Diego Rivera: ‘Detroit industry’ (1932-33)

Social democratic corporate management?

There is no common political interest between the working class and productive capital, writes Mike Macnair

This is the second part of my reply to Arthur Bough’s critique1 of my November 2015 two-part article2 on the question of government. Last week I addressed some minor points, and at more length comrade Bough’s attempt to argue from the ultimately determinant character of production to his claim of a necessary dominance of industry over finance.3

This week I am concerned with the general phenomenon of statisation of capitalism, and its persistence in spite of the ascendancy of free-market ideologies since the 1980s, and whether this persistence has to be explained by the supposed dominance of industry over finance; with the closely related question of whether the Labour Party and similar parties are to be characterised as political representatives of industrial capital, as opposed to the Tories and similar parties being representatives of finance and small capital; and with the questions of ‘ownership’ and the legal form of the corporate firm.

As I said last week, comrade Bough’s argument is that Marxists should support advocacy of consistent social democratic policy, on the ground that by strengthening industry at the expense of finance this will strengthen the position of the working class; while as Marxists arguing for the replacement of state operations by cooperatives, especially producer cooperatives.

His arguments about the dominance of industry over finance are offered as support for the realism of pursuing a social democratic policy to strengthen the position of the working class. His arguments about ownership and the corporation serve both this purpose (through the idea that the corporation is an ‘advanced form’ of capitalism) and also the case he makes that the only road to superceding capitalism lies through cooperatives.

I should add that since his January articles, comrade Bough has argued in ‘A socialist campaign for Europe’ that a consistent social democratic policy is not possible in one country, but is possible in the European Union as a whole; and that this provides a case for left governments to take office, with a view to winning control of the EU council of ministers country by country.4

This argument is a substantial improvement on previous versions - it is certainly true that the EU could, if it became more centralised and adopted protectionism, directed against the US and offshore, and rearmament to escape the need for reliance on the USA, pursue a social democratic policy. Comrade Bough still dodges, however, the problem of constitutional order: winning a majority of countries in the council of ministers leaves intact other elaborate safeguards against majority rule in the EU: the commission, the court of justice and the treaties ... The underlying problem here is the traditional economism of the British Trotskyist left.


Comrade Bough says:

For a whole period, in which this productive capital was openly seen as the dominant fraction of capital, after World War II, the state acted openly to promote its interests, both within the nation-state and increasingly on an international basis ...

The period from the mid-1970s only in part saw a reversal of that trend. Even Thatcher and Reagan presided over an expansion of the state’s role in the economy, both in monetary and fiscal terms. In fact, Thatcher ran a considerably larger budget deficit as a percentage of GDP than did Blair.


As was the case with the ultimately determinant role of production (discussed last week), there is a truth here: however much the ideologues and the media may talk about achieving the ‘small state’, or eliminating the budget deficit, in reality they cannot.

I made this point seven years ago in connection with Alistair Darling’s 2009 budget,5 and in fact it is a complete commonplace that Osborne has failed to meet his target for reducing the public-sector deficit since 2010 and will fail to do so.6 It is a mistake, however, to suppose that either the ‘big state’ or budget deficits represent the interests of industrial capital as such, as opposed to financial capital. For one example, the present budget deficit is largely a product of bailing out banks after 2008, though there is also a substantial element of Gordon Brown’s stimulus spending (coordinated with the US) in response to the 2001 dot-com crash and to the near-crash in 2003 around the invasion of Iraq.

Comrade Bough argues that the bank bailout was in the interests of industrial, as opposed to financial, capital. But this is not defensible. Suppose, purely for the sake of argument, that there is a fundamental conflict between industrial and financial capital, as opposed to merely episodic or secondary conflicts. (Such a fundamental conflict is problematic in theory, given the points made last week and in my original articles, and in recent times lacks evidence, given, for example, the extent of the involvement of industrial firms in direct consumer financial operations.) Even so, while a disorderly meltdown would be disastrous to everyone, what has actually happened is a large financial bailout, followed by continuing ‘stimulus’ operations, which still merely serve the - still incomplete - recapitalisation of the banks, rather than feeding through into significantly enlarged demand.7 It would be equally if not more beneficial to industrial firms to have had instead an orderly sharp deflation by controlled debt write-downs.

Equally, housing benefit accounted in 2015 for £24.3 billion of total working-age benefits of £51.7 billion, or a little less than half the total.8 But it is necessary to be clear as to whom housing benefit subsidises. The answer is that it is largely a subsidy to private landlords - with the incidental consequence of driving up general housing costs, which in turn implies both a squeeze on the employed working class (UK average rent runs to above 50% of average earnings, where in the US it is around 33%) and a squeeze on employers. The ‘big state’ here is subsidising the ‘small rentier’ class at the more or less direct expense both of productive industry and of employers in the unproductive sectors.

When the small rentiers back the Tories, or the UK Independence Party - as they do - in the hope of the ‘small state’, they merely hope that other pigs will get their trotters out of the state trough to leave more room for their trotters; the rest is self-deception, either in order to deceive others or to save their bad consciences.9 The same is, of course, true of the farmers, who would mostly be bankrupt but for subsidies - currently through the EU Common Agricultural Policy, but before 1972 through a system of direct agricultural subsidy, introduced after World War II.10

What is involved, in other words, is the choice of where state subsidies should be directed, variously for geo-strategic purposes (this is the central reason for agricultural subsidy) or for the purpose of constructing agent loyalty (this is the open justification of ‘executive compensation’ arrangements11) or political coalitions (the subsidy to private landlords).

The reverse side of this coin is that, as far as practical economic management is concerned, comrade Bough is correct to say that little changed with Reaganism/Thatcherism. The point is not new: Simon Clarke in 1988 usefully commented that, “whereas the governments of the left in the 1970s had pursued monetarist macroeconomic policies within a Keynesian ideological and political framework, the governments of the new right increasingly adopted Keynesian macroeconomic policies within a monetarist ideological and political framework”.12

Nonetheless, more changed in the late 1970s-80s than just the ideological framing of government policy. Governments between the late 1940s and the 1970s had pursued, as conscious policy, full employment. Since this involved leaving standing large areas of industrial overcapacity (for example in coal and steel, managed through the European Coal and Steel Community from 1951), often necessarily nationalised because they were not profitable, it required the policies of managed trade (ie, limited, but nonetheless accepted, protectionism), managed exchange rates (Bretton Woods) and hence exchange controls. The counterpart to these policies in both the Soviet bloc and the ‘third world’ was the construction of nationally autonomous industrial development projects, again usually involving extensive nationalisations.

Both sides of this approach were now rejected. US state funding was redirected from right social democrats to Hayekian ‘market liberals’, and at the same time (in fact, slightly earlier) US global policy was reflagged under ‘human rights’, while the US began to sponsor insurgencies and guerrilla operations against leftwing ‘third world’ governments. Simultaneously, it was openly argued that economic management in the 1950s-60s had underestimated the ‘natural rate of unemployment’ and thus led to ‘wage-push inflation’, as seen in the 1970s.

The turn was thus transparently a response by state policy-makers to the perceived excessive strength of the working class - and of ‘third world’ nationalists - in the preceding period. The object of the exercise was, by facilitating the free movement of capital, to weaken the working class as a class; and, at the same time, to constitute a new political alliance of capital with sections of the middle classes, who had been ‘held back’ by features of the 1960s-70s regime.

In the UK the resulting change certainly involved the immediate gutting of traditional industries, resulting in real dominance of finance in the UK economy; and ‘offshoring’ of some jobs from the US, resulting in increased prominence of finance in the US - although US-based corporations continued, through corporate holding-subsidiary chains, to own a lot of the ‘offshored’ industrial production. This underlying ownership has become increasingly evident, as industrial production jobs have been moved from Latin America and the mid-east to the far east, from the far east to China, and are now beginning to be moved from China to Vietnam, etc.13

But the shift towards de-unionisation, increased subordination of the working class as a class, and ideological anti-collectivism and anti-egalitarianism, has been equally present in countries which have, like France and Germany, retained very substantial domestic industrial production.

In other words, this was a turn of capital in general,including big industry, and its political representatives among state policy-makers, against previous arrangements to manage the working class through trade unions and social democratic and similar parties. It was not a reactionary movement of small capital and of some imagined Brit equivalent of Iranian bazaari merchants and pre-capitalist financiers against industry.

If we ask why statisation persists under this turn, the answer is partly that the presence of the state (and/or charities) in the organisation of sections of production (like, for example, health, education, highways) is a permanent feature of capitalism - absent from Marx’s Capital partly because the book is radically unfinished and partly because the whole book is a counterfactual critique of Ricardian and Proudhonist notions of a ‘purified’ market, free from monopolies, state subsidies, cronyism, etc.14 In addition, capitalism has developed to a point at which important elements of production, which cannot be simply abandoned, are so capital-intensive that they cannot be run at a profit unless they are subsidised, either by operating as full monopolies or directly by the state.

This development of statisation, as capitalism develops - a phenomenon already seen in later antiquity and later feudalism - is relevant to strategy. But to identify it with social democracy involves falsifying the nature of the latter both as to its content and as to its class support.

Social democracy

Comrade Bough argues:

The joint stock company, as much as the cooperative, represents such socialised capital, and the end of capital as private property:

“This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions” (Capital Vol 3, chapter 27).

Upon this material basis of socialised productive capital, and privately owned interest-bearing capital, rests two contradictory class interests, representing two opposing forms of property - one forward-looking and progressive, the other backward-looking and reactionary. It is on this basis that the political division, within bourgeois democracy, between conservatism and social democracy, rests.15



Moreover, as Marx pointed out earlier, the extension of public education and the welfare state extends this process even further, increases the supply of such labour-power, so that the wages of these “functioning capitalists” fall, sometimes even below that of other skilled workers: “With few exceptions, the labour-power of these people is therefore devaluated with the progress of capitalist production. Their wage falls, while their labour capacity increases” (Capital Vol 3, chapter 17).

It is on this basis that a shared material interest arises between these managers and workers, as both form part of the associated producers, who now are the real owners of the socialised productive capital, and stand in opposition to the lenders of money capital. It is, in fact, the material basis of social democracy.16


There are a series of further similar arguments throughout comrade Bough’s blog series, but these are particularly clear examples of the dogmatism of his argument (its dependence on citation-grazing in Marx) and of its economic reductionism (political conflicts are required to directly reflect class fractions).

A specific example of the dogmatism is the claim that “the wages of these ‘functioning capitalists’ fall, sometimes even below that of other skilled workers”. While this might have been a legitimate claim in the 1950s-70s, precisely the changes made to “executive compensation” under the rubric of “agency” since the late 1970s have reversed this trend. It may be that the underlying cost of reproduction of managerial skills has fallen and continues to fall - though post-Callaghan ‘reforms’ to education have, in spite of the increase in apparent credentials, resulted in these credentials being less practically informative. But actual managerial wages have risen sharply relative to those of other skilled workers, precisely and explicitly in order to secure loyalty to the shareholders.

Beyond these points, only two short points need to be made.

The argument that social democracy expresses the common interests of workers and industrial corporate management requires attributing an astonishing degree of ‘false consciousness’ to industrial corporate management. Quite understandably, this social group generally does not back social democratic parties, which are usually associated with trade unions, even where they are not, like the Labour Party, based on them. In fact, where capitalists do back such parties, we are to a considerable extent concerned with small and medium operators, like the small businesspeople of south Asian origin not uncommonly found in local Labour parties, or with financial ‘freebooters’ like Robert Maxwell, who have more freedom of choice than industrial managers.

The second point is that it is an astonishingly artificial broadening of ‘social democracy’ to read it as covering all sorts of state interventionism. Comrade Bough’s analysis would in effect require the labelling as ‘social democratic’ of the British Liberal and Tory parties of the later 19th century, of the US Democratic Party - and the Republican Party of Eisenhower and Nixon. The result is to render the category ‘social democratic’ so broad as to be analytically useless.

The better understanding is that the social democratic parties are parties primarily based on the working class as such, albeit ones whose commitments to nationalism and constitutionalism lead them to seek to ally strategically with, and even to include, sections of the capitalist class. These alliances when they take effect need not be with industrial or corporate capital as such, but can perfectly well be with financial or other forms of capital (as was the case with Blairism). They are ‘bourgeois workers’ parties’, because they are the parties of the right wing of the trade union bureaucracy, whose ‘bourgeois politics of the working class’ is about dickering over wages and conditions without calling into question the capitalist order in general. But precisely because the social democratic parties claim to stand for the interests of labour as such, they inevitably do to some extent call into question the capitalist order in general.

For this reason all sections of the capitalist class in general prefer that the political representation of the working class should not be through a party which claims, by names like ‘Labour’ or ‘Socialist’, to be workers’ parties, but through straightforwardly liberal or nationalist parties. After the Russian Revolution, however, and all the more after 1939-45, a lot of concessions had to be made to the working class, with the result that in some countries (UK included) social democratic parties became more ‘normal’ ‘parties of government’. How far this can safely be abandoned has been debated among capitalists in the UK in the recent past, and there is certainly a section of capital - chiefly in the media and advertising - which wants to see the end of the Labour Party, either by turning it into a new Liberal Party (the Blairite project) or by marginalising it.


I referred last week to comrade Bough mistakenly taking superficial ‘black letter’ legal statements about ownership at face value, both in relation to the corporation and more generally in relation to creditor claims.

On the general point of ownership and creditor claims I am following, though not exactly, Marx and Engels as against Bough, though the point needs a bit of elaboration. On joint stock companies Marx at least (less clearly Engels) was subject to a misapprehension about the age and significance of these, which led to his thinking about the joint stock firm as a form of ‘late capitalism’ transitional to socialised production, where it would have been better to recognise limited liability as a form of statisation reflecting the beginnings of capitalist decline. This misapprehension is reflected in comrade Bough’s argument.

The Institutes of Gaius, written around 160 AD, asserts (book 2, section 7) that “... the ownership of provincial land belongs to the Roman people or to the emperor, and individuals have only possession and enjoyment of it”. A few sections further on, however, Gaius tells us (2.20-21): “Thus if I deliver a garment or gold or silver to you, whether on account of a sale or gift or any other title, it becomes yours, provided only that I am the owner ... The same applies to provincial lands.” In other words, having told us that provincial land is in principle owned by the state, Gaius goes on to describe how private individuals can make others owners of it.17

Nor is this a peculiarly pre-modern phenomenon. Early in the 2008 edition of Megarry and Wade:the law of real property, we find the statement:

Although in practice land is commonly, and correctly, described as owned by its various proprietors, English land law still retains its original basis, that all land in England is owned by the crown. A small part of that land is in the crown’s own occupation and such land has been described in a recent statute as ‘demesne land’. The rest is occupied by tenants holding either directly or indirectly of the crown. In England all land is held of a lord, and allodial land (ie, land owned independently and not ‘held of’ some lord) is unknown.18


“Commonly, and correctly”: the reality is that the person holding the “fee simple absolute in possession” (Law of Property Act 1925) can for most purposes be treated as owner.

In both cases the claims are ideological-apologetic. Gaius’s claim is an inversion of the reality, that land in Italy and certain other privileged places which had ‘Italic land status’ (for example, Beirut or Mérida) was exempt from the land tax which applied everywhere else. In England, the regime preserves a nominal feudalism (and, along with it, various usually trivial, but occasionally annoying, feudal rights19) in connection with both the idea of the sanctity of property and the ideology of the ‘thousand-year constitution’ (eg, John Major, 1997).

The consequence is that in order to analyse ownership for the purposes of analysing the social relations of production, it is necessary to look behind the juridical notion - whether or not it is obviously ideological - to the practical powers of control, ‘its’ economic fruits (rents, and so on), the powers of disposition (sale, gift, etc) - and the ability to recover the thing by socially (legally) authorised self-help or by state action (litigation).

This method of analysis underlies the point that the ‘true owners’ are the creditors. This sort of approach is no novelty. For example, Marx in The eighteenth Brumaire of Louis Bonaparte, chapter 7:

But in the course of the 19th century the urban usurer replaced the feudal one, the mortgage replaced the feudal obligation, bourgeois capital replaced aristocratic landed property. The peasant’s small holding is now only the pretext that allows the capitalist to draw profits, interest, and rent from the soil, while leaving it to the agriculturist himself to see to it how he can extract his wages.20


A similar issue arises in relation to who ‘owns’ the company. John Shaw & Sons v Shaw (1935) was a dispute between brothers in a family-owned company, and Greer LJ’s dictum, which comrade Bough cites, is merely about who, under the peculiar constitution of this company, had the power to cause the company to sue the other parties. If we ask who has the more general ‘owner powers’, the answer is that in certain respects the shareholders are like ‘equitable owners’. Re Duomatic (1969) establishes that the shareholders may informally agree to override the company’s constitution; Multinational Gas (1983) that shareholders have the power to authorise the directors to speculate carelessly, resulting in major losses to the creditors. There is, moreover, an elaborate body of law on ‘lifting the veil’, under which in some circumstances the company can be identified with its shareholders.21

It would, no doubt, be possible to make out a case for comrade Bough’s view that the ‘corporate person’ is the true owner, but it would need much more careful legal-economic analysis than comrade Bough offers; ‘Marxist’ writers taking this approach have generally done so with a view to downgrading the significance of ‘class’ as a social phenomenon (since its logic is that almost all ‘capitalists’ are abstract entities).22

Mutatis mutandis this sort of analysis allows us to see that it was mistaken to characterise the workers as owning the means of production in the Stalinist regimes; and that it is pretty questionable whether the workers own the means of production in the bureaucratically managed cooperatives. Making managers answerable to those below is the fundamental question which lies behind the issue of ownership; and this question is arguably posed as directly, if not more directly, in the state, political parties and trade unions as in co-ops.

Joint stock firms

The point here is again a short one. Comrade Bough, relying on characterisations offered by Marx in the later 19th century, argues that the joint stock firm is a more ‘socialised’ form of production than the sole-trader or family business and hence, since it represents a higher form of capitalism in transition towards socialism, is ‘progressive’.

The argument is unhelpfully combined with his view of legal corporate personality, since many sole traders and family firms operate through limited companies (indeed, the landmark 1896 case of Salomon v Salomon concerned an incorporated sole trader), implying that there is no real contrast between corporate and ‘non-corporate’ businesses.

More fundamentally, however, joint stock firms are much older than limited-liability (1855 in the UK) or registered companies (1844 in the UK). Anne L Murphy has shown that organised private firm share markets began, along with markets in the public funds, in the 1690s. Ron Harris has examined the use - or not - of the corporate form by businesses between 1720 and 1844. Joshua Getzler and I have shown that well back into the 1700s, and perhaps beginning in the later 17th century, the ‘jingle rule’ treated insolvent partnerships partly as separate entities.23 Complex partnership firms, in fact, go back to the early development of proto-capitalism in late medieval Italy.24

Why should Marx have imagined - as he fairly clearly did - that the joint stock firm was a novelty and transitional towards socialism? The answer is that he was writing in the midst of a sharp debate in the UK about the merits and demerits of limited liability, conducted in terms of political economy, which represented the joint stock firm as such as a modern novelty with a view to either supporting or opposing the introduction of limited liability. The debates have been recently studied by James Taylor (from a historian’s point of view) and by Rob McQueen (more from a lawyer’s). It is apparent from both studies that it would have been extraordinarily difficult for anyone in the period to think outside the frame of the assimilation of the joint stock firm to statutory incorporation and limited liability.25

Limited liability in the strong sense in which it was adopted through the 1855 act (and its subsequent extension, reinterpretation and so on) was indeed an innovation. And McQueen shows that at least part of the grounds for this innovation came from, on the one hand, a fear of ‘British decline’ as a result of unlimited liability for investments in overseas debt securities; and, on the other, from a perceived need to incorporate the middle classes and the upper working classes by getting them to invest - the first stirrings of ‘Tell Sid’. But, again, what is in question is not the specific needs of industry, but the general needs of capital in managing both its own decline and the rise of the working class.



1 . ‘Making inroads into power of capital’ Weekly Worker January 21 2016.

2 . ‘Overcoming the power of capital’ November 5 2015; ‘Masses and government’ November 12 2015.

3 . ‘Two strategic illusions’ March 24 2016.

4 . http://boffyblog.blogspot.co.uk/2016/02/a-socialist-campaign-for-europe-part-1.html (February 22) has links.

5 . See ‘Spinning, not turning’ Weekly Worker April 30 2009.

6  . Googling ‘Osborne budget deficit reduction fail’ produces “about 389,000” hits. A recent example is ‘A budget of tricks and taxes, but George Osborne might still fail to end the deficit’ The Daily Telegraph March 16 2016.

7  . Compare, for example, C Martin, C Milas, ‘A very large gamble’: www.bath.ac.uk/ipr/policy-briefs/quantitative-easing.html; see also M Roberts, ‘From monetary policy to fiscal policy and the law of unintended consequences’ (March 17): https://thenextrecession.wordpress.com/2016/03/17/from-monetary-policy-to-fiscal-policy-and-the-law-of-unintended-consequences.

8 . Figures from www.gov.uk/government/statistics/benefit-expenditure-and-caseload-tables-2015.

9 . See R Trivers Deceit and self-deception London 2011.

10 . Agriculture Act 1947. See, for example, JK Bowers, ‘British agricultural policy since the second world war’ (1985) Agricultural History Review Vol 33, pp66-76.

11  . Eg, discussion of the academic literature to that date in LA Bebchuk and JM Fried, ‘Executive compensation as an agency problem’ Journal of Economic Perspectives Vol 17 (2003), pp71-92.

12 . Keynesianism, monetarism and the crisis of the state Cheltenham1988, cited here from the Kindle edition, chapter 11, towards the end of the chapter. Compare also G Pilling The crisis of Keynesian economics London 1986, pp48-49; L Turgeon Bastard Keynesianism Westport 1996; JK Galbraith and J Travis Hale, ‘American inequality: from IT bust to big government boom’ The Economists’ Voice October 2006.

13 . J Smith Imperialism in the 21st century (New York 2016) makes the phenomenon of capital movement in pursuit of low-wage economies into a general theory of imperialism and globalisation. That is clearly overstated, but Smith provides useful documentation of some of the phenomena. On ownership chains see, for instance, P Nolan, J Zhang and C Liu The global business revolution and the cascade effect Basingstoke 2007, studying in detail aerospace, beverages and retail.

14 . See J Harrison Marxist economics for socialists London 1978.

15 . http://boffyblog.blogspot.co.uk/2016/01/overcoming-power-of-capital-part-1-of-8.html.

16 . http://boffyblog.blogspot.co.uk/2016/01/overcoming-power-of-capital-part-3-of-8.html.

17 . Quotations from F de Zulueta (ed) The institutes of Gaius Oxford 1946, pp67, 71.

18 . Seventh edition by C Harpum, S Bridge and M Dixon, London 2008, p23.

19 . Eg, ‘Calls to abolish outdated rights for lords of the manor that “serve no purpose in the 21st century”’ The Independent January 16 2014.

20 . www.marxists.org/archive/marx/works/1852/18th-brumaire/ch07.htm.

21 . P Davies, S Worthington (eds) Gower and Davies: principles of modern company law (London 2012) is a convenient textbook discussion of a lot of the relevant material, going beyond those topics mentioned above.

22 . Eg, PQ Hirst On law and ideology London 1979, chapter 5.

23 . AL Murphy The origins of English financial markets Cambridge 2009; R Harris Industrialising English law Cambridge 2000; J Getzler and M Macnair, ‘The firm as an entity before the Companies Acts’ in P Brand et al (ed) Adventures of the law Dublin 2005.

24 . M Weber The history of commercial partnerships in the middle ages (1890), Lanham 2003; Q van Doosselaere Commercial agreements and social dynamics in medieval Genoa Cambridge 2009.

25 . J Taylor Creating capitalism Woodbridge 2006; R McQueen A social history of company law Farnham 2009.