Tag 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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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.