Category Archives: Keynesianism

Crisis? What Crisis? part 3 – down, down, deeper and down

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Sterling as a picture of the future

Sterling as a picture of the future

Tory lies over Brexit and the sunlit vistas of UK sovereignty that lie ahead are nothing new.  Uncriticised by the Tory press and a BBC that is both scared of them and shares their broad establishment understanding of society, they have been able to present themselves as the only trusted stewards of a successful economy, with only its fruits perhaps needing some fairer distribution, now that they are the workers’ friend.

But the Tories have lied to themselves and everyone else that the British economy is in rude health, especially when compared to the sclerosis of the rest of Europe.  They quote statistics showing that real Gross Domestic Product has grown faster in Britain than in the bigger EU economies such as Germany, France and Italy.  What they don’t say is that GDP per person was no higher in 2014 than 2007 and that the British are no richer compared to the EU 15 average now than they were 15 years ago.  In fact Britain lags behind Spain and France on this measure.

In order for Britain to grow it has needed to increase its population and workforce, including through immigration, and make the working class work longer hours while reducing their wages, which declined by 10% between 2008 and 2014.  Productivity relative to the EU average has fallen to 90% so that output per hour is 25% below French or German levels.  In only one other region apart from London is GDP per head in excess of the EU average.  This means only 27% of Britons are wealthier than the EU average; but we are expected to believe that the EU is holding Britain back.

The Tories (and Blair before them) have relied on a high debt, low wage and low skilled economy that compensated for poor productivity by increased exploitation, symbolised by zero hours contracts on the one hand and long working hours on the other.  Such a model has no need for a comprehensive education system that can provide a highly educated and skilled workforce for employment across a wide number of economic sectors.

Increased exploitation of labour substitutes for increased capitalist investment in technology, which is mirrored in less state investment in infrastructure.   One example of the result of this is the threat of the lights going out because of a shrinking margin of spare power generation capacity.  This in turn leads to huge subsidies to foreign states to supply nuclear power that may keep the lights on – in the shape of Hinkley Point C and the French and Chinese state companies involved in its development. The lack of infrastructure puts a further drag on the development of productivity and the growth of living standards.

Brexit is being sold as the opportunity to improve this far from outstanding economy but leaving the EU will discourage the foreign investment that helps bail out Britain’s chronic deficit in trade.  Exit from the EU will diminish the financial sector and its acquisition of profits from around the world as bankers already threaten to pull out.  Trade will face new barriers and even old Tories like Michael Heseltine have laughed that there are new markets that no one has so far spotted to replace those that will be lost in Europe.

Devaluation of sterling will hit peoples’ living standards, reducing the domestic market just as foreign markets become harder to enter, while lower economic activity will reduce the capacity of the state to spend on infrastructure. A poorer Britain with reduced foreign earnings will have pressure placed on its interest rates, which will rise to cover the cost of financing a state whose currency is falling.

This risk was made clear by a market analyst quoted in the ‘Financial Times’ as saying that sterling is behaving more like an emerging markets currency and that there is no idea what its true level is. If a foreigner lent £100 to Britain, costing them say $120 in their own currency, it will mean that when she’s paid back the pounds she receives could be worth only $100.  So how much more interest on the loan would she require to protect herself against this risk?  And what sort of investment could warrant borrowing at this rate of interest?

Britain has created an economic model based on sweating its workforce.  Karl Marx noted the limits to exploitation by lengthening the working day 150 years ago, limits again being exposed today by Britain’s declining productivity.  And anyone believing that the Tories will move to create a high wage economy that involves upgrading the skills and talents of the workforce will have to explain the latest genius idea of promoting grammar schools, which relies on improving the education of a few by shiting on the rest.

An economic logic will apply to Brexit regardless of whether the Tory party realises it or not just as we have already seen its political logic unfold despite what some might have believed it was all about.  In last Monday’s ‘Financial Times’ some ‘liberal’ Brexit supports complained that they wanted an ‘open’ Brexit and not the nasty Tory variety.  But this is just as innocent of reality as the supporters of a ‘left’ exit – Lexit – thinking that a decisive move to national capitalism could be anything other than reactionary.

The economic logic of Brexit suggests increased unequal competition with other much larger state formations, such as the EU and the US, not to mention China, a la Hinkley Point C.  One weapon of the smaller and weaker is a race to the bottom with reduced corporate taxation as one example, already signalled by the late chancellor George Osborne, but this is not a credible strategy away from the current model.

There are therefore no grounds for believing that an interventionist state acting on behalf of workers will arise from any change in approach by the Tories.  However it is not excluded that the inevitable crisis that Brexit will induce could give rise to a change in direction to a more interventionist approach in order, as we have said in the previous post, to allow “a Tory government (to) save capitalism from itself.”

Unfortunately the Tories have tied themselves to those sections of the electorate least supportive of this approach; those who support lower taxes and a less interventionist state, unless its intervention is into other peoples’ countries.  The best hope of such an outcome is the influence of those sections of British big business that are tied to the Tories who do provide a constituency for such an approach.

However the weakness of a stand-alone Britain doesn’t help such change.  So for example, it is reported that the Tories may be thinking of devising restrictions on foreign investment, which had more potential within the EU than outside, but this idea will conflict with Britain’s more isolated situation and greater need for outside funding.  Their idea of increased state intervention will also be restricted by budgetary pressures arising from the weakened tax base of an ‘independent’ Britain.

As Boffy’s comment to my last post made clear, state intervention in the economy is not by definition left wing, despite much of the left’s identification of Keynesianism with socialism.  There are all manner of right wing Keynesian interventions so a Tory lurch to increased state intervention in the economy is perfectly compatible with increased authoritarian intervention by the same state with both masquerading as the workers’ friend; or more pointedly as the British workers’ friend.

The Tories newly found working class agenda, such as it is, cannot accommodate any sort of workers’ identification with their brothers and sisters beyond their own nation.   Xenophobia thus unavoidably defines the anti-working class core of the new Tory ‘left’ agenda.  This rabid xenophobia is perfectly compatible with false concerns for British workers but utterly incompatible with workers’ real interests, British or otherwise.  The Tories can feign sympathy with all sorts of working class concerns but not with its interest in solidarity across nations.  This appears most immediately in the shape of immigrant workers and, as a member of the EU, in the shape of all those workers who have moved from the EU who have now almost become hostage to the wilder delusions of the Tory right.

The centrality of workers unity was recognised by Marx long ago when he noted the two principles separating the socialists of his day from others:

“The Communists are distinguished from the other working-class parties by this only: 1. In the national struggles of the proletarians of the different countries, they point out and bring to the front the common interests of the entire proletariat, independently of all nationality. 2. In the various stages of development which the struggle of the working class against the bourgeoisie has to pass through, they always and everywhere represent the interests of the movement as a whole.”

No matter how any right wing force attempts to portray itself as the workers’ friend this is always the one area in which they can make no pretence and, in this failure, expose their true character – that they cannot accept never mind promote the identity of the interests of the workers of their own country with the interests of the workers of others.

The nationalists in Scotland in the shape of the SNP have at least temporarily succeeded in fooling many that the interests of Scottish workers are somehow radically different from those in England and Wales, although the rise of Corbynism has demonstrated that in the rest of Britain there might be more of a fight against nationalist division.  It is noteworthy that this blog draws to our attention the SNP’s approach to immigration set out in its White Paper for independence, which was a points based system, rather like that of those British nationalists like Boris Johnson.  But then nationalism is nationalism, innit?

Back to part 2

Forward to part 4

Ireland – the Apple Republic part 2

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apple-taxWhen a left wing TD called the decision of the Irish Government to appeal the decision that gives it €13+ billion “economic treason” against the Irish public he contributed nothing to clarifying for Irish workers the role of the state, which is precisely to defend big business against that part of the Irish public made up of workers, their families and small businesses, who mostly have little choice but to pay the state’s taxes.

Much better would be a socialist campaign to rally trade union branches, community groups, tenant associations, consumer groups and campaigns etc. to put together their own proposals as to how exactly the €13 billion should be spent.  The purpose would be to demonstrate that the needs of workers should come before those of multinationals and before the reputation and interests of the state and its ‘national interest’.  A campaign that sought to unite with the workers of other countries swindled out of tax receipts by Apple would go a long way to demonstrating that this is not about a race to the bottom that pits workers of one nationality against all others.

This would also allow working people to show, not least to themselves, that they can plan effectively how to spend the money, not just for their own benefit but in the interest of all working people. Its purpose would be to begin to instil a view within them that they should take control of society themselves rather than relying on the state to do the big things for them.

On this count the view expressed by another left wing TD was much closer to the mark.  Speaking in the Dáil Paul Murphy said: “Governments in capitalist societies are but committees of the rich to manage the affairs of the capitalist class. It is as simple as that …. All of the establishment parties represent the rich and the 1 per cent. We need to be rid of this committee of the rich, and we do not need it replaced with a reconfigured committee of the rich.”

The creation of a desire for, and mechanisms to achieve, an alternative to a “reconfigured committee of the rich” is precisely the objective of this proposal for working class activity.  Only by workers increasingly taking control over their lives now can we conceive an alternative that is real, compared to reliance on a state that always has your best interests as far away from its mind as possible.  The motto of socialists in this regard should be the famous quip of the British actor David Niven who, when speaking of Errol Flynn, once said “you always knew precisely where you stood with him because he always let you down.”[i]

A wider claim in relation to the Apple judgement and reaction to it is that such sharp practices are part and parcel of a policy of neoliberalism which is past its use by date.  The exhaustion of this policy has been expressed in the crisis of financialisation in 2008 and the failure of Eurozone austerity policies and similar policies in Britain, where their effects have not been quite so damning only to the extent that the Tories have failed to follow through fully on their austerity rhetoric.  In this view we will see a return to a class compromise that was supposedly the cornerstone of Keynesian policies practiced among the most developed countries after the Second World War.  Among these will be fair taxation of capital and the rich.

Against this it might be pointed out that the Apple ruling did not uphold any principle that taxes should be levied where real economic activity takes place and that in fact it was justified through an objection to state intervention, on the grounds of unfair state aid.

In 1997, even during the neoliberal era, EU Finance Ministers set up a Code of Conduct Group on business taxation that was charged with examining unfair tax practices and in succeeding years it abolished nearly 100 tax incentives across the EU.  Today it is the OECD which is supposed to be spearheading cooperation between governments on tax avoidance and evasion but this body has been a consistent supporter of neoliberalism.

In so far as there has been a trend in corporate taxation it has been a lowering of rates:

“Corporate tax is falling, both as a share of GDP and in the global tax take. . .  Within the last 20 years, corporate tax rates have fallen from around 45% to less than 30% on average in OECD countries. And lately, with increased mobility of multinational corporations, tax competition has intensified. Thus from 2000 to 2005, 24 out of the 30 OECD countries lowered their corporate tax rates while no member economy raised its rates.”

Closing or restricting some ‘loopholes’ is perfectly consistent with lowering rates because the loopholes become less and less relevant.  Reliance on the state to produce ‘fair’ taxation is like relying on Errol Flynn.  The Apple case, precisely because of its scale, is instructive in this and other respects.

The Left has pointed out the sheer scale of the windfall that the Irish Government is potentially spurning, pointing out its hypocrisy in demanding that the Irish people must do what the EU wants when it comes to austerity, bailing out the banks, ensuring no bond-holder is left behind and their demand that water charges simply must be paid.  When it comes to standing up for the Irish people no demand from the EU is too big but when it comes to standing up for the wealthiest multinationals no claim is too disreputable, no sacrifice too large and no neck so shiny and hard.

Commentators have pointed out that €13 billion would make up the budget for the health service for a year or it could take a significant chunk off the national debt of €200 billion.  It could pay the equivalent of a few years of the unpopular Universal Social Charge or it could mean a cash donation to everyone in the state of around €2,800 each, so that a household of four would get over €11,000.  A tidy sum for everyone in the State, or a significant boost to public services.

What it isn’t, despite its unprecedented size, is fundamental or transformative.  While it is a godsend of an example of taxing the rich, which much of the Left repeatedly presents as the answer to austerity and an exemplar of socialism, the Apple example shows that it is not.  Or not if one thinks of socialism as a fundamental change to society and a transformative change in working people’s lives.

What it is, is confirmation of the point made by Karl Marx many years ago, about the limits of distributing existing income or wealth, as opposed to changing the fundamentals of the ownership of productive resources that creates and recreates, again and again, this income and wealth.

“Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself.

The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one.

Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?”

This is the argument that goes to the root of the nonsense peddled by Michael Noonan that taxing Apple would mean “eating the seed potatoes” or Micheál Martin that “This model supports hundreds of thousands of jobs and pays for teachers, nurses and pensions in every part of our country.  What’s more, it has done so for decades.`’

Such is the significance of any battle over Apple’s taxes.  Reliance on multinational capital and all the crap that goes with it or a cooperative economy owned and controlled by workers not just in Ireland but everywhere.

[i] Of course the parallel isn’t exact – Niven and Flynn were “pals” while the working class and the capitalist state are enemies.  It is appropriate however that the above remark was made of an immature personal relationship that has no correspondence to the political stance workers must take against the state; even if failure to take such a stance reflects an undeveloped and therefore immature failure by some Irish socialists.

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Jeremy Corbyn’s economics 2

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o-JEREMY-CORBYN-THE-FACTS-facebookIt would appear that Newton Emerson doesn’t buy the view that quantitative easing might be about investment in real activities that promote growth but his disdain for the economic rationality of Corbynomics and his arguments opposing it are full of contradictions and holes.  So for example while he appears to see it Corbyn’s approach as dangerously radical he notes other, apparently more radical, alternatives such as giving out unfunded tax cuts or rebates, which have come from decidedly mainstream quarters such as George Bush or the head of the Financial Services Authority, who noted that the Bank of England had considered something similar.

The rationale behind Corbyn’s proposal is that the British economy needs sharply rising investment to boost economic growth.  This would produce higher levels of employment with people paying more taxes and taking fewer benefits, in the process reducing the public sector deficit and debt while realising better public services.

Newton Emerson however sees only the prospect of increased inflation because it would mean printing money and giving it to the government who would waste it, leading to rising prices.  He compares this unfavourably with simply handing out money through unfunded tax reductions (characterised as dropping money from a helicopter)or the Bank of England’s own quantitative easing explained in the first post, although he favours each of these for totally different reasons!

So, simply handing out money is good because “it is spent immediately on the high street” while the existing quantitative easing is even better because it “is a more effective and responsive version of the helicopter drop, where the cash is handed out under circumstances that ensure it will be hoarded by the banks.”  So if it’s spent that’s good and if it’s not that’s even better!

I don’t think I’m sticking my neck out very much by saying that most commentators think that the banks not lending the money but hoarding it, as explained in the last post, is a problem with quantitative easing as practised by the Bank of England and not a plus.

Of routeing the money through the banks, he says: “Better still, the moment prices start rising, the made-up pounds can be recalled and lending will instantly shrink by a factor of 20, reversing inflation in its tracks”.  Yes indeed, monetary policy usually takes around 18 months to two years but one that works instantly would be even better, except that if it worked by reducing lending instantly and by a factor of 20 the effect would be a catastrophic depression.

Emerson is right when he says that capital investment projects might take two to five years to get off the ground while the money paid on wages and to suppliers starts to be spent right away but this is an effect of any investment, state or private, so why is this only a problem with state investment?

If there were already an investment boom and a cyclical upturn that might shortly lead to overproduction and a glut of goods that cannot be sold profitably because of saturation of the market there would be a point to Emerson’s objection.  But preventing this would require some sort of economic planning, basically an end to capitalism, and he definitely doesn’t favour this.  In circumstances of a meagre upturn after a long recession it is unlikely there is constrained capacity that would lead to rapid inflation if additional money was pumped into the economy in the way proposed.

Emerson shines his Tory credentials by recalling the economic crisis in Britain in the mid-1970s in which deficit spending by the Labour party Government in 1976 led to the IMF being called in to give Britain a loan.  This shows that this sort of Keynesian policy leads only to inflation.  Four decades on, he says, the Corbyn supporters dismiss this lesson.

But his problem is two-fold.  What exactly is the lesson to be learnt and is the situation today the same as that in the mid-1970s?

The lesson drawn by certain advisors to city traders in the mid-1970s was that too much money was being created which was causing inflation and that Governments should target measurements of money supply to ensure that they do not exceed predetermined levels.  This monetarist policy was taken on board by the new Thatcher Government and dropped when it didn’t work.

But even his quoting of Labour leader Jim Callaghan in the 1970s ignores the admission in it that this policy had previously worked.  Post war recessions were shorter and less severe because of Keynesian policies.  Today’s critics of these policies now proposed by Corbyn ignore this, while Keynesians forget that it cannot solve underlying problems.  So yes these policies did lead to inflation, which increased over the post war period and eventually took off, but this brings us to the second question whether conditions today are the same as those of the 1970s?

The ‘money printing’ carried out by the Bank of England etc., which Emerson supports, is not free of inflationary consequences itself, it’s just that he fails to notice because they appear in rising property, share and other asset prices.  The policy of investment by the state at least promises investment in activities that support real production.

The Corbyn alternative is not madcap economics and is more supportive of working class interests than stuffing money into banks whose Directors were only yesterday appearing in parliamentary hearings explaining how they didn’t really know what they were doing.

Nevertheless the Corbyn policy of infrastructural investment by the state is limited in two senses and isn’t itself socialist.  First it’s investment in infrastructure where private capitalist initiative has failed.  The investment proposed is not therefore the sort that would be in competition with private capitalist production and in so far as it will be private capitalist concerns that pick up the contracts, such state investment will be a big boost for them.  Emphasis on state investment in infrastructure is something Corbyn shares with the many left electoral alternatives that have decried the desertion of old labour from its past.  They are pretty naked now it may be back.

The second way it isn’t socialist is that it is the capitalist state that is increasing its role in the economy not worker owned cooperative production, in which workers can democratically take the initiative and learn to run things themselves.  This could lay the economic and social grounds for a political challenge to the system as a whole where workers to decide they should own and run the whole lot.

There is nothing very democratic about current state ownership and the workers within it still answer to a boss.  The success of state led investment in efficiency terms is very much dependent on the developmental capacities of the state itself but when private capitalist intervention has failed it’s not a very strong argument for the likes of Emerson.

Like the rest of the shrill and desperate attacks from the right the local criticism of Corbyn doesn’t hold much water.  Others in the mainstream have recognised openly the limited radicalism in what is being proposed, which may actually be understood by those venting their disapproval.

Their opposition may therefore be motivated by fear that what is being proposed opens other more radical vistas for those seeking an alternative to austerity.  That this may well be the case is a reason why Corbyn should be supported.

Workers’ cooperatives as an alternative to Capitalism – 2

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10698536_420301091453164_5593204590190940624_nMarxists believe that conditions determine consciousness.  The ideas that most people have are products of their circumstances.  Currently workers sell their labour power as a commodity.  That is why they concentrate efforts on the price of their labour power (wages) and the terms and conditions at which it is sold.

It is why they value those services that they cannot provide for themselves individually but are unable to provide collectively because they lack the consciousness and organisation to do so.  This includes such things as unemployment insurance, pensions, health care and education.

The sanctification of capitalist private property means that the former is not strictly political while the distribution of the revenue from capitalism is.  Through the latter the working class is made dependent on the state for these services, including through employment in their delivery.  The welfare dependency culture repeated like a mantra by the right has this much basis in fact.

What there is not therefore is the material basis for the growth of a consciousness that workers should own, manage and control the productive activities of the economy and the state.  Instead the growth of the state and its acknowledged political leadership are the grounds for the view that the redistributive powers of the state are the basis for a solution.  This mistaken view takes the extreme form on the Left that the state should take over production itself.  Of course this has been tried.  It didn’t work well.

What we have with the Keynesian alternative then is an expectation, doomed to disappointment, that the capitalist state will divide the fruits of capitalism to benefit those who have first been exploited in opposition to those who have carried out the exploitation, which must remain in place in order to continue funding the redistribution.

Marxists believe that the future socialist society is not utopian because current society contains its anticipation in various ways.  Capitalism is pregnant with the future socialism; except that if the state is the embryo then the pregnancy taken to full term does not result in socialism but something else entirely.

Workers’ cooperatives are one of the crucial elements of this anticipated new society growing within the womb of the old.  It reunites workers with the means of production and removes the capitalist from the workplace.  It gives ownership to the workers and elevates their power, confidence and consciousness.  It can prepare the workers involved and other workers for the task of making the whole economy the property of the working class, which is socialism.

Workers ownership can provide the basis for workers to provide the services that are currently provided by the state and which leaves them at the mercy of the state and the politicians who preside on top of it.  Such services include education, health, welfare and pensions.  Workers self-provision of this would result in their own priorities being imposed on their provision.

However to posit this as the alternative immediately demonstrates a major difficulty.  While it is possible to envisage workers cooperatives supplanting individual capitalist production it is much more difficult to envisage this in regard to the services now provided by the State.  What this once again demonstrates is the role of the state as defender of the capitalist system – through exclusion of the working class from direct control within society and protection of the accumulation needs of capitalism.

Workers’ self-provision of what are now services provided by the state would necessarily lead not to demanding more taxation by the state but less, so that workers would have more control of their earnings and would have more to pool together and employ to their collective benefit.  In short workers would take more and more responsibility for their own lives, even when temporarily or permanently unable to work.  The dependence on the capitalist state would be weakened, at least in this respect.

In Ireland workers would have the grounds for recognising that there is an alternative economic development model to reliance on US multinationals.  They would have an example of a model of development that didn’t rely on the state.  They would have a living alternative to the threats that they need the capitalist banks.

Instead of workers relying on the state to provide for them by taxing the rich or investing in infrastructure to promote private capitalist investment they would have an alternative in which it is their own activity which is the alternative to capitalist crisis.

Is this the viewpoint of a reformist and utopian scenario?  I think not.

Firstly thousands of cooperatives already exist; they are not purely idealistic mental constructions.  What’s more they can be, and many are, very successful; providing hundreds of thousands of jobs.  Living proof that workers can do without capitalists to tell them what to do.  Workers can take control, can make decisions and can be successful.

The spread of workers’ cooperatives in entirely possible, their growth and development is not precluded by any necessarily limiting factor in capitalist development, at least to the point where capitalist accumulation appears threatened by it.

The trade union movement and the political organisations of the working class can play an important role in their development.  Workers’ cooperatives are therefore not an alternative to the existing workers movement but are something that can be complementary to its development, freeing it more and more from dependence on private capital and the state.

In fact workers’ cooperatives will inevitably demonstrate through their development the antipathy of the state to workers ownership and the power that workers as a class will develop as a result of its development.  The state will inevitably be used by the class it serves, the capitalist class, to undermine competition from workers cooperatives and support private capitalist accumulation.  Such a development will clarify the lines of battle between the workers’ movement and the capitalist system.

Workers’ cooperatives are not an alternative to class struggle but a means of carrying it out.  The creation of workers’ cooperatives in Argentina following its capitalist crises is evidence of this – how much better to promote workers’ cooperatives before such cataclysmic crises rather than in their midst or aftermath.

When workers say – “where is your socialist alternative after over a 150 years of your movement?”, we might have a living movement to point to rather than a simple promise for the future.

And such a movement will be an international one because just as capitalist development has become international there is every reason why workers’ cooperative production should also be international.  Every bit of such development will strengthen the international bonds between workers and undermine nationalist solutions that are currently growing.

In other words workers’ cooperatives provide the living link between resistance against the injustice of the current system and the creation of a real alternative.  Instead of simple rejection of cuts and lack of democracy workers’ cooperatives not only posit employment and democracy within the cooperative but the transition to a new society.  Workers’ cooperatives thus provide the material basis for linking the struggle against capitalism to the creation of socialism.

Workers’ cooperatives are not a magic bullet answer to the current crisis on the Left.  There is no simple or singular programmatic answer to a crisis that exists at the level of working class consciousness and organisation.  But for the Left a programmatic answer is currently by far and away the most important contribution that it can provide to workers.

Traditionally the revolutionary left has rejected workers’ cooperatives because they have been seen as an alternative to revolution – a militant class struggle against capitalists and the state culminating in an insurrection, the smashing of the capitalist state and creation of a new one.  I don’t think anyone can credibly claim that the patient work of class organisation involved in union organising, party building and creation of workers’ cooperatives would get in the way of a burgeoning revolutionary movement.  Anyway, when was the last revolution in an advanced capitalist state, one in which the working class is the vast majority of society?

It can be legitimately claimed that workers in existing cooperatives lack socialist consciousness so how can they provide the material basis for socialism?  This objection however must also take on board the reality that decades of union organisation has also not turned the majority of trade unionists into socialists.  However no one advocates abandoning the organisation of trade unions.

Finally an objection is made that workers’ cooperatives will simply teach workers to exploit themselves within a market economy based on competition.  They will simply become their own capitalists.

However, at the extreme, the ownership of all production by the working class would not only remove the capitalist class but would also remove the need for all allocation by the market, or by socially necessary labour time, to use the strictly Marxist definition.  In other words workers’ cooperatives would cooperate with each other.  Such competition as would exist would not play the same role as capitalist competition just as the continued existence of money tokens would not make it a capitalist system.

So for example, a factory making shoes that became unfashionable would not close down and throw its workers into unemployment but would see them transfer to either production of shoes that were in demand or to some entirely different branch of production.  Other workers would support this because they would all know that what they produce might equally go out of fashion, become technologically obsolete or have its workforce reduced by automation.  In the same way the receipt of money as salaries and wages would not mean that this money would exist as capital, able to purchase labour power in the pursuit of profit.

The current value of workers’ cooperatives is not just as living practical examples of socialism but that they allow theoretical and political clarification of just exactly what socialism is.  They shine a light on the difference between workers power and all the solutions that rely on the state – from Keynesianism to nationalism.

This is the second part of the post.  The first part appeared here.

Why have the Irish not revolted?

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Public-service-workers-st-006The defeat of the opposition to the property tax and the ability of the Government to impose a second Croke Park austerity deal might lead many to conclude that resistance to austerity has been defeated.  Even before this many have commented that while Greece has witnessed violent protests and numerous general strikes the absence of such events from Ireland is notable and remarkable.  General strikes have also taken place in Spain and Portugal but not in the Irish State.

The relative electoral success of the United Left Alliance appeared to blind some to this but the collapse of the ULA has simply confirmed what is more generally understood to be the case.  More and more it is acknowledged on the Left that we have to face the reality as opposed to perennial false claims that an upsurge is taking place or is just around the corner.

Realistic assessments of the state of workers’ action have often been drowned out by childish claims that this shows one is insufficiently revolutionary, underestimates the workers , their ability to change their ideas quickly or that such views will not encourage workers to take action.  Not in front of the children appears to be the motto.  Workers are always ‘angry’ and all it needs is the right campaign, so long as it is active enough, to stir them into action.

Reality is imposing itself and no sound bites along the lines of ‘the darkest hour is just before dawn’ can hide the fact that the economic crisis has resulted in the imposition of austerity on workers without effective resistance.  Why is this?

First we must qualify the judgement that Irish workers are peculiarly useless.  Commentators have remarked in similar terms about the countries in southern Europe.  We have noted before that more or less spontaneous social explosions have not resulted in great advances by the working class.  Greek workers have been by far the most combative in terms of general strike action but in hardly anywhere has living standards plummeted so much.  I have also noted in one of my first posts that economic crises spurs growth in extreme reactionary forces and we have seen this is in Greece with the rise of the Golden Dawn movement.  So Greece is no model to seek to copy.

Secondly Irish workers have fought back albeit within very strict limits.  I can still remember the very large demonstration in November 2009 in Dublin, which had many working class people from outside the ranks of the trade unions taking part.  The following year public sector trade unions organised a successful strike.  At a local level in certain places and at certain times strong campaigns have developed against tax increases or hospital closures.  All this and more was reflected in the vote for ULA.

There is however an over-estimation about what workers can achieve within the limits of the capitalist system – a general misconception that workers’ struggles can overturn the laws of capitalism.    For example, if a company goes bust and attempts to close down, making all its workers redundant, it is pretty obvious that strike action will not achieve very much.

At this point many on the left propose that the capitalist state protect workers even though these same people have a part of their brain that tells them that the state is a weapon of the capitalist class that cannot be reformed and must be smashed.  They also believe that the emancipation of the working class must be achieved by workers themselves but usually object to the idea that, instead of the state, the workers should take over and own and run these workplaces as workers cooperatives.

It is a similar situation at the level of society as a whole and at an international level.  The Irish state was and still is bankrupt.  It needed a massive injection of money to save the banks and put itself in a position to start reducing its mushrooming debt.  Austerity is a means of doing this.  Again the Left argues that the state can adopt policies of taxing the rich and spending money on investment that will restore the capitalist economy to economic growth, which will then deal with the problem of the debt.

This is not however the view of socialists.  The socialist view, confirmed once again by recent events, is that capitalism inescapably produces economic crises which are dealt with and resolved by the laws by which the system works, including through unemployment and destruction of unsuccessful capital whose markets and sometimes businesses are picked up on the cheap by those remaining.  It is not possible for the capitalist system to prevent such crises by adopting policies of more investment, as for example argued by left followers of Keynes.

It is not therefore possible for workers no matter how well organised to prevent the laws of capitalism from working.  This at least was the view of Marx and the evidence of history would again confirm this.  So workers resistance against austerity may be able to ameliorate austerity but, in so far as they are necessary to lay the foundations of a new upturn, it is not possible for workers to prevent unemployment or wage cuts or tax increases in their entirety or even to a significant degree.  In other words it is not possible within the system to prevent capitalism periodically disrupting workers’ lives.  That’s why we oppose the system and why we propose a different one called socialism.  If we thought capitalism could work better without its nasty effects we wouldn’t be socialists would we?

Yet the left presents austerity as simply one policy option of the Government which it could choose to reject and replace with their own proposals.  But even the Keynesian alternative requires ‘counter cyclical’ state action.  In other words the austerity measures are simply postponed.  All the left’s proposals involve actions by the capitalist state in one way or another – tax changes, public investment, nationalisation etc.

The point in terms of the current argument is not that the Left is misleading workers into accepting reformist solutions that won’t work and this is a reason why resistance to austerity has been such a failure in Ireland.  These ideas are more widespread in southern Europe than they are here.  No, the issue is that, absent a socialist alternative being created, as long as capitalism exists the laws of capitalism will continue to work and impose themselves.  Resistance to austerity will therefore fail and this failure is bound in turn to lead to weakening of the resistance.

We must be careful however not to qualify the problem out of existence when it contains more than a grain of truth.  When Greek workers chanted “we are not Irish” on their May Day demonstration in Athens in 2010 they weren’t imagining the relative weakness of resistance in Ireland.

Nor can the question be dismissed by saying Irish workers did fight back – they did, but nowhere near to the extent required for success.

Nor is it credible to blame the poor politics or organisation of the Irish Left.

It is also not adequate to simply say that capitalism wins unless we create socialism. This is obviously true, although its logical implications for reformist strategies and policies are often ignored.  But it doesn’t come near explaining why the reformist strategies for resistance have elicited such weak workers’ action.  It’s hardly that Irish workers can see through such strategies and are ready for something more radical.

Socialism is not an event or a situation but a movement. Workers will only become capable of building a socialist movement and carrying out revolutionary change if they are also capable of mounting strong resistance to the ravages of capitalism.  In Ireland this hasn’t happened and there has been a retrogression of the small socialist movement, although this in itself is not particularly new.

So in Ireland the state has been able to pursue austerity policies that increase unemployment and wage restraint in order to restore its solvency in very much the same way capitalist crises work to   restore profitability in the private sector.  It has been able to do so without much of the resistance shown in other countries in a very similar situation.  This remains to be explained.

To be continued.

A new Left electoral campaign in Limerick

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The Revolutionary Programme web site altered me recently to the latest electoral initiative of the Left – here.  The programme of this initiative is the following:

  • No to the Property, Water & Septic Tank Taxes – No to Deduction at Source.
  • No to all Austerity – ordinary people have paid enough.
  • For a united movement of ordinary people affected by home taxes and austerity – no to divisions based on race or nationality.
  • Tax the Wealthy as the alternative to austerity: For progressive taxation on the wealthy and corporate sector.
  • End the bailouts of banks and bondholders, instead use the money to create real jobs through a programme of necessary public works.
  • Our candidates if elected would:
    Fight against plans for Water Metering, Water Taxes and Water Privatisation.
    Oppose all cuts in council services or erosion of workers conditions.
    Make no deals on the Council with the austerity Parties (FF, FG, LP).
    Oppose the gravy train – no participation in junkets. Demand local planning for the community, not for developers or vested interests.

What attitude should Marxists take to this electoral initiative?

Just like every other party standing in an election it must surely be judged by what it says – by its professed programme or set of policies, providing of course these are also what it truly represents.

Can and should it be supported?

The electoral slate is clearly not a party and was organised by the Campaign Against Property Tax and Austerity but the logic of standing in an election is to act like a party and even more so if elected.  The failure of the Unite Left Alliance to do so has led to its demise.

The policies above are no way different from that of the ULA, except more limited.  The Left has argued over the last number of years that elections and those elected are there to advance ‘real’ struggles outside of parliament and council chambers.  The last few years have demonstrated conclusively however that it is the other way round – struggles in communities and estates have been means to advance electoral ambitions.  Electoralism is a dirty word on the Left but nothing would appear to describe the method of organising so accurately.

This initiative, the promised first of many, must be judged firstly on its own terms.

The short summary of its aims says it is against austerity and the various taxes that have made up a large part of this agenda.  The anti-property tax has failed so it will have to be explained how standing in elections will bring success.  Otherwise voters are being asked to vote for good intentions.  Councils can clearly not change the policy of central government so how will the taxes and austerity more generally be blocked and reversed?  No concrete and practical way forward is put forward.  Maybe it will be, but if it isn’t then it is purely propaganda.

If the reason for standing is to build the campaign this should be the main point of the programme but even here it should be explained how the campaign will achieve its aims.  Is, or rather was, a mass boycott a road forward given deduction at source?  If not what is the alternative – a mass political campaign aimed at persuading tax workers to refuse implementation of the tax?

What role is there for councils?  Are enough candidates standing to win a majority?  If so what would they do with such a majority?  Can they unite with other similarly minded councils to campaign against the tax?  What powers do councils have to frustrate or prevent this tax or austerity?  Will the new council promote workers control or ownership of council services?  What other steps will it take to promote the democratisation of local government?

If there is no possibility of winning a majority then what role would those elected take?  Will they release all information currently withheld on council activities?  How will they frustrate the local implementation of austerity?

If these questions aren’t put to the fore then, as I’ve said, what we are seeing is purely propaganda.  This does not mean that this aspect should be underestimated.  Even in periods of limited struggle, in fact particularly in such periods, the task of socialists is to try to educate as many workers as possible through propaganda.  Given the very small size of the socialist movement in Ireland this is by far and away its biggest task.  If it doesn’t get this right then the majority of what it is capable of doing is wasted if not positively harmful.

The thrust of the programme appears to be anti-austerity with the alternative being taxation of the wealthy – “for progressive taxation on the wealthy and corporate sector.”  It is also proposed to “End the bailouts of banks and bondholders, instead use the money to create real jobs through a programme of necessary public works.”

I have shown what is wrong with the idea you can tax the wealthy here and here so I won’t repeat my arguments again in this post.  The main problem is that it is not the wealth or high incomes of the rich that are the cause of austerity so even if it were possible to tax both effectively the cause of austerity would persist.  This cause is the economic crisis.  Because the economic system is a capitalist one the elementary task of a manifesto would be to state this and explain it.  Explain exactly how the way the capitalist system works has given rise to this crisis and will create more in future. This would be necessary in order to argue that the alternative to austerity from a working class point of view is socialism.  Explaining what this is would involve is an obvious next step – expropriation of capitalist ownership and workers ownership in its place and a workers’ state in place of the existing state.

Complaining that the programme does not mention socialism is not the problem since the programme is not a socialist one.  If this is the way it is then it is better that it does not claim to be socialist.

The programme proposes ending the bailouts of banks but does not explain how this might be done, the consequences or the alternatives.  Some of these issues are touched upon here, here and here.  How is the debt to be repudiated?  What debt is to be repudiated? How would credit be provided if the banks were allowed to fail?

Anyone who begins to think seriously about what “ending the bailouts” means will have these questions in their head and without an answer they will be open to accepting right wing claims that such proposals are not thought through , cannot be implemented or would be even more disastrous than what we already have.  Dealing with such claims is the important task of propaganda and at this point in time elections are useful means of getting across the message.

In the absence of all this the message put across is a radical Keynesian one, that is a capitalist one.  One that is temporarily more beneficial to working people but one, if followed,that would lead to inflation, wage cuts, unemployment, and calls for reducing budget deficits and tax increases later on.  That’s if it worked in the meantime!

From a political point of view therefore the programme does not assert separate working class politics but, in so far as it puts forward an alternative, puts forward the benign actions of the capitalist state as the solution.  It therefore doesn’t even get to first base in terms of a socialist alternative.  It may therefore be reformist but it isn’t working class reformism because it seems to rely solely on pressurising the state.

In terms of the reformist/revolutionary dichotomy it isn’t even the former since it lacks the courage of its convictions and fails to propose a Left Government for the Dail that could tax the rich and the corporations; burn the bondholders and use the money to create jobs in the public (read – capitalist state) sector.

A socialist programme would explain that fighting austerity is required to defend our living conditions but that this will ultimately fail unless the system is replaced.  Austerity can at best be ameliorated but such is the depth of the crisis it cannot be entirely halted and reversed under the present economic system.

Some will deny this and claim that austerity can be ended without changing the system; that the rich can be made to pay for their crisis and that policies of growth will ensure that this can happen.

On the other side will be those who will claim that austerity is an inevitable result of an economic crisis, which is caused by the capitalist system in its attempts to produce and accumulate capital beyond the conditions that allow it reproduce itself harmoniously.  The excessive expansion of credit is always a feature of capitalist crisis and the bigger the boom the bigger the bust, unless even more credit is injected into the economy in which case the bigger the boom  . . . No amount of regulation or honest government can prevent this without seriously gumming up the capitalist system, in which case you simply have a different sort of crisis with very much the same symptoms of unemployment etc.

On the first side of this debate will be the liberal defenders of Keynes, including their economists and leaders of the trade unions.  On the second, socialists, who can only consistently defend their ideas by understanding and presenting the arguments of Karl Marx, which is the reason Marx wrote ‘Capital’.

A recent post on the Michael Roberts blog has a couple of interesting points to make about these arguments.

He points to research showing that inequality of income reduced between 1910 and 1950 across the OECD (most advanced) countries, which calls into question the idea that capitalist crisis is a result of inequality that progressive taxation could cure.  This period, after all, covers the great depression of the 1930s.

He points to other research that:

“Credit booms mostly lead to financial crises, but inequality does not necessarily lead to credit booms. “Our paper looks for empirical evidence for the recent Kumhof/Rancière hypothesis attributing the US subprime mortgage crisis to rising inequality, redistributive government housing policy and a credit boom. Using data from a panel of 14 countries for over 120 years, we find strong evidence linking credit booms to banking crises, but no evidence that rising income concentration was a significant determinant of credit booms. Narrative evidence on the US experience in the 1920s, and that of other countries, casts further doubt on the role of rising inequality.“

The problem with left solutions that highlight (sometimes more or less exclusively) inequality of income and wealth is that their solutions do nothing to tackle the origin and cause of this inequality.  The Michael Roberts blog points out that “in 2011, capital income constituted 60% of the top earner’s income compared to just 32% in the 1980s.”

The origin and cause is capitalist ownership of the means of production, including its purchase of labour power, its ownership of capital and the money and power this involves.  It is the relations of production in which workers have to sell their ability to work to a class of owners of the means of production that produces the gross inequalities in society.  Redistributing what is already produced, even were it possible, would not overturn this power relationship or the exploitation and oppression involved because it does not get to the heart of the matter.

In a country where little or nothing of this is understood the elementary task of socialists is to explain this to as wide a number of workers as possible and elections should be taken as an opportunity to do so.

So we are back to our question – should this electoral initiative be supported?

To the extent it has been judged as a more or less adequate immediate guide to action or corresponds to the  educational  needs of the working class the verdict would appear to be no.

Perhaps unity could not be agreed between the participants on any other basis and what we see is a campaign standing in an election not a party.  But was any other basis proposed or offered?  Was any discussed or do the participants see no problem in the platform of a campaign being adequate to a programme for an election?

It might truthfully be said that the low level of the programme reflects the low level of Irish workers’ class consciousness but this is not a way out of objections to it, for there is nothing in it to advance Irish workers’ understanding of the cause of the austerity they face or the great changes that are required to defeat it and establish a new society.

The only conditions upon which it would be possible to support this initiative is if it went further in arguing the socialist case or if it raised the prospect of invigorating a section of workers into activity, in which case through this activity they may learn about the roots of their predicament and themselves go beyond the timidity of the anti-austerity campaign.  To do the latter they may have to go beyond the existing Left groups who save what they think is socialism for potential recruits while the broader class of workers they address in electoral material, the purported agent of revolution, are fed re-heated capitalist reforms.

Budget 2013 and the alternative

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6122011-budget-2012-second-day-14-630x491The 2013 budget is going to introduce tax increases and spending cuts of €3.5 billion.  Michael Noonan smiled when holding up the budget document to the cameras while Brendan Howlin looked serious.  Nevertheless RTE reported that Labour TDs were pleased claiming that their fingerprints were all over it.  And so they are.  Their footprints, where they walked all over many vulnerable sectors of society, are also all over the budget.

There has essentially been only one defence of these austerity budgets and that is that the Government has had no choice.  No choice because there is no economic alternative and no choice because the State has lost its economic sovereignty and is basically doing what it is told to by the Troika of European Commission, European Central Bank and International Monetary Fund.

In this budget they have felt compelled to come up with a new defence – it is nearly over. This was trumpeted by Michael Noonan and also claimed by the Labour leader that “It is the budget that is going to get us to 85% of the adjustment that has to be made, and will therefore put the end in sight for these types of measures and these types of budgets”.

This hardly looks credible, which is not good news, because what it essentially means is that the austerity measures implemented have both been insufficient and haven’t worked.  The economy has contracted and stagnated even as the austerity measures have been insufficient to bridge the deficit.

For 2012, the deficit has turned out to be around €500 million larger than planned but because of upward revisions to data from earlier years, the deficit target, set as a percentage of GDP, will still be hit. This assistance in meeting the ‘target’ will not be available in 2013.

At the end of 2013 the deficit will be 7.5% of GDP.  In 2008 (excluding that related to the banking bail out) it was 7.3% rising to 11.5% in 2009. All the austerity budgets have achieved so far is a reduction of 4% – less than half way to eradicating the budget deficit never mind 85% of the way.  Even by 2017 the IMF forecasts the deficit will be 1.8% so the debt will still be getting bigger.

As with all these budgets there have been cuts to capital expenditure with another €500 million reduction targeted for 2013. In 2008, capital expenditure was close to €10 billion. In 2013, it will be under €3.5 billion. Public capital expenditure has been slashed by 66% which wipes out, and more, the so-called stimulus measures announced earlier in the government’s PR/con exercise that claimed to be promoting jobs.  This means the infrastructure of the state, economy and society will disintegrate more or less quickly.

The sheer madness of the austerity agenda is demonstrated by the fact that the €3.5 billion in cuts and tax increases will be wiped out before they are even implemented by the €3 billion payment of the promissory notes for the Anglo-Irish bank, which no longer exists, and repayments of €2.45 billion of bonds for Irish Life & Permanent. On top of this there is the rising interest cost of the debt, which will increase from €5.7bn in 2012 to €8.1 billion in 2012-13.

With the debt increasing, even at a reduced rate of increase, the burden of interest payments on it can only worsen.  This makes the debt unsustainable.  A rising interest burden will be a permanent anchor on growth.  This is a problem because the Government is relying on renewed economic growth to get out of the stagnation now in place.  The weakness of Irish capitalism means that it must rely on outside forces for this growth.  Either that or there is some debt relief to lower the amount of debt and the burden of interest payments.

In the meantime particular groups of the working class will suffer real hardship, living standards will decline or at best stagnate and unemployment will be limited only by continuing emigration.  The stresses imposed on society will be expressed in mounting social problems that will often be presented as a simple increase in personal misfortune while increased inequality will coarsen social relations and further weaken social solidarity.  The absence of any radical perspective will see reactionary prejudice become common currency.

Once again the United Left Alliance has put forward what it states is a socialist alternative.  In substance it is the same argument as that put forward last year but with more detail and some development here and there.  There is no need to repeat the analysis presented earlier in this blog including here, here and here.

The ULA is in no position to implement any of its proposals.  The purpose of the document must therefore be an educational one.  What it teaches is therefore the only useful criterion by which to judge it.

It starts out by claiming to be a socialist alternative and its headline is repudiation of the debt, an end to austerity and the need to invest in jobs and services.  All these are undoubtedly the immediate needs of the working class.  The problems start when we look to see how it is proposed these ends might be achieved.

The ULA “proposes to take the burden of the crisis off working people, improve their lives and revive the Irish economy.”  On the other hand it admits that “the budgetary proposals put forward by the ULA can in no way offer a comprehensive solution to the crisis we face.”  How the first claim is reconciled to the second is not explained.

While the debt crisis “resulted entirely from the actions of developers, bankers and the politicians who facilitated them” it is not explained how this can be reconciled to it being “a manifestation of a deep structural crisis of global capitalism.”  It is nowhere explained what this latter statement means, how it explains what has happened or how it explains what solutions are possible.  The Marxism to which the core elements of the ULA claim commitment is founded on claims to present just such answers but they are not here.

It might, with some justification, be claimed that the precise cause of the crisis is also a cause of some debate within Marxism.  Unfortunately any suggestion that a key task of the ULA might be to debate this out so as to inform the politics it espouses would be held up many as a fetish of sectarian or dogmatic individuals who aren’t interested in practically ‘building the movement’, or some other such boorish remark.  Instead while (dumbed down) Marxism is relegated to recruitment meetings for novices the vacuum that is the politics presented to workers is filled with Keynesian, that is capitalist, ideas that are the currency of liberals and the leaders of the trade unions.

Let us see some ways in which this is expressed in the ULA economic alternative.

First the ULA proposes to improve the lives of working people and revive the Irish economy but there are no socialist measures proposed that would achieve this.  Were the proposals to therefore fail (if by some miracle they were tried) it would discredit what passes itself as socialism while if they were to succeed they would go some way to making socialism irrelevant.

The ULA claims that “the alternative we propose will not be implemented by the current parties in the Dail or by the Irish state.”  Yet it proposes that the Irish State increases income tax on the rich, reduces taxation on workers, introduces a wealth tax, introduces a financial transactions tax, increases corporation tax, takes “full control of the banks”, supports small business, invests to create jobs, embarks on a programme of council house construction, creates a new construction company, renationalises all privatised strategic enterprises and establishes a state owned gas and oil company. It declares that “the ULA believes public enterprise and public works must play the central role to redevelop the economy on a sustainable basis.”

The ULA claims that “radical measures that break with the logic of ‘markets’ are required” but the demands on the state above do not do this while it is claimed these measures will “revive” and redevelop the economy on a sustainable basis.”

“There is a need for active struggles to demand policies that prioritise the need for jobs, public services and growth, using public investment and democratic socialist planning to chart a way out of the current crisis.”  What sort of struggles? For what policies? And who will we demand this of?  How would they deliver on it?  What, who and how?  Where and when don’t even arise given the vacuousness of this string of words.

In other words – as a vehicle for education – the alternative budget, when it is not mistaken, as we have explained in earlier posts, is simply incoherent.

What is clear is that the ULA has no strategic perspective.  It calls for socialist planning, but socialist planning is just another term for working class rule, for the working class controlling society.  Yet it proposes the state, the capitalist state, take action in the here and now to solve the crisis and develop the economy on a “sustainable basis”.

This lack of coherence reveals itself in timidity, contradiction and calls for solutions that have already been the means to subordinate and exploit the working class; as when the ULA calls for “full nationalisation with direct public control of the banks” when it is nationalisation and state control of the banks that has been the mechanism to burden workers with the debts of the speculators.

Even when it calls for “direct public control of the banks” this can as easily be defined as the current arrangements as it might by workers control.  So how does such a demand clarify anything?  How does it educate anyone on what they should fight for?

The ULA is currently undergoing an organisational crisis but its real problems are political.  It argues an alternative that is simply not based on the actions of the working class. It is imperfectly aware of this so it substitutes vague calls for action and acknowledgements that what they are proposing is only temporary amelioration.

There is a possible solution to this problem and it involves debating openly and democratically what a socialist strategy should be.  As I have said such calls are resisted.  It therefore falls to those prepared to do so to engage in such a debate so that we don’t just point out what’s wrong but also say what’s right.

The state of job creation

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In my last post on the politics of the left I questioned proposals on state investment as the answer to unemployment.  In this post I want to look at this further.  The Nevin Economic Research Institute (NERI), an economic think-tank affiliated to the Irish Congress of Trade Unions has published a similar proposal to that of the United Left Alliance (ULA).

Its paper is entitled ‘An Examination of the Effects of an Investment Stimulus’ and its research shows that an investment stimulus of €1 billion would create about 16,750 short term jobs and between 675 and 850 long term jobs.    In the longer term the competitiveness of the economy is increased so that the economy grows, which increases taxation, which more than offsets the interest cost of any loan to fund the investment in the first place.  This means that “overall there is a long-term permanent decrease in the government deficit as a result of an investment stimulus.”  This is what has been referred to often as growing our way out of the crisis and debt problem.  NERI therefore proposes a phased investment stimulus of €15 billion over 5 years.

The net cost per job created, at around €34,500, is nearly the same for both the NERI and ULA proposals.  The paper by NERI sets out more fully its assumptions so it is fair to assume that these are not dissimilar to those of the ULA, which in any case we can also fairly adduce from the ULA proposals themselves.

In order to arrive at its estimates the NERI researchers use an economic model.  Like all models these require assumptions as to how the economy works and therefore how the parameters of various economic variables interact, e.g. how imports will increase given a certain increase in income as employment increases.  This is calculated from historic data from the Irish economy.  The HERMIN model used “combines Keynesian short term features with neoclassical longer term features.”

This is a problem, or rather there are two problems, not perhaps so much for the presumably Keynesian researchers at NERI but for the ULA, whose biggest components claim to be Marxists.  The Marxist analysis of the way capitalism works is very different from the Keynesian or neoclassical one.  Unfortunately, through the budget proposals of the ULA and their similarity to those of NERI, the policy proposals of the ULA display much affinity to Keynesian economics.  We have noted this already in their definition of the problem as being one of insufficient demand, which is also the view of Keynesian economists.

For Marxists this is indeed a feature of the current crisis, indeed of all crises.  Where the difference lies is that Keynesians think that this problem can be put right by state-led investment while for Marxists the lack of sufficient demand is really just one expression of deeper problems but not the fundamental cause of the crisis, which will not be put right by expansion of state expenditure.  This fundamental difference is invisible when the proposals of the ULA and NERI are compared.

For Keynesians the capitalist economy can reach equilibrium, where demand for investment funds and its supply are equal, in a situation where there is nevertheless massive unemployment, both of people and resources.  The autonomous action of the state in increasing investment can solve this problem and bring the system back into an equilibrium that resolves the unemployment problem.  For Marxists state investment can at most postpone the crisis but is not itself an answer.  By contrast the ULA present it as part of the answer.

For Keynesians the autonomous action of the state can provide a solution because the system can reach equilibrium and investment can be the driver of the economy to this equilibrium.  As the Keynesian Minsky puts it –“Investment and government spending call the tune for our economy because they are not determined by how the economy is now working.”  That a model shows state investment to be self-financing when that model contains Keynesian assumptions can hardly be called convincing. Keynesianism believes that “if entrepreneurs can only screw themselves up to do enough investment, it will eventually justify itself, since the income generated will absorb the excess capacity.” (Robin Mathews in ‘The Trade Cycle’)[i]

On the other hand Marxists see this type of statement as an example of bourgeois economists overwhelming tendency to assume that the capitalist economy works like a socialist one; that all production will more or less fulfil a useful role.  After a crisis based on massive construction expenditure that powered a phenomenal boom and then bust, this is just an incredible assumption.  The NERI and ULA proposals are based on further infrastructure spending by the same state that encouraged the last ‘stimulus’. That NERI believes this will lead to long term growth is again built into the neoclassical assumptions of the model.  Neoclassical economics assumes that capitalist markets are totally free and efficient.  A model built on such long term assumptions could hardly show anything else.

Neoclassical economics assumes that production is efficient and finds a market and that growth is the result.  Marxism makes no such assumptions but instead demonstrates the contradiction at the heart of an economy determined, not by autonomous investment, but by the pursuit of profit.  The recent massive overproduction of infrastructure was massively profitable, which is why it continued for so long.  The contradiction between this profitability and real need; the contradiction between the limitless expansion of capital and the limit of the market, was suspended temporarily and resolved temporarily by the expansion of credit.  When this expansion of credit can no longer continue the limits of the market are exposed and massive overproduction , which inevitably involves massive over-accumulation of capital, is revealed.  Keynesianism’s answer is to continue the accumulation because investment will find its own market and in any case can be autonomous within the system, as we have seen.  Marxists believe on the contrary that the accumulation of capital is determined by profit and lack of it may see accumulation shudder to a halt and collapse.

In a contest of economic ideas, between neoclassical economics where crisis are not supposed to happen and are self-correcting when they do, and Marxism, in which overaccumulation driven by super-profits is periodically inevitable, the real world has given a decisive confirmation of the latter. In a contest in which Keynesianism can assume investment creates its own demand and is self-financing and Marxism which points out the contradiction in production between use and profit, the empty office blocks and ghost estates are again striking confirmation of the truthfulness of the latter.  So why oh why would the left want to promote Keynesian solutions?

There is absolutely no reason to believe that a renewed burst of construction spend would not create new imbalances.  Perhaps the left believes that because the state carries out the spend it does not have to earn a profit but this is false for a number of reasons.

First it has to pay for the investment.  If it takes out a loan it will have to pay it back and if the investment does not create tax revenue by promoting further private capitalist investment it will not raise the necessary tax.  In these circumstances taxation would have to come instead from workers or business, which would remove the stimulus that has been created.  If the investment does stimulate or facilitate private investment then this only confirms ULA reliance on the state promoting capitalism as the way out of crisis.

Although the ULA does call for €5.3 billion of state investment in modern industry it calls for much more, €26 billion, to be invested in infrastructural investment.  In fact even some of the modern industry investment is in infrastructure.  Such infrastructural investment is normally not competitive with the main private capitalist industries but complimentary to it, facilitating it to make profits.  By making such spend central to its economic alternative the left, subconsciously no doubt, evidences the inadequacy of its alternative and subservience to capitalism.

An alternative is that state investment is directed to the production of goods and services that people actually need and want and are prepared to pay for.  This would indeed be competitive with private capitalist owned industry but this is not what is proposed by NERI or the ULA.  Instead either taxes or the promotion of private capitalist production through helpful infrastructure is proposed.

In our last post on this we questioned the policy of reliance on state investment given its history of incompetence, even in areas of no great complexity or requiring no great innovation.  The left sometimes excuses this (why?) as the result of subordination of the public sector to private capitalism.  And the answer to this is yes, that is what the capitalist state is for.  It is not for creating competition to private capitalism so why would the left demand that it does?

Even if the specific proposals of the left, in the particular circumstances that Irish workers face, are not practical this is not the main objection to them.  The main objection to them has possibly more force where they actually to work.  For if they worked, even if only temporarily, they would be both a diversion from creation of a socialist alternative and some evidence that this alternative is not needed.  The success of state industry would be the success (temporarily) of state capitalism.

The successful development of capitalism has been facilitated by the state many times and it may be argued that the more recent, and quicker, that development the more it has relied on the state.  This may be true going back through the development of every new major capitalist power from Holland in the 17th century, to Britain in the 18th, Germany and America in the 19th and 20th, the Asian Tiger economies of the late twentieth century and the Chinese of the 21st century.

The socialist alternative is something very, very different from this but the left’s fixation on the power of the capitalist state is strong and we shall look at the question some more.

[i] The quotations above are taken from a new paper that compares the Marxist explanation that the capitalist economy is driven by profit with the Keynesian alternative of the role of investment – ‘Does investment call the tune? Empirical evidence and endogenous theories of the business cycle’ See link.