Pathfinders: S-C-A-ISM minus O-I-L? (2008)

The Pathfinders column from the October 2008 issue of the Socialist Standard

Oil is the super-fuel. Nothing else does all the things oil does, from heating, fuel, plastics, food, chemicals, pharmaceuticals and clothing. It has the highest energy conversion rate of any fuel and it constitutes 40 percent of global traded energy and 90 percent of transport (Financial Times, 4 January, 2004). But aside from its contribution to global warming, it's also running out.

Or so we are told. Despite the record rise of oil recently, this is mainly speculator-driven and not due to any real shortage of oil. What is running out is cheap oil. In fact the world has only used 15 per cent of known reserves, with at least another 20 per cent recoverable by today's technology (BBC Online, 21 April 21, 2004). Though pundits talk about hitting peak oil, estimates for this turning point range from already to as far away as 2050. As supply diminishes and prices rise, more expensive options like the Canadian and Venezuelan tar sands, with capacities rivalling Saudi Arabia, will become profitable to extract. But the rise in costs will be mirrored by a rise in the price of everything dependent on oil, and for the world's poorest billion people, this could be a sentence of death by starvation, with a likely proliferation of food rioting, instability in liberal democracies and an upsurge in the ruling class's faithful stand-by, fascist repression. Meanwhile, as the stakes rise, so do the international tensions. Oil is already determining many countries' domestic and foreign policy, and few people doubt its role in recent wars. Governments are increasingly jumpy. Oil production plants, and bottleneck sea-lanes, are particularly susceptible to guerrilla attack, and with no in-house reserves Europe or America could be reduced to chaos in weeks (New Scientist, 28 June). Worse still, the ruling elites' increasing inability to keep their oil-starved military up to scratch may make wars more likely rather than less, as weakened capability could provoke opportunistic pre-emptive attacks by rivals.

Socialism faces a rather different problem. It is predicated on communal sharing and participation, which in turn rely on the fact of material sufficiency. Should anything threaten this sufficiency, the basis of socialism itself would be threatened. Today, for example, over 50 percent of world rural populations have no access to electricity (UNDP World Energy Assessment, 2000). Though not a problem to capitalism, which doesn't care about non-effective, i.e. non-paying demand (for more on this see page 19, this will be of the first importance in socialism. Even allowing for waste reduction in the west, that electricity must be found.

There is no single alternative to oil, so a suite of alternatives will have to be employed. Of the non-renewables, gas won't last much longer than oil, and coal, the chief source of electricity globally, though there is up to 250 years worth at present usage, is dirty stuff to burn. Carbon capture technology may mitigate this, but is at an early stage.

The main problem with renewables is that the oil-addicted capitalist economy has hitherto starved them of funds, because set-up costs are prohibitive and returns long-term. This is true of geothermal heating systems, but also of wind and tidal systems, ocean thermal electricity, biowaste to oil reconversion plants, solar thermal and solar photovoltaic technology. Only nuclear fission, with its potential for weapons, has found success, though its waste problem remains intractable, and biofuels, though their impact on food crops and deforestation is well known. Nevertheless, so-called 2G biofuels that use waste feedstocks of lignin and cellulose are beginning to put in an appearance (New Scientist, 21 June), while algal fuels are also showing some promise, though expensive in land area (New Scientist, 16 August). The central problem of collection and conversion in solar energy is being addressed with 3G tech involving plastic panelling which can be printed cheaply on any surface and may offer up to a 60 percent conversion rate. Hydrogen, much vaunted in the press as a cheap fuel, is really an energy vector not an energy source, being only as clean as the energy used to create it, currently coal-fired electricity, and the problems of storage and distribution are enormous. Currently there are a small handful of hydrogen filling stations in the whole of Europe (EurActive.com, 4 September)

There is some hoopla about the renaissance of the electric car (New Scientist, 20 Sept ember) with its macho speed and mileage performances, but aside from the £100,000 price tag, there is something about the electric car that utterly misses the point.

Probably the biggest difference between socialism and capitalism as regards energy would not be how we produce it but how we consume it. Instead of developing electric cars that do 0 - 60 in 4 seconds, socialism would be developing ways of getting cars off the road altogether, because abolishing paid employment and the need to make a living would also abolish the commuter madness on the roads and motorways. Homeworking, or just doing something useful in one's immediate local area, would be a much more practical solution than hi-tech boy-racing.

Similarly, there's no need and no point having, as a norm, private kitchens all cooking the same food at the same time, when socialising the process in the form of volunteer-run restaurants could cut energy hugely and save on waste as well as time. Many people detest cooking anyway and eat pre-packaged and expensive rubbish as a result. There's no need either for each household to possess identical music or DVD collections, books, clothes, tools or any other item that could be shared via public library systems. The life-span of a domestic power-tool in use, from purchase to a 10,000 year career in landfill, is estimated at just 10 minutes (New Scientist, 6 January 2007). Waste is simply energy misused, and capitalism does a lot of that because privatised materialist consumption is how it makes its money.

Then there is what we literally consume. Socialism has to feed everybody and it is obvious it won’t be able to do so on a western-style meat diet. Even now we are starting to be told to reduce our reliance on the meat industry not simply because of its clear link to obesity, or to rainforest clearance, or greenhouse gas emissions (18 percent - more than transport, according to the UN Food and Agricultural Organisation - BBC News Online, 7 September) but also because of its global impact on water and oil usage. Aside from any ethical considerations, meat is simply too expensive a way of feeding people when for every kilo of meat protein you need approximately 8 kilos of grain protein (New Scientist, 14 June)

If capitalism really uses up the obtainable oil in its customary spendthrift way, then socialism is going to have to employ a suite of solutions, both in means of supply and modes of consumption. Whether this will involve a generation without coffee, or cricket fields under cloches, a communally-managed planet is going to be better placed to deal with these issues than the privately-owned one we have. Socialism will do whatever works, and whatever it takes. Capitalism just does whatever pays, and devil take the consequences. Only one of these systems has a future.

Paddy Shannon

Anti-war Morris (2008)

Book Review from the October 2008 issue of the Socialist Standard

Crossing the ‘river of fire’ : the socialism of William Morris. By Hassan Mahamdallie. (Redwords 2008.)

This is an SWP take on William Morris. Reasonably accurate, it emphasises (as might be expected from the SWP, at least in its current period) Morris’s anti-war and anti-imperialism stance. And Morris’s statement in the January 1887 issue of Commonweal does bear repeating:

“Meantime if war really becomes imminent our duties as socialists are clear enough, and do not differ from those we have to act on ordinarily. To further the spread of international feeling between workers by all means possible; to point out to our own workmen that foreign competition and rivalry, or commercial war, culminating at last in open war, are necessities of the plundering classes, and that the race and commercial quarrels of these classes only concern us so far as we can use them as opportunities for fostering discontent and revolution;. that the interests of the workmen are the same in all countries and they can never really be the enemies of each other; that the men of our labouring classes, therefore, should turn a deaf ear to the recruiting sergeant, and refuse to allow themselves be dressed up in red and be taught to form a part of the modern killing machine for the honour and glory of a country in which they have only a dog's share of many kicks and a few halfpence, - all this we have to preach always, though in the event of imminent war we may have to preach it more emphatically.”

For most of his active period as a socialist Morris was an “impossibilist” in that he favoured a policy of “making socialists” and “education for socialism” rather than seeking working class support on the basis of reform demands. Committed as they are to reformist agitation, the SWP find this an embarrassment just as much as E.P. Thompson did in both his CP and post-CP days. Mahamdallie argues that the correct tactic for Morris and the Socialist League would have been to do what the SWP does today: to get involved in the non-socialist, day-to-day struggles of workers with a view to directing them. He also claims that in 1890 Morris realised the “dreadful mistake” he had made in not doing this.

But did Morris admit this? His November 1890 resignation statement from the Socialist League (which had been taken over by bomb-throwing anarchists) “Where Are We Now? “does not say this. It says rather that he still thought he was right, but that as the working class seemed to have chosen a different path, so be it; that was their choice.

To be frank, Engels thought that Morris was wrong and preferred the reformist ILP to both the Socialist League and the SDF as a step towards the formation of genuine mass socialist party. But who was right? Morris or Engels? The ILP led to the Labour Party, which has been and gone, and we are still no nearer to socialism. The urgent need is still, as Morris insisted, campaigning for socialism not reforms.

Adam Buick

Ballyhoo and baloney (2008)

From the October 2008 issue of the Socialist Standard

The National Conventions of the Democratic and Republican Parties have become forums for putting the finishing touches on the “cult of personality” of the candidates, culminating with the vacuous speeches of the candidates themselves.

A demagogue, H.L. Mencken once said, is someone “who will preach doctrines he knows to be untrue to men he knows to be idiots.” This is a pretty good description of the US presidential candidates in action at their late-summer conventions. Although, to be fair to those who listened to the convention speeches, it was more a case of preaching idiotic ideas to people who wished those ideas were true.

The contrast between the gassy rhetoric of the politicians and the weighty problems facing workers was particularly striking at this year’s conventions, highlighted further by the juxtaposition between jubilant delegates inside the convention hall and the pepper-sprayed protestors outside.

The candidates from both parties employed the same basic template for demagoguery in writing their convention speeches. We encounter the same sorts of rhetorical techniques and the logic of “public relations” shapes every line. The candidates are less interested in conveying ideas than manipulating them to fashion images to sell the product – in this case, the candidates themselves.

Family lies
The first chapter of Convention Speeches for Dummies, if such a book were ever to be written, would probably be entitled: “Making the Most of the Family.” Each candidate, without exception, began with extravagant praise for the family – the candidate’s own family, that is. The candidates informed the American people that they too have spouses who are loving and loyal, children and grandchildren they are proud of, and hardworking parents as wise as they are kind. (Perhaps this convinced the sceptics who thought that the candidates had been hatched in a secret laboratory in North Dakota.)

Behind my plastic exterior, each candidate seemed to be saying, is a real live human being, just like you. Just like us, but even better. Thanks to the “quintessentially American” values of hard work, perseverance and personal integrity that the candidates acquired as children from their saintly mothers.

In his speech, Joe Biden described his 90-year-old mother as a person “defined by her sense of honour” who “believes bravery lives in every heart” and that “it will be summoned.” She taught little Joey the “dignity of work” and that “anyone can make it if they try” and emphasized that it is important to “live our faith and treasure our family.” Biden said that his “mother’s creed is the American creed: No one is better than you; you are everyone’s equal; and everyone is equal to you.” (And US Senators are more equal than most.)McCain mentioned his mother too, saying: “I wouldn’t be here tonight but for the strength of her character.” Thankfully he was not as long-winded as Biden – perhaps to secure adequate time for another thrilling episode of “John McCain: War Hero” – but he did mention that his mother taught him some patriotic claptrap about how “we’re all meant to use our opportunities to make ourselves useful to our country.”

Obama praised his mother “who raised my sister and me on her own while she worked and earned her degree; who once turned to food stamps but was still able to send us to the best schools in the country with the help of student loans and scholarships.” For good measure, Obama threw in his grandmother too, “who worked her way up from the secretarial pool to middle-management” and taught him “about hard work.”

The mother featured in Palin’s speech was Palin herself, who “was just your average hockey mom” whose political career began when she “signed up for the PTA” because she “wanted to make my kids’ public education better.” Palin had a small-town upbringing that encouraged “honesty, sincerity and dignity” and she thanked her parents for teaching her that, “this is America, and every woman can walk through every door of opportunity.”

It wasn’t just the parents who were mobilized for the cause: children and grandchildren served as useful props too. Palin’s 4-month old son, who suffers from Down Syndrome, was brought to the raucous event and passed around on stage for the photo op. Obama made use of his two daughters, who told daddy how much they love him. And Biden said that when he looked at his grandchildren, and at Obama’s daughters, he realized: “I’m here for their future.” Many watching this strange spectacle must hope that the candidates’ love for those little ones will be enough to keep their powerful fingers away from “the button.”

But, lest we feel too safe, in the next breath these politicians are talking about their sons who are headed off to war, such as Beau Biden or Jimmy McCain. Palin also got some good mileage out of her son Track, who not only is headed to Iraq but will conveniently ship out on September 11 “in the service of his country” (by securing the Starbucks in the Green Zone).

It is rather sickening to see how willing the candidates are to squeeze out whatever political advantage can be had from their children. Even the pregnancy of Palin’s teenage daughter – and shotgun wedding – is good election fodder, appealing to those families who have experienced that common side-effect of “abstinence education.”

We feel your pain
Once the family motif had been fully exploited, right down to the last grandchild, the candidates shared some snapshots of “less fortunate” families and individuals in the US. Luckily for them, there are literally millions of hard-luck stories to choose from!

Obama, for instance, spoke of “a woman in Ohio, on the brink of retirement [who] finds herself one illness away from disaster after a lifetime of hard work” and “a man in Indiana has to pack up the equipment he’s worked on for twenty years and watch it shipped off to China, and then chokes up as he explains how he felt like a failure when he went home to tell his family the news.”

Notice how careful Obama was to choose examples from crucial “swing states” (and also throw in China as a convenient scapegoat). One can easily imagine political advisors sifting through such evidence of capitalist misery to get to the political gold, weighing each situation carefully.

Biden said in his speech that he looks out at people’s homes during his evening train ride home from work and “can almost hear what they’re talking about at the kitchen table after they put the kids to bed,” imagining the following sorts of conversations:

  “Winter’s coming. How we gonna pay the heating bills? Another year and no raise? Did you hear the company may be cutting our health care? Now, we owe more on the house than it's worth. How are we going to send the kids to college? How are we gonna be able to retire?”

Biden’s little story (punctuated with his “gonna’s”) is meant to highlight his compassion and solidarity for working folk – and he is so proud that he rides a train that he had Obama mention it too! – but the image of a powerful US Senator breezing through town, as he daydreams about stick-figure citizens in between sips of coffee, only underscores the distance separating him from those kitchen-table conversations.

McCain tried his hand at this compassion stuff too, recognizing that “these are tough times for many of you.” Unfortunately there was no train window separating him from a heckler (and Iraq War veteran) who proceeded to berate the candidate for his poor record on veteran’s rights. After the ungrateful citizen had been dragged out of the hall, and the chants of “U.S.A! U.S.A.!” to drown out his heckling had subsided, McCain continued reading from his teleprompter: “You’re worried about keeping your job or finding a new one,” the monotone voice intoned, “and you’re struggling to put food on the table and stay in your home.” And later, McCain threw in a few swing-state stories of his own, such as “Bill and Sue Nebe from Farmington Hills, Michigan, who lost their real estate investments in the bad housing market” so that now Bill has a temporary job and “Sue works three jobs to help pay the bills.”

In recounting these stories, the candidates showed no hint that their own political parties bear any responsibility, nor did they recognize any connection between such problems and our current social system. The whole point was just to show off their own compassion, which Bush Sr. tried to do on campaign trail back in 1992 when he succinctly said, “Message: I care.”

Policy promises
Only around the middle of their speeches did the candidates finally begin to sketch some of the policies they plan to implement if elected. But these promises are so vague as to almost defy analysis.
For the few ideas that they did discuss in any detail – regarding taxation, education and foreign policy – the similarities between the candidates far outweighed the differences. Both McCain and Obama pledged to lower taxes for the “middle class,” improve education, and somehow win the war in Afghanistan (while keeping Iran and Russian in their place).

Obama kicked off his list of policy solutions with the vow to reform the tax code so as to “cut taxes for 95 percent of all working families.” Even setting aside the question of whether sweeping tax cuts will be possible, while waging two wars in the midst of deep recession, it is telling that Obama and the Democrats focused so much of their attention on the issue of taxation, which is not a working-class issue to begin with (as taxes ultimately come out of the surplus-value created in production). Moreover, Obama is quietly stepping back from an earlier promise to rescind Bush’s tax cuts for the wealthy in recent months.

After listing many of the grave problems facing the country earlier in his speech – and harping on the need for “change” throughout his campaign – ultimately the best that Obama can come up with is to steal a page from the Republican playbook and call for tax cuts as an economic cure-all. This is change that John McCain can believe in, who also promised to cut taxes in his speech.

And the two candidates are on the same page for other issues as well. Both call for something called “energy independence” and made the usual pledge to root out corruption and eliminate corporate loopholes as a means of securing the necessary government funds.

Both also promised to improve education, although there was a difference between Obama’s promise to “recruit an army of new teachers and pay them higher salaries” and McCain’s vow to “shake up failed school bureaucracies with competition [and] empower parents with choice.” Still, Obama is reluctant to veer off too sharply from the current administration and in his speech he threw in a line about calling for “higher standards and more accountability,” which indicated his agreement with aspects of Bush’s “No Child Left Behind” policy.

Perhaps the biggest policy difference concerned health care. McCain ignored the issue, except to say that he opposes “government-run health care system where a bureaucrat stands between you and your doctor,” while Obama emphasized the need for improvements. Yet Obama only calls for an expansion of access to medical insurance, not a reform that would drive out the private insurance companies.

The candidates seemed a little bored by such domestic issues, but warmed up when it came to demonstrating that they are reckless and bloodthirsty enough to be “Commander-in-Chief.” Both promised, repeatedly, to keep America and its people safe. Neither expressed any hesitation in sending troops to war and pledged to strengthen the armed forces. Both vowed to continue the fight against Al-Qaeda and issued threats to Iran and Russia. It seems that Obama’s days as the “anti-war candidate” are long gone.

This discussion of policy, which should have made the distinction between the two candidates clear, only underscored their similarities, while again revealing the enormous gap between the severity of the problems faced – whether economic, diplomatic or environmental – and the meagre “solutions” that both parties are offering.

Orchestrated response
No sooner had the candidate uttered the obligatory “God bless America” to end the convention speech than TV commentators were breathlessly informing viewers that it was a “homerun” that electrified the crowd and will energize the base of the party. It was as if the pundits were frightened that, if given a split-second for reflection, viewers might reach the alternative conclusion that the speech was rather pointless and insipid.

Both parties made every effort to generate the most favourable reaction to their candidate’s speech. Even before it was delivered, there were newspaper articles revealing what the speech would discuss, with titles like: “Obama to Get Specific” or “McCain to Strike a Bipartisan Note.” At first glance this custom of disclosing the content of the speech in advance seems rather bizarre, as it makes the speeches even less interesting to watch, but it gives the TV commentators an idea of how they should frame the discussion.

The entire process surrounding the convention speeches is hermetically sealed from the public and from reality itself. If the candidates manage to “hit one out of the park,” as the cliché goes, it is only because US politics is a game played on a narrow field of little-league proportions.

Michael Schauerte

Cooking the Books: The fruits of labour (2008)

The Cooking the Books column from the October 2008 issue of the Socialist Standard

“We believe”, John McCain declared in his acceptance speech at the Republican Party’s convention in St. Pauls on 5 September, in “letting people keep the fruits of their labour”.Now, that’s an idea. The only problem is that he seems to think that we are still living in 18th century colonial Americas when people worked for themselves at some trade and exchanged the product of their labour, whether farm produce, furniture, shoes, pots, candles or whatever, for the products of other people’s own labour. This was exchange for use, what Marx called “simple commodity production”, and where, as Benjamin Franklin who lived at the time noted, the products tended to exchange according to the time the independent producers had taken to make them. In this way they did get more or less the full equivalent of their labour.

But that was then. The artisan’s tools have now developed into the powerful machines of today owned by capitalist companies while the producers now sell their ability to work to one or other of these companies in return for a wage or a salary. They no longer own and control the products of their labour. These belong to the company, which sells them for more than they cost to produce, pocketing the difference as their profits.

When producers first became separated from the means and instruments of production, as was increasingly the case throughout the 19th century, it was not difficult for them to realise what was happening. They could see that what they produced sold for what it did when they had made them themselves as independent producers, but instead of them getting the full equivalent of their labour they only got a part of it as wages, the rest going to the capitalist who employed them. The source of the capitalists’ profits was their unpaid labour.

So the demand for the full “fruits of our labour” went up among the more radical of the newly proletarianised producers. All sorts of schemes were devised by critics of capitalism such as Robert Owen in Britain, Proudhon in France and Lassalle in Germany to try to recreate the same result as in the old situation. But it was too late. They all failed as they had become irrelevant due to production no longer being individual but a collective effort.

In this new circumstance, if the demand for “the full fruits of labour” was to be met it could only be done collectively. The whole product of society would have to be commonly owned and used for the benefit of all. This of course is socialism and it is the only way that, today, people can get to keep the fruits of their (collective) labour.

McCain, however, is still thinking in individualistic terms. His rhetoric imagines that the wage worker is still an independent producer entitled to the full product of his or her individual labour. But he doesn’t see this as not happening because of the profit extracted by the employer but because of the taxes levied by the government. In his eyes, it is the government not the capitalist that is the exploiter of people’s labour. This is the cry not of the exploited producer but of the capitalist employer who does not want to share the profits of exploitation with the government.

But he needs to be careful. The rhetoric of the “fruits of labour” was originally an anti-capitalist, not a conservative, demand, and could – and should – become so again.

Weekly Bulletin of The Socialist Party of Great Britain (66)

Dear Friends,

Welcome to the 66th of our weekly bulletins to keep you informed of changes at Socialist Party of Great Britain @ MySpace.

We now have 1351 friends!

Recent blogs:

People's capitalism

The right to be homeless

A Culture of Violence

Coming Events at SPGB Head Office, 52 Clapham High St, London SW4 (nearest tube: Clapham North):

A Season of Free Film nights from Sunday 14th September to Sunday 23rd November at 52 Clapham High Street, London.

All films start at 4 p.m.

Sunday 12 October: Judgement Day: Intelligent Design on trial

Sunday 26 October:The Corporation

Sunday 9 November: Zeitgeist

Sunday 23 November: The War on Democracy

Quote for the week:

"Disobedience, in the eyes of any one who has read history, is man's original virtue. It is through disobedience that progress has been made, through disobedience and through rebellion." Oscar Wilde, The Soul of Man Under Socialism, 1891.

Continuing luck with your MySpace adventures!

Robert and Piers

Socialist Party of Great Britain

Editorial: Who needs finance? (2008)

Editorial from the October 2008 issue of the Socialist Standard

The downturn in the global economy appears to be broadening and deepening. The sub-prime slime has became the "Credit Crunch" in 2008, and last month heralded a further round of casualties on what some are starting to call "Manic Monday".

US house repossessions started it all off, followed by mortgage lenders and banks in Europe. But more recently the US government felt unable to allow their Freddie Mac and Fannie Mae (public mortgage lenders) go under, but stopped short of baling out Lehman Brothers.

The contagious fear of vanishing profits extended beyond mortgages to insurance giant AIG and beyond, and the geographical spread has widened to China and Japan.

Workers could be excused feeling some sort of schadenfreude at the news of a bank running out of money or an insurance company failing to manage risk and hedge their bets. Who can fail to smile as another financial institution is found to have ignored its own advice ("The value of your investment can go down as well as up. You may not get back the amount of money you invested and should only invest sums of money you are prepared to lose").

So there may be fewer stories in the news of £100 burgers in the bistros or £30,000 drinks bills in the restaurants of the City of London, but of course the economic downturn impacts more on the poor than the rich.

World socialists are opposed to capitalism – boom or bust. Recession just helps throw into sharp relief the logic of the market system. It does however also provide a good opportunity to highlight some important differences between capitalism, and socialism – where money and wages would not exist and production of wealth would be based on meeting real human needs.

Firstly of course inside socialism there will be no work at all for the whole financial sector that is under such pressure at present. Pensions advisors, insurance salespersons, "independent" financial advisers, mortgage brokers, fund managers: all of these jobs are essential to the smooth operation of capitalism, but are socially-useless and would have no place in a socialist society.

Over 1 million people in the UK – 4 percent of the workforce – are engaged in such activities which are wholly useless. When you factor in related jobs such as accountancy, real estate, and ancillary financial services the numbers mount up. Socialism will really make these positions redundant, but with the pay-off that people will be free to engage in work that is genuinely productive and socially useful.

The market system is an incredibly wasteful mechanism for organising the production of wealth. It prevents people’s power over production. Interest rates rise in the US, and a hospital gets mothballed in the UK? The oil price rises and thousands of holidaymakers get stranded in a foreign country? The need for constant minute-by-minute re-evaluations of cashflow projections or return on investment expectations, for every project, every industry, every product results in a colossal waste of the planet's resources and humanity's energy and ingenuity.

We are all socialists now

From the Marx and Coca Cola blog
A long time ago Milton Friedman asked Richard Nixon why he never took his economic advice to which Tricky Dick replied "We are all Keynesians now". Less than ten years later Ronald Reagan would declare "Government is not the solution to our problem. Government is the problem.", and we were all Reaganomists now. At least until last week.
What makes this economic downturn different from the other recessions post-1980 is not so much the size, but the reaction of the powers that be. While Treasury Secretary Lex Luther wanted a 700 billion dollar blank check that "may not be reviewed by any court of law or any administrative agency." (a plan referred to as an economic PATRIOT ACT), the usually spineless Democrats have actually said no. They have plans of their own. The most likely of these to pass is Chris Dodd's (D-CT) which would cap CEO pay, include foreclosure relief, and give the government a share in the profits the bailed out firms. Peter DeFazio (D-OR) is floating an idea to put a tax on stock transactions. Getting a lot of ink on the Internet is Debbsian socialist Bernie Sanders' (I-VT) four point plan which includes a wealth surtax, increased regulation, increased social spending, and busting up the big financial firms. None of this is really socialism, but everything's been laissez-faire so long it looks like the Paris Commune in comparison. While this kind of faux-populism is to be expected during an election year crisis other less than expected critics are questioning the status quo.
From a Yahoo article entitled Many economists skeptical of bailout comes this quote from University of Chicago professor Luigi Zingales:

"For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of a few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists."

A capitalism without capitalists if you will. Eric D. Hovde, the CEO of Hovde Capital and Hovde Acquisitions, writing in an op-ed praises government regulation, and decries Wall Street's influence on government. Actually most of the op-ed is a concise and well written history of this mess that blames everyone who deserves it. For example:

"In an attempt to protect his legacy after the Internet-bubble collapse, [former Fed chairmen Alan] Greenspan provided unprecedented stimulus to re-inflate the economy and maintain his popularity with Wall Street. (Remember the "Greenspan put"?) But in doing so, he spawned the largest debt and asset bubble in U.S. history."

In case you couldn't tell Greenspan was a close personal friend of Ayn Rand. In putting the blame where it's due Hovde also gives what I think is the definition of capitalism:

And in my view, there's no need to look beyond Wall Street -- and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government's responsibility.

What was the great fraud of Reaganomics was the belief that the government and the free market are two totally different and opposing forces. The government was either well intentioned (or evil) but incompetent, and only interfered with the perfect, all wise free market. The events of the last week have shown that's to be bullshit. There is no such thing as a "free" market. During the good times the state is there to put a veneer of respectability on fraud and extortion. During the bad times it's the knife that cuts off a finger to save the hand, but it is always capitalism's co-conspirator. This current down turn will lead to the state taking a greater role in the economy, and we might even get some increase in social spending (a la the New Deal). Capitalism will be saved from itself, and inevitably when the economy gets better and we've all forgotten (remember the Glass-Steagall Act? Me neither) these reforms will be repealed; we'll be right back here. The bad times is also when we should push for a real change that scraps capitalism and it's good buddy: the state, not just make them nicer.

JM

Council workers in strike action

From the Socialist Courier blog

Up to 150,000 council staff in Scotland staged the second 24-hour strike over pay in two months.

Schools, ferry services and rubbish collections are being disrupted as members of the Unite, Unison and GMB unions take part in the action.

It comes after the rejection of an amended offer from local authority umbrella group Cosla to change the 2.5% pay offer from three years to one year.

The unions are calling for a 5% increase in line with inflation.

Matt Smith, Unison's Scottish secretary, said he was impressed by the turnout for the strike and threatened more industrial action if the dispute continued.

Members of the Socialist Party participated in this walk out, just as ordinary workers who are union members.We reject any notions of wage increases 'ever' being the cause of inflation.Wages always play 'catch-up' with inflation.

There is over a century of socialist writing on this subject which can be accessed on the SPGB website, as this search will show.

Weekly Bulletin of The Socialist Party of Great Britain (65)

Dear Friends,

Welcome to the 65th of our weekly bulletins to keep you informed of changes at Socialist Party of Great Britain @ MySpace.

We now have 1352 friends!

Recent blogs:

All at sea

Exporting Crime

The end of capitalism -- or just of "neo-liberalism"?

Coming Events at SPGB Head Office, 52 Clapham High St, London SW4 (nearest tube: Clapham North):

A Season of Free Film nights from Sunday 14th September to Sunday 23rd November at 52 Clapham High Street, London.

All films start at 4 p.m.

Sunday 28 September: Who Killed the Electric Car?

Sunday 12 October: Judgement Day: Intelligent Design on trial

Sunday 26 October:The Corporation

Sunday 9 November: Zeitgeist

Sunday 23 November: The War on Democracy

Quote for the week:

"Well you got me workin' boss man

Workin' round the clock

I wanna little drink of water

But you won't let big Al stop

Big boss man now can't you hear me when I call? All right

I said you ain't so big, you know you're just tall that's all"

As sang by Elvis Presley, 1967.

Continuing luck with your MySpace adventures!

Robert and Piers

Socialist Party of Great Britain

the Revolution Bus

Via Ragged Trousered Philanthropist blog:

As someone once said, "A picture is worth a thousand words", but here's a few thousand words anyway:

The case for and against reformism

Do Anything Now?

Is protest really enough?

What about the meantime?

Questions of the Day - What Socialism Means

Originally posted on the Ragged Trousered Philanthropist blog

This excerpt was originally published in the Socialist Party of Great Britain pamphlet, Questions of the Day.

Socialism is the only system within which the problems which now face workers can be solved; but what will it be like? Socialism is a system in which the means for producing and distributing wealth will be owned by society as a whole. Under capitalism the land, factories, offices, mines, railways and other instruments of production and distribution are monopolised by a section of society only, who thus form a privileged class. Socialism will end this, for, with the means of life ownedin common by the entire community, it will be a classless society in which the exploitation and oppression of man by man will have been abolished. All human beings will be social equals, freely able to co-operate in running social affairs.

Drawing up a detailed blueprint for Socialism is premature, since the exact forms will depend upon the technical conditions and preferences of those who set up and live in Socialism; but we can broadly define the essential features of Socialism.

Socialism can only be democratic. At one time Socialism was known also as 'social democracy', a phrase which shows well that democratic control would extend to all aspects of social affairs, including the production and distribution of wealth. There is an old socialist slogan which speaks of 'government over people' giving way 'to the administration of things'; meaning that the public power of coercion, and the government which operates it will have no place in Socialism. The State, which is an organisation composed of soldiers, policemen, judges and gaolers charged with enforcing the laws, is only needed in class society for in such societies there is no community of interest, only class conflict. The purpose of govenmeat is to maintain law and order in the interests of the dominant class. It is in fact an instrument of class oppression. In Socialism there will be no classes and no built-in class conflicts: everybody will have the same basic social interest. There will be genuine social harmony and community of interest. In these circumstances there is no need for any coercive machine to govern or rule over people. The phrase 'socialist government' is a contradiction in terms. Where there is Socialism there is no government and where there is government there is no Socialism.

Those who wrongly assume that government and administration are one and the same will have some difficulty in imagining a society without government. A society without administration would indeed be impossible since 'society' implies that human beings organise themselves to provide for their needs. But a society without government is both possible and desirable. Socialism will in fact mean the extension of democratic administration to all aspects of social life on the basis of the common ownership of the means of production and distribution. There will be administrative centres which will be clearing-houses for settling social affairs by majority decision.

But will not the administrators become the new ruling class? Democratic organisation does indeed involve the delegation of functions to groups and individuals. Such people will be charged by the community with organising necessary social functions. They will be chosen by the community and will be answerable to it. Those who perform the administrative functions in Socialism would be in no position to dominate. They will not be regarded as superior persons, as tends to be the case today, but as social equals doing an essential job. Nor will they have at their command armies and policemen to enforce their will. There will be no opportunity for bribery and corruption since everybody, including those in administrative jobs, will have free access to the stock of wealth set aside for individual consumption. The material conditions for the rise of a new ruling class would not exist.

The purpose of socialist production will be simply and solely to satisfy human needs. Under present arrangements production is for the market with a view to profit. This will be replaced by production solely and directly for use. The production and distribution of sufficient wealth to meet the needs of the socialist community as individuals and as a community will be an administrative and organisational problem. It will be no small problem but the tools for solving it have already been created by capitalism.

Capitalism has developed technology and social productivity to the point where plenty for all can be produced. A society of abundance has long been technically pcssible and it is this that is the material basis for Socialism. Capitalism, because it is a class society with production geared to profit-making rather than meeting human needs, cannot make full use of the world-wide productive system it has built up over the past two hundred or so years. Socialism, making full use of the developed methods of production, will alter the purpose of production. Men and women will be producing wealth solely to meet their needs, and not for the profit of a privileged few.

Using techniques for predicting social wants (at present prostituted to the service of capital), a socialist society can work out how much and what sort of products and services will be needed over a given period. Men and women will be free to discuss what they would like to be produced. So with social research and after democratic discussion an estimate of what is needed can be made. The next problem is to arrange for these amounts to be produced. Capitalism, with its modern computing machines and input-output analysis, has developed the techniques which a socialist society can use.

When the wealth has been produced, apart from that needed to renew and expand the means of production, all will freely take what they feel they need to live and enjoy life. This is what we mean by 'free access'. There will be no buying and selling, and hence no need for money. What communities and individuals want does not vary greatly except over long periods, and it will be a simple administrative task to see that the stores are well-stocked with what people need. If any shortages develop they will not last long. Planned reserves will be held as a safeguard agzins; unforeseen natural disasters.

'From each according to his ability, to each according to his need' is another long-standing socialist principle. It means what it says: that men and women will freely take part in social production to the best of their abilities, and freely take from the fruits of their common labour whatever they need.

Confronted for the first time with this proposal for free distribution according to need, many people are sceptical. What about the lazy man? Or the greedy man? Who will do the dirty work? What will be the incentive to work? These are objections socialists hear time and time again. These are perhaps understandable reactions to what seems, to those who have never thought about it, a startling proposition. As a matter of fact, behind these objections is a carefully cultivated popular prejudice as to what human nature is. We dealt with this earlier in the section on human nature. Suffice it to say here that biological and social science and anthropological research conclusively show that so-called human nature is not a barrier to the establishment of Socialism.

Work, or the expenditure of energy, is both a biological and a social must for human beings. They must work to use up the energy generated by eating food. They must work also to provide the food, clothing and shelter they need to live. So in any society, be it feudal, capitalist or socialist, men and women must work. The point at issue is how that work should be organised. A very strong argument against capitalism is that it reduces so central a human activity as work to the drudgery it is for most people, instead of allowing it to provide the pleasure it could, and would in a socialist society.

To suggest that work could be pleasant often raises a laugh; but this only shows how much capitalism has degraded human life. Most, but certainly not all work under capitalism is done in the service of an employer so that people almost without thinking identify work with employment. Working for an employer is always degrading, often boring and unpleasant and sometimes unhealthy and dangerous. But even under capitalism not all work, as we have defined it, is done in the course of employment. Men and women are working when they clean their cars, dig their gardens, or pursue their hobbies and enjoy themselves at the same time. So close is the misleading association of work with employment that many would not even regard such activities as work. They think that anything that is pleasant cannot by definition be work!

There is no reason at all why the work of producing and distributing useful things cannot be as enjoyable as are leisure-time activities today. The physical conditions under which work is done can be vastly improved. So can the relationships between people at work. Human beings, as free and equal members of a socialist community, will no longer have to sell their mental and physical energies to an employer for a wage or salary. The degrading wages system will be abolished so that there will be no such thing as employment. Instead work will be done by free men and women co-operating and controlling their conditions of work, getting enjoyment from creating things and doing socially useful tasks.

In a socialist society there will be no social stigma attaching to any kind of work. Nor will there be pressures, as exist at present (because they are cheap and therefore profitable to the capitalists) to continue industrial processes which are harmful or dangerous to those engaged in them. In any event, with human needs and enjoyment as the guiding principle, there will be no need for anybody to be tied to the same job continuously. The opportunities for men and women to develop and exercise their talents and to enjoy doing so will be immense.

Finally, Socialism must be world-wide because the productive system which capitalism has built up and which a socialist society will take over is already international. There will be no frontiers and people will be free to travel over the whole earth. Socialism will mean an end to all national oppression - and, indeed, in its current political sense to all 'nations' — and to discriminations on the grounds of race and sex. All the people of the world, wherever they live, whatever their skin colour, whatever language they speak, really will be members of one vast human family. Socialism will at last realise the age-old dream of the Brotherhood of Man.

The end of capitalism - or just of "neo-liberalism"?

From the Socialism Or Your Money Back blog

In the 1980s, with Reagan in America and Thatcher in Britain, it became acceptable amongst the system’s supporters to use the word "capitalism" again. Before that if you used it you risked being called a "communist". But by capitalism they meant the ideology of free-market, private-enterprise capitalism, a capitalism with much less state intervention and regulation than up till then.

The supporters of the old form of mixed private/state capitalism were appalled. They denounced the new form taken by capitalism as "neo-liberalism", using the term "liberal" in its 19th century sense when the Manchester cotton lords who wanted free trade were supporters of the old Liberal Party.

Both supporters and opponents of free-market capitalism now seem agreed that the current financial and economic crisis represents a turning point. Even the free-marketeers recognise this, though they don't like it. "An historic turning point has been reached", wrote Anatole Kaletsky in the London Times (12 September) following the State take-over of the US mortgage companies, Freddie Mac and Fannie Mae, "the West is ditching its faith in free markets and private enterprise".

The decision of the US State to let Lehman's go bankrupt revived their spirits a little. "What critics are too hasty to see as capitalism in crisis is, in fact, capitalism in action", the London Times editorialised on 17 September, explaining: "It might be brutal and unforgiving but this is how capitalism works. The market ensures that those who make mistakes are accountable for them". But that was before the US State intervened to try to save AIG, the insurance giant that sponsors Manchester United. Collapse of the stout party.

On the same day the Guardian asked a number of well-known, self-proclaimed "anti-capitalists" -- among them Daniel Cohn-Bendit, Ken Livingstone, Tony Benn, George Galloway, George Monbiot and the leaders of the SWP -- for their views on the current crisis . None of them saw this as a final crisis of capitalism (as of course it isn't). Most of them called for an end to "neo-liberalism" and a return to the more state-regulated capitalism of previous decades. As if this hadn't proved a failure too from the point of view of meeting the needs of wage and salary workers and their families.

Ken Livingstone put it this way: "Sadly, I don't think this will be the end of capitalism. But there is going to have to be a return to a much, much more interventionist state". 1968 students' leader and now a Green MEP Daniel Cohn Bendit followed suit: "It's not the end of capitalism because capitalism has always had the intelligence to reform itself. It will be the end of capitalism when it's incapable of reforming. However, the belief that the market is god is over. It must now be regulated". Fellow Green MEP Caroline Lucas, from the UK, agreed: "This is a defining moment; the end of the kind of unbridled, deregulated capitalism of the past few decades. We are going to have to return finance to its role as servant rather than master of the global economy".

George Monbiot wanted to revive Keynes, the discredited 1930s economist: "A Keynesian solution along the lines of Roosevelt's New Deal could deliver many of the things the left is calling for -- more public spending, more training and education". Respect Party councillor, Salma Yaqoob, and Lindsey German of the SWP were more moderate. They called for just one reform measure. "Why not do something literally concrete on the ground and start building cheaper social housing?" said the one. "The left needs to put forward answers. People have the right to work; we have a housing crisis, so why not employ people to build more houses?" echoed the other. It's true that by concentrating on one reform such as housing these would-be vanguardists have a better chance of fooling people into following them than if they raised a demand for a "Keynesian solution". That wouldn’t "mobilise the masses" and would also expose them for the reformers of capitalism they are in practice.

Chris Harman, Tony Cliff's successor as the SWP's theoretical guru replied, curiously: "This is a very, very serious crisis of capitalism: it has been the build-up of private borrowing that has kept the system going, and it's coming unstuck". Since when has capitalism been kept going by consumer spending, whether financed by borrowing or not? This is a new version of the SWP's old mistake of thinking that what kept capitalism going was arms spending (exposed as wrong when arms spending was cut and capitalism kept going).

What keeps capitalism going as an economic system is the pursuit and attainment of profits. It falters when profits are not attained, though it can also be temporarily upset by a financial crisis. What also keeps capitalism going is of course, politically, the support or acquiescence of the vast majority of the population who see no alternative to the money-wages-profit system that is capitalism. Livingstone, Galloway, Benn, the SWP and the Greens, in only criticising "neo-liberalism" and advocating instead what might be called a "neo-statism", are not helping to dissipate this acceptance of some form of capitalism as the only possible way of organising the production and distribution of wealth.

The only real alternative to capitalism, whether private enterprise or state capitalist or a mixture of the two, is a society based on the common ownership and democratic control of the means of production, with production to meet people's needs not to make profits and distribution on the principle of "from each according to ability, to each according to needs". A view the Guardian too omitted to mention.

Adam Buick

Weekly Bulletin of The Socialist Party of Great Britain (64)

Dear Friends,

Welcome to the 64th of our weekly bulletins to keep you informed of changes at Socialist Party of Great Britain @ MySpace.

We now have 1336 friends!

Recent blogs:

Capitalism: boom & bust

Is Obama a socialist?

Our peace policy

Coming Events at SPGB Head Office, 52 Clapham High St, London SW4 (nearest tube: Clapham North):

Saturday 20 September, 6pm

Which Way the Revolution - What are our differences?

Ian Bone (Class War) and Howard Moss (Socialist Party)

Forum followed by open discussion.

Chair: Bill Martin (Socialist Party)

A Season of Free Film nights from Sunday 14th September to Sunday 23rd November at 52 Clapham High Street, London.

All films start at 4 p.m.

Sunday 28 September:
Who Killed the Electric Car?

Sunday 12 October: Judgement Day: Intelligent Design on trial

Sunday 26 October:The Corporation

Sunday 9 November: Zeitgeist

Sunday 23 November: The War on Democracy

Quote for the week:

"‘Rise like Lions after slumber

In unvanquishable number—

Shake your chains to earth like dew

Which in sleep had fallen on you—Ye are many—they are few.’"

Percy Bysshe Shelley, The Mask of Anarchy, 1819.

Continuing luck with your MySpace adventures!

Robert and Piers

Socialist Party of Great Britain

Is Obama a socialist?

From the World Socialist Party of the United States website

We got a an e-mail recently from some right-wing blogger for the New York Times who asked if we considered Barak Obama a socialist and if we supported his tax plans. blah, blah, blah. We won’t pass judgement on an article which may or may not see the light of day. But most likely this was another piece attempting to get someone calling themselves socialist to endorse Obama or one of his policies. Once that confession is procured, it will be widely touted as proof of Obama being a socialist, an elitist, etc.

But is Obama a socialist? OMFno-G no.

Obama isn’t anymore a socialist than McCain is a fascist, a leprechaun or sincere. Sure, Obama wants more government control of economic matters. But as even Obama said if you put lipstick on a pig, it’s still a pig. Capitalism administered by the state is still capitalism. Duh.

No one’s calling Bush a socialist because he nationalized Fannie Mae and Freddie Mac. Because it’s not socialism. So why call Obama a sociaiist?

This election is all about two factions of capitalism competing for power with each-other.

The methods each faction uses to mobilize the working class to support them says much about the lack of class-consciousness in the US today.

The Democratic faction uses appeals for “justice” and “equality”, for tax breaks for workers even though most workers don’t “pay” enough taxes to make the breaks more than pavlovian whistles. Sure “equality” sounds nice, but it cannot happen in class society. The vast majority of people are workers for a reason - to create wealth for new rounds of capital growth. Those who benefit from that capital growth can be individual capitalists or state functionaries, but it’s workers who do the physical labor which creates the wealth. there can be no equality or justice in capitalism. Even if the capitalist class has now opened it’s membership roles to non-whites and females.

For being so slavish to Christian zealots, one would think the Republicans would “render unto Caesar what is Caesar’s”. But being able to pay for such things as public infrastructure - ie highways, electric system, etc. takes a backseat to the accumulation of capital for massive investment in China, Mexico and India. So like the Democratic faction, they seek to slash public spending and taxes. Of course, underscoring their religious hypocracy, the Republicans have spent more than any other administration building US federal debts to record highs. It is fortunate that US federal bonds which pay for all that debt are held by those whose taxes were cut - the capitalists. Kaching! profit on both transactions!

All at sea (2008)

From the September 2008 issue of the Socialist Standard

The indications are that the economy is heading for a recession, which no government can prevent.

The idea that the market economy can progress steadily, providing for ever-rising levels of growth, trade and employment, is a fantasy dreamt about by every Chancellor of the Exchequer and most politicians generally. This was never more the case than with the former Chancellor Gordon Brown who claimed repeatedly that year-on-year economic growth was the unique product of his prudent and circumspect economic management of British capitalism.


The prudence of the erstwhile Chancellor – and now Prime Minister – is suddenly in doubt as the economy, according to most commentators and analysts, heads towards a recession his government seems powerless to prevent. No longer in command of everything he surveys, Brown’s frailties are suddenly all too apparent, even to many of his former supporters. Indeed, it is interesting that many of the commentators who saw little to question in Brown’s outlandish claims over the last ten years were also most often the cheerleaders for a housing market bubble they said would never burst, and which now provides them with endless column inches of hard-hitting prose now that it finally has.

Before the housing market crash began and when the politicians and mainstream press were still in denial, we had, in the May 2007 Socialist Standard, a different perspective: ‘past history demonstrates that sooner or later, the current housing bubble will end in tears. When asset prices become completely disengaged from what is happening in the real economy where wealth is produced and value created, and are only sustained by ever increasing amounts of indebtedness, it cannot last – capitalism just does not work that way’. According to the Financial Times (9th August) this debt has now risen from 100 per cent to 170 per cent of household income under New Labour (the highest in the G7 countries) and 80 per cent of this has been secured on property, a perilous situation for the housing market in particular but also for the economy as a whole.

Business cycle
Growth in the market economy (in the housing sector and more generally) does not proceed in the manner of a straight upward line as imagined on a Treasury graph. Its general direction is upwards over the long-term, but growth tends to be uneven, unpredictable, and prone to periodic wild gyrations. For very good reasons this is the way it has always occurred in capitalism and there is nothing about the system, or the politicians who oversee it, to suggest it will happen any differently in future.

In the nineteenth century the concept of capitalism’s ever-recurring trade cycle was well-known, the most coherent and in-depth analysis of it being developed by Karl Marx. As prescient now as it was then, Marx summarized his view in the following terms:

‘The factory system’s tremendous capacity for expanding with sudden immense leaps, and its dependence on the world market, necessarily give rise to the following cycle: feverish production, a consequent glut on the market, then a contraction of the market, which causes production to be crippled. The life of industry becomes a series of periods of moderate activity, prosperity, over-production, crisis and stagnation’ (Capital, Volume 1, p.580. Penguin Edition).

There are two related factors which drive this boom/slump cycle. Firstly, the fact that production takes place with a view to realising a monetary profit. Without this prospect of profit, production will not take place. Needs without the ability to pay are left unrecognised, whether that be housing for those unable to get a mortgage or food for those unable to pay for it. Secondly, this profit-seeking is conducted by hundreds of thousands of competing enterprises whose ultimate aim is to increase market share, increase production, and through doing so increase profits. The problem is that the drive to compete for these enterprises is their only tangible reference point to one another. What they do is not co-ordinated and planned, and not linked to the demands of other companies and industries. Instead, there is an anarchy of production which periodically leads to key sectors of a booming economy over-expanding in relation to existing market demand.

That this situation occurred in the US housing market from 2006 onwards, and has since been transmitted to many other property markets including that of the UK, is now obvious even to most of those who vehemently denied it would happen.

Defining a recession
The Treasury and Bank of England (along with their counter-parts in the United States) officially define a recession as ‘two consecutive negative quarters of economic growth’. By this they mean half a year of economic contraction. The way that statistics are necessarily compiled (especially considering the time-lag factor) it is not always evident that a recession has been happening until after the event. In 2001 it was assumed that the United States was in a recession, but after the event it turned out that this wasn’t (quite) so based on this definition.

Marx claimed that for a recession (depression or slump – depending on your preferred terminology) to occur, overproduction for particular markets had to spread and ‘grip the principal articles of trade’ (Theories of Surplus Value, p.393). In practice, sometimes this generalisation of overproduction will occur through a ‘knock-on’ effect when there is clearly disproportionate growth and overproduction in some industries that spreads more widely, but at other times it doesn’t spread sufficiently to cause a noticeably wider downturn. Furthermore, even when it does spread there are usually industries that do well in an otherwise declining economy, as was the case in the major 1930s slump when motor car manufacturing, for instance, continued to grow while other industries contracted.

There is little doubt that capitalism in most industrialised nations is long overdue a recession of sorts – the last widespread one was in 1990-92 and the boom since then has been far longer than the historic average. In this period capitalism has survived the Asian crisis of 1997, the collapse of the world’s biggest hedge fund a year later (the ironically named Long Term Capital Management), the spectacular bursting of the dot-com bubble with its various corporate scandals, the attacks on the World Trade Centre and other major political crises, and the massive 2000-2003 bear market in equities, all without officially entering recession in either the US or UK.

This time there are two significant forces propelling it in the direction of recession, however: the aforementioned property market crash which has seen the biggest monthly house price falls in both the US and UK in history, and the serious ‘credit crunch’ that has developed from it. The latter has occurred because so many investment products have been based on low-grade (‘sub-prime’) housing debt and as the housing market falls and people cannot pay their mortgages much of this debt has to be written off. It was recently enough to turn what would have been a six monthly profit for the Royal Bank of Scotland of in excess of £5 billion into a loss of £691 million instead, and has led RBS and many other banks to re-capitalise themselves through issuing more shares; in the US it nearly led to the complete collapse of one of the largest investment banks, Bear Stearns.

The main problem is that no-one, sometimes not even the banks themselves, know where all of these problematic sub-prime investments are or how much needs to be written off. It is this that famously led to an almost unprecedented reluctance among the banks to lend to one another last year as they did not trust what was on (or rather not on) each other’s balance sheets. Irrespective of what central banks have done with base interest rates, it has led to inter-bank lending rates being pushed up to comparative historic highs (the spike in LIBOR – the London Inter-bank Offered Rate – is what put paid to Northern Rock’s meteoric rise as it was hugely dependent on borrowing on the money-markets).

The credit system and the money markets associated with it are what oil capitalism’s financial machine. When they become dysfunctional the entire system can suffer; banks are reluctant to lend either to industry or to individuals, lines of credit dry up and companies getting into difficulty find that their one possible lifeline has been cut off. Indeed, it is the credit system that tends to act as a key transmission mechanism spreading problems in some sectors of the economy to others.
Lead indicators
The extent to which the combined effects of the housing market crash and the resultant credit crunch will lead to a recession is currently hotly debated by analysts, though it clearly has the potential to be very serious indeed. Hard data in the coming months should prove conclusive one way or the other as, in truth, there are few genuine ‘lead indicators’ of a slump that can tell us definitively that one is about to happen, or how deep it will be. For example, production tends to fall most noticeably once the slump is already underway and unemployment is another lagging indicator, only rising when companies have started cutting back on staffing levels in response to difficult trading conditions.

Falling stock markets are better lead indicators of a recession; this is because at the level of individual companies it is their interim and preliminary company results along with quarterly trading statements that typically give advance clues as to what is happening on the ground, and stock markets are usually quick to react, as they have been this time. Nearly all major stock markets have at some point fallen 20 per cent or more from their peaks since the credit crunch started, technically entering ‘bear market’ territory. The problem with stock markets, however, is that they can fall in the short-term for all sorts of other reasons too and also have a tendency to over-react to events. When UK shares lost about 50 per cent of their value in the 2000-3 bear market (and US shares almost as much) this reflected little that was happening in the real world of the underlying capitalist economy of production and trade.

Some economists and analysts have argued that the best indicator of an impending recession is what is called an ‘inverted yield curve’ on the money markets. This means a situation whereby short-term interest rates are above long-term rates (the inverse of the usual relationship) and in these circumstances banks have little incentive to lend long-term to industry when selective short-term lending is both safer and more profitable. In practice, an inverted yield curve is indeed almost always a precursor of recessions. Unfortunately, like falling stock markets, inverted yield curves can happen at other times too (the US had a significantly inverted yield curve in 2000 and had a curve that flattened and threatened to invert in 1998, yet there was no recession on either occasion). This time around, the US yield curve inverted in 2006-7 and has since switched to being positive; the UK yield curve inverted in the wake of the credit crunch starting last summer, and has recently started to flatten out again.

Mine’s A Baltic Dry
Arguably the best lead indicator of a recession exists as a measurement of what is happening in the ‘real’ economy of production and trade in capitalism rather than its financial superstructure. This is a curious and little known gauge of economic activity called the Baltic Dry Index. It covers dry bulk shipping rates and is managed by the Baltic Exchange in the City of London.

Each day the Baltic Exchange establishes average prices for shipping various cargoes around the world, whether it be 100,000 tones of iron ore from Brazil to the UK or 100,000 tons of soybeans from the US to India. Essentially, the index is a barometer of activity amongst shipbrokers involved in shipping those raw materials that are typically the precursors to production around the world, and it measures the demand for shipping capacity versus the supply of bulk carriers. It is a useful index because dry bulk mainly consists of commodities that act as raw material inputs into the production of other goods such as electricity, steel and food. Also, demand for these is variable and elastic whereas the supply of dry bulk shipping is inelastic, changing little in the short-term because of the length of time needed to build new tankers. This means changes in the index tend to principally reflect changes in demand. Fluctuations in the index have historically proved to be amongst the best lead indicators of economic activity in the market economy there is.

This has been demonstrated over the last few years, when the Baltic Dry Index surged on the back of the booming global economy and the demand for industrial and agricultural commodities led by China, India, Brazil and other emerging markets. Interestingly, despite a continuation of much of this activity, the index has in more recent times faltered. From the beginning of 2005 until the start of 2008 the index more than doubled, but after some volatile movement has since fallen from a peak of nearly 11,800 reached in May to around 7,000 at the time of writing, a fall of around 40 per cent. If this fall continues into the autumn and beyond, then a widespread, serious recession is more than likely as it will be reflective of a massive decline in the demand for raw materials required for the world economy.

Quite how severe the economic downturn proves to be is no small matter of interest as it will affect the lives of hundreds if millions across the globe, leading to falling production, falling property prices, rising unemployment and acute financial distress for many. And this is far more significant than the distress that is being caused for a Prime Minster in Britain who swore that this would never happen and who thought he could hold back the tide of capitalism’s business cycle through his financial management skills – a man who has been left looking ever more like King Canute instead, staring out to sea with the waves already lapping well above his ankles.

Dave Perrin