disarray and ends up in bankruptcy. Except that when this happens it usually leaves them down to their last few million, their last few thousand acres, their last private jet and yacht. It is the class who end up in homeless families accommodation who make all these things, who produce the profits which finance the machinations of people like Murdoch and Nadir but who suffer the anguish and the humiliations of poverty. And that will not Do Very Nicely.

Ivan

Castles in the air (1986)

Illustration by George Meddemmen

From the April 1986 issue of the Socialist Standard

Under capitalism the housing problem has been a constant feature of working-class life. Although consecutive British governments have enacted numerous reforms, overcrowding. shortages, slum-living and homelessness persist. The present government's 1980 Housing Act sought to broaden the scope of home-ownership by allowing council tenants the "right to buy" local authority-owned housing, in the belief that a shift of tenure offered the best solution. So what have been the results so far?

There is a popular image of owner-occupiers as a privileged minority enjoying a number of advantages denied to tenants of rented accommodation, such as freedom of choice, independence, security of tenure, high-quality housing and asset growth. In addition, the financial carrot of tax subsidies such as mortgage interest relief helped make owner-occupation a seemingly attractive proposition.

The remarkable growth of the owner-occupied sector — from 54.7 per cent in 1983 to 60.2 per cent in 1985 and a projected 67.9 per cent in 1991 — seemed to justify the Conservatives' policy on council house sales, which was popular with the electorate. Political pundits have in fact pinpointed the 1980 Act as a major factor in the Conservatives' electoral successes in recent years and Labour traditionally the party of council housing has taken note of this and reversed its policy.

Despite its apparent popularity, however, the growth of owner-occupation has not been accompanied by an easing of workers housing problems. In fact for many working-class households owner-occupation has created more problems than it has solved. Entry into the owner-occupied sector is no guarantee against squalor and the responsibilities of maintenance and repair, coupled with the pressures of regular mortgage repayments. place an enormous burden on those dependent exclusively on wages and salaries for the upkeep of their house. In this context security of tenure is an illusion and the threat of eviction and homelessness is ever present.

Contrary to popular belief, most owner-occupiers do not actually own their houses. Their right of tenure is secured only through loans which they have to repay with interest to the lending institution — usually a building society but increasingly since the 1980 Act to local authorities. The title deeds to the property are held by the lending authority until the mortgage has been fully repaid, which means that over the life-time of the mortgage — which can be as long as 30 years the owner-occupier's status is akin to that of a tenant but also bearing all the responsibilities of repair and maintenance.

If owner-occupiers get too much into arrears the loan-making body can apply for a court order to gain possession of the property. A recent report in the National Westminster Bank Quarterly Review shows that as owner-occupation grows so too does the problem of mortgage arrears and repossession. It points out that "although increasing numbers of people are entering owner-occupation. increasing numbers are being forced out" (August 1985). The 1980 edition of Judicial Statistics showed that there were 27,105 mortgage possession actions in County Courts in England and Wales. By 1983 this figure had reached 43,274, an increase of 61 per cent. This nevertheless tends to underestimate the problem of mortgage default because most of those in arrears do not figure in possession actions. Many people resolve the problem in other ways: some borrow money to pay off the arrears (even though this only delays the date of court action); others sell their house to meet their debts and either move down market or into rented accommodation, while some simply hand over the key of the property to the mortgagees.

Those forced to give up their houses either voluntarily or as a result of a court order often face difficulties in securing other accommodation. A move to cheaper housing invariably means a move to a poorer area, with all the repercussions that may have for changing jobs (if this is possible) and schools and severing family and social connections. The move to rented accommodation is not, however, as easy as it appears. As the local authority housing stock dwindles the chances of ex-owner-occupiers being rehoused are slim — a problem which is aggravated by the rules many local authorities have which effectively exclude owner-occupiers from access to council houses and place them in low priority categories for rehousing. And as for the privately rented sector, this has shrunk so much that offers of accommodation are exceedingly rare or far too expensive for those priced out of owner-occupation.

So what are the causes of mortgage difficulty? Building societies grant mortgages on the basis of the size and stability of household income, and for members of the working class this means the wage or salary derived from the sale of their mental and physical energies to the capitalist class. The conditions of capitalist production determine both the amount and the availability of workers' incomes — if the capitalist class isn't trying to cut workers' wages to the absolute minimum in order to maximise profits then it is making workers unemployed to minimise losses. Ether way workers cannot win, a fact mirrored in the insecurity of their position as owner-occupiers.

The Building Society Fact Book (1985) attributes the upsurge in arrears and possessions to the sharp increase in unemployment and the consequent fall in wages and salaries. Two major reports — the National Consumer's Behind with the Mortgage and the Building Societies Associations Mortgage Repayments Difficulties — show that owner-occupation becomes unsustainable for those households which suffer an unexpected and long-term cut in earnings. This can be brought about by factors other than unemployment, such as sickness, pregnancy. industrial disputes, marital breakdown and death.

It follows, therefore, that owner-occupiers who want to maintain their homes and stave off the bailiffs must not get sick, pregnant, go on strike, get a divorce, be made redundant or die — a tall order for any member of the working class. In the circumstances of rising unemployment the pressure on owner-occupiers is enormous, but for low wage earners it is especially acute. Workers on low wages are highly vulnerable to sharp increases in housing costs or any reduction in their income, and even the slightest rise in mortgage rates can cause severe problems.

To encourage as many households as possible to take up owner-occupation, the government has also wielded the axe to council house expenditure programmes. This has meant that council house rents have risen sharply over the past few years while tax subsidies to owner-occupiers and various other incentive schemes (shared ownership, homesteading, mortgage guarantees and council house sales with large discounts on market values) have helped to cheapen the cost of house purchase. Given the choice between slum or near slum council housing and the seemingly lucrative financial incentives of house-buying, it is hardly surprising that opinion surveys indicate a huge demand for owner-occupation.

In recent years the concept of home-ownership has been sold to workers so relentlessly that the shabby reality of owner-occupation has been submerged beneath a barrage of misinformation. Workers should not accept the well-worn fallacy that there is something fundamentally different between rented and mortgage accommodation — that council housing is somehow "socialist" and owner-occupation "capitalist". The provision of both is determined by the conditions under which those who own the means of producing houses, the land, building materials and capital, can realise a profit. These people do not care whether their capital is used to produce council houses for rent or houses for sale in the private sector. Their goal is profit and nothing else.

Under capitalism the housing market determines both the quality and quantity of accommodation within the price range of the working class. Consequently, there is very little difference in house standards between owner-occupied housing and council accommodation — in fact, owner-occupiers are marginally worse off than council tenants in this sense. The recently published Duke of Edinburgh Inquiry into British Housing reveals that the state of repair of the average owner-occupied sector has fallen below that of the average council house. The former has, on average, a higher percentage of dwellings which are officially classified as unfit (4.7 per cent); lacking basic amenities such as an inside toilet (3.3 per cent); and requiring repairs of £7.000 or more (5.3 per cent) and £2,500 or more (21.3 per cent). Many workers simply cannot afford to carry out the maintenance and repairs required on their homes, a situation which has been exacerbated by the recent cuts in home-improvement grants. In some cases workers are sent on an endless trip to nowhere for what is basically a slum house; or worse still, making mortgage repayments on a house that has been demolished as a result of structural faults or subsidence. Their homes may have been lost or fallen into an uninhabitable state but their mortgages remain the same.

In the nineteenth century Engels made the following remarks about the housing problem:

 As long as a capitalist mode of production continues to exist it is folly to hope for an isolated settlement of the housing question or of any other social question affecting the lot of workers. The solution lies in the abolition of the capitalist mode of production and the appropriation of all the means of subsistence and instruments of labour by the working class itself

(The Housing Question)

During Engels’ time very few members of the working class could be described as owner-occupiers: the majority lived in rented accommodation. At present owner-occupation is the major form of house-tenure in Britain but the problems to which Engels was referring in The Housing Question are still with us. Homelessness rose by 6 per cent last year and the government is at present carrying out a full national survey which, experts believe, will reveal the true extent of the housing "crisis".

As long as profit takes precedence over human need the problem of housing will remain as an ineradicable feature of working-class life. The solution, therefore, lies in the abolition of capitalism nothing more, nothing less.

G. Davidson