Taxing Capitalism

Turner’s ‘The Slave Ship’

A press statement by the United Left Alliance last week, just before the Dail went on its long summer holiday, reported on Richard Boyd Barrett of the ULA who  ‘challenged Taoiseach Enda Kenny during leaders questions over the “gross inequality and unfairness” in the manner in which “the pain of austerity policies has been imposed on the least well-off and most vulnerable sections of Irish society, while the wealthiest people in the country have been protected and in some cases have actually increased their incomes.   All the promises in the programme for government about “protecting the vulnerable and to burden sharing on an equitable basis” have now been fully exposed as hollow. The government have constantly claimed they have no choices, that austerity and pain for ordinary people was a tragic necessity.  Only people power, protests and strikes can challenge this obscene injustice.’

Boyd Barrett is correct to tear into the policies of the government, which favour the rich and places the burden of austerity on the rest of us.  He is absolutely right that this is not inevitable and that there are choices.  Above all he is right to demand taxation of the rich in order to press this home so that workers should not meekly accept that they suffer while the rich escape.

In my last post I criticised the ULA’s tax proposals but not for any of these reasons.  They were criticised for the idea that they could really take the wealth off the rich, that this could fund real protection against austerity, that the rich would not fight back and that the state would not help them do so.  Above all they were criticised because they were put forward as being practical, realistic and reasonable because they could be implemented by the state, when in reality all these things are determined by class struggle against the rich and the state. All the points made by Richard Boyd Barrett can be supported precisely because they are all arguments for and within the class struggle.  While I may disagree that “only people power, protests and strikes can challenge this obscene injustice” this difference is one of strategy to be adopted by workers, which is of a different character than criticism of a policy based on explicit reliance on the state.

In such strategy the excuses that the rich will evade tax would be turned against the state to demonstrate its incapacity to enforce a fair and just tax system as perceive by the majority.  The evasion by the rich would then be held up as a reason to demand expropriation of the source of their wealth and for refusing to pay for austerity in their place.

The policy of taxing the rich is not however what really stands out in the ULA taxation policy.  What stands out is the dog that does not bark, for what is most distinctive about tax policy in the Irish State is not its protection of the wealthy but its policy of minimal taxation of corporate profits.  This is such an article of faith of the political system that there appears almost universal agreement that while children, the sick, elderly and disabled should suffer from austerity the richest corporations in the world should be protected from even the most modest changes to their taxation.  The result is that the taxes paid by them have become voluntary contributions to facilitate the pretence that they are subject to rules and laws like everyone else.  Yet the ULA budget proposals simply note that the policy of taxing multinationals at an effective rate of 4 – 7 per cent has failed to develop a sustainable economy.

Some US multinationals pay even less than this.  Two years ago it was reported that Google paid only 2.4 per cent on non-US earnings that were routed through Ireland to Bermuda.  Apple is a pioneer of a tax strategy called ‘Double Irish with a Dutch Sandwich’ which routes profits through Ireland, the Netherlands and onto the Caribbean.  The deliberate lack of controlled foreign company legislation allows the Irish State to collaborate with notorious tax havens to produce such results.  Microsoft was reported in 2005 to have made a profit of over €682m on its Irish subsidiary and paid no corporation tax at all (as did Symantec between 2004 and 2005).  The company at the heart of this tax structure was based in a solicitor’s office in Dublin.  Facebook has five subsidiaries here but only two are required to publish accounts.

These tax structures and systems are not only used by big corporations but also by the world’s corrupt dictators, its non-resident multimillionaires and its international criminal organisations.  The offshore tax system, which should include the tax-dodging activities in Dublin’s International Financial Services Centre, has been described by Raymond Baker of the Washington Global Financial Integrity organisation as “the ugliest chapter in global economic affairs since slavery.”

This massive tax avoidance is central to the Irish taxation system yet it is ignored.  There are no proposals to raise the headline tax rate, not even for Irish companies many of whom pay no corporation tax either.  No proposals for controlled foreign company legislation, steps to tackle transfer pricing or suggestions to close tax breaks for holding companies.  All the ULA proposals are aimed at individuals not business or corporations. Why?  Why is there no proposal to increase taxation of multinationals?  Or proposals to tax the IFSC through which billions are routed in speculation every year, the sort closely associated with the recent global financial crash?

Perhaps the reason is revealed by the justification given by the Revenue Commissioners for continuing with a policy of encouraging corporations to set up their Headquarters in Ireland even though they recognise many pay no tax.  They justify it on the basis that these companies may increase real investment later.  It is therefore not just fiscal policy that is predicated on minimal corporate taxation but what is laughably called industrial policy, in fact the whole hope of economic growth to get out of the current slump. In essence the reliance on foreign investment is a testament to the continuing failure of native capitalism and a profound expression of its weakness.  On this weakness has rested a weak working class and on it sits a weak left, unable to present a convincing policy of taxing multinationals lest they pack up and leave and add perhaps another 100,000 or so to the ranks of the unemployed.

Would this be the result of an increase in corporate taxation?  The truthful answer is that this would probably depend on how much it increased.  Multinationals locate in Ireland for many reasons including market access to the EU, a relatively skilled and compliant workforce which speaks English and a general pro-business environment.  The left can hardly claim that increased tax will not endanger the location of these multinationals because it cannot credibly claim that it would support the continuation of a pro-business political environment which, among other things, ensures the exclusion of union organisation in most multinational plants.

Instead the ULA concentrates on income taxation and in doing so proposes measures that are radical only quantitatively but not qualitatively, in other words they are not in themselves socialist measures.  Proposals for increased taxation of the rich have to some degree gone mainstream, supported even by millionaires, conscious of the need to fund their state.  A financial transaction tax has been supported by Bill Gates and increased income tax by billionaires Warren Buffett and George Soros.  Of course the support of the rich for increased taxation goes nowhere near where the ULA would go.  It should however also not be forgotten that in Ireland as recently as the 1980s there was a marginal tax rate including PRSI of 72.5 per cent. In the US during the cold war a tax rate for income ranged up to 92 per cent and was still as high as 70 per cent in 1980.

In other words taxation does not get to the heart of the matter and the way in which it does not was explained by Karl Marx in his ‘Critique of the Gotha Programme’:

“it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it.  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 labour 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?”

What matters fundamentally then is the mode of production.  The ULA concentrated in its budget statement on measures purely to do with distribution.  It did however raise the question of production and the way it did it will be looked at in the next post.

 

Taxing the Rich

In its 2011 budget statement the United Left Alliance (ULA) pointed out that while unemployment and taxation of workers had gone up, net financial assets of households had increased by €45 billion between 2008 and 2010, which meant that while many workers’ living standards were taking a hammering the wealthy in society were actually getting richer.  They therefore called “for a radical shift in taxation policy so that those with the real wealth pay according to their ability to pay.”

We all know the arguments against such a policy – higher tax rates, especially for those at the top, will discourage work, investment and business creation.  It would be tempting to dismiss such arguments except that Marxists believe that it is profits that regulate the operation and performance of the economy.  Surely reducing the returns to profitability would reduce capital accumulation and economic growth?

Research has shown however that the massive reduction in top tax rates in the English speaking world has not led to improved economic grow compared to countries without similar tax cuts.  The reduction of top tax rates, which were over 70 per cent in the 1970s, by over 40 percentage points in the US and UK has not witnessed any more impressive growth there than countries which have not reduced the rates by such enormous amounts.

This could be because high tax rates are not  the disincentive claimed, that those affected are often not capitalists, that most profits are reinvested and not subject to income tax anyway, and that profits are determined by much stronger and more fundamental forces than taxation of individuals or taxation in general.  Many people believe that those earning astronomical amounts of money simply want more of it because they are greedy, obscenely status conscious and engaged in grotesque exhibitions of conspicuous consumption.

The ULA has put forward plans to raise taxation on the rich in order to “use the money for a state funded programme of job creation.”  They state that the top 5 per cent hold 46.8 per cent of all wealth and have total net financial assets of €219.3 billion.  These figures are taken from Credit Suisse ‘Global Wealth Report’ in November 2011.  Elsewhere they quote a figure from the Central Statistics Office which estimates total net financial assets of €117 billion in 2010. If we assume non-financial assets (property) as 53 per cent of the total this would give a total wealth of €249 billion and that of the top 5 per cent at around €117 billion, over €100 billion less than they calculate from the Credit Suisse report.

It should be kept in mind that all economic statistics are estimates and subject to all sorts of errors.  One thing they are not is exactly right.  The Central Statistics Office has revised its GDP figure for last year by €2.6 billion while the Department of Finance double counted and found itself €3 billion better off.  How much more is this the case when the very rich seek to hide as much of their wealth as possible, which varies as the various markets go up and down, including the stock markets and currency markets. Looking at the Credit Suisse report I calculate the wealth of the top 5 per cent at ‘only’ €185.7 billion instead of €219.3 billion.

One more check available that I am aware of is to look at the ‘Wealth of Ireland’ report published in 2007 which recorded it at the height of the boom.  If we assume a fall in property prices of 50 per cent and its estimate of the share of the top 5 per cent at 40 per cent we arrive at a figure of almost €206 billion.  This however excludes the fall in value of shares, which dropped by 47 per cent between September 2007 and November 2010.  If we assume that equities were 40 per cent of financial assets the value of wealth becomes €188 billion.  This discussion only goes to show the uncertainty involved.  We will therefore go with the ULA budget statement number of €219.3 billion without any illusion that it is exactly right.

The ULA proposes an annual wealth tax of 5 per cent which would bring in roughly €10 billion a year (219.3 times 5%).  It also proposes that those earning over €100,000 should have their taxes increased.  These people, it says, have a total income of €20 billion and paid €4.86 billion in income tax.  This should be increased by a further €5 billion.  The ULA also sets a target of an additional €2 billion to be taken from the super-rich tax exiles.  Thus an extra €17 billion would be raised per year which, allied with refusal to pay for the bank debt, would be used to reverse cuts in social welfare, abolish the Universal Social Charge, increase tax credits for workers and reverse cuts in health and education etc.

There are five reasons why this won’t work

Firstly the sums involved.  The proposals above, where they to come in on plan, would raise €17 billion yet the budget deficit in 2010 excluding the bank bailout costs was €17.4 billion.  There would therefore be no room for closing this deficit while also funding the state-led investment programme of over €5 billion per year, which the ULA statement said was to be partly funded by tax increases. This also ignores reversing the €12 billion of cuts etc. which took place before and during 2010 in order to arrive at a deficit of ‘only’ €17.4 billion at its end.

The second is the nature of the wealth. Roughly half the wealth is in financial assets and half in property.  The financial assets will be in cash and bits of paper like shares which can be sold for cash.  To turn this wealth into money that can be used to pay workers to provide services, reverse workers’ tax increases and procure services it will be necessary to sell these bits of paper after the wealth held as cash is exhausted.  The value of these bits of paper, such as shares, may very well fall if a lot are sold at one time or it is known that they cannot be held and sold at what might be considered by their owners as the most favourable time.  The value they are held and valued at may therefore be greater than what could be got in a sale.  Everyone is familiar with this because of NAMA and the property collapse.  How much more of a problem is this for that half of assets which is property?

And there is an additional issue.  Who would the State sell these assets to?  Workers, self-employed, farmers and small businesses are in no position to buy these assets.  In fact only Irish and foreign rich would be in a position to buy.  But when we consider this for a moment, how would the Irish rich afford to buy these assets when these assets are being taken off them in the first place?  This leaves only foreign capitalists.  Putting it like this, selling off Irish assets to foreign capitalists to finance State expenditure doesn’t look too much different from what the Governing parties want to do.  Perhaps it is proposed that they too are taxed on Irish assets, in line with the policy on taxation of Irish assets held by tax exiles, but this then only puts them in the same position as the Irish rich.  Why buy assets that are going to be taken off you in tax?

Making the most simple assumption that a wealth tax would remove an equal amount of the wealth each year, with a wealth tax of 5 per cent the total wealth of the rich would be cut in half in ten years.  Ten years later it would be gone.  Even with wealth growing at say 2.5 per cent a year, and a wealth tax that took 5 per cent of what was left from the previous year, the wealth of the rich would still be halved in less than 23 years.

In other words this is not sustainable and anything not sustainable collapses long before the final step is taken.  An unsustainable tax base based on property is replaced by an unsustainable tax base constructed on wealth taxation.  The ULA proposes that those earning over €100,000 pay an additional €5 billion in taxes above the €4.86 they are currently paying, on a total income of €20billion, doubling their taxes and moving to an effective tax rate of half of income.  The ULA give the example of the top 0.5 per cent who have a current average after tax income of €400,000 each, which after the implementation of the ULA proposals would reduce to €166,000 each.  This is a reduction of 58.5 per cent in income.  This won’t work because of reason four.

The ‘Sunday Independent’ rich list published in March this year records that the richest man in Ireland is Pallonji Mistry, an Indian tycoon with Irish citizenship, worth €7.4 billion. How long does anyone think he would hang around if he thought the Irish State was going to take half his wealth off him within ten years and reduce his income by nearly 60 per cent?  How many others of his fellow rich would do exactly the same as him?

The ULA have said they have plans to get €2 billion extra out of Irish tax exiles and propose various measures to get this €2 billion.  Unfortunately they have said that “it is impossible to predict the revenue which would be generated by the above measures” which is tacit acknowledgement that they have little confidence that these measures could be effective.  They refer to the US and its expectations that its citizens will pay US income tax on earnings abroad but the Irish state is not the US state.  It says that its demands are reasonable but whether workers believe them to be or not, the rich do not and become tax exiles to avoid tax.  They will not be swayed by ‘reasonable’ demands that they pay up and the ULA knows this.

The ULA has said that even if such people move liquid assets out of the country, as will non-exile tax payers, the tax can be taken from the value of their fixed assets in Ireland.  But this leads us to the problems involved in reason two above.  The idea that the wealth of the rich can be taken by taxation is fine only if one believes that they will not resist with every weapon in their armoury.  The budget statement mentions that there is an investment strike by private investors as if it were some wilful act and not a perfectly rational response to the recession.  Yet serious attempts at taxation of the rich really would produce wilful acts and private investors would use their ownership of assets to reverse investment and sabotage the economy.

Marxists have always been aware that in the class struggle the capitalist class have usually demonstrated much higher levels of class consciousness than workers and their superior organisation will see them able to avoid a great deal of taxation, especially when it becomes worth it.  Their success in this is guaranteed by reason five.

The ULA have stated that “it is a matter for government which has Department of Finance, Revenue Commissioners, Central Statistics Office etc at its disposal to devise legislation to reach the target revenue of 10 billion from the top 5 % and that, in particular that the homes, farms and pension funds of those outside the top 5% be exempt.”  But this is the State that has given rich tax fraudsters two tax amnesties on top of all the various tax incentives and loopholes!

As a Marxist I believe that the state is an instrument to defend and protect the capitalist class, that it is therefore a capitalist state.  I believe that the bail out of the banks even at the cost of bankrupting the state itself is testament to how far it will go to do this.  The recent history of attacks on the working class in order to spare the rich are further examples and are the result not of a policy whim that can be changed but a result of the structure of the state, economy and society.  The proposals of the ULA rely on all this being mistaken.

I remember listening to Today FM and an American writer on financial affairs, whose name I did not hear, being interviewed about the situation in Ireland.  He remarked that Ireland was no more corrupt than many other countries but that what really set it apart was that no one ever seemed to get punished for all the corruption.  Yet the tax plans, and others, of the ULA depend not only on the Irish State not defending the rich but instead actually defending the working class.

The taxation proposals of the ULA are clearly presented as eminently reasonable and practical.  However what is reasonable is decided by class struggle and class struggle means they are not practical.

Default on the debt – part 3

How would a policy of default be implemented?  There might appear to be two ways for this to be achieved.  The left could demand it as part of a manifesto to win a majority in the Dail whereupon this majority would implement the policy.  This is however neither immediately realistic, practical nor will the Irish State allow workers to use the machinery of the State to challenge the capitalist system, which is what a left default would represent.

The second is that we think pressure can be put on the existing State to repudiate at least part of the debt and lessen the demands for austerity.  The Irish State already wishes to get concessions from the EU and ECB but on a very limited scale and with all the strength of a beggar asking for change.  However no amount of pressure will get the Irish State to break with the EU, IMF or the US.  If any significant concessions are ever offered it will only be in response to either recognition that the interests of European capitalism as a whole, or the Euro project, is threatened (which is why we now have the latest deal)or if a socialist movement threatens to do more than repudiate the debt. We are nowhere near the latter situation and it is not the current perspective of the left, which is the subject of these posts.

From a Marxist perspective repudiation should not be sought in order that the existing capitalist economy should grow, although that is a better capitalist alternative for workers than the existing policy – if it could work.  It should be part of a strategy of assisting the creation of a working class alternative that will ultimately overthrow this economic system and the state that defends it.  We should not seek salvation from a Keynesian alternative that seeks to grow the capitalist economy because Keynesianism seeks only to postpone austerity and to effect wage reductions through inflation.

The role and place of the demand for repudiation must therefore be dependent on the stage of development of the creation of this workers alternative.  We are neither at a point where the majority of the population actively seeks repudiation of the debt or even believes it a necessity and nor are we at a stage where a large movement is building up support for such a demand.  Most importantly we are not at the point where the working class in in a position to reject the necessary laws of capitalism and present itself to society with a new alternative.  By alternative I mean not absence of debt through repudiation but an alternative to the capitalist system, of which debt is a symptom.  And by ‘present itself’ I mean not promises that things will be better under socialism, but be in a position to show actual examples of workers power in the economy and society. The demand to repudiate the debt is therefore currently limited to an educational role, a propaganda role.

This does not mean that it is unimportant. The argument on debt is important in supporting opposition to austerity, which is the only way at present that workers can actually counter the effects of the debt and in effect seek their own means of repudiating it.  It plays a role in persuading workers that ending austerity is not only desirable but possible.  The wider and deeper the opposition to austerity the more convincing this argument will have to be.  The wider and more successful opposition becomes the more other elements of the programme become important, but we will take these up one by one as we proceed.

In relation to debt repudiation socialists are regularly challenged on the effects their proposals would have on the workings of the capitalist economy.  It has already been claimed that repudiation of the debt would lead to a flight of capital and virtual collapse of the banking and credit system and that, absent outside help from those just told to take their losses, it would lead to severe economic dislocation.  The crisis would intensify across Europe and beyond and lengthen and deepen the recession.  The reputation of the Irish State as a haven for multinational business and as a site for financial speculation would be in tatters.  The loss of capitalist confidence on its own would increase unemployment.  This of course does not affect in the least the purpose of our demand for debt repudiation, which is to win workers away from acceptance of payment for the crisis and for the debts of the State.  As we have seen above, we do not actually currently control any mechanism to repudiate the debt.

Nevertheless the arguments against repudiation of the debt and the effects such repudiation would cause are not false, they are not a lie, or a simple blackmail because in large measure they are true.  Repudiation of debt by a Russian or Argentinian government determined to get back into the markets by assaulting working class living standards do not provide the model for a working class default beyond countering arguments that it is in itself simply impossible.  While for socialists they do not outweigh the necessity to persuade workers to take no responsibility for the crisis they do expose the need not just for a socialist opposition but for a socialist alternative.

For Marxists, as we have said, the achievement of socialism is based not on sound and logical argument but on necessity.  If the socialist alternative is not practical then it will not succeed and will certainly not win the working class to take it up as its own programme.  This is the underlying reason we pointed to for the defeat in the referendum – that we are as yet far from having a real alternative – practical ,immediate, in place right now, contesting for hegemony because it is widely if not yet universally recognised as a real, potential, living alternative.

Sine this alternative is the working class taking ownership and control of the economy, the state and society as a whole we have to answer a very simple question today, right now: is the working class poised to take ownership and control of the economy to counter the sabotage of the capitalist class as we repudiate the debts to its big cousins in the European Banks?

That is the working class as it presently exists in reality; not an idealised one that resides in books or in abstract slogans, but the working people in your street, your neighbourhood and your workplace?  Have they been readying themselves to take over the running of the economy and the state; have they already taken over, or are in control of some workplaces?  Are they perfecting their organisation?  Have they been debating the necessity to do so, the requirements of doing so, the burning necessity to do so – to carry out a veritable revolution?  If not then we currently have no answer, or no practical answer, to the capitalist charge that what we propose, if implemented right now, would simply cause chaos.

That we, the working class, are not yet ready to take over society is obvious because we can see this every day if we live within working class communities and work alongside other workers.

A fatal answer to this current weakness is to seek salvation through a non-working class solution which at first glance might look more ‘practical’ or ‘realistic’: calling on the State to do what can only be done by workers.  Calling for nationalisation when what we stand for is ownership and control by the workers, not the capitalist state.

Instead of such ‘short cuts’ to a different destination Marxists recognise that we need to put forward a comprehensive programme that addresses the needs and interests of the working class and that repudiation of the debt, which is not even a specifically socialist measure, is only one element of this.  It is necessary to place any specific demand within an overall programme that represents a real alternative.  This does not mean that we need always to proclaim a veritable shopping list of demands or that specific and often very limited struggles and demands are not where we really are at.  It is to understand and be able to explain how any particular struggle fits within a global alternative.  As we have said, this alternative must assume a living corporeal reality to count as a real alternative and not simply a logically coherent programme.  The beginning of a living alternative based on a coherent programme is defending the working class by supporting its resistance to austerity and renouncing its responsibility for the causes of the austerity.  Only on such resistance can an alternative be built.

In addressing the austerity inflicted to pay off the State’s debt the left has recognised the necessity for a wider alternative by calling for the continuing budget deficit to be made whole by progressive taxation of the rich.  In our next post we will look at this part of the left alternative.

One more issue merits being addressed in the context of the Marxist approach to the state’s debt.  This is the call for an audit of the debt.  The burden of the bank debt was placed on the workers’ shoulders in order to pay bondholders, but who are or were these bondholders?  Who got paid in full or is awaiting payment that is a hedge fund used by the fabulously wealthy who bought the bonds at a huge discount or who already had insurance for default?  Who is the recipient of this huge transfer of wealth from working people? This is an elementary demand and is not an alternative to repudiation.

For example, what if we found that it was a workers pension fund that held the debt?  Then we could say to them – let’s talk about what effect it would have on your pensions of us not paying this debt.  What arrangements could we come to which would recognise the legitimate claims of both sides?  What if this pension fund was privately managed and subject to the normal charges by its managers which excluded the control of its members or even knowledge of what mangers were doing? Then we might say – ok, we recognise that we should not deprive you of your pensions but we have no obligation to fund the huge charges that allow the financial services industry to pay its managers and bosses salaries and bonuses that are counted in the millions.  We will take ownership of our debt if you, the workers of this pension fund, take ownership of this fund and do not use it to speculate against the living standards of other workers.

Such a debt audit is thus not a call for justification of the debt but becomes a call to action – a workers’ enquiry to determine its ownership and its beneficiaries now and in the past.  A call to action to repudiate what is not legitimate in our eyes and accept what we believe is legitimate by demanding the actions that make it so.

The argument will come back that this debt is subject to rules of confidentiality that are imposed by market exchanges in foreign countries.  Ok then, the debt we still owe should not be paid until we know who we are paying, that it is the appropriate amount and does not involve an unfair redistribution of wealth from workers to international spivs.  If the bondholders have already been repaid we still want to know who walked off with our money since we are still paying for it and we weren’t asked for permission in the first place.

The demand for an audit is a demand for the books to be opened on international finance and is the first step to taking it over.  The very first step in this would be bank workers doing a ‘Wikileaks’ and releasing all the emails and documents relating to the debt guarantee and repayment.  What an education that would be, especially the howls of condemnation from the powers that be – despite this being our money that is being paid over, our banks that we are supposed to own and our Government and State which are supposed to be defending our interests.

The demand for an audit is entirely legitimate; it is the first step to control and to demonstrating the legitimacy of repudiation.

Default on the debt – part 2

This post was largely written before the latest initiative of the EU, which has been hailed by Government parties as a major breakthrough for Ireland although we can be confident there will be no slacking in the austerity programme.

The devil in these deals is always in the detail, or so the cliché goes, but this is only partially correct.  The deal will also do little to reverse the austerity agenda in Europe, which is the big picture, and without this the crisis in the Eurozone will not be resolved.

The plan appears to involve the funds in the European Stability Mechanism going straight to the banks instead of the National State beforehand, thus avoiding the immediate burden on the State through increased sovereign debt and pressure on interest rates.  This was demanded by Spain and Italy and Germany has backed down.

The Irish now hope to piggy-back on this to get similar treatment, except this approach would have to be applied retrospectively as the EU demanded exactly the opposite in the Irish deal.  Since the Irish State owns the banks the debts of the banks are the debts of the State, which workers are expected to pay.  Michael Noonan has claimed that when the EU takes over lending to the Irish banks it will take over the asset side of the banks as well, in other words it will own them.  Whether this would involve the EU owning the shipwreck that is Anglo-Irish and Irish Nationwide is an open question and the deal may mean no more than extending the repayments and a little lower interest rate.

In any case socialists must exploit any concession to demand more, as the post below argues, and should draw attention to the concern in the EU statement about the sustainability of the Irish debt to demand that it be repudiated.  The post below is mostly about the tactical way this may be put forward and is therefore timely.

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So what should socialists demand now?  Should we demand repudiation of all the debt even that incurred before the economic crash?  What would be the rationale for this?  Should this include the debt currently being piled up to pay for day to day expenditure on public services?  Should we limit our call to repudiation of that part of the debt that is a result of the bank bailout, or add to this the pension savings wasted on buying the banks?  Who do we take this latter money from since it involves an arbitrary decision on who the state would otherwise have borrowed from instead of using the pension reserve?  In other words default on a sum of money that wasn’t actually borrowed!

It might be that some socialists believe that it is a betrayal of the working class if we do not always demand repudiation of all the debt, although these socialists would still be ignoring costs of bailing out the banks that didn’t result in debt creation while including repudiation of debt that had nothing to do with the banks.

But this brings us back to our point about socialists more or less ignoring the private debts bearing down on workers while not demanding that they be defaulted on. Is this a betrayal of the working class also?  One possible answer to such a charge is that to seek this as well would be to conflate two questions, that of the burden of debt generally and of the specific austerity drive resulting from the explosion of State debt in particular.  This would seem to me to be a valid argument.   It has to be recognised however that in making this argument we are making a political judgement.  It is not primarily about the absolute effect of debt on workers.  It is not a moral argument.

It should therefore be accepted that it may also be permissible to demand repudiation of the bankers’ debt while not believing that it is politically best at all times and in all places to call for rejection of all the debt.  This might be because doing so might no longer allow particular emphasis to be placed on the argument about acceptance of the bankers’ debt.  While it may be claimed that the huge deficits incurred, and to be incurred over the next number of years, are more or less a direct result of the bankers and developers crash we would be obliged, if we accepted this logic, to still accept payment of the debt that was not the result of the financial crisis.

In the end however the left must accept that whatever the advantages of propaganda in opposition to the debt of the bankers, or specifically on the promissory notes, this can really only be a matter of presentation for propaganda or educational purposes.  It cannot represent a deeper policy or strategy.  If successful this approach would anyway have to recede and give way to stronger arguments if it proved successful in winning workers to reject paying the debt.

To agree that the debt created by the budget deficits are simply an indirect result of the banking crash, if not the direct result of assuming banks’ gambling debts, means not explaining what has just happened.  This crisis is not ultimately the result of gambling debts but an abnormally large crisis of overproduction which is a form of crisis that is anything but abnormal in capitalism.  In other words the deficits are the result of a capitalist crisis and socialists should not be diverting workers from this fundamental truth by claiming it is the result of individual bankers or individual banks.

This is also true of the direct debts of the banks themselves that the left has prioritised.  In the last analysis the irrationality of the behaviour of Anglo-Irish and Nationwide banks etc is simply an expression of the irrationality of the system as a whole and it is this we want workers to learn.  The obvious greed, recklessness and stupidity of the individuals and banks involved must be held up as typical examples of the whole rotten and bankrupt system not particularly egregious exceptions.

So if we highlight the direct debt of the banks as the centre of a campaign to repudiate the debt this in no way means acceptance that workers have a duty to pay any of it, any more than we think workers should take responsibility for any other result of a capitalist economic crisis.  It is a matter of what we think are the political demands that will allow workers to come to an understanding of the causes of the crisis and mobilise in their own defence.  This is the decisive criteria for determining the demands that socialist should raise in respect of the debt. It is a tactical decision how we raise the question of debt repudiation, although it’s only a question of tactics if we reject responsibility for any of it.  It is rather like prioritising resistance against some particular item of austerity while not thereby accepting any of it.

We are not at the point where we can realistically hope to build a movement on the basis that workers do not accept any responsibility for the actions of the Irish State.  Identification with this state is derived in no small way from nationalist and bourgeois illusions in its legitimacy.  So the point is to break these illusions, not engage in political projects that assume they have already been erased.

If we believe that the debt is still so large after repudiation or amelioration of the bankers’ debts that the austerity demanded to repay it, or to narrow the State’s budget deficit, will still cripple workers then it would be wrong to accept this debt.  In this case it might be necessary to use the fight over the bankers’ debt as only one step to challenging payment of any of the debt.  (This might be the opportunity provided by the latest putative deal)  We would then be making clear that workers face a choice – acceptance of the legitimacy of the state’s demands or the legitimacy of their own needs.

Arguments around the origin of some of the debt arising from the banks would then play a subsidiary role to the contention that we simply can’t afford to pay these debts and will not pay them.  These arguments however might greatly assist this larger purpose.

This is the situation we are now in.  The level of debt is simply not supportable and the word restructuring will be applied where the word default would be more accurate.  When this happens it should be exploited to discredit the whole exercise, especially the bank bailout, and to push forward the demand for further debt repudiation.

This brings us to what the status of this demand is: why do we demand it and what role does it play in our socialist alternative?  After all, repudiation of the debt is not in itself a socialist demand.  Two of the most recent defaults have been by Argentina and Russia and neither of these were part of a socialist project but rather part of a policy that inflicted deep suffering on millions of workers.

We demand repudiation because of the suffering it inflicts and because if it is accepted workers cannot be in a position to create their own alternative.  We demand it because it puts the needs of workers before the demands of the capitalist system.  We demand it to give workers the opportunity to break with their illusions in ‘their’ State, whether derived from nationalist beliefs in the legitimacy of the nation state or illusions that the state is democratic and legitimate.  If this can best be approached today by putting to the fore the debts being paid on behalf of the banks then this is legitimate and appropriate.

Default on the Debt – part 1

The key argument of the Yes side in the Austerity referendum was that if there wasn’t a yes vote the state would lose access to the European Stability Mechanism (ESM) needed for a potential second bail out and the ATMs would run dry.  Much of the No campaign responded by saying that we could get access to the ESM, especially if the Government made this a condition of supporting the Treaty changes necessary to allow it to come into force; that the EU had promised to continue to support the Irish State; that anyway it could get money from the existing European Financial Stability Facility until June 2013 or it could access funding from the IMF.

You should know you’re in trouble when you’re putting forward the IMF as a solution.  Just what would the IMF or the EU, or anyone else in a position to do so, ask for in return for a new loan but more austerity?  As an alternative to austerity a new loan made about as much sense as another pub crawl for an alcoholic.

The alternative put forward by the left, which did not feature enough in the campaign, was defaulting on the debt so that the necessity for getting a new loan and suffering austerity to repay the existing ones was reduced.  The argument put forward for this was clear, logical and appealing.  We, the workers, should not pay these debts because these debts were not ours to repay.  We didn’t take out the loans so why should we pay them back?  The gambling debts of the bankers and property developers are theirs to repay.  If European banks were stupid enough to lend money to stupid and reckless Irish banks that lent to stupid and reckless developers then the rules of capitalism say that you take the downside of the risk which you claim justifies your reward.

But there is a problem.  Actually there are two problems.  The first we dealt with in our post on the referendum result.  Most Irish workers knew these arguments and enough of them either discounted them for what they thought were stronger ones or didn’t think they could challenge the forces gaining from paying off the debt – the bankers, developers, Irish State, EU, IMF, US etc.  In our article we stated that in an important way they are correct.

Marxists believe that it is not ideas that fundamentally shape the world but the economic and social forces that shape peoples’ lives and also shape their world view.  No matter how good a Marxist argument or idea is, if the capitalist reality is not challenged by a stronger reality the Marxist argument or idea will not prevail.  This is what the referendum result taught us.  The lesson is that we must create a new reality, one based on working class economic, social and political power if we are to hope to win battles like the austerity referendum and ultimately overcome capitalism.

But this also has implications for the Marxist argument itself.  For if political ideas and arguments are   ultimately only as good as their correspondence to reality and this reality does not currently allow victory for the working class then in what way is the argument presented above deficient?  We should want to know this so that we can clarify our arguments and our programme the better to fight for our ideas inside the working class and help create this new reality.

This does not mean we abandon our ideas but rather understand that to the extent that they do not engage the working class they lack power and to the extent that they do not represent the interests of the working class they will never represent their power.

When we call for repudiation of the debt, what do we mean?  In 2011 total debt equalled 494 per cent of national income, which at the end of the 2010 was roughly €129 billion, so that the debt was roughly €637 billion.  Paying off all this debt, even over 25 years, would lead to a depression which would make the 1930s look like the Celtic Tiger.  No one is seriously suggesting it.  In fact no one would even think of it.  This obvious inconsistency of treatment between public and private debt is a question not just for the ideological advocates of austerity but also for us.

I recently attended a meeting at which I asked why Marxists saw public debt as so very different from other debt, as do the ideologues of the right.  The best answer I got was that there was an assault on working people and their social wage as a result of the government’s austerity agenda which focussed the fight to defend working class interests.   And all this is true.  But it is also true that the financial crisis is not just one of the insolvency of the State but also of the banks which have lent to workers and to businesses.  It is a generalised economic crisis in which the debts of the state are smaller than private debt held by households and businesses.  The share of debt belonging to the State last year was roughly 28 per cent of the total, that of households 30 per cent and of businesses 42 per cent.

Such is the level of indebtedness of the Irish economy that ‘deleveraging’, or paying down these debts, is a necessary part of the system returning to some sort of normality (whatever that is).  There has therefore been a credit crunch and businesses have complained of difficulty in getting loans and those wishing to buy houses, even in seemingly sound financial circumstances, have also found it extremely difficult.  The austerity imposed on households and businesses, just like that imposed to solve the State’s debt crisis, has led to unemployment, reduced incomes and the very real threat of repossession of homes.  These are consequences every bit as severe as many of the measures required to reduce the public debt.  Yet are there calls to repudiate the debt of households, the self-employed and small businesses?  Why not?  The consequences for working people, as I have said, can be equally dramatic.

This may seem an abstruse, pedantic or simply irrelevant point in the context of a political campaign against austerity imposed by the government but I want to make a point which is relevant to it, even ignoring for the moment the issues raised by the exploitation of working people by their entanglement in private debt.

The argument that has been employed by the left has been that workers should not pay for the debts of the gambling banks.  This is a powerful argument that has robbed many of illusions in the current arrangements, albeit they do not see it as being the result of a fundamental flaw of the capitalist system and as yet see no alternative, certainly not one that rests in their own hands.

When the crisis exploded in September 2008 the left denounced the proposed bail out of the banks with workers’ money given with the blanket guarantee.  Even capitalist commentators were simply astounded at its generosity to the banks.  But it went ahead.  So what part of the existing debt is now a direct result of bailing out the banks?

There are different figures for the debt quoted by different authorities at different points in time and having very accurate figures depends on the assumptions made, for example whether to include potential losses in NAMA or whether there are further losses coming down the track from the banks.  All this is very important but not for our purposes where tolerably accurate amounts are only required to make the point.  Before the crisis the debt was €47 billion.  Annual budget deficits between 2008 and 2015 will have generated around €99 billion of borrowings and further borrowings of €13 billion were held in cash at the end of the year.  On top of this the bank bailout will have cost €47billion, making a total debt of €206 billion. (Figures from Seamus Coffey in ‘What if Ireland Defaults?’, Orpen Press 2012)

On the other hand the economist Karl Whelan on his blog has stated that the total outlay and commitments to the bank bailout will be €63 billion.  It is not necessary to try to reconcile the two amounts since they are not measuring the same thing.  For example Whelan’s total includes €20.7 billion invested in acquiring ownership of the banks using money from the National Pension Reserve Fund.  It is a cost of the bank bailout but it did not in itself result in creation of debt.  The state spent €28.1 billion buying shares that Whelan believes are scarcely worth €9 billion now, which will be a loss to the taxpayer but also not a debt.  This underscores the reality that while socialists opposed the bank bailout of September 2008, its implementation  has resulted in losses which have already been paid by workers but do not sit as debt on the State’s balance sheet.

Some of the cost is still in the process of being foisted on the working class taxpayer, such as the €31 billion of promissory notes to ‘save’ a dead bank, Anglo-Irish, now renamed the Irish Bank Resolution Corporation.  In reality the only people saved have been its bondholders.  We now have to pay the money back through tax increases and expenditure cuts which will generate the money to fund payment of the promissory notes to the local branch of the European Central Bank, the Central Bank of Ireland (CBI).  The CBI lent the money to the State to save these bondholders in the first place and will, when it is paid back to them, ‘retire’ the money, or burn it (figuratively speaking).  So much for the rationality of capitalism.

So when socialists say repudiate the debt of the bankers this neither includes all the debt nor all the cost of the bailout.  When it is demanded that the bondholders be ‘burned’ the boat has really been missed on this one.  The bondholders have been saved and the working class of Ireland has had its pension savings robbed and been saddled with enormous debt.