Greece Crucified

ws jimagesAlexis Tsipras justified his humiliating U-turn, and commitment to imposition of austerity worse than he had just rejected, by saying that he had no mandate for Greece to exit the Euro.  Very true.  But he had just claimed that the referendum a week before had not been about the Euro.  By 61 to 39 per cent he has no mandate for austerity, which is what he said the referendum was really about.

He came into office promising an end to failed bail outs and has ended with a third one bigger than the first.  He called for debt reduction and now seeks support for debt inflation.

Such is the scale of the crushing terms of the latest ‘bailout’ that no one is attempting to say that it is nothing other than complete humiliation for Greece.  Even the Eurozone bureaucrats stated the truth behind the unpalatable words spewed out by their leaders – Tsipras had been subjected to “mental waterboarding” and had been “crucified”.

What has been mental torture for Tsipras will be brutal and catastrophic austerity for the Greek people.

I could write a whole blog on the capitulation of Tsipras and what looks like the majority of Syriza, and there would be good political reasons for doing so.  The policy and strategy of Syriza has been endorsed by Irish opponents of austerity such as Sinn Fein and these now lie in tatters.

In fact in my own view Sinn Fein is not even as radical as Syriza and this is an easy claim to substantiate.  It has already implemented austerity in the North of Ireland while hiding behind opposition to some welfare cuts.   In the South it supported the fateful decision to make the debts of corrupt banks and property speculators the burden of Irish workers and in doing so made the struggle against paying this odious debt much more difficult.

But there will be plenty of voices pointing out that what radical politics Sinn Fein has to offer have been trialled in a real life laboratory and been found wanting.  The capitulation of Syriza is in principle no greater than the Republican’s own acceptance of British rule in Ireland, acceptance of partition, surrender of weapons and dissolution of the IRA.  But that is all now a history that no one wants to talk about.

What is more important therefore is to try to understand what has happened and whether it could have been any different.  Not that it must be accepted that the ‘coup’ against Greece cannot or will not be resisted.  It can and will but it would be blindness to reality not to acknowledge that under Syriza the fight against austerity has suffered a demoralising defeat.

As that new aphorism says: it’s not the despair, I can take the despair.  It’s the hope.  Syriza gave hope.

Working out what has happened is not easy. For the man or woman on the street they see television reports of quantitative easing by the Eurozone involving the figurative printing of  millions of Euros by the European Central Bank, yet this same institution is involved in the vindictive pursuit of Greece for sums it could easily accommodate.

The proposals of the conservative leaders of the EU seem equally hard to understand or justify.  In fact for many they seem stupid, if not crazy. So draconian are they that they seem designed to achieve the very opposite of what they claim to be for.

The imposition of yet greater austerity when this austerity has demonstrably failed might be explained by ideological blindness.  And the humiliation involved might seem to invite rejection while being another attempt to remove Syriza from office.  But many commentators have explained that Syriza may possibly remain the only force that can push austerity through without complete chaos and collapse.

This humiliation is perhaps not just a message to a small and weak Greece but an unmistakeable one to a larger Italy and France: that the development of the EU will be under a model defined by Germany and its allies.  Yet even here the degree of malevolence can only invite small countries with parties equally blinded by reactionary ideology as Germany to wonder just what fate would befall them in an EU with such a definition of ‘solidarity.’

So while ‘good’ reasons might be found for what would appear to be ideological blindness the proposal for a “timeout” exit by Greece from the Euro appears as simply stupid; unless of course it is also a means of pushing Greece out permanently. But then it is such a stupid idea as justification that its purpose might only seem to be how open the imperial bullying can become, ‘pour encourager les autres’.

For the Greek people the surrender of even nominal control of their affairs is way beyond what has gone before.  The original proposal to ring fence €50 billion of Greek assets under German control,  to be sold at the discretion of its creditors, was such an open declaration of debt bondage as to render the humiliation utter and complete. What is yours is no longer even yours to sell.  Now it is reported it will simply be wasted on insolvent Greek banks with the needs of financial capital once again talking precedence not only over people but over real productive activities.

Thus in many ways, its failure to actually work being the first, its effects on undermining the legitimacy of the EU second and materially weakening the incentives to solidarity among its members third, all make the bailout deal a defeat for the idea of a European Union.  This is not even a European imperialism to rival the US, Russia or China but an imperial core and vassal periphery.

The price being paid seems so unnecessary because the main demand of Syriza – in order to give hope and reduce the impact of austerity, i.e. debt forgiveness, will be given and is already hinted.  Not in the shape of outright reduction but in the form of postponing or extending repayments and similar measures on the interest due.  After all, what cannot be repaid will not be repaid.

What matters however to the right wing conservative leadership of Germany, the Netherlands etc. is that their strength, and by extension that of the European imperialist project, is not diluted by the weak European nations and that the Euro remain in position as a world currency and not a vehicle for default and certainly not by what is considered an advanced nation.  Greece must be bled dry in order that the Euro remains strong and the pretensions of the EU remain in place.

The vision of a united Europe is not being abandoned by Germany etc, but it is one in which austerity is the bond that unites. It can be claimed that austerity will be inflicted on German workers if crisis hits the German banks; except of course that Germany has broken the rules before and would do so again.  It is easier to be ideologically blind when the price is paid by someone else.

Could it have worked out differently?    Syriza had hoped that enlightened self-interest would have combined with pressure from the US and the legitimacy gained by the referendum to mitigate the demands for austerity by Germany, The Netherlands and all the other little right-wing led states that curry favour with the powerful.  They have been rudely disabused of their illusions.

The more fundamental reason for this outcome is the weakness of the alternative at an international level.  Where were the left wing Governments calling for debt forgiveness, an alternative to austerity or even its reduction?  Where were the mass movements pressurising their Governments to accede to Greek requests?  Greece could not push back the demands of much stronger states on its own but on its own it was.

The demand for a revolutionary socialist alternative seeking the destruction of the Greek capitalist state and take-over of the Greek economy by its workers fails to provide any sort of immediate alternative, which is what we are discussing, for two rather obvious reasons.

Such a strategy relies on the aspiration and activity of the working class and the Greek working class neither desires nor is organised to destroy the existing state, create its own and take over the running of Greek production.  The anti-capitalist ANTARSYA for example got less than 1 per cent of the vote and Syriza, it should not need to be said, is not a revolutionary party.  How does a revolution arise out of this except through a long and painful process of learning lessons and making advances on this basis?

I was recently reading an article entitled ‘Marxism and Actually Existing Socialism’ written, what seems like a long time ago, before the collapse of the Soviet Union, and which defended Marx’s theory and politics.  In it the author wrote that:

“Marx envisaged that socialism would come first in the most advanced industrial societies of Europe, and it has not done so. Arguably, however, Marxism is capable of comprehending this fact. In any case, this is a matter of detail, even if an important one; and it seems difficult to resist the conclusion that, in its broad and general outlines, Marx’s account of the historical tendencies of capitalism has been remarkably confirmed by historical events.”

But of course the coming of socialist revolution not to the most advanced countries is not a detail, not even an important one.  It has been fundamental to the development and future possibility of socialism and has led to the very definition of socialism being distorted and disfigured.

Socialism is not possible in Greece alone any more, and certainly less, than it was in Russia not least because it is too weak and poor.   It is obvious that no other working class within any other country in Europe is at a stage of development where it could either join or support working class rule in Greece.

This does not mean Syriza should not have taken office or that it should not have engaged in negotiations with the Troika. Its strength however derives fundamentally from the class consciousness and organisation of the working class and not from any superior moral position.  The building of an international European party of the working class, of a militant current within the working class movement including trade unions, and of international workers’ cooperatives is the only road to creating the foundations for a successful conquest of political power.

On the other hand capitalist economic and political crises and socialist propaganda are, respectively, simply the occasion for such a conquest and the means of spreading word of the need for it.

As I have said before: the worst result would be Syriza implementing austerity.  It should now reject the bailout, call fresh elections on such a platform and if elected pursue an alternative.  If in opposition it should develop a movement as set out above.

The alternative it should pursue is that which the Irish should have carried out in 2008.  Let the banks go bust and let its owners and lenders take part in a ‘bail-in’ in which they pay the price for their investment in insolvent companies.  This is sometimes known as capitalism.

A radical Greek Government would encourage Greek workers to turn the banks into cooperatives that would shed their bad debts into a ‘bad bank’ (like NAMA in Ireland, in theory if not in its practice) and guarantee deposits that would fund development of worker owned enterprise.

The Greek debt would thereby suffer default and the reactionary gamblers Merkel, Juncker, Schäuble, Draghi and Dijsselbloem would see where the chips fall.

The blogger Boffy has suggested that a solution to the currency problem would involve electronic Euros that would allow circulation of money without the requirements for additional notes etc. from Brussels.  While this could work for the domestic economy I cannot see how it could function as a means of payment for international trade and, while Greece is a relatively closed economy, it cannot function without it.

In any case the leadership of the EU would, on current form, expel Greece from the Euro and introduce its own capital controls on the country.

Greece would be forced into issuing a new currency, a new Drachma, which the people do not want.  This could not be done quickly or without significant disruption.  It has been asserted that the argument that this would result in devaluation and a massive reduction in Greek living standards is false because the catastrophe predicted has already happened.  ‘Internal devaluation’ has already achieved what external devaluation of the new currency would otherwise have done.

I am not convinced by this argument but this too might be academic if the EU decided that Greece would no longer be part of the Euro.

The strategy suggested therefore provides no guarantee of success.  There is no ‘technical’ solution or answer in this sense.   And why should one be expected?

I have said that socialist revolution depends on the prior creation of a working class power consisting of an international party, international trade union action and development of workers’ cooperatives on an extensive scale.  What on earth could substitute itself for these?

What is suggested is a strategy for struggle and not a ‘solution’ but we have reached the stage where not even the leaders of the EU can present false promises on this with any credibility.  Austerity will continue not to work.  Struggle is what we have.

 

Why have the Irish not revolted? Part II

imagesausterityIn my first post I qualified the view that there was something particularly weak in the resistance of Irish workers to austerity but argued that nevertheless an explanation is needed.  To develop this further we need to ask what this austerity has involved.

Some commentators would have a ready explanation.  In terms of the share of taxation in Gross Domestic Product (GDP), in terms of the share of Government spending in GDP and overall deficit as a percentage of annual value added there has not been ‘savage austerity’ so there has been nothing to rebel against.

Here unfortunately we have no choice but to enter the world of economic statistics where only the naive can expect clear objectivity and accuracy.

A post on the Irish Economy blog records that (adjusting the statistics for the well-known effect of foreign multinationals in the Irish State significantly overstating economic performance) living standards measured in GDP per person (in Purchasing Power Parity values) declined by 14 per cent from 2007 to 2011.  This is a bigger decline in living standards than in Portugal where the fall was only 1.6 per cent, in Spain where it was 4.9 per cent and Greece where it was 8 per cent.  In terms of national income (another measure) the drop was bigger – 20 per cent – and it will have fallen further since then.  It would appear that the relative quiescence of Irish workers needs additional explaining.

But does it?

Any Irish statistic that uses GDP is immediately suspect for the reason above but not only because of this.  GDP is a measure of value added which means the 2007 figure will include property produced at vastly over-inflated values.  Houses and offices built and priced at one value will have been shown subsequently to have been worth 50, 60 or 70 per cent less, or sometimes to be completely worthless.  A moment’s thought reveals that this is not a characteristic simply of Irish statistics but of measures of capitalist production everywhere.

When we think of the effects of the banking industry on measures of economic growth we again see that this measure is seriously distorting, not only because of the difficulties of capturing accurately what is happening, but because of the nature of capitalist production.  This takes place through the production of commodities whose real value is only realised after production. The value of these commodities is elaborated through the workings of the market which reveals the socially necessary value of output in a cyclical fashion.

For economists wedded to capitalism recessions are always the result of exogenous shocks outside the system or of purely irrational behaviour within it, which amount to the same thing.  For Marxists the cycle of boom and bust is how the values of commodities are established and then re-established in a constant process.  By nature therefore there can be no precise measure of value produced at any one point in time or over any one period.

In figures for GDP the distinction between use value and exchange value is absent never mind any accounting for how really ‘socially useful’ the use values produced are – ghost estates and weapons compared to commodities actually consumed by workers. This is to be considered on top of the well-known criticisms of measuring living standards by GDP.

There are alternative measures we can review but before we leave behind this discussion we should appreciate that what we have been looking at is not simple mismeasurement of economic activity but one form of the appearance of real contradictions within the system.

From the point of view of our particular investigation we can make two points.  That a critical review of some of the figures means the boom was not as boomier (to quote Bertie Ahern) as some statistics might appear to show and the recession not as sudden and complete a reversal as might first appear.  The expectation of more or less immediate revolt might therefore be less justified?  Other evidence however might suggest that such a view should be considered a relatively minor factor.

Secondly, the constant reporting of such economic statistics plays an ideological role such that workers must accept real changes to their lives on the basis of these statistics.  Workers are subject to such pressures not just in the recession but also in the boom – encouraged to get into unsustainable debt for example.  To the extent that they do the latter they are then under ideological assault to accept that they, along with everyone else, ‘partied’ and went on a ‘mad borrowing’ frenzy, as Taoiseach Enda Kenny has put it.

Some commentators might argue that a recognition of ‘guilt’ has played a role in short-circuiting resistance but the existence of such undoubted views is as much a result of demoralisation as a cause of the lack of resistance.

There are other statistics we can look at to see if there are material reasons for the lack of opposition apart from this particular ideological one.

What appears a more relevant statistic is called Actual Individual Consumption which encompasses goods and services consumed by households including government services such as education and health provision.  This would appear to show that between 2008 and 2011 living standards in the Irish State fell more than in Spain and in Portugal but less than in Greece or Iceland.

Actual Individual Consumption

State

2008 index

2011 index

Percentage fall

Ireland

109

100

8.3

Spain

99

94

5.1

Greece

104

94

9.6

Portugal

84

82

2.4

UK

123

118

4.1

Iceland

122

107

12.3

 

This measure is made up of a component of GDP so is subject to some of the criticism above.  We have already seen that three different measurements of living standards result in reductions in living standards of 20 per cent, 14 per cent and over 8 per cent, depending on dates and the measurement adopted.

What we can say with certainty is that living standards fell abruptly and significantly due to the crisis and it is not obvious that the severity of the fall in any country determined the relative extent of opposition to austerity.  It is necessary before drawing any conclusions to look at what might be at least some of the components of the fall in living standards, not by any means only a result of the effects of Government austerity policies.

By one measure unemployment in the Irish State increased from 3.4 per cent in 2007 to 10.4 per cent in 2012, a tripling of the rate in only five years.  The economically inactive, which must contain many who have given up hope of getting a job, increased from 27.5 per cent of the population aged 15 to 64 to 30.8 per cent.

Using a different measurement unemployment in the Irish state was 13.5 per cent in January 2013 compared to 17.8 per cent in Portugal, 26.8 per cent in Spain and 27 per cent in Greece.  Clearly the crisis has hit the latter countries much harder than Ireland.  It is by no means clear that higher unemployment breeds resistance since its function under capitalism is to facilitate increased exploitation of the working class.  The mobilisation of the unemployed is not always for progressive reasons, which is one reason we have noted before that economic crises often breed reactionary movements.

Once unemployed some workers face the prospect of hardship and one measure of this defined as deprivation, or being without two or more basic items, has increased from 11.8 per cent of the population to 24.5 per cent in 2012.  The possibility of this is affected by the level of welfare an unemployed personmight rely upon and this is measured by the net replacement rate, or the payments due to the unemployed as a percentage of previous net income.  This obviously depends on whether the person has children or is married etc.

Net Replacement rates 2011

 

No children

2 children

Country Single person One earner

Married couple

Two-earner Married couple Lone Parent One-earner married couple Two-earner married couple
Republic of Ireland 50 81 75 64 75 81
Greece 49 54 75 58 63 80
Spain 79 76 90 77 75 89
Portugal 75 75 92 77 76 91

 

The table shows that Greece has significantly lower replacement rates than the other selected countries for most categories but that the Irish state’s is generally lower than Spain’s and Portugal’s.  It would not appear that the prospect of a more significant loss of income as a result of unemployment has spurred opposition in Ireland relative to that in Spain or Portugal.

The other obvious way workers cope with periods of unemployment is falling back on any savings that they have accumulated.  The following table shows the movement in net financial assets per person (€) in the various countries:

Country

2007

2011

Republic of Ireland

23,634

26,279

Spain

21,698

16,328

Portugal

19,950

19,750

Greece

19,681

10,105

Euro area (17 countries)

37,289

36,201

 

The table shows the Irish State to have the highest level of financial assets (though much below the Euro area average) and that this even increased between 2007 and 2011!  Since these figures say nothing about the unequal distribution of wealth and we know that many have suffered unemployment, cuts in wages or tax increases, it is clear that certain sections of Irish society are bearing up quite well.  In the other countries financial wealth fell and in Spain, but particularly in Greece, fell quite dramatically.

Such average figures hide as much as they reveal.  Average household disposable income in the Irish state fell from €49,043 in 2008 to €41,819 in 2011 but this was still significantly higher than in 2004 when it was €38,631.  Right wing commentators have often made the observation that incomes have often just gone back to such and such a date and we are all much better off than before the boom kicked off in the first half of the 1990s.  This is undoubtedly true for many but doesn’t provide an answer why as a class Irish workers have resisted austerity so weakly, unless the argument is that expectations have very quickly reduced.  Is this however another result of defeat or a contributing factor to it, or both?

Averages can obscure because it is precisely the unequal incidence of the effects of capitalist crisis that can have decisive political effects.

Unemployment has increased dramatically but its incidence is not uniform.  Employment in construction has collapsed, from 258,000 at the start of 2008 to 102,000 at the end of 2012, a fall of over 60 per cent.  Over the same period employment in the state sector fell from 417,000 to 381,000, a fall of 8.6 per cent.  The pitting of private sector workers against those in the public sector was a clear strategy of the Government, the employers and the media and it was quite successful.

But this has not been the only divisive effect of the crisis.  Rates of unemployment among young people in Ireland, just like other countries, have been much higher than the general rate.  In the Irish state the rate of unemployment among those less than 25 years old was 26.6 per cent in April this year while it was 42.5 per cent in Portugal, 56.4 per cent in Spain and 62.5 per cent in Greece.  These are truly staggering figures.  The rate of long term unemployment has increased from 29.2 per cent of total unemployment at the start of 2007 to 45.5 per cent at the end of 2012.  What this should remind us, is that unemployment is a divisive imposition of the effects of capitalist crisis that impacts not only on those without a job but also those in employment.  Emigration has returned and is continuing to increase, up from 87,100 in the year to April 2012 to 89,000 in the year to April 2013.

None of these figures illustrates the hardship caused by tax increases and public expenditure cuts that can affect the most vulnerable the most.  They do not include the effects on people’s experience of negative equity, the full effects of which have yet to hit home.  Here again it is younger people who are more likely to be in negative equity and to be in arrears in their mortgage payments.  And of course the figures do not tell us that the results of the crisis and austerity are to be here for a long time.

Over 32 people were unemployed for each job vacancy in 2012, while the figures for Spain and Portugal were 72.6 and 90.4 respectively.  The General Government Debt as a percentage of GDP was 117.6 per cent in 2012 while the 2012 EU Fiscal Compact stipulates that where this is above 60 per cent it must reduce by 1/20th per year.  In 2012 the in-year Government deficit was 7.5 per cent which means the debt was not getting smaller but getting bigger.  Normally optimistic forecasters are predicting that unemployment, as measured by the International Labour Organisation methodology, was only to reduce from 14.7 per cent in 2012 to 13.9 per cent in 2014.

So what are we to make of all these figures?

The fall in living standards has been significant even if not so sudden or large for some sectors of society as others and not on the same scale as some other countries such as Greece.  Certainly the disproportionate effects on young people and rise in emigration have blunted resistance but these factors exist on the same or greater scale in some other countries in Southern Europe where resistance has been greater.

It is not therefore the effects of the crisis themselves that explain the response even if these act to weaken certain social and political reactions.  The left wing economist Michael Taft has claimed that the ‘squeezed middle’, the 4th to 8th deciles of income earners, suffered declines in direct income in the five years leading up to the crash, gaining only as a result of social transfers.

During the boom the level of trade union organisation fell relatively as union density dropped from 46 per cent of the workforce in 1994 to less than a third in 2007, and only 16 per cent in the private sector.

Thus even during the most favourable circumstances, when workers are best placed to protect and advance their living standards, they were unable to do so with their own strength.  During recession such weakness is exposed.

Now they are subject to the vicious laws of the capitalist market and, as we said in the first post, short of overturning the system there is a limited amount workers can do about this without challenging the system itself.

During this post I have said that workers have not resisted austerity but in truth the great mass of unemployment, insecurity caused by mortgage arrears and negative equity, and the drop in personal consumption are not so much the result of the austerity policies of the Government, which of course have made things worse, but of the capitalist crisis.  This crisis can in certain circumstances be postponed or ameliorated by the State but it cannot be suppressed and certainly not by a State in bankruptcy.

When even during the boom large number of workers dependency on this state increased rather reduced and rather than their developing their own independent power, it can be little surprise that when the state turns round and kicks them in the teeth they are unprepared.

Some socialists argued again and again during the boom that social partnership, the vehicle by which the Irish trade unions hitched themselves to the State, was to be opposed not mainly because it prevented workers making gains in their living standards that they should but because it rotted away their independent organisation.  This has not just organisational consequences but political and ideological ones and it is to these that I need to look at next.

‘Sins of the Father’ by Conor McCabe – a book review

downloadThis book sets out to explain why the banking crisis in the Irish state developed the way it did and how property and financial speculation has been so prominent a feature of its economic development.  It is therefore an argument against the view that the crisis has been the result of some sort of moral collapse in certain sections of society.

Along the way the author, Conor McCabe, disposes of some common beliefs about the role of property in the Irish psyche, convincingly demonstrating that property ownership is not hard-wired into the Irish but has been consciously and repeatedly promoted by the state and employed as a means of strengthening particular class interests.  Thus the first Cumann na nGaedeal government promoted – as a solution to the notorious condition and shortage of decent housing for the working class – better housing for the middle class!

In an earlier version of the recent bailout of the banks he notes that helping the middle classes and property speculators with state money was the way the first Government decided to deal with tenements and slums.  As if proving there is truly nothing new in the world he notes the development of Dublin suburbs in the 1930s with little or no infrastructure or amenities.

The effects of this over the decades was to create a situation in which if you wanted a house you needed to buy one.  Public housing was neglected, a choice of last resort, and the earlier desire of workers to rent was blocked.  Even so the relatively recent and rapid rise in the proportion of home ownership is surprising, rising from 25 per cent in 1961 to 75 per cent in 1986. So much for property ownership being in the DNA!  In fact, as the author shows, it has been consciously promoted as a means of preventing “social unrest”, “revolutionary change” and because “there is no greater barrier against communism.”

McCabe points to the argument that the property boom at the turn of the century crowded out investment in productive activities and shows that State tax breaks helped fund the speculation that fuelled it.  Just as the State helped pump up the bubble it then stepped in to prop up the same interests that were behind it when it burst.  In this sense the State’s response to financial collapse was no turning point.  He effectively shows that British landlordism of the 19th century was replaced by a native version for the 20th and 21st.  Government policy helped create huge overproduction: in 2010 the number of empty housing units was counted as 302,625 – excluding holiday homes!

Conor is aware that all this is a description of the property boom and bust but is not an explanation (see page 56).  To do this he then presents a fuller history of Irish economic development.  It is not the case however that further, fuller and more complete description is explanation either.

If particular and contingent historical factors are not the explanation of the deeper causes of the boom and bust, but rather the concrete form in which the underlying contradictions played out, then it is only these fundamental processes which can provide a satisfactory explanation.  Or at least one that seeks to advance an argument that the causes of the crisis were in some way more than accidental.  Being more fundamental they can explain similar phenomena in more varied, concretely different circumstances – in countries as different as Japan, Spain, the USA and UK.  In fact the very variety of situations giving rise to similar symptoms of crisis point to systemic contradictions.

What the book does do very well however is show the particular features of Irish economic development, including the weakness of an economy which was governed as if it was still a region of Britain but which was cut off from the potential supports that this might have involved.

Nor did this change with the election of a Fianna Fail government in 1932, which introduced tariffs: at this point the State was described as virtually the last free-trading economy in the world.  There was no introduction of a separate currency or Central Bank and parity with Sterling was maintained.  In important ways the economy remained a region of Britain no matter the declaration of a Republic after World War II.

The resulting failure led to the new policy of promoting multinational investment, which was seen by the State as the least disruptive way of responding to international pressures to develop while protecting the existing class structure and minimising economic change.   McCabe emphasises the limits of multinational investment and the fact that money flows from it enter and exit the State with relatively modest impact. He quotes an assessment that this foreign investment did not develop a manufacturing base ‘comparable’ other small countries and argues its real importance lay in the opportunities provided to native property developers and financial and banking interests which service the investment.  This process fed into a property bubble in the 1960s which burst in the 1970s, again fuelled by state tax incentives but also state demand for the property developed.

He gives examples of the extraordinary tax incentives given to foreign investment and how State policy allowed the companies involved to do more or less what they wanted including at Bantry Bay where, in 1979, over 50 lives were lost in an oil explosion.  It transpired that the necessary safety measures had not been implemented and Gulf Oil had been allowed to regulate itself.  The Treaty Ports had been returned from the Brits but the Irish State had connived in the creation of another; all under the banner of economic development.

The policy was held up as a success but it was still recognised that it was a qualified one and accepted that indigenous industry had failed to create self-sustaining industrialisation.  Foreign investment remained largely divorced from local industry and the government sponsored Telesis report noted that only 8 per cent of components and sub-assemblies in the foreign engineering sector were sourced locally.  However, like inquiries and reports before it (and after) the Telesis Report was “greeted with fanfare and followed with silence.”

The major innovation came instead in the financial services sector where State policy had always been to maintain the parity link with sterling.  For Conor McCabe parity also meant poverty: the value of the Irish currency was maintained at too high a level to facilitate the development of competitive industry.

He does not delve into what a lower level would have meant for Irish workers as a lower valued currency would also have meant lower wages and a lower standard of living, all else being equal.  All else not being equal would have depended on the Irish State having a successful policy of state-led industrial development, not just throwing tax breaks and grants at private capitalists. In part his history is designed to show the strength of those class interests in the State who made their money through agriculture, property and banking and for whom all this would have been, at best, an unnecessary experiment.

That this ultimately was a feature of continuing imperialist domination – expressed in the relatively weak native capitalist development; in state institutions and policy and in other cultural traits – is not developed in the book.  The book is relatively short so this is not a criticism.  This subject raises political questions that have bedevilled an understanding of the relationship between ‘national oppression’ and capitalist exploitation and it is no criticism that this is not gone into.  It was not the purpose of the book. The State maintained the link with sterling until joining the Exchange Rate Mechanism but devaluation drove home the lesson that the link was more than just a policy decision but reflected a deeper economic relationship.

The book repeatedly shows the linkage between State policy and class interests.  Conor shows that the setting up of the Irish Financial Services Centre (IFSC) represented no exception to the state’s patronage of banking and financial interests, or a radically new economic development, and accepts the case that the IFSC is a tax haven, reporting its reputation even before the crash as the “wild west of European finance.”

He records the almost forgotten fact that the bank bail-out of 2008 was not the first and that tax payers had already bailed out Allied Irish Bank (AIB) before – in 1985.  While it has become fashionable to excoriate Anglo-Irish Bank at least it only went bust once.  The Fine Gael led Government of the time included Alan Dukes who, in the latest banking disaster, reprised his role by impersonating a Director of Anglo-Irish supposed to represent the public interest.  In 1985 AIB was saved from going bust by the tax payer who then watched seven days later this same bank announce unchanged dividends to its shareholders!  There followed years of law-breaking by the whole banking industry for which not one banker paid any penalty.  Put into context, the bail-out of 2008 becomes both more shocking and less surprising.

The book pulls together the various aspects of Irish economic development to show how the State’s policies, especially tax breaks and almost non-existent regulation, came together in the 2008 crisis. Property speculation fed on a limited boom partly fuelled by foreign investment which, boosted by state policy, became super-charged by credit speculation.  It was, in this sense, not at all new but rather the culmination (until the next time?) of the sins of the father. And the sins were many.

The book ends too summarily and in doing so appears to endorse more state spending on infrastructure as part of the solution: a liberal, Keynesian answer to the crisis.  One is compelled to ask in what way this is an alternative to what has gone before.  In so far as construction paid for by the state is designed to boost private capitalist investment there appears no major difference. (This is by no means the only similarity.) It is yet another tribute to the forces and policies described in the book, the power of the existing system and status quo, that those who are popularly viewed as its most vocal critics often simply echo it.

In the conclusion Conor McCabe notes that the new state did not have an independent economy.  What he has done is give a good account of the internal structure of this subordination and the class and state that constituted its structure.  But this is obviously only half the story.  If the economy was not independent a full description or analysis would have to describe and explain the much stronger international forces on which this subordination rested.

This itself would only be possible by recognising, as we have said, that the Irish State was not the only one to suffer a financial crisis and that, whatever its peculiarities might be, other crises in the US and Spain and before that in Japan, and perhaps tomorrow in China and Britain, point to a systemic crisis; in other words a crisis of capitalism.  Explaining how the Irish crisis took the form it did is impossible to do fully without also explaining why there was a crisis in the first place, one shared with other countries with a very different historical development.

Although beyond the scope of the book it is nonetheless a necessary task for Irish socialists.  Conor McCabe is not to be criticised for not doing what he did not intend and which others have not done.  Rather it is to be hoped that he can play a significant role in this collective task.  It will therefore be interesting to see what he writes in future because while the bad news is that the first edition of ‘Sins of the Father’ has sold out the good news is that the second is on its way.

Revealing the truth about Anglo-Irish Bank – RTE censorship and ICTU complicity

David BeggThe release of the tapes recording the Executives of Anglo-Irish bank conspiring to rob billions from the Irish people has led to a clamour for an enquiry so that the full truth can be revealed.  In my last post I argued that this truth includes the plain and obvious fact that it has been the State that has made the reckless gambles of Anglo the burden of the people.  These Executives showed no great concern that the organs of the State would prove any barrier to their plans.  In this they were of course proved exactly right.

I argued that what is required is that workers should fight for their own inquiry to reveal this and other truths that remain obscured, not least by the media that presents itself as the vehicle for revealing the truth.  I suggested that workers should fight in their trade unions to launch such an inquiry.

I have just received an email that throws light not only on the role of the media but also that of the trade unions.  In particular it shows that the leadership of the trade union movement in the person of its General Secretary, David Begg, has questions to answer over his complicity in the complete and utter failure to regulate Anglo-Irish bank.

The text below recounts the intervention of a reader of the blog into RTE’s Liveline radio programme, which addressed the Anglo tapes.  She questioned the role of David Begg, which subsequently led to a complaint by him and the removal by RTE of the podcast of the programme.  The alacrity with which Begg moved to defend his reputation can be compared to his apparent inactivity in ensuring the Central Bank performed all the roles it was responsible for and which he presumably was on its Board to ensure were discharged.

Anne has written a draft letter of complaint to RTE and has asked for signatures to a petition, both of which are set out below.

This episode highlights the need for a workers’ campaign to highlight the full truth of the banking collapse and hold all those guilty to account.  Not least the system itself.

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On Liveline 27th June I got the opportunity to speak about my reaction to the Anglo tapes. I mentioned the protests organised each Sunday by ‘Dublin says No’ and encouraged people to attend protests that are organized around the country by the ‘Say No’ campaigns. So listen in to a podcast for the item. It is the first on the play list. Overall it was a good programme and showed the anger people feel.

I mentioned a few issues. Firstly that in Feb 2009 a group of teachers picketed Anglo-Irish bank in protest against the bail out of the bankers/speculators and to show our anger at the massive cuts that were taking place in our schools and in public services. I said a group of us went into the bank briefly to ask workers to tell us the truth about the real state of the bank as we were supposed to own this bank yet we were not allowed to even know what was going on.

I mentioned that David Begg head of ICTU sat on the Audit Committee of the Central Bank during the most damaging years of the credit bubble. He had access to what was going on in the Central Bank and that Mr Begg knows the true story and should make a detailed statement of what went on. He was supposed to be representing our interests.  Either he was happy the way the Central Bank was fulfilling its obligation to oversee the banks or he was sleeping on the job and knew nothing. Either way he should RESIGN. Begg then should have acted like the whistleblower Edward Snowden today, and in that case we might not have the present devastation to our lives.

I also mentioned that at the time of the Anglo take-over public services were being massively cut; huge cuts in education, my area of work, in our pay and pensions and that at the time Waterford Crystal workers were occupying the company as it was closing but there was no rescue for them. Mr Begg did nothing to organize a national campaign to save a flagship company while the nest of thieves in Anglo was being bailed out by the organisation of which he was a leading figure.

I contrasted what had happened to 1913, when Dublin workers stood up against the employers. They were able to gain their dignity and build the trade union movement as a real force while today when we are being ground into the dust and the trade union leaders are committed to working within the injustice and tyranny of the Troika programme. I said it was time to stand up for our right for a civilized way of life for ourselves and our children and that people should come out and join the ‘Dublin says No’ to the Bailout protests. I commented on our small numbers and the thousands of Brazilians who were protesting on O’Connell St 2 weeks ago against corruption in Brazil. It was time for people to act for themselves.

I also said that the contracts of public sector workers were torn up and emergency legislation enacted to steal our pay while nothing is done to take the massive pensions off the politicians such as Bertie Ahern. He should be stripped of his pension and the assets of the perpetrators of the crimes against us seized.

Letter of Complaint to RTE

I wish to formally complain to RTE regarding the disclaimer statement carried at the beginning of the Liveline programme 28th June 2013. It stated that RTE accepted that comments on the Live Line programme of 27th June relating to ICTU General Secretary David Begg were wholly untrue and without foundation and we also accept that Mr Begg was never a member of the Banking Regulatory Authority. We want to make clear that there was no suggestion on Live Line part that David Begg  is or was responsible or aware of any of the wrongdoings of Anglo Irish Bank which he condemned in the strongest possible terms.

RTE in acting in the manner in which it has are neglecting their duty to deal with a perfectly legitimate call from me. They are curtailing an important discussion on the role of people who held senior positions on the Board of the Central Bank leading up to and during the nationalisation of Anglo. A major scandal has blown up regarding Anglo Irish Bank where we are learning day by day of the deeply scandalous behaviour of senior executives at the bank.

Mr Begg made his complaint on the narrow base that he was not a member of the Banking Regulatory authority but I made no reference in my comments on Live Line to this.   It is a matter of record that Mr Begg had a number of major responsibilities as a member of the Board of the Central Bank, of which he was a member between 1997 and 2011. These are outlined below and as such he should have been aware of what was going on in Anglo.

Report of the Central Bank and Financial Services Authority of Ireland for the year ended 31 December 2006

Board Procedures (Page 62)

The Board holds eleven regular meetings each year. A quorum of seven normally applies for all meetings. The Governor approves the agenda and papers, which are circulated to the Directors one week in advance of meetings. Additional Board meetings may be called by the Governor at short notice either on his own initiative or at the request of any two Directors.

The Secretary of the Bank keeps minutes of meetings.

The agenda for meetings typically includes:

_ Reports on monetary and financial developments;

_ Reports on various issues relating to the Irish economy, the European economy and the international economy;

_ Reports on regulatory developments to keep the Board informed on policy issues and where decisions by the Board are required;

_ Management of the investment assets of the Bank;

_ Substantial financial contracts to be placed by the Bank for the procurement of goods and services;

_ General management, planning and budgetary issues;

_ Quarterly and annual financial statements and results.

Board Sub-Committees

The Board established three sub-committees on 30 June 1994 as follows:

_ The Audit Committee; The Remuneration and Budget Committee; The Investments Committee.

Board regulations detail the terms of reference of each sub-committee and membership in each case is comprised of Directors — of whom one is appointed as Chairman — and a further member of the Regulatory Authority with observer status. The Secretary of the Bank, or a nominee, minutes all meetings of the subcommittees and, when approved, these minutes are circulated to the Board. The members of the sub-committees, as at 31 May 2007, were as follows:

The Audit Committee members; David Begg (Chair), Martin O’Donoghue, Deirdre Purcell*, Alan Ashe**

( *Members of both the Board and the Regulatory Authority. **Members of the Regulatory Authority who are not also members of the Board but who participate at meetings of the above CBFSAI Board committees with observer status.)

It is clear from the agendas of the meetings that the Board members had a responsibility in overseeing the state of the banks which would have included Anglo Irish Bank, the 3rd largest lender at that time.  It is inconceivable that Mr Begg was completely unaware of whether the Central Bank was fulfilling its obligation to oversee the banks considering the agenda of Board Meetings and also given that he was Chair of the Audit Committee.

As General Secretary of the ICTU he is expected to represent the interests of workers/ordinary tax payers and I called Liveline as a long time trade union member concerned at the devastating consequences of the bail out of Anglo and the shocking revelations in the tapes.

RTE as a public service broadcaster should be to the forefront in lifting the veil of secrecy that has surrounded the bail out of Anglo, instead it has in this instance censored an important discussion and is failing in its duty to investigate or allow discussion on how the members of the Board of the Central Bank have fulfilled their role the role.

The refusal to podcast the programme is a further example of failing in its duty

Furthermore the disclaimer statement is an attack on my integrity and the truthfulness of my contribution to the programme. As you can see from the above excerpt on the operation of the Central Bank, I did not stray from the facts surrounding Mr Begg’s role on the Board of the Central Bank.

I request a copy of the transcript of my comments on the Liveline programme as my good name has  been brought into question by the disclaimer.

I expect an apology for the aspersions cast on my character on national airwaves.

 

Statement condemning RTE censorship on the role of General Secretary of ICTU David Begg in his capacity as a Board member of the Central Bank

We the undersigned strongly condemn the censorship of discussion by RTE of comments and questions raised as to the role of the General Secretary of ICTU David Begg in his capacity as a board member of the Central Bank and chair of the audit committee of the Central Bank during the period covering the boom years and the subsequent collapse of the banking system.

This gross self censorship by RTE on these legitimate questions and the subsequent erasure of the podcast of the Liveline programme of 27th June 2013 is a shameful and disgraceful episode for RTE as national broadcaster.

The role of the ICTU in demanding a disclaimer on the narrow basis that David Begg was not on the regulatory authority, (a claim that was never made) is an issue of concern for trade union members and all those affected by the criminal activity within the banking sector.  The role of a senior member of the trade union movement in these catastrophic events should not be and cannot be censored.

BBC ‘Masters of Money’ considers Karl Marx (Part 2)

The BBC programme was called ‘Masters of Money’ and was ostensibly all about money but there was nothing said about Marx’s theory of money, which is fundamental to explaining the current economic crisis.

For mainstream economics money is essentially just paper that can be used to exchange commodities.  Provided it is not issued in too high a quantity it will maintain its value and is useful for this purpose.  Already we can see a problem.  What is the intrinsic value of pieces of paper or metal coins?  If it had an intrinsic value its issue would hardly be a problem. It becomes a problem because paper money cannot fulfil all the functions of money precisely because it does not have an intrinsic value.

The massive expansion of credit makes credit too look like money in that it is used to exchange commodities.  However at a certain point people want paid with money and not yet more credit.  When this happens credit stops being given to some people and we have a ‘credit crunch’ such as developed in the latest financial crisis when banks refused to lend to each other and Governments had to step in.

For Marx money is itself a commodity with an intrinsic value because it too is the product of human labour.  Historically it has taken the form of gold.  This is why commodity exchange is an exchange of equals because when money is exchanged for a commodity the money is either gold directly or indirectly if it is convertible into gold.  The end of such convertibility does not abolish exchange being one of equivalents.  Just as credit cannot become real money and this is proved during a credit crunch so paper money is exposed when it is over-issued and creates inflation and when in a crisis capitalist investors look to put their money into something that will preserve the real value of their wealth.

In fact this occurs during booms when speculation on one type of asset after another leads to bubbles – in high-tech company stocks, houses, commodities and now certain government bonds. The price of oil is one barometer of this activity.

Thus just as the massive expansion of credit is not a solution to the problem of capitalist crisis and the contradiction between a limited market and profitable production so also is the printing of money through quantitative easing not a solution.  Yet according to mainstream economics there is no reason why printing money should not be a solution.  The proof of the pudding is that while quantitative easing  has prevented collapse it has not abolished the crisis.

Many companies are sitting on piles of cash including US multinationals holding money outside the US and so evading US taxes.  There is an ‘investment strike’ because of the recession which has created unemployment, falling incomes, debt crises for many countries and austerity which promises not a recovery but continued recession.  All this is worse in Ireland because it is not mainly the policy of austerity which is the problem but a massive overhang of debt, which must otherwise be repaid, and shrinkage in demand due to lower wages, unemployment and emigration.

We are back to ‘solutions’ that are based on more investment and higher wagers but which ignore that it is the system based on profit which is the cause of the problems.

Two other issues occupied the last part of the BBC programme.  The first was whether capitalism would last more or less forever or would be temporary and replaced by something else. The programme accepted that Marx’s analysis of capitalism had a lot of sense to it but it did not, to no one’s surprise I am sure, think that he had any alternative.  In fact the very scarcity of his views on this was held up a number of times while recognising that no one else had much of a clue either.

This was more than a little disingenuous.  The programme started off with shots of the Berlin Wall being demolished and of pictures of Red Square in Moscow and of Stalin.  The presenter recalled that she was at university at the time the Berlin Wall came down and one thing she was aware of was that ‘communism’ had definitively failed. The programme she said would therefore not look at what Marx had to say about communism.  To return at the end of the programme and say that Marx had no alternative while excluding what he did say about an alternative is, well, not exactly fair.

Also unreasonable was the nonsense that Marx, although he had been poor, had towards the latter years of his life become a bit bourgeois.  This seemed to consist of such things as worrying over the future of his children and taking walks in the park in quite nice areas of London.  What a traitor!  He hadn’t even been down a coal mine, unlike the presenter who went down one for the programme.

That leaves me a bit conflicted as I worry over my children, like nice walks in the park (sometimes) but have been down a coal mine (once).

More importantly the programme argued that Marx had no alternative and implied that this explains the otherwise puzzling phenomenon, gleefully expressed by ex-Tory Chancellor of the Exchequer Nigel Lawson, that many people were not flocking to the banner of Marxism.  The latter is a fact, so is it the result of the former?

In an earlier post on the defeat of the opposition to the austerity referendum I asserted that the Left and the working class generally did not have a real alternative, as opposed to some theoretical one, and that this was fundamentally why many workers had voted for something that was against their interests and which some knew to be the case.  The programme actually expressed very well what is meant by an alternative, if I recall more or less accurately, it said that this would be when ‘a compelling alternative would appear.’  What is this ‘compelling alternative’?  If we are talking about the replacement of the political economy of capitalism we are also talking about its replacement by the political economy of the working class.  What is this?

Marx described the alternative to capitalism this way:

“But there was in store a still greater victory of the political economy of labour over the political economy of property. We speak of the co-operative movement, especially the co-operative factories raised by the unassisted efforts of a few bold “hands”. The value of these great social experiments cannot be overrated. By deed instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without the existence of a class of masters employing a class of hands; that to bear fruit, the means of labour need not be monopolized as a means of dominion over, and of extortion against, the labouring man himself; and that, like slave labour, like serf labour, hired labour is but a transitory and inferior form, destined to disappear before associated labour plying its toil with a willing hand, a ready mind, and a joyous heart. In England, the seeds of the co-operative system were sown by Robert Owen; the workingmen’s experiments tried on the Continent were, in fact, the practical upshot of the theories, not invented, but loudly proclaimed, in 1848.”

(http://www.Marxists.org/archive/Marx/works/1864/10/27.htm)

The beginning of an alternative to capitalism arises only when the working class takes action, however small, and is not limited to creation of worker owned and controlled production.  The creation of its own organisations to defend itself against capitalism also foreshadows its future control over the whole of society.  The creation of its own workers party is the pinnacle of it being conscious of its tasks.  Many of the political organisations claiming the banner of the working class and the mantle of Marx replace the centrality of the working class itself with calls upon the state, the capitalist state, to take the action only the working class can take and only which if it does take, can it be considered any step towards socialism.

So the BBC programme on the alternative of Karl Marx got his essential teachings wrong but unfortunately, through empirical impressions, got the current weakness of the socialist alternative right.  The programme itself however is an indication that this alternative is as necessary as it ever was.

BBC ‘Masters of Money’ considers Karl Marx (Part 1)

BBC Karl MarxAs part of its ‘Masters of Money’ series the BBC 2 programme, which looked at the ideas of John Maynard Keynes and Friedrich Hayek, finished by looking at the economic ideas of Karl Marx.  The overall verdict?  It could have been a lot worse.

There were of course huge simplifications that erased exactly what Marx was saying.  These could have been avoided, and the dismissal of communism and what Marx had to say about it was on a par with cold war contempt, but despite this there was a coherent argument through the programme.

It was very much the creature of a mainstream bourgeois economist albeit one who thought there were important insights to be found in Marx, particularly his perspective on the inequality of capitalism and its instability.  It avoided some cheap shots and pointed out that Marx appreciated the revolutionising of production achieved by capitalism and its dynamic development across the world.  The presenter Stephanie Flanders repeated the often made observation that Marx’s description of capitalism is more true now than when it was first made.  She also correctly observed that profit is the soul of capitalism and made some correct remarks about the compulsive nature of the drive for profit within the system.

There were some strange observations which tried to tie the relevance of Marx’s views to particular periods which excluded the post war boom and included the 19th century but excluded the great depression of the thirties.  The whole point of the programme however was to assert the relevance of his views today and if it did no more than this then it must be judged positively.

There were some problems that, had they been addressed, would have made for a much better exposition of Marx’s ideas.  The first is that the programme avoided what Marx thought was his greatest economic discovery – the nature of surplus value.  This is the discovery that the economic value created by capitalism is the result of human labour and can be measured by the labour time necessary for its production.  The source of capitalist profit is the result of the difference between what the capitalist pays for this capacity to labour and what this labour actually produces.  This explains how a surplus can be produced and a profit arise when the exchange of commodities, including labour power, is the exchange of equivalents. It is not a question of workers being cheated when they receive a wage in return for their labour power or of unequal exchange of commodities.

This is not a particularly difficult concept to explain but it does very clearly reveal the exploitation of the working class and exposes all the hypocritical justifications of the system.

The second problem is not what was left out but what was included, that Marx held that the absolute level of wages would be held down under capitalism.  This doesn’t sit well with the programme’s acknowledgment of Marx’s view that capitalism develops the forces of production.  Who did Marx believe would buy the goods created by the development of these productive forces?  This of course was the central tenet of the programme: that for Marx this was precisely the problem.

Marx’s argument was held to be that the tendency to lower wages reduced the ability of workers to buy the goods they produced.  Increasing wages would only reduce profits, the objective of the system, so this is not a solution.  As a temporary ‘fix’ the system expanded credit to make up the shortfall in wages and allow all the goods produced to be purchased.  The explosion of credit therefore explains the current economic crisis emanating within the financial services industry.  The programme was actually quite good when it cut to the right-wing talking heads who pooh-poohed the idea that low wages contributed in any way to the crisis.  They looked neither comfortable nor convincing, or maybe that was just me.

The programme argued that Marx’s criticism went much deeper than any other but actually the programme didn’t go deep enough.  Not altogether its fault since there is widespread debate among Marxists about the causes of the current crisis and even about the fundamental mechanisms of what might be called ‘classic’ capitalist crises.

What can be said however is that the description of the crisis given in the programme and the role of credit and wages is only how the crisis manifests itself, not how it is caused.  To explain the latter would require one to start with the idea ignored – surplus value.

If low wages restricting the market were merely the problem the question would not be so acute.  The capitalists who had diddled the workers could simply purchase what the workers did not.  Everything would then be sold.  The problem is worse because the workers create added value over and above what they are paid, over and above what is required to maintain production and also above the conspicuous consumption of the capitalists, and this additional value produced must find a market.  Why can’t this too be solved by the capitalists buying the difference?

The answer is that it can but the question then is what is the result of this?  Additional value appropriated by capitalists can expand their luxurious lifestyles but the driving force of the system is not this but profit.  To increase this means expanding production both to garner extra profit and destroy competitors.  This means the capitalist must employ the additional value produced by the workers to further invest in more workers and also machinery, raw materials etc to expand output.  The problem is intensified as production increases, new markets are sought for the things that are produced and the amount of surplus value (unpaid labour) created is expanded.

In the longer term the rate of profit comes under pressure as the capitalists replace workers with machines in order to produce more cheaply or even to produce some goods at all (some high-tech ones for example).  However because profit comes from workers the value of production comprised of workers labour declines and so does the proportion made up of surplus value, from which profit comes.  Fewer workers will create proportionately less surplus value while the cost of machines and raw materials etc increases relatively, so reducing the rate of profit.  The capitalists with the lowest productivity and lowest profitability can be forced into bankruptcy.  Of course to some extent this too can be offset by lower wages but the increasing sophistication of production means that paying peanuts will not allow the ‘monkeys’ to engage in the skilled labour required.  This is a long term tendency but one we can see in operation through the economic history of the west and in the rapid economic development of Asia.  It implies that profit plays a smaller and smaller relative role in production which calls into question a system in which this is the whole purpose of its existence.

The regular periodic crisis, including the current crisis, is the route by which this longer term tendency operates.  The compulsion to produce more and more surplus value also produces these more regular booms and busts.  The drive to expand the creation of surplus value means increased accumulation of workers, machines and materials and the expansion of markets to purchase the additional production.  In an economy dedicated to the needs of the population such increased production can be consciously planned and coordinated and its limits set by society as a whole.  Under capitalism no such limits are acceptable.

The limits on production of surplus value are therefore not set by the needs of society or by the limits of the purchasing capacity of workers and capitalists.  To break from these limits credit is expanded to bridge the limitations on consumption that are the result of the limits of production.  Through credit capitalism seeks to satisfy the capitalist desire to expand production through the accumulation of more and more surplus value.  Credit expands the market for increased surplus value production.

This can produce fantastic economic booms of the sort we have seen in the last decade or so in Ireland and across much of the globe, from China to Brazil.  The attempt to expand real production and to create an even larger market for it must at some point necessarily collapse for the same reason that credit is originally introduced.  Just as increased credit is an attempt to increase profit so the collapse of credit is the result of credit no longer being able to expand profitable production.

Workers must pay back debt at some level and beyond a certain point this becomes impossible because of the limits to their real incomes determined by real production.  The same is true of the capitalists.  Ever more convoluted attempts to expand credit beyond the capacity to pay it back – through creation of yet more credit – is doomed to collapse as the ever expanding amount of debt requires greater and greater repayments to keep it going.  The fantastic expansion of the financial services industry is testament to how big such an exercise can become. A glance at the size of the balance sheets of the Irish banks in comparison to the size of the whole economy reveals the scale of the overproduction and credit expansion that can arise.

In Ireland and the US the limits were reached when workers could no longer pay for inflated housing or capitalists pay for inflated office and other building construction.  A surplus of such properties is eventually created, overproduction appears, prices collapse, capitalists cannot sell except at a loss and those who built the houses and offices go bankrupt, workers in construction are made unemployed and the banks which financed it all go bust.  At such points it can appear that the problem is that workers wages are not big enough to buy all that has been produced and that this is the problem.  Solutions are proffered by Keynesians who say that what is need is yet more investment to take the place of that which has just collapsed.  But as we see, these solutions do not address the underlying problem and provide a ‘solution’ only by postponing the collapse and stoking up a bigger tsunami when the boom busts later.

In these circumstances blame is also placed on the institutions which created the massive credit explosion – the banks – especially since such booms inevitably involve hugely speculative, criminal and stupid behaviour during a time when everyone thinks they should be getting rich quick.   No one needs regulation during a boom when money is being made and afterwards the call is made that we have to have stricter regulation when again, but for opposite reasons, no one needs regulation.  Regulation becomes the alibi for the systematic failures of the system.  Left wing critiques which focus on the banks play into the hands of those who want to ignore or are simply ignorant of the system itself being responsible for the bust.  That the bust is so spectacular is simply a result of earlier failure to burst the bubble.  For a longer and bigger boom the price paid has been a longer and bigger bust but either way capitalismproduces booms and crashes.  Keynesian solutions to extend the boom can simply create bigger crashes.

Forward to Part 2