Troubled waters (1983)

From the October 1983 issue of the Socialist Standard

After ten years of intermittent discussion the Law of the Sea Conference finally came to a close last December when a Convention was signed by 117 states at an official ceremony at Montego Bay, Jamaica. Several key states, however — most notably the United States, Britain. West Germany and Japan — have refused to sign on the grounds that the proposed International Seabed Authority limits the freedom of their mining companies to exploit the resources of the seabed. The creation of an international organisation to manage seabed mining threatened the existence of the Conference throughout the last ten years and even now poses a threat to the workings of the new Law of the Sea. In fact the central issues which predominated during the conference were the thorny ones of ownership and control of resources. It could be said, however, that the aim of the United Nations Law of the Sea Conference was to establish the rules of the game for the use and abuse of the oceans. This proved necessary since there was an increase in the recoverable economic value of the seabed combined with a polarisation of interests between the industrialised states of the north and the developing states of the south — a factor promoted by the increase in the number of new sovereign states since the post-1945 de-colonisation. The interests of the south are articulated by the Group of 77, which in 1980 comprised 117 states. This coalition is determined to ensure that there will be no new colonialism in relation to the wealth of the seabed.

The Third United Nations Conference on the Law of the Sea (UNCLOS) started in 1973. UNCLOS was divided into three main committees — for deep sea mining; traditional law of the sea problems such as navigation, continental shelf and fisheries; and marine research and pollution. These issues were not without controversy since disputes exist over national boundaries, rights within national boundaries, those over rights in the ocean beyond national jurisdiction and those arising from non-ocean sources. Around the world there are numerous contested zones, islands, archipelagos, not to mention rights over navigation. There are more than 100 strategically important straits such as the Malacca strait between Malaysia and Indonesia, through which the bulk of Japan’s oil supplies pass. There are disputes over fishing where the interests of the maritime states — the Soviet Union and Japan for example — with large distant water fishing fleets collide with those of the coastal states with large fishing grounds off their shores.

The establishment of an Exclusive Economic Zone — EEZ — would allow states to claim exclusive rights to the seabed out to 200 miles from the shore. There are, however, numerous islands whose ownership is hotly contested, the Falklands for instance. Although islands are defined as naturally formed areas of land surrounded by water at high tide and therefore entitled to an EEZ, this does not prevent states from demanding EEZ rights for rocks which cannot sustain human habitation or economic life on their own. The reason for this is simple: states commanding rocks in resource-rich areas can use them to claim the contiguous resources. In this respect the dispute between Britain. Ireland and Denmark over Rockall, a tiny rock about 400km west of the Hebrides, came into focus since it commands an area of 201,250kms of the continental shelf with potential oil reserves. It is not surprising then that Britain has consistently argued that existing international law makes no distinction between different types of island and that to do so is likely to result in ambiguities. The resolution of this particular squabble — ownership and whether such rocks are entitled to an EEZ — will set an important precedent as there are similar disputed “rocks" in the Pacific and Caribbean.

The Falklands war was not unrelated to the question of EEZs since the continental shelf contains oil reserves and the seas are rich in fish stocks. It is for this reason that seemingly insignificant islands as the Falklands Dependencies, South Georgia and the South Sandwich Islands, assume strategic significance as they can be used to stake claims to the resources in the surrounding seas and on the seabed. Furthermore such islands are useful as a staging post to the Antarctic, another area potentially rich in untapped resources. Shortly after the Argentinian invasion of the Falklands Lord Shakleton was moved to remark:

What is at stake and what undoubtedly is in the minds of the Argentinians is not just the Falkland Islands but their claim to Antarctic territory. (3 April 1982 Hansard (Lords) vol. 448 col. 1585.)

Two supposedly allied NATO states, Greece and Turkey, were at one time more likely to go to war with one another than with the Soviet Union over the resources of the Aegean Sea. According to Barry Buzan, “The conflict of interest between Greece and Turkey arose, like many others, after discovery of oil by an American exploration company” (Adelphi Papers No. 143, A Sea of Troubles? Sources of Dispute in the New Ocean REGIME).

In the Far East. Japan, in addition to the long-running dispute with the Soviet Union over the Kurile Islands, contests the ownership of the Senkaku Islands in the East China Sea with both China and Taiwan. The significance of potentially large off-shore oil is not lost on states dependent on oil imports such as South Korea, Japan and Taiwan. Moreover, the continental shelf and economic zone boundaries cannot be drawn until this dispute is resolved.

The Barents Sea and the conflict of interests between the Soviet Union and Norway is. perhaps, typical of many of the problems associated with delimitation. The contested area constitutes roughly 153,000 square kilometres of the continental shelf between Novaya Zemlaya and Spitsbergen. For the Norewegians substantial fish and seabed resources, principally oil, depend on how the boundary is drawn. This is particularly important for the Norwegians since oil is vital for their economy. The existence of indigenous oil reserves, as in the North Sea and possibly in the Barents Sea, allows Norway to avoid the vulnerabilities associated with dependence on Middle Eastern oil. It is for this reason that Norway is concerned about the activities of a Russian oil drilling ship, the Valentin Shashin (Guardian, 2 May 1983). Energy supplies, even for resource-rich Russia, may become critical in the next decade since Soviet oil and gas supplies may be insufficient to meet both domestic and growing Eastern European demands. Despite the disputed zone the Norwegians have recently signed a deal with the Russians which will, according to the Guardian (27 April 1983) permit the Norwegian Petroleum Consultants to evaluate exploration costs to decide where to drill and to frame the timetable of the operation. Offshore oil exploration is an area in which the Russians lack the technological expertise of Western states and are, therefore, heavily dependent on Western assistance. In fact, “the Norwegian offshore industry is keen to get in on the act, and the yards have been pressing the Government to be allowed to sell to the Soviets” (Guardian, 17 June 1983). Furthermore, the British and the French are keen to sell the Russians oil-exploration-related technology even though the American government would rather they did not. However, “this is not in the interests of West European industry and commerce” (Guardian, 27 April 1983).

In addition to the availability of oil and gas the Russians have a keen military interest in the Barents Sea and the Norwegian Sea. The Russian Northern Fleet has bases at Pechanga, Murmansk and Severomorsk, all of which are situated on the Kola Peninsula in the Leningrad Military District. Moreover, one of the two Soviet ballistic missile submarine bases is at Polyarny at the Eastern end of the peninsula. However, as the British and Norwegians discovered, increased commercial traffic and oil exploration do not mix — as they had to transfer their joint manoeuvres from the North Sea to the Shetlands. UNCLOS allows for the concept of “innocent passage” whereby ships are entitled to passage provided it is not prejudicial to the “peace", "good order" or “security" of the coastal states. Warships and submarines, however, pose problems but all attempts to restrain their passage have been opposed by the major maritime states.

Perhaps the greatest controversy facing the Conference relates to deep sea mining. The resources at stake are large deposits of potato-shaped polymetallic nodules — “manganese nodules". They contain traces of vital “strategic metals" such as cobalt, nickel, copper and manganese. On average each nodule contains 30 per cent manganese, 1 per cent nickel and ¼ per cent cobalt. Cobalt, for instance, is an indispensable element in the manufacture of small high-powered magnets necessary for weapons guidance systems. In a uranium enrichment plant employing the gaseous diffusion method nickel plated steel is used since it is able to withstand the highly corrosive uranium hexathoride gas. However,

The nodules themselves have lost glamour to deposits of polymetallic sulphides containing copper and other metals in much higher concentrations, first encountered at volcanic vents in the Pacific rift near the Galapagos Islands and off the coasts of Oregon and Washington. Similar deposits are certain to be found elsewhere along the 40,000 mile world-gridling submarine rifted ridge. (“The Law of the Sea. Elisabeth M. Borgese, Scientific American, March 1983, Vol. 248. No. 3. p. 33.)

Hitherto such metals were only available from relatively few states which were either politically unstable or unfriendly to the West. Since the EEC’s import dependence for materials such as manganese is 99 per cent and copper 91 per cent, “The European Community's industrialised countries are keen to see that seabed mining for cobalt, copper, manganese and nickel begins as soon as possible and with as little restraint as possible” (Guardian, 23 November 1982). Japan is 95 per cent dependent on imports of manganese and 98 per cent on nickel. It is, therefore, not too difficult to appreciate the interests of Western states in the possibility of achieving independence in relation to the supply of industrial materials. This chiefly explains their opposition to the deep sea mining provisions of the Law of the Sea Convention. Britain and the US vigorously oppose the insistence of the developing states that an International Seabed Authority should regulate the market, transfer technology and ensure that the benefits accrue to the developing states. In short, the key problem is who will be permitted to exploit seabed nodules?

The Group of 77 argued that since the new resources of minerals threatened the economics of those states in the developing world dependent on the export of one or two minerals such states should be compensated for the loss of export earnings. Moreover, it urged that an ISA should have stronger powers; for example, to regulate production and to carry out mining operations and related activity in the name of the Authority. The United States however, largely at the behest of its multinational mining companies, opposed the treaty on the grounds that such an Authority would limit their commercial freedom, specifically by obliging them to pay taxes on earnings from mining to such an authority as well as to supply it with technology. Although the Group of 77 insisted that the establishment of an ISA is an integral component of a New International Economic Order and sees the ISA as very much a test case for future resource redistribution, the Group has been unable to maintain its unity. It has been dominated by coastal states, especially those with large coastlines and significant offshore resources. This has been achieved at the expense of the “geographically disadvantaged states” — landlocked states and those without large coastlines or significant offshore resources. Even though the industrialised states oppose the content of the ISA proposals, not all are in favour of unhindered access and exploitation since this would work to the unilateral advantage of American mining companies. Britain, West Germany and Italy share the American view, but Ireland, Denmark and Greece “recognise the advantages the treaty could provide for countries lacking the industrial base for seabed mining” (Guardian. 23 November 1982).

At the signing ceremony of the Convention the US representative, Thomas Clingan, stated unequivocally that:

The US has an extreme national interest in having access to strategic metals from the oceans . . . the Treaty just doesn’t meet our interests in terms of deep sea-bed mining provisions. (International Herald Tribune, 8 December 1982.)

And that, in the end, is what the Law of the Sea Conference is concerned with: the pursuit of the “national interest" — the owning minority. The resources of the seabed beyond the 200-mile EEZs are designated “the common heritage of mankind”; nothing could be further from the truth.

John Walker

Old scores (1983)

From the October 1983 issue of the Socialist Standard

Old scores

Recently a documentary entitled Old Scores was shown on Northern Ireland television. Made in Belfast and intended mainly for local viewing, it was about a group of Protestant and Catholic teenagers who lived in the Rathcoole housing estate in the northern suburbs of Belfast, and who played together as a football team for the last time in the summer of 1969. The province at that time was about to erupt into sectarian violence, and the mixed housing estate of Rathcoole was shortly to become staunchly Protestant. The Catholic residents were persuaded, by threats and intimidation, to leave the Catholic ghettos.

Some of the players in this team ended up in the Protestant Ulster Volunteer Force, others in the Provisional IRA. One served three years in the Maze prison, another is at present serving 18 years for shooting three Catholics, a third — Bobby Sands — grew up to become a Westminster MP, and later died on hunger strike. The Belfast Telegraph called the documentary “a very worthwhile human story which looks at an aspect of the troubles from a different angle”. But in fact the theme of the documentary was to show both sides of the sectarian divide with no attempt to trace the real cause of the Ulster tragedy.

Those players of the football team who were still alive and available were interviewed and asked for their opinions of their former teammates. The Catholics still living in the ghettos spoke guardedly but none seemed even faintly aware of the cause of their predicament. All measured the problem in terms of Catholics and Protestants without even knowing why. None could see any inconsistency in being a teammate one minute and a deadly enemy the next. One Catholic, on being asked “Would you play football with a Protestant again?” replied “No”. Asked "Why did Bobby Sands get mixed up with the paramilitaries?” he said “He was unlucky”. Most saw the only way out of their dilemma as emigration. To date three had settled in the Channel Islands, one had gone to Australia, and another was attempting to emigrate to America. The documentary typifies the media approach to the troubles in Northern Ireland which attempts to explain everything in sectarian terms.

Sectarian Roots

What are the origins of this sectarianism? Sectarianism has a long and complicated history in Ireland, but basically the present upsurge dates from the early years of the 20th century.

Protestant and Catholic workers have been used as pawns in the economic rivalry between the industrial capitalists of the North, and the emerging capitalist class of the South. The North is predominantly Protestant, and the South predominantly Catholic. With the threat of Home Rule for Ireland the Northern capitalists, seeing that Home Rule could exclude them from the lucrative markets of Britain and its empire, enlisted the aid of the Protestant working class to fight for the Partition of the North from the rest of Ireland. They did this by implying that Home Rule would mean that the Protestant religion would become submerged in a Catholic Ireland. So successful was this ploy that the Catholics in the North have become the whipping boys for many of Ulster’s problems. Over the years the bitterness has grown and the Catholics have reacted accordingly.

Bigotry . . . 

Many Protestant workers will tell you that Catholics are devious, clannish, and that their entire outlook is determined by their church. For example if they marry Protestants the children of the marriage must be raised as Catholics. Another sore point is that Catholics get everything that is going in the way of social security and, because they generally have large families, this usually amounts to something more than the minimum wage. In addition in the Catholic ghettos very few pay rent or gas and electricity bills. Hence the saying "they neither work nor want”. Those few Catholics who find favour in the Protestants' eyes are given the accolade: “He is not a bad fellow for a Catholic”. To discuss the class struggle with the Protestant worker is likely to cause the assumption that you are in some way connected with the Catholic orientated Provisional IRA. or Sinn Fein.

Catholic workers are equally explicit about their Protestant counterparts, saying that Catholics are treated like second class citizens, discriminated against and kept out of the best jobs; or that the RUC is a mainly Protestant police force which has a bias against Catholics. Only in a United Ireland, they say, where we will no longer be in a minority, can Catholics expect to get justice.

The Real Issue

There will be no justice in Ireland or anywhere else until workers realise that it is not their religion but their class position in society which is the cause of their poverty, poor housing, and insecurity. The real problem is exploitation by those who own the means and instruments of wealth production and distribution. These owners can be Catholic or Protestant.

It is true that the capitalist class would be glad to see the end of sectarian violence. As we say in our pamphlet Ireland, Past, Present and Future:

By the 1960s the factors which divided the capitalist class had changed. Capitalism in the South had developed to a point where trade protection was being counterproductive, and the new economic strategy was concerned with attracting foreign investment. In the North the traditional industries were in decline and the Unionist government too was fighting vigorously to attract foreign capital. A new economic pattern was developing in both states involving multi-national firms which, as often as not, operated on both sides of the border. There was a growing interchange of capital and personnel, and both states stood on the threshold of the profitable markets of the European Economic Community. The old bigotries were no longer required, the capitalist priorities which had dictated their use had changed. There was to be a new era of “bridge building" and "reconciliation”. Unfortunately however the poison had been injected deep into the veins of the working class. The warnings, the fears, the naked hatred nurtured over decades by businessmen, politicians, churchmen, and even judges could not be easily wafted away!

It is sectarian divisions which cloud the real issue — the class struggle between the working class on one hand, and the capitalist class on the other. Old Scores might be a human story but it did not tell us anything new about the troubles in Ulster. There are no old scores to settle between workers no matter of what persuasion they happen to be. Their common and overriding interest is to understand the nature of capitalism, and then to organise on a class basis to end it. With the introduction of a society where production will be for use and not for sale, the hatred and bigotry conjured up by the use of the words Catholic and Protestant will be as extinct as the dinosaur.

WHC

 . . . or reason?

Ireland—Past, Present and Future — The Socialist Party of Great Britain and the World Socialist Party of Ireland. 30p 

SPGB Meetings (1983)

Party News from the October 1983 issue of the Socialist Standard

Blogger's Notes:

There is an audio recording of Edgar Hardcastle's debate with Arthur Johnston of the Conservative Party at the following link.

There is also a write up of Howard Moss debate with Roger Scruton in the May 1984 issue of the Socialist Standard.

Voice From The Back: Capitalism in action (2010)

The Voice From The Back Column from the October 2010 issue of the Socialist Standard

Capitalism in action

Capitalism is a very wasteful society. When fruit growers have a more than bumper crop it is common to let some of it rot unpicked. When charities ask for the surplus they are told that to give it away would lower the price. These charities at present pay for the crop that is picked. Here is a recent example of this madness in the retail clothing trade. “High Street retailer Primark has been criticised by charities for its policy of shredding damaged and unwanted clothes. Aid organisations have described the practice as “worrying” and “a shame” – saying items could be used to raise vital funds. Primark said the practice was common and was to protect consumers.” (BBC News, 13 September) Overlooking the hypocrisy of Primark’s “to protect consumers” remark, the purpose of all production inside capitalism is to sell goods in order to realise a profit. Capitalism isn’t interested in protecting consumers or aiding charities. Fruit can rot while people go hungry and clothing can be destroyed while people go about ill-clad. That is how the capitalist system operates.

Modernity, but at an awful cost

The advance of capitalism has led to many improvements in technology. None of us would like to imagine a world without mobile phones, computers or digital cameras, but this being capitalism such advances have led to social disaster for some. A major source of the essential ingredients for such technology is the Democratic Republic of Congo. It is from here that gold, tin, tungsten and tantalum originate. It is also from here that we have had the deadliest conflict since the Second World War with an estimated death rate of 5.4 million people. “International agencies have described how paramilitary groups in the region control many of the mine producing gold and the “3Ts” where locals including children are forced to work for as little as $1 a day. The same groups then help to smuggle the minerals out of the country, where they eventually end up in laptops, mobile phones and video game consoles.” (Times,18 August) When The Times investigators queried the supply of such materials with industrial giants such as Apple, Sony, Noika, Dell, HP and Nintendo they were very evasive, best summed up by Microsoft’s reply “It’s very hard to reliably trace metals to mine of origin.” It is of course even harder for them to let their rivals have exclusive access to these cheap sources.

Business is booming

It is common nowadays to read of growing unemployment, businesses folding and widespread bankruptcy ,but there is one trade that is booming . “Pawnbrokers will soon be as common on the high street as coffee shops and banks, according to the chief executive of Britain’s biggest operator. John Nichols, of H&T, said eventually there would be pawnbrokers in every town centre.” (Times, 25 August) His forecast was made as his firm announced a 71 per cent leap in its profits over the last six months. It is worthwhile noting what the source of this high street boom is put down to. “Slightly more than half of pawnshop customers use the cash to pay for daily essentials, such as food and groceries, while about six out of ten are not in work, according to Bristol University research released yesterday.” (Times, 25 August) Some of us are forced to pawn our sweetheart’s engagement ring in order to get some groceries. Isn’t capitalism wonderful?

The Price of Oil

We are often told by social commentators that capitalism with its wonderful technology and scientific endeavours has made the modern world a vast improvement on the past, but the human cost in injury and death is always soft-pedalled by capitalism’s supporters. Almost unnoticed in the paeans of praise for the profit system is this short news item. “Employers in the offshore oil and gas industry were urged yesterday to improve their safety record after a big increase in the number of workers killed or seriously injured. The Health and Safety Executive said that 17 workers died in off-shore-related incidents and there were 50 severe injuries in the past year, a “stark reminder” of the hazards. The combined fatal and severe injury rate almost doubled, coupled with a “marked rise” in the number of hydrocarbon releases – regarded as potential precursors to a major incident.” (Times, 25 August) When it comes to profit making human life is not a major factor.

A Nice Little Run-around

From time to time that old banger that you called the family car needs renewal. Here is an idea. “Lotus has unveiled the ultimate track-day car – a Formula One-inspired racer called the Type 125. The British sports car company will show its consumer-focused F1 clone at this weekend’s annual Pebble Beach Concourse d’Elegance in the United States, with plans to build only 25 examples from next April. The 125 will cost much less than a real Formula One car but the price tag is still expected to be about $1.1 million.” (Drive, 11 August) C’mon what is holding you back?

The New GDP: Gilts, Debts and ‘PIIGS’ (2010)

From the October 2010 issue of the Socialist Standard

During 2010 the most talked-about consequence of the housing and banking crisis has been its knock-on effect for governments – those charged with masterminding the bailout. We examine the state of what is euphemistically known as the ‘public finances’.

There are ultimately only three sources of revenue for any government – taxes, borrowing and printing money. The economic crisis has led to a media preoccupation with all three. Because of the bailout of the banks and massive financial stimulus programmes initiated by governments the world over in an attempt to avoid another Great Depression, there is quite some interest in how all this is going to be paid for.

One aspect of this, which the Cameron government is now grappling with, is to try to compensate for the bailout and the costs of the recession by reducing other government expenditure (e.g. on state-provided services like education, on defence, and on staffing in the civil service, etc). However, if printing money causes inflation, and there are limits to the amount that can be raised through taxes, why not just borrow more to avoid the need for big public spending cuts?

The borrowing option is very often there, but government borrowing is not always as straight forward and risk-free an exercise within capitalism as it may appear at first sight.

Good as gilts

Governments borrow money through the issuance of bonds, which are sold to investors with the promise to pay a rate of interest and – usually – to return the original capital advanced by the investor at a pre-determined time (when the bond ‘matures’). The issuance of debt in the UK is overseen by an agency of HM Treasury called the Debt Management Office. Bonds issued with maturities of less than a year in the UK are called Treasury Bills and are traded on the money markets, typically by big financial institutions who only want to tie-up some of their money for short periods. However, the vast bulk of the bonds issued in the UK to finance government debt are for maturities over a year and are called ‘gilt-edged securities’ because the original bond certificates had a gilt-edge to the paper.

Gilts are usually issued for £100 each but come in various types and maturities – which means that the issuing and paying back of government debt is a far from straightforward business. The defining features of a conventional gilt are its ‘coupon’ (the interest payment) and its maturity, both reflected in the name of the gilt e.g. 8% Treasury 2013, a gilt which pays 8 per cent a year – in other words £8 – and for which the government will pay back the initial £100 in 2013.

Other gilts are ‘index-linked’ in that the coupon and final repayment amount are linked to movements in the Retail Price Index, while another category are undated or ‘irredeemable’ gilts such as 4% Consols, gilts often originally issued in the nineteenth century and which pay a regular coupon but for which the government is not bound to pay back the original sum advanced at any set date. The vast majority – nearly three-quarters – of UK gilts in issuance today are of the conventional variety and these are clustered into ‘shorts’ of under seven years maturity, ‘mediums’ of seven to 15 years and ‘longs’ of over 15 years.

The issuance of gilts, as they are commonly called, is a regular activity because government revenue from taxation does not neatly match patterns of government expenditure, either because spending is running ahead of government revenues, as at present, or because tax-collection typically has greater seasonal variations than government spending. And even when governments might be paying back some gilts as they mature (‘redeeming’ them) they will usually still be issuing others.

Other countries have similar mechanisms for issuing debt (in the US the bonds are called ‘Treasuries’) and all have similar issues at root. In particular, the laws of supply and demand will affect the level of the interest payments demanded by investors as will the general level of confidence in a country’s ability to pay both the coupons and the original capital advanced when the bonds mature. In the UK there are usually weekly gilt auctions and the government will have to respond to a lack of demand for gilts by increasing the coupon on new issues thereby making them more attractive – but at the same time making them more expensive from the government’s own point of view.

A big influencing factor on this is the ‘secondary market’ for already existing gilts – the billions of pounds of gilts in circulation until they mature do not usually trade at their face value after they have been issued, but at rates determined by the market. For instance, the return investors want on long-dated gilts may rise to 5% (the interest payment in relation to the price paid is called the ‘running yield’). If so, this means that a long-dated gilt with a 4% coupon is not going to trade at the original £100 face value it was sold at but only at £80 instead, as this is what would give a 5% running yield (a gilt costing £80 which pays £4 on the coupon). This type of shift in price and yield opens up the possibility for investors of capital gains and losses, and also leads to the concept known as the ‘redemption yield’, the running yield investors achieve adjusted for such capital gains and losses. In its simplest form, buying above the initial £100 face value will give a redemption yield lower than the gilt’s coupon rate as there will eventually be a capital loss to be taken into account, buying below face value will increase the redemption yield above the coupon rate as there will be a capital gain when the government repays the face value of the gilt.

Such market gyrations in gilt prices and yields as determined by capitalist investors daily will influence the way and cost at which a government can borrow by issuing new gilts, with shifts in yields being crucial. Because investors may be tying their money up for long periods it is normal for the yield on long-term bonds to be generally higher than for short-term bonds too. However, periods of financial uncertainty and likely recession usually lead to interest rates being temporarily higher for shorts than for longs as investors do not want to tie their money up for extended periods. This leads to what is called an ‘inverted yield curve’, with higher short-term interest rates in the economy than long-term rates, as happened for a time at the start of the credit crunch  (the yield curve is the relation between interest rates, i.e. the cost of borrowing, and the time maturity of debt).

These ever-changing market interest rates at which governments have to issue gilts in order to finance their borrowings is of obvious concern to them. But the maturity of the bonds is a significant issue too.

‘PIIGS’ at the trough

In the last few months a new acronym has arisen in the financial press reflecting the times. Instead of the talk being of the fast-growing emerging market ‘BRIC’ countries of Brazil, Russia, India and China, we have the ‘PIIGS’ instead. These are countries that have been deemed by the international bond markets to have issues regarding the amount and/or nature of the government debt they have outstanding, the unfortunate acronym standing for Portugal, Italy, Ireland, Greece and Spain. The most serious situation, now accompanied by massive government spending cuts and riots on the streets, has been that encountered by Greece, which has implemented austerity measures of around 30 billion euros in return for a 110 billion euro rescue package from the EU.

Interestingly, Greece’s annual budget deficit – its annual expenditure over its annual revenue – is projected to amount to about 8 per cent of GDP this year, actually less than the US’s 11 per cent (Financial Times, 23 June). And its total accumulated national debt built up over time is, at around 110 per cent of one year’s GDP, a lot less than Japan’s at 190 per cent of GDP. The problem, however, with Greece has been that much of its debt was due to be retired in the next couple of years (i.e. a large proportion of the bonds it had issued were due to mature) and there was no guarantee it had the money to be able to do this. This prospect sent the bond markets into fright to the extent that long-dated Greek debt was yielding over 10 per cent at one stage, more than double that typical for other western economies. This was because investors dumped their bonds, in the belief they may not get their original investment back, sending the prices of the bonds plummeting and their yields soaring.

This has been a clear example of the way in which the bond markets are able to determine which countries are able to carry on issuing debt investors are willing to buy, and which countries investors have lost confidence in. This is precisely what has happened to a number of Latin American states such as Argentina during the last 30 years too – and the retribution has usually been severe. When a country shows signs that it cannot pay back its debts or may default on coupon payments on its bonds, a restructuring programme initiated by the International Monetary Fund is not far away, typically leading to cuts in state spending coupled with tax rises and the inevitable social unrest.

Once a government defaults on its debts, the bond markets tend to have long memories, and the fear of future default will push up interest rates (yields) for years to come, making the cost of government borrowing high. In such situations, international investors retreat to ‘safe havens’ like the US and UK, countries that have never had any significant default on their debts during their history.

Just like BP?

In this respect, the markets treat countries and their governments rather like they treat individual companies. Just as credit rating agencies like Moody’s or Fitch  give credit ratings to companies (the highest being ‘Triple A’) so they rate nations too and this influences market perceptions. Credit rating agencies and other financial firms view companies likely to default on their debt (whether to banks, or to investors such as the owners of corporate bonds) with the utmost suspicion. Defaulting on debt or inability to pay coupon payments on bonds or on promised dividends is one of the greatest corporate sins and companies deemed at risk of default have their bonds rated as ‘junk’ and are punished by markets.

Recent examples of those falling foul of financial markets because of a perceived inability to service their debts would not only include the banks but also major companies like William Hill and Premier Foods which have had to go back to their shareholders cap-in-hand asking for money to reduce their debt and shore up their balance sheets. Yet, a company like BP can have a temporary dip in its share price but otherwise largely escape the type of battering from the markets meted out to others despite its involvement in one of the biggest and costliest environmental disasters of all time. And the reason . . . ? BP’s net debt is little over one year’s typical profits (last year being $20 billion) and it has a flexible debt structure.  In other words, it is highly cash generative, has headroom on its debt and so investors have more confidence it can meet its financial obligations.

Little headroom

Like companies, some countries have more headroom to tackle their financial situation than others. Where confidence in government finances are high and where debt servicing is manageable, governments will be able to issue bonds at rates that are not exorbitant and thereby finance their expenditure. This also applies to governments that have more headroom to increase taxes because state spending in the economy is lower (another reason why the US and UK have been seen as safer havens for bond investors than countries like Greece).

But in truth there is an historical element to this as well. The story of the last 20 years or so isn’t that there has been a massive explosion in government debt – the explosion in debt has been in personal debt. In the US this rose from 80 per cent of average disposable income in 1990 to over 140 per cent, and in the UK a similar measure of personal debt rose from 100 per cent to 170 per cent of household income under New Labour (Financial Times, 9 August 2008). By contrast, while government deficits in a given year are now significant (a record £159 billion or 11.4 per cent of GDP last year in the UK) and have caused some market wobbles, the accumulated national debts of most countries have not been particularly high by historic standards.

Because of inflation over time, the big number headline figures of billions and trillions are misleading, and percentages give the best picture. By way of example, total accumulated national debt as a percentage of one year’s GDP is currently around 70 per cent in the UK. According to figures from the Bank of England this compares with over 250 per cent in 1946 at the end of the Second World War. Indeed, for all the period from the start of the First World War in 1914 until the early 1960s it was far higher than it is now, and the situation in the US has been very similar in percentage terms. Indeed, only as recently as 10-15 years ago governments in the US and UK were running big budget surpluses when the economy was booming and were paying back the national debt as quickly as they could, reducing national debt to GDP ratios to well below 50 per cent in both countries for a while.

What this means practically is that it usually tends to be sudden upward changes in the rate and nature of government debt that tends to really spook markets, drain them of confidence and lead to the type of government austerity measures we are now seeing, rather than particular total levels of debt as such. Indeed, a comparatively healthy economy like Singapore’s has a national debt equivalent to 113 per cent of GDP, while – perhaps counter-intuitively – Uganda, Iran and Mozambique have national debt of less than 20 per cent of GDP. After myriad failed government stimulus programmes over the last two decades Japan has accumulated the second highest national debt to GDP ratio in the entire world (after Zimbabwe) but despite its ongoing problems has comparatively little difficulty borrowing funds via the bond markets.

You can’t buck the market

What is certain from all this is that governments are far more like companies than they would ever generally like to admit, and certainly cannot ‘buck the markets’ and market perceptions, which are always crucial. But then again, who are ‘the markets’ anyway?

The market for UK gilts is typical and is dominated (at around 40 per cent) by insurance companies and domestic pension funds, followed by overseas investors and financial institutions, hedge funds, etc (at 35 per cent). The rest is made up of recognised collective investment vehicles like unit trusts, by banks and lastly by households (households being less than 3 per cent of the total). In other words, the bond markets – like the equity, commodity and currency markets – are dominated by the big capitalists and institutional investors. Their flows of investment capital are substantial and cross national boundaries at the press of a button. These are the people always on the look out for gilt-edged opportunities in life. The laws of the market economy dictate that no government will – or can – argue with them for long.

DAP

Material World: USA: Supporting The “Lesser Evil” (2010)

The Material World Column from the October 2010 issue of the Socialist Standard

Many “anti-capitalist” personalities urge people to support one of the two main capitalist parties, the Democrats, on the grounds that they are a “lesser evil” compared with the Republicans. One example is film maker Michael Moore (see March issue, p. 10). Another is Paul Street, who has written two useful exposés of Obama – Barack Obama and the Future of American Politics (2009) and The Empire’s New Clothes: Barack Obama in the Real World of Power (2010) (both from Paradigm Publishers). Although Street calls himself a libertarian socialist, he campaigned for Democratic presidential candidate John Edwards.

What they say versus what they do

How much less evil, then, are the Democrats?

A mistake that voters often make, especially during election campaigns, is to compare what the Republicans say and do with what the Democrats say. The relevant comparison is with what the Democrats do. The trouble is that when the Democrats have been out of office for a few years most voters no longer remember what they do. But those familiar with the record of the Clinton administration in the 1990s, for instance, or with Obama’s record as a congressman, might have noticed that between what the Democrats say and what they do yawns a chasm wider than the Grand Canyon.

 

In stump speeches in the mid-West, candidate Obama thundered against regional companies such as Maytag and Exelon. And yet these same companies, justifiably confident that he would do nothing to harm their interests, made large financial contributions to his campaign. Speaking before audiences of workers, Obama would denounce Maytag’s decision in 2004 to close the refrigerator plant in Galesburg, Illinois, entailing the loss of 1,600 jobs to Mexico. But he never raised the issue with Maytag directors Henry and Lester Crown, even though he enjoyed a “special relationship” with them.

Differences that make no difference

Many of the “differences” between Bush and Obama (or between McCain and Obama) make no difference. Or very little.

Obama initially opposed Bush’s military intervention in Iraq – hastening to add that he was not against all wars, God forbid, but only against “dumb” ones. Before leaving office, Bush initiated a gradual and partial withdrawal of troops from Iraq. Obama is pursuing the same course, breaking an earlier promise of rapid and complete withdrawal.

Bush was heading toward war with Iran. Obama is not. Probably. Hopefully. True, he did back off from his promise to meet with Iranian leaders. Commentator Steve Clemons informs us that “while there are individuals in the Obama administration who are flirting with the possibility of military action against Iran, they are fewer in number than existed in the Bush administration” (The Huffington Post, July 23, 2010). How’s that for reassurance?

At least there seemed, before the election, to be a clear-cut difference on the issue of offshore oil. How many people must have voted for Obama in horrified response to the exultant cry of John McCain and Sarah Palin: “Drill, baby, drill!” But in March 2010 Obama broke his campaign pledge and gave the go-ahead to offshore operations. The next month an oil rig exploded in the Gulf of Mexico. Another rig caught fire in September.

Obama won trade union support by promising a new law to facilitate union organizing – the Employee Free Choice Act. He also said he would renegotiate the North American Free Trade Agreement to include stronger labour and environmental protections. We have heard nothing more of these things. Obama, we are told, does not want to look “pro-labour.”

And so the sad litany continues.

A political cycle

I do not mean to deny that in some ways or in some situations it may be better to have a Democrat rather than a Republican in the White House. For instance, isn’t it worthwhile just to reduce, even if not eliminate, the probability of an attack on Iran?

For the sake of argument, let us suppose that the Democrats are a significantly lesser evil. In that case, helping them into office does ward off a greater evil. But only in the short term. For once in office, Democrats come under irresistible pressure from their capitalist masters to break their “populist” promises, to disappoint, disillusion and betray the working people who placed their trust and hope in them. Some sink back into apathy and despair, while others fall prey to a racist or fascist backlash. These reactions give the Republicans their chance to return.

 

This is a recognizable political cycle. We have been through it before. Over and over again. Not only in the United States but (with variations of detail) in many other countries. Those who support the lesser evil play an essential role in constantly reproducing the cycle. They share the responsibility for its persistence. Support for the lesser evil also entails support – indirect and delayed, but support nonetheless – for the greater evil.

The difference that matters

For us as earthlings, the difference that matters is that between socialism and capitalism. Will we continue on our present course to the irreversible destruction of our home world? Or will we make the fundamental change needed to give us a decent chance of survival?

From this perspective, the differences between “greater” and “lesser” evils do not matter. Some capitalist politicians are totally subservient to the oil, gas, and coal corporations and recklessly oblivious to the looming danger. In their hands we are doomed. Other capitalist politicians are a little less subservient, show a limited awareness of the situation, and try to do something to mitigate it. Something, but much less than is absolutely essential. In their hands we are still doomed.

 

Pass or fail. The “lesser evil” is simply not good enough.

Stefan

Aliens (2010)

A Short Story from the October 2010 issue of the Socialist Standard

Millions of Americans believe that aliens have landed from outer space. Thousands of Americans claim to have been abducted by aliens, and to have seen into their flying saucers. The descriptions they give of their abductors usually tally closely with the “creatures from outer space ” which have appeared in science-fiction dramas on American television. (Interestingly, America also has the most religious believers in the Western world.) These aliens must have come vast distances before they land in Wyoming or wherever. The nearest star to Earth (apart from our own sun) is Alpha Centauri, more than four light-years away. If the aliens came from any planet around Alpha Centauri, they would have to have a space-ship travelling at the unimaginable speed of one hundred million miles per hour – and even so it would take them twenty-five years to get here. (If they dawdled along at only a million miles per hour, the journey would take two thousand five hundred years.) So it is strange that having come so far they don’t hang around a bit and let us all see them. A flying saucer landing in Trafalgar Square during the rush-hour would settle the question once and for all. So why do they apparently scurry back home so quickly? Here is a document that may throw some light on the matter. But whether this is a genuine account, or merely a bit of fiction, readers must decide for themselves. If it is genuine, it may indicate why any aliens would not want to delay their return trip.

_____________________________________________

I was in the middle of the Cairngorm Mountains in the Scottish Highlands, miles from any human habitation, when I saw a group of men approaching me. I knew they were from outer space, because they all had pointy ears like Mr. Spock in Star Trek. When they got near enough, one of them said “Greetings, Earthling!” another clue: not many ordinary humans talk like that. “We bring salutations from outer space!” I understood every word, and that was a stroke of luck, because out of all the six thousand languages spoken on Earth, they had happened to learn the only language I knew.

“We have been reading the news on your internet,” the alien spokesman continued, “and we wish to condole with you on your recession. Hundreds of your schools were going to be rebuilt or refurbished, and now very few of them are. A sad business!” He shook his head. “So there are no people available to do all this rebuilding.”

“Oh yes”” I assured him. “There are two and a half million unemployed in this country, including lots of builders, plasterers, plumbers, electricians, and so on – and lots more of the jobless could quickly learn these skills. The country is full of people who could teach all these useful trades.”

“I see!” said the alien. “So it’s bricks, and cement, and pipework, and paint, electric wiring and so on you are short of.”

“Not a bit of it! Since the recession, builders’ merchants’ yards up and down the country are full of all this stuff.”

“But perhaps the authorities are keeping all these materials in reserve for other important building jobs, in case you run short of raw materials?”

“No, no, nothing like that. All the raw materials – clay for bricks, metal for pipes and wires, colour for paints – there’s more than enough, up and down the country.”

The alien – and his friends – appeared puzzled. Then he brightened up.

“Ah, I see what it must be. Transport! You’ve got all these things, but you can’t get them to where they are so desperately wanted.”

“Not a bit of it,” I insisted. I didn’t want him to think we were that backward. “We have fleets of great trucks, under-used because of the recession. The country is crossed with excellent roads, well surfaced with tarmac. All these materials could be delivered anywhere in Britain within hours.”

The aliens went into a huddle, and jabbered away in their own language. Then the spokesman piped up again.

“Let’s get this straight. You people here in Britain all want these schools to be built or repaired. You have plenty of people standing around idle who would love to do all the work, if only because their children are being educated in inadequate and ill-equipped schools. You have all the materials, and all the transport you need to get them where they are wanted. So – excuse me if I seem a bit obtuse – why don’t you just do it?”

“We haven’t got the money, of course!”

A longer pause this time.

“Er – what is this ‘money?”

I smiled. How could anyone not know that?

“You know – money, dibs, spondulicks, the ready! Coins – little round bits of metal, though most of it is paper, nowadays. High grade paper, of course, with nice designs on it – in colour, too.”

“This paper,” said the alien, with a baffled expression. “What does it do? Can you use it instead of bricks? Or instead of slates on the roof?”

“No, of course not!” Privately I thought that surely space voyagers who have been able to journey billions of miles could get hold of such a simple idea. I tried to explain. “People hand it to each other. Well-off people have to hand some of these bits of paper to the government, then someone hands some of it to the people who make bricks or carry them along the motorway. The actual builders and pipe-layers and so on get some bits of paper each Friday.”

More bewildered conversation among the aliens.

“This paper – high-grade paper as you say, with coloured designs – can’t keep the rain out, or hold the roof up, or carry water or electricity round the new buildings?”

“No, of course not”, I said, laughing. “It would just collapse if you put any strain on it, and any water in a paper pipe would just run away. And if you tried to make electric cables out of paper they would probably catch fire!”

“But if you don’t have these pieces of coloured paper, even though they are only feeble, useless stuff,” said the alien, “you can’t have these schools rebuilt and so on?”

“Exactly,” I said. “Now you’ve got it. Without these pieces of paper, no food is grown or eaten, no clothes are made, no buildings go up – nothing happens. We all have to pass these pieces of paper around to each other, or everything comes to a halt. In fact most of us here on Earth spend a large part of our time handing these pieces of paper on to other people. Every organisation has many people who spend their lives writing down figures about all these pieces of paper: doing sums, all day. In fact some great concerns don’t do anything else – banks, credit card companies, insurance companies, people concerned with revenue and taxation – all of them spend their lives fiddling with these bits of paper.”

The aliens all looked at each other. I saw several of them pointing a finger to their own foreheads, and making a kind of circular motion with the finger, while pulling a face. I wonder what that means in alien language?

After some more unintelligible conversation, the spokesman said that they had decided to get back in their flying saucer and get away as soon as possible. I thought I heard him say something like, “I thought we were told there was intelligent life on this planet!” but perhaps I mis-heard.

Alwyn Edgar

Tiny (URL) Tips (2010)

The Tiny Tips column from the October 2010 issue of the Socialist Standard

Some women who were raped at the US’s Abu Ghraib prison facility in Iraq were later “honor killed” by their families, says a Jordanian reporter who writes on women’s issues. “In Abu Ghraib, women were tortured by the Americans much more than the men,” Lima Nabil told The Independent. “One woman said she witnessed five girls being raped. Most of the women in the prison were raped – some of them left prison pregnant. Families killed some of these women – because of the shame.” Nabil, who has reported extensively on the status of women in the Arab world and runs a home for runaway girls, made the comments to renowned foreign correspondent Robert Fisk in an article on honor killings in Jordan. Nabil did not expand on her comments in the article. Fisk reported that a “very accurate source in Washington” in close contact with military personnel has confirmed “terrible stories of gang rape” by US forces at the now-notorious prison:

[Dead Link]

Former CIA agents have confirmed for the first time that the agency tortured prisoners at a “black site” detention center in north-eastern Poland at the height of the war on terror. According to the Associated Press, a former CIA agent identified only as “Albert” tortured the terror suspect Abd al-Rahim al-Nashiri multiple times with an electric drill at the converted Stare Kiejkuty military base near Szymany in the Masuria region of Poland:

[Link]

The new “saddle” seat, to be unveiled at a conference this week, increases the number of seats an airline can have in its economy class. Shaped similar to a horse saddle, passengers sit at an angle, with their weight taken on by their legs. It allows seats to be overlapped. The seats would also offer storage space including a shelf for carry-on bags and hooks to hang a jacket or a handbag…The makers say the seat would allow budget airlines, such as Ryanair, to cram more passengers into their tight cabins:

[Link]

Ryanair’s Michael O’Leary has for years endured complaints from passengers about his famously no-frills Irish airline. Now a senior Ryanair pilot has taken the rare step of publicly challenging his boss after the outspoken chief executive said he was trying to convince authorities to let his aircraft fly with only one pilot. A flight attendant could do the job of a co-pilot if needed, Mr O’Leary said last week, because “the computer does most of the flying now”. Captain Morgan Fischer, who trains other pilots at Ryanair’s Marseilles base, says he knows the airline is dedicated to keeping its costs as low as possible, so why not go one better – and replace Mr O’Leary with a junior flight attendant? “I would propose that Ryanair replace the CEO with a probationary cabin crew member currently earning approximately €13,200 net per annum,” Capt Fischer has written in a letter to the Financial Times, which reported Mr O’Leary’s comments last week. “Ryanair would benefit by saving millions of euros in salary, benefits and stock options,” the captain said, and there would be no need for approval from the authorities.

[Link]

African Narodnik (2010)

Book Review from the October 2010 issue of the Socialist Standard

Africa’s Liberation. The Legacy of Nyerere. Edited by Chambi Chachage and Annar Cassam. Pambazuka Press. 2010.

If Julius Nyerere, President of Tanzania from independence in 1961 till 1985, had been a late 19th century Russian he would have been labelled a “Narodnik”, i.e. someone who thought that a basically agricultural country could move straight to socialism, on the basis of local communal villages, without having to pass through capitalism. The Russian Marxists denied this, but the Narodniks never got a chance to implement their ideas.

Nyerere did, with the Arusha declaration which adopted “Ujamma” (“socialism and self-reliance”) as the official state policy of Tanzania. As predicted by Marxists it failed. In fact one of the contributors to this tribute to Nyerere on the 10th anniversary of his death in 2009, Issa Shivji, once described the result as the development of a “bureaucratic bourgeoisie” in Tanzania. Today the present Tanzanian government openly embraces (is forced to) capitalist development.

This said, Nyerere comes across as sincere and principled, as genuinely wanting a society of social equality, democracy and without exploitation, and unlike nearly all the other historic African independence leaders power did not go to his head. However, the fact that he was sincere and incorruptible shows that the problem in Africa (and elsewhere) is not bad leaders but capitalism. Not even a saint can make capitalism – which African countries are currently obliged to accept – work in the interest of all.

It only remains to add that Tanzania in 1967 could have passed directly to socialism but only with the rest of the world following a world socialist revolution. Given that this did not happen, capitalism developed in Tanzania, as in Russia.

Adam Buick

SPGB web resources (2010)

Party News from the October 2010 issue of the Socialist Standard

Blogger's Note:

Jesus Christ, where am I? I've been written out of history . . . 

Only joking. Back in 2010 this blog did exist  . . . just about  . . . but it was definitely on the backburner. Now, if this Standard full page ad had been from 2017 and the blog hadn't got a mention, I'd have taken out a contract.

50 Years Ago: Telegram to British Association (2010)

The 50 Years Ago column from the October 2010 issue of the Socialist Standard

Telegram sent to the British Association for the Advancement of Science at their September 1960 Conference in Cardiff.

TODAY YOU WILL DISCUSS WORLD POPULAT1ON PROBLEMS. MAY WE EXPRESS TO YOU OUR CONVICTION THAT THE PROBLEMS OF MASS STARVATION AND MALNUTRITION AMIDST POTENTIAL PLENTY CANNOT BE SOLVED UNLESS PRODUCTION IS CARRIED ON SOLELY IN ORDER TO SATISFY HUMAN NEEDS, UNFETTERED BY ANY CONSIDERATIONS OF FINANCIAL OR NATIONAL GAIN.

IN OUR VIEW IT IS UTOPIAN AND IRRATIONAL TO ATTEMPT TO SOLVE THESE PROBLEMS EXCEPT ON A WORLD-WIDE BASIS OF COMMON OWNERSHIP OF THE MEANS OF PRODUCTION AND DISTRIBUTION. MEN MUST ORGANISE TO ABOLISH ALL CLASS AND STATE OWNERSHIP OF THE MEANS OF LIVING  – MONEY. THEREBY. BEING RENDERED REDUNDANT. AT LAST MAN COULD GRAPPLE WITH HIS PROBLEMS IN A TRULY HUMAN AND SCIENTIFIC SPIRIT. THE VISIONS OF BACON AND MARX WOULD BECOME THE REALITY.

 

SOCIALIST PARTY OF GREAT BRITAIN.

(Socialist Standard, October 1960).

The Review Column: Collapse in South Arabia (1967)

The Review Column from the October 1967 issue of the Socialist Standard

Collapse in South Arabia

The news of the collapse of the Federal government in South Arabia, and of the British acceptance that they must now deal with one or other of the outlawed nationalist movements there, induced a weird if well-known feeling that we have been here before.

The British presence in the South Arabian Federation, and their propping up of the government, revolved around the importance of the Aden base in protecting British interests in the oilfields of the Arabian Gulf.

It was for this that British soldiers were killed in the area—and themselves did a fair bit of killing. The battle between the occupying troops and the Nationalists had all the usual nastiness, including the atrocities committed by both sides.

It might have been possible for the British “experts” who were running the show to consider the history of similar situations in many other parts of the world—Ireland, Algeria, Cyprus to name only three.

The lesson they might have drawn from all these conflicts is that it is impossible to suppress a nationalist movement for ever and that, after a lot of blood has been shed, a lot of damage done, a lot of hatred provoked on both sides, the occupying government comes to recognise the inevitable and does business with the people it has been calling cowardly terrorists.

Then the “terrorists” became respectable. They attend conferences in sleek limousines, they smile at, and shake hands with, the men who so recently placed a price on their head. They often go on to apply their own suppression to former comrades who rebel against what they consider a sell-out, or who disagree on some other issue.

All this now seems likely to happen in South Arabia. Which not only goes to show how blind are the “experts”, but also how persistent, tangled and poisonous are the conflicts of capitalism, and to what murderous lengths men are driven in their efforts to resolve them.

Half a million unemployed

As the Ministry of Labour’s doleful figures come out, let it not be forgotten that it is a Labour government which says that it has created half a million unemployed.

The Labour Party hold the theory that a government can produce, or abolish, unemployment at will. Whether this is true or not is beside the point, which is that Labour are saying they are responsible for the rise in unemployment, that it has come about as a result of their deliberate policy.

It is not convenient, now, for them to remember some of their promises. Like this one, by James Callaghan at their 1965 conference:

… he had not joined the Labour Party to create unemployment. He was certain that the measures being taken, through regional planning, were the right ones to maintain full employment. (The Guardian, 1/10/65.)

It is not convenient, now, for Labour to remember that the wage freeze was always supposed to be the alternative to unemployment. This was Callaghan, again at the 1965 conference:

This problem of getting increased productivity would be solved either by unemployment and substantial deflation, or by a prices and incomes policy: there is no other way.” (The Guardian, 1/10/65.)

As it turned out, the working class have got it all; a wage freeze, unemployment and what is called “deflation”.

Presumably, if they were pressed on the matter, the Labour Party would still say that this is Socialism. For one thing, their policies seem to be holding the support of a majority of trade union leaders, although what these same leaders would say about the same policies if they came from a Conservative government hardly bears thinking about.

To some extent, then, Labour have had things their way. What it amounts to is that in 1964 there was a dirty job to be done for the British capitalist class and Labour have done it.

The TUC, does it matter?

“I do not think the . . . motion really means a great deal in this context, one way or the other.” That was George Woodcock at this year’s TUC and there are no prizes for guessing why he has suddenly discovered that some of the decisions of this annual gathering don’t really matter.

A long time ago, the Labour Party leadership made it clear that whenever its Annual Conference passed an inconvenient motion it suddenly lost all power and significance as a conference. Only when its decisions were in line with official policy did the Conference become the democratic mouthpiece of a great movement.

Now, apparently, the same thing applies to the TUC. The motion Woodcock was referring to was one from the Shopworkers’ Union which, among other things, protested about unemployment, rising prices and the wage freeze.

It seemed certain that the motion was going to be passed —as it was, despite the application of “Carron’s Law” to the AEU vote—so of course the only thing left for the politically motivated TUC leaders to do was to give advance notice that it didn’t mean anything.

There is no record that Woodcock was equally clear about the TUC’s irrelevance when they later approved motions which supported the government—one on the Wednesday from the ETU which recorded appreciation of the government’s efforts to reduce overseas spending and one on Friday, moved by Carron, which said that the trade union movement should support the government.

It is fair to ask why the TUC bothers to have a Congress, if it is allowed to pass only those resolutions which are approved by the platform. It is fair to ask whether the TUC leaders think it democratic that any decisions it makes which are inconvenient to a Labour government should be ignored.

Perhaps the solution is to hold the Congress only when there is a Conservative government. Then Woodcock and the other leaders can accept the critical motions without any qualms.

Unless, of course, the union membership become aware of their standing and interests under capitalism—and of the job the unions should be doing.

British Motor Car Industry (1967)

From the October 1967 issue of the Socialist Standard

Professor Buchanan once described cars as “adored” by their owners— a sharp comment on the fact that, of all the symbols of working class life in the Sixties, few are the object of such pride and care as the motor car.

Behind this rather neurotic pride, which gives the car sellers their chance, there often lies something less agreeable. Tests carried out by the Consumers’ Association regularly confirm the disappointment experienced by many owners of new cars. Here are some typical comments, from the CA magazine Which? with the price of the car: 

“persistent engine oil leaks” (£998) 

“failure of exhaust system” (£1048) 

“left wheel badly out of balance and slightly buckled” (£609) 

One British car, costing £789, had no fewer than thirty two faults on delivery three of which, said CA, were “probably serious”.

The plain fact is that, as the motor industry has developed greater combines, and as it has intensified the methods of mass production, many of its quality standards have declined in ways which cannot be compensated for by greater technical knowledge and some improved materials. Very few modern cars, for example, have the sort of chassis, bodywork or upholstery to compare with a pre-war model.

The reason is that, just like any other industry, the car firms are chasing their economic tails. They have tens of millions of pounds invested in their production lines and to get a return on this they have to see the cars streaming out of the factory. A Rootes car takes about two and a half hours to build once the basic components are gathered together; Fords of Britain makes about three thousand vehicles a day. As a rough guide, compare this to the fact that at Rolls Royce they will take between two and three months to build a car, and at Jaguar ten weeks.

The Ford Motor Company says all that needs to be said, by way of explanation of this difference:

Quality and service problems. Industry spends vast amounts in trying to cope with these, but mass production and price competition make them inevitable to some extent.” (Notes On British Motor Industry)

What sort of industry is it, which stands behind the mass-produced dream and which can so frankly confess that quality problems are inevitable? About a million men are engaged in the manufacture, sale and service of vehicles in the U.K., about 600,000 of them in manufacture. The car industry is the top British exporting industry, sending out about £750 million worth a year and is important also on the home market; more than two thirds of the national hire purchase debt is for cars.

In the main the industry consists of five big firms—British Motor Holdings (BMH); Ford; Vauxhall; Rootes; Standard Triumph. (Figure One shows the standing of these companies in the British market.) This Big Five account for almost the entire British production of cars ; up to just over a year ago the independent Rover and Jaguar were responsible for almost three per cent of sales but now both these firms have joined one of the big combines. Mergers are now an established part of the industry ; the big firms often take over one or other of their suppliers, or of their rivals, heaping one merger upon another into a massive and intricate combine. (Figure Two shows something of the set-up at B.M.H.)

The car industry’s work is in some part a matter of assembling components which have been produced outside, some by big concerns (electrical equipment by Lucas, propellor shafts by Hardy-Spicer) and some by small family firms (leather by Connolly Bros., cylinder head studs by M.V. Engineering). The economics of mass production force the car firms to store the very minimum of components; B.M.H. at Longbridge hold at most a day’s stock of major production items, Rootes enough trimmed and painted bodies for only one shift. This makes the industry heavily reliant on the dependability of its suppliers—and exceedingly vulnerable to labour disputes.

Strikes are another of the car firms’ big problems. Persistent labour trouble at Ford’s have caused two official inquiries into staff relations there—by Lord Cameron in 1957 and by Mr. D. T. Jack in 1963. Both investigations went over the same ground but neither did the impossible ; neither produced a solution to the problems it was investigating.

But one thing the inquiries did make clear and that was the government’s concern at the importance of the car industry to the economy of British capitalism. When Dagenham sneezes, it is said, the British economy will catch a cold. At the moment Dagenham, and all the other car towns, are exhibiting the symptoms of a prolonged sickness.

In 1966, Vauxhall’s pre-tax profits were £3,666,898—compared to £17,735,372 the year before. In the same period, Ford’s profits before tax fell from £8.9 million to £7.4 million. Most spectacular of them all B.M.H., whose accounting year is timed so that they reported on the full effects of the 1966 car slump, announced a loss of £7.52 million during the first six months of their financial year compared to a pre-tax profit of £5.785 million in the first half of the previous year.

There is an abundance of ominous figures to record the current slump in cars: new car registrations up to July 103,000 down on last year’s; production running about ten per cent lower than in 1966, when sales were in any case 87,000 lower than in 1965. Over the past couple of months sales have picked up but the car makers are not rejoicing; they may be in for their worst winter for over twenty years.

The motor industry has had many such ups and downs (see Figure Three). What is worrying the car firms now is the abundant evidence that they are in for a long period of decline and that any further pressure on their profits will force them to cut down on the capital investment which is so important to their competitive existence. Typical of their comments amid the gloom are:

Success in the motor industry demands a sustained and high level of investment and a vigilant control of costs. Without adequate returns, neither is possible. (Ford’s).

… it is imperative that the Government should take the very first opportunity of permitting our industry to find its natural level, thus allowing it to stabilise production and generate the capital so urgently needed to keep abreast of its foreign competitors. (B.M.H.)

The government’s remedy for this situation has been the by-now classical one of easing hire purchase controls; in June they cut the minimum deposit on H.P. car sales from 40 to 30 per cent and increased the maximum repayment period from 24 to 30 months. In August there was another relaxation; deposit down to 25 per cent, repayment period up to 36 months. The car makers gave a cautious welcome to these measures, although their own suggestions are no more fundamental.

It is instructive now to remember the forecast made in Ford’s 1959 Report, which came out a couple of years before the car industry hit a slump, that the next ten years would be a “decade of opportunity for the motor industry”. Such optimism is common in all capitalism’s industries; only occasionally does one of their spokesmen put his finger on the essential problem, and reveal how hopeless all their remedies are. In the Sunday Times of May 14 last Henry Ford II said it: “We have not yet discovered the secret of making anybody buy our products”.

Ivan

Finance and Industry: Who creates wealth? (1967)

The Finance and Industry Column from the October 1967 issue of the Socialist Standard

Many people have a shrewd suspicion that the profits that find their way into the pockets of those who own stocks and shares come out of the wealth produced by those who work. For the capitalist class this is unfortunate since their system runs on profit. To pursue their profit-making in peace they must convince the rest of us that they are doing it for our benefit; they must brand those who link profit with exploitation as ignorant agitators. Sir Peter Runge, a joint vice-chairman of Tate and Lyle and a director of Vickers, in a speech last May, later published by millionaire Labour MP Robert Maxwell’s Pergamon Press under the title The Role of Profit, had a go at showing that profit does not come from the unpaid labour of those who are employed to work. Here is his specious argument:

Let us look at profit in its first role — as an incentive to create capital, without which economic growth is impossible. Capital can only be created by savings, that is to say by the postponement of consumption. Under a voluntary regime consumption is postponed if it is judged that in doing so there is a consequential advantage. Judgement normally rests on the prospects of having more to consume as a result of the postponement; and clearly the better the prospects the greater the incentive to postpone consumption and thus to save. The extra consumption made possible by having waited is the reward for having saved; it is the profit generated by the capital which has been created. Without the reward there would be no capital formation and therefore no growth and therefore no real increase in standard of living or in real wages. Looked at in this way, the reward of capital — I am not talking about usury — exploits no one; it is an essential part of growth in a free economy.

This seems plausible until you take it to pieces. Take the sentence “capital can only be created by savings, that is to say by the postponement of consumption”. What does Runge mean by capital? We doubt, somehow, that he is using it in the Marxian sense to mean wealth used to exploit wage-labour for profit. Nor does he seem to be using it in the more conventional sense of academic economists to mean wealth used to produce more wealth. He seems merely to mean wealth that is not consumed immediately. In which cases his sentence is not a statement of fact but a definition that capital is postponed consumption. He argues that profit is needed as an incentive to save. In fact, he’s not really talking about profit, properly so-called, at all but about interest, the price of money. To talk, as Runge does, about rewards is just to confuse the issue.

We can assume that Runge is not so stupid as to think that money automatically reproduces itself. Or can we? What are we to make of his claim that “the extra consumption . . . is the profit generated by the capital which has been created”? Perhaps he can explain just how capital (in his sense) produces profit. Since he has defined capital as what is saved, and thus talks interchangeably about the “reward for having saved” and the “reward of capital”, he would seem to be committed to the patently absurd view that profit is produced by waiting. But waiting produces, and can produce, nothing. Waiting, in fact, is doing nothing. If Runge doubts this, let him take a sum of money and lock it up in his safe and wait. We can assure him that he will be waiting a long time before his reward materialises. On the other hand, he could lend it to someone who would use it as productive capital. The factory-owner who borrows the money will use it in his business. In his factory people in his employ will work raw materials into finished goods; they will produce new wealth. Part of this will return to them as wages. The rest belongs to their employer, the factory-owner. This is the source of profit and its subsidiaries, rent and interest. It arises in production from the unpaid labour of those who work. Out of his profit the factory-owner can pay Runge interest for the loan of his money.

Significantly, Runge chooses to steer clear of the realm of production and to discuss instead how interest can be justified. And even here, instead of seeing interest as a price he speaks of rewards, substituting for an economic category, as Marx put it in another context, a sycophantic phrase.

Another capitalist who has an even more absurd view of how wealth is produced is Tory shadow Minister, Sir Keith Joseph. He thinks it is a few thousand top executives who are the “wealth-creators”. In a speech pleading for a reduction of taxes on the rich, as reported for their benefit in the Financial Times of June 26, he declared:

The Government that wants the standard of living to rise so that there is more for all … must start by allowing its wealth-creators to keep more of their earnings. . . . There are at any given time very few wealth-creators probably no more than a few thousand.

We know that capitalism develops social productivity but had not realised that it had gone quite this far. So only a few thousand people mine all the coal, operate the railways, run the factories, shops and offices! Who are they? Who are these super-men? According to Joseph this fantastic feat is performed by

the creative businessmen who detect new needs and new markets or new versions of old needs and old markets for products or services — and set about supplying them; or the managers who have the brains, character and drive to make an organisation more efficient.

Runge tries to confuse us with his illogical arguments. Joseph just insults our intelligence. Nobody would deny that top executives work, but what about the rest of us, who spend the greater part of our lives in producing wealth that belongs to a privileged and often idle few, do we not create wealth too?

Incidentally Joseph, a Lloyds underwriter and deputy chairman of Bovis Holdings Ltd., hit upon an idea to create wealth for himself (and, of course, for us as well) that never fails. He had the enterprise, brains, character and drive to be born the son of one of the original partners of a construction firm called Bovis.

Why many people look up to men like Sir Peter Runge and Sir Keith Joseph is difficult to understand. They are just human beings like the rest of us, only, perhaps, a little stupid. It is us, the working class, who by applying our energies to nature-given materials produce all new wealth; it is us who run industry and society from top to bottom. Is it not time we did so in our own interests for a change?

Adam Buick