28.09.2011

Mapping the alternative

The workers' movement must begin to act on a European scale, argues Mike Macnair

The International Monetary Fund meeting in Washington at the weekend is widely reported to have come up with a larger sticking plaster for the euro zone debt crisis. The package is said to involve a 50% write-down of the value of Greek government debt (ie, a partial default); the quadrupling of the European Financial Stability Fund ‘fire-power’ - ie, its ability to lend to countries in trouble, mainly by technical means; and the recapitalisation of the euro zone banks, presumably by governments putting money into them (private investors are not likely to).

The result of this ‘official leak’ is that European bank shares rose sharply on Monday and Tuesday, pulling stock market averages with them, before falling back on Wednesday. We have seen over the past months a series of short rallies in the stock markets as ‘solutions’ are offered, which rapidly peter out, and this looks like the latest.

If the new plan is actually agreed, which is questionable, and if it succeeds, which is even more doubtful, its practical effect would be a very limited ‘haircut’ for creditors, but a large hit for north European middle class and working class taxpayers and public service employees and users.

The ‘haircut’ is limited because this is not a general write-down of debts, but only of the Greek government’s, which are actually rather small-scale by comparison with those of governments elsewhere (or the massive private debts which still burden UK and other housing markets).

The hit for the north Europeans comes from the nature of the scheme. An orderly general write-down of debts would at the end of the day penalise savers, pensioners, rentiers and rentier institutions (churches, endowed charities and so on). A ‘disorderly default’ meltdown would have extreme and unpredictable effects. This scheme, in contrast, would make the Greek partial default ‘orderly’ and erect a ‘firewall’ against ‘contagion’ affecting Italy, and so on, by committing large amounts of north European government funds. If the funds were merely borrowed or printed, the effect would be the ‘contagion’ in the financial markets the plan seeks to avoid. So the working class and the working middle classes (as distinct from the present recipients of private pensions) will be expected to take the hit in the form of yet more ‘austerity’ measures.

So more ‘austerity’ is coming. In this situation, the Coalition of Resistance has launched an excellent initiative: this weekend’s Europe Against Austerity conference. Since it is perfectly obvious that the capitalist regimes are (with some difficulty) endeavouring to coordinate their responses to the crisis on a European scale, it is not merely desirable, but essential, that the workers’ movement should try to coordinate our response on the same scale. Otherwise we are likely to be ‘defeated in detail’.

What should come out of this conference immediately is an agitation for a Europe-wide day of action of the same sort as the proposed November 30 common strike day, but on a European scale. This is a small step. A big European day of action would symbolise unity of the European working class against the austerity agenda. It would improve the confidence of our class in every country and serve notice on the capitalist governments that we are not willing to play their beggar-my-neighbour game of blaming ‘lazy Greeks’ or whatever.

Budget alternatives

But then the further question is posed: what policy should the workers’ movement put forward on a European level to deal with this crisis? What is the working class alternative?

The question is posed because the austerity-mongers are only likely to be defeated by a very broad movement of solidarity. The austerity-mongers do not wait quietly for such a movement to appear. On the contrary, they intervene actively to promote division. From one angle, they blame the crisis on ‘profligate governments’. From another, they attempt to set the ‘indigenous’ population against migrants.

From a third, they appeal to the domestic financial management of the petty bourgeoisie, employed middle class and skilled workers (who have some ability to save) as a model for the financial management of the state; and against the ‘spongers’ receiving welfare benefits.

From a fourth angle, they attempt to separate workers in the private sector (who have already suffered substantial wage, job and pension cuts in the first round of the crisis) from workers in the public sector who are to be the immediate target of austerity. Of course, they do not mention to the private sector workers the probable consequences in unavailable services, queues and the increased costs they will pay for privatised health, education, etc.

To build broad solidarity it is necessary to offer an alternative to these austerity-monger arguments, not merely to deny them. Hence, it is necessary not only to build broad solidarity and effective resistance, but also to promote an alternative vision in response to the financial crisis.

Much of what the left has written has been simple reporting of the attacks and resistance - last week’s Socialist Worker centre-spread provides an example (September 22). To the extent that it has gone beyond this, by and large the left has proposed a policy of ‘returning’ to a nostalgic version of the economic order of the 1950s-70s. This has several aspects. The simpler is the demand to tax the rich more heavily to pay for keeping the welfare state intact - a recurring line of the SWP since around 2000, if not before. The more complex is the demand for a return to Keynesian demand management and allowing the state financial deficit to continue to rise in order to stimulate the economy.

Both ideas are shared by some capitalists as well as by the Labour leadership - even if in less full-blooded form than they appear in, for example, Solidarity (September 22, September 28). Warren Buffett, as well as a group of French capitalists, have notoriously argued that they should pay more taxes. Keynesian or semi-Keynesian arguments against the austerity policy routinely appear in the pages of the Financial Times and similar publications.

These ideas therefore have the attraction of being a ‘line of least resistance’. They are ‘respectable’ and ‘realistic’ in a way that advocating the revolutionary overthrow of the state regime and rapid transformation of the economy towards some form of socialism is definitely not.

The problem is they are less realistic than they appear. In reality, to actually implement either policy would involve an overthrow of the current international state system. The capitalists may overthrow this system themselves if its problems get much worse: the big losers if they do will be the US, UK and their populations. The process of doing so will probably involve for everyone a drive towards war.

Surely, you may well say, this must be untrue. After all, in the ‘golden age’ of 1950-70 capitalism not only survived, but did far better than it has been doing recently, with regimes of Keynesianism and welfarism, higher taxation, a higher wage share, and more extensive regulation. And the transition from the welfarist-Keynesian ‘consensus’ of the 1950s-70s to the financialism of the 1980s and after did not involve the overthrow of any of the central imperialist states (many other countries did experience the overthrow of their nationalist or Stalinist regimes).

The reason is that the instruments of financialism were already present in the international state system created in the 1940s and entrenched in the constitutional orders of the central states, the United Nations and the first General Agreement on Tariffs and Trade (Gatt). What changed with the rise of financialism in the 1980s was thus not a change in the constitutional orders of the central imperialist states and the global state system as such. It was merely that non-constitutional, economic concessions to the European workers’ movement and to the ‘third world’ nationalists, which had been made because of the ‘threat’ of the Soviet bloc, began to be withdrawn.

Tax the rich?

The simpler case is the demand to ‘tax the rich’. Back in 2009 the SWP responded to the budget with the proposal to “Take all the cash from the super-rich”: “Britain’s 1,000 most super-rich individuals are still swilling around in £258 billion ... All their money should be taken off them. This, along with stopping military spending, could be used to fund our jobs and services, and ensure that ordinary people do not bear the brunt of the recession.”[1] I made the point in response that £258 billion is only slightly more than half the annual state tax take of £496 billion which was projected in the 2009 budget - small beer which would at most address the problem for a year or two.[2]

The more serious problem with ‘Tax the rich’ is reflected in a series of news items. The scale of the Greek government deficit is to a considerable extent due to the scale of tax avoidance and outright evasion, through the Greek wealthy (and upper middle classes) keeping assets ‘offshore’.

At the beginning of this year Nicholas Shaxson’s Treasure islands: tax havens and the men who stole the world was published in Britain. It is a striking journalistic exposé of the tax haven phenomenon and its scope. Meanwhile, this week’s Financial Times is running a series on ‘tax wars’: the tax loopholes created by double taxation treaties, and so on. Buffett complained that he pays a lower rate of tax than his secretary: not because the law is drafted that way, but because Buffett can afford to pay high-grade tax avoidance advisers.

Germany and Britain have entered into utterly unprincipled deals with Switzerland: the Swiss pay blackmail money to the British and German governments, but get to keep the anonymous bank accounts which are used not only for tax avoidance and evasion, but also to launder the bribes paid to ‘third world’ kleptocrats and the funds they have stolen from their own states.

Some Tory MPs are arguing for an early repeal of the 50p tax bracket introduced in the 2009 budget. They claim it will make Britain less attractive to high earners, and bring in little revenue because of increased avoidance and evasion. The Lib Dems reject this proposal, but on symbolic grounds - that reducing tax on the rich at a time of austerity would look bad. Their alternative, not part of the coalition agreement, is a ‘mansion tax’ on high-value houses. The chief merit of such a tax is that it would be a lot harder to avoid/evade than income tax (let alone capital gains tax and inheritance tax, which are close to being voluntary for the rich). The point is that, under the existing global legal order, the arguments for repeal actually have validity.

So how do we ‘tax the rich’ effectively? How do we even eliminate the loopholes? The answer is that to do so requires actually shutting down ‘offshore’: that is, the systematic violation of the sovereignty of a series of states guaranteed by UN treaties - and, in reality, by US backing. To do so would be seriously unhelpful to the UK budget, because the City of London’s financial operations are, in fact, part of ‘offshore’; and income tax on City incomes is a substantial component of the UK tax take.

At the level of the ‘real economy’ Britain imports vast quantities of food, since its agriculture cannot feed the population. The balance of ‘visible trade’ is in structural deficit, as it has been for decades - 95% of the fruit and 50% of the vegetables consumed in the UK are imported.[3] In 2005 the UK imported £6.6 billion of agricultural products and £18.5 billion worth of processed foods. It exported £1.16 billion in agricultural output and £8 billion in processed foods. Since food is - in relative terms - low-value, we are not talking about a small difference here. There is thus a yawning gap in the UK’s domestic food supply, which is made up by imports.

In total, with other products, UK material imports totalled £270 billion, while material exports amounted to £210 billion. The deficit of £60 billion is at least partly made up by the UK’s financial income from the City of London and from remitted profits: that is, from the UK’s role in the world imperialist system.[4] The food imports are therefore - at the end of the day - paid for by the ‘invisible earnings’ of the City, through income tax on City earnings redistributed to civil servants, NHS workers, local government workers through block grants, and in various forms of subsidy to other capitals.

The question posed is, therefore: is it worth British workers accepting being made very substantially worse off, and at the same time preparing for war with the United States, for the sake of a demand that the rich should pay higher taxation? The problem is not that the rich should not pay higher taxation; it is that the slogan comes up against entrenched institutions - the tax havens, double taxation treaties, and so on - created by US power in the post-war settlement, and still backed by the US and UK (a good many tax havens are actually UK colonies).

More immediately, it comes up domestically against the constitutional doctrine in IRC (Inland Revenue Commissioners) v Duke of Westminster that individuals are entitled to arrange their affairs to minimise tax and that taxing statutes must be construed in the way most unfavourable to the IRC. This doctrine could in theory be overturned. But not by merely legislating to change it: in this field, as in some others, the judges are like Humpty Dumpty: “When I use a word ... it means just what I choose it to mean.” The doctrine is, moreover, given a semi-spurious constitutional foundation in article four of the Bill of Rights 1689, “That levying money for or to the use of the crown by pretence of prerogative, without grant of parliament, for longer time, or in other manner than the same is or shall be granted, is illegal.” To overthrow the doctrine would therefore require coercion of the judiciary and probably also of a large part of the broader legal profession.

It is not that we should not consider as an element of socialist strategy the need to create political legitimacy for coercing the judges and the lawyers, or to create military power which can stand against US blockade (‘sanctions’ and so on). Rather, there are two issues. The first is that it is clear that no single country could stand off US displeasure without receiving the sanctions treatment which crippled the Zimbabwean and Iraqi economies and is in the process of crippling the Iranian economy - and this is, if anything, clearer of Britain than of ‘third world’ countries, which have economies less immediately dependent on imports.

The second is that going up against the US for the sake of a radical overturn of social relations and building a new society would be worthwhile. But going up against the US (and sacrificing Britain’s status as US sidekick and licensed offshore centre) for the sake of the rich paying a bit more in tax? The game isn’t worth the candle.

Back to Keynes?

A return to Keynesian demand stimulus poses the same problems in a more immediate sense. The immediate response to the 2008 crash was, precisely, a temporary return of Keynesianism to respectability, with governments taking on massive debts and pouring liquidity into the financial system in the hope that it would feed through into the ‘real economy’.

To some extent these stimulus packages actually worked. Continued very low central bank interest rates and ‘quantitative easing’ - ie, printing money - in the US and Britain did avert meltdown and allow a partial recovery. Massive government infrastructure spending in China kept its economy growing substantially, and with it the economies of China’s suppliers.

Nonetheless, this policy met with political opposition and a reaction in financial markets. Regular Weekly Worker correspondent Arthur Bough argues on his blog that the political opposition is simply an ideological error on the part of the Tories and the Republican right (and presumably also the German Christian Democrats and other north European ‘hardliners’, though he does not mention these), reflecting dysfunctional political institutions and perhaps the ideology of the petty bourgeoisie; and that the financial markets are merely responding to the uncertainty caused by this failure of leadership.[5]

This argument is at least partially dependent on comrade Bough’s prior argument that we are in the middle of a ‘Kondratiev long-wave upswing’, with the result that there is not in any real sense a ‘crisis’, but merely a ‘slowdown’ in Europe and the US, reflecting a need for restructuring in the light of the rise of Asian capitalism.[6] As I have said before, I think Trotsky’s original objections to the idea of the Kondratiev long cycle were sound; in my view the destruction of the strategic autonomy of the British empire in 1940 and the explicit agreements made during that summer to hand over British overseas assets and debt claims to the US and to act in future as a subordinate of the US were the key to the ‘golden age’ long boom in the 1950s and 60s, together with the massive destruction of fixed capital in World War II and the very extensive state defaults afterwards.

The central question, however, is why there should be the ‘crisis of bourgeois leadership’ in relation to the economy. It seems to me that the answer is at root the same as that in relation to tax. That is, the post-war settlement under US leadership created entrenched institutions - essentially offshore and international money markets - through which US ‘superimperialism’ (Michael Hudson’s expression) operated.[7] These mechanisms were mitigated by the geopolitics of the cold war, but, as the forms of mitigation proved both to make the working class too powerful in the late 1960s-70s and to weaken the US relative to other capitalist states, they began to be abandoned.

But the institutions of offshore and international money markets take on a life of their own. (The phenomenon is perhaps analogous to al Qa’eda, originally a CIA-sponsored formation for the purposes of the war in Afghanistan.) To get rid of them or return them to a fuller subordination would require coercion and the overthrow of the treaty regimes created in the late 1940s.

Now consider the crash of 2008 and the response: that is, to replace unpayable bank debts with sovereign debt. After this response it is entirely rational for money market speculators to suppose that some sovereigns will prove unable to pay their debts, and hence to bet against the value of these debts. Given the scale of global financial market operations, which has for years been totally out of proportion to productive economic activity and on a scale comparable with the state financial operations of the larger states, the result is inevitably high volatility in these markets. It is not irrational in this context to imagine, as the Tories did, that there could be a run on the British gilt markets if austerity were not adopted. It may have been wrong, but it is not stupid.

It is also quite clear that British capital in its majority (by wealth) preferred a Tory government, complete with the austerity policy, to the possibility of a Labour government. This was reflected in party political donations in the run-up to the 2010 general election and in the extraordinary press campaign to denigrate Gordon Brown as an individual and to blame Labour for ‘fiscal irresponsibility’ (a very marked about-turn from 2008). Murdoch and co are only partially autonomous actors (as we saw in the collapse of the News of the World when advertising was withdrawn). The ideology of the petty bourgeoisie was exploited for this purpose, but it is unlikely that it was the real driving factor.

Let us therefore suppose a Labour government introduces a fully Keynesian turn based on expanded deficit finance or printing money - the policy of leftwing advocates of ‘back to Keynes’. It is quite ridiculous to suppose that this turn would not be met by a run on the gilts market and a large-scale flight of capital. This, in turn, bring us immediately up against the need to proceed to exchange controls, systematic violations of Gatt II, expropriations and a short-term move to directive planning - all this after the left has spread the idea that a Keynesian turn would not involve a revolutionary crisis, and by doing so has disarmed the workers’ movement when crisis does, in fact, appear.

The real reformists - as opposed to leftists pretending to be reformists for the sake of an imagined ‘united front’ - are aware of these issues, even if their arguments would not be those I have used. They would simply say that ‘the markets’ represent real absolute limits on what can be done. See, for example, Ed Balls’ speech to the Labour conference. The fake-reformist line remains unpersuasive beyond the far left, its immediate periphery and the former periphery of the old ‘official’ Communist Party, for whom the wish is the father to the thought.

Socialist alternative

The European workers’ movement is presented with the austerity drive and ‘crisis of bourgeois leadership’ at a moment when it is weaker than it has been at any time in the last 130 years. Union membership density is low. The mass parties have been hollowed out at the base and their leaderships to a large extent turned into apostles of a ‘kinder, gentler’ financialised regime, together with nationalism and bureaucratic control. The idea of socialism remains in the shadow of Stalinism, not only in the memories of the older generations, but in the experience of the younger generations of the functioning of the organised left groups and their inability - thanks to their bureaucratic centralism - to unite.

To say this is to say that the euro zone crisis and the austerity drive does not prima facie pose the question of the working class in the near future taking political power and ushering in socialism. The workers’ movement is simply too weak, irrespective of whether theorists like comrade Bough or Bill Jeffries of Permanent Revolution, who claim that this is a pure financial crisis under global long-boom conditions, or those who see a deeper structural crisis are right.

If the ‘crisis of bourgeois leadership’ tips over into generalised meltdown matters will be different: the question of power will be posed, whether the workers’ movement is ready for it or not. The most likely outcome would then be the creation of authoritarian nationalist regimes, but the one chance of avoiding that outcome would be for the weak workers’ movement to pose a radical reconstruction of society as an alternative.

The immediate future is therefore one of a combination of defensive struggles, with efforts to rebuild the workers’ movement. Nonetheless, it remains necessary to pose the question of an alternative social order and how to get there in order to rebuild the movement. The weakness of the movement results at the end of the day precisely from the fact that its dominant ideas of alternatives (nationalist, class-collaborationist and bureaucratic) have so spectacularly failed - but the advocates of these ideas remain in leadership positions and the ideas themselves have spread to such an extent that they dominate the far left which once opposed them.

Posing the alternative of a socialist reconstruction of society is therefore not an alternative to the immediate tasks of defensive struggles around individual ‘austerity’ issues and against governmental ‘austerity’ programmes. Nor is it an alternative to the equally fundamental task of efforts to strengthen collective self-help against the effects of the austerity measures: to build up the trade unions at the base, to organise the unemployed, and to develop cooperatives and mutuals. In the period of welfarist ‘affluence’ these elementary tasks of workers’ organisation have been allowed to wither away or - like the unions and the Co-op - reduced to bureaucratically controlled institutions.

Arthur Bough makes this aspect of the rebuilding of the workers’ movement the be-all and end-all. He draws arguments from Marx’s writing at the time of the First International, when - until the 1871 London conference - Marx was attempting to hold together an alliance with the Proudhonists, who were arguing precisely this line: workers’ self-help through cooperatives, as opposed to political action.

The problem is not that socialists should ignore or oppose cooperatives. Firstly, it is that the initial wave of cooperatives came at a time when land values were tending to decline (which they did between, roughly, the repeal of the Corn Laws in 1847 and the introduction of planning laws, agricultural subsidy and mortgage interest relief during and after World War II). Since then access to land has been very much more tightly rationed by the ruling class; by the 1980s the cost of keeping even trades and labour clubs in existence was leading to their being sold off to property developers.

Secondly, the problem is that the capitalist class and its state do not consistently recognise property rights and the state certainly does not refrain from interference in the economy in the interests of major capitalist bribe-payers. Comrade Bough’s own 2010 review of Nicole Roberts’ history of the cooperative movement in Britain makes the point: the state intervened against the cooperative movement and - by regulatory legislation - continues to intervene in favour of bureaucratic managerialism in cooperatives.[8] However difficult to achieve anything by political action it may seem, political action is the necessary accompaniment of both defensive struggles and cooperative self-help.

Nor is posing a socialist reconstruction of society an alternative to posing defensive demands like the restoration of trade union freedom; or, in the sphere of the budget, an end to overseas imperialist adventurism and cuts in military expenditure.[9] Rather, it is a necessary accompaniment to defensive struggles, cooperative self-help and defensive demands.

Europe

Another society is possible: one in which, instead of being driven to competitive ‘growth’ ending in cyclical crises, we aim for the fullest possible development of every human being: communism. The transition to such a society involves the rule of the working class: that is, the subordination of the private producers to the wage-earners, tending towards a society in which nobody gets anything other than a living wage and open access to public resources like the internet, education, health, housing, etc.

We collectively have written more about this aim in our Draft programme. I have written about immediate steps in this direction as a response to the financial crisis in previous articles.[10] Europe and united working class action in Europe is central to this possibility.

The reason why that is so is the reverse side of the points I have made above against ‘tax the rich’ and a return to Keynesianism as strategies. Karl Kautsky argued in The class struggle (1892) that the nation-state was a sufficient scale on which the working class could reorganise society as a cooperative commonwealth. The idea descended into ‘socialism in a single country’. Kautsky was already wrong, and the experience of the 20th century has proved the idea wrong. All countries are integrated in the world trade and financial system to a point at which ‘sanctions’ can cripple their economies.

In reality, the capitalist class does not rule through independent nation-states, but through a global hierarchical system of states. Before 1914 this system of states was centred on the UK; after the prolonged death agony of the British empire since 1945, it has been centred on the US. National solutions run up against the institutions of this world hierarchy, as I have shown in relation to ‘tax the rich’ and ‘return to Keynes’.

If the working class can develop common action on the scale of Europe, that is a whole different ball-game. A European ‘cooperative commonwealth’ would not be immune from US-led attack or blockade; but, unlike the former tsarist empire which became the USSR, it would start from high levels of productive capacity and of proletarianisation. A socialist Europe could be a real beacon for the world.

The Europe Against Austerity conference could begin to set this as a goal. Not an immediate goal; but a goal which could begin to re-inspire the workers’ movement with the sense that an alternative is really possible, not just a dream. Maybe it will not. Maybe it will cling to the blind-alley lines of least resistance round nationalism and Keynesianism. But what an advance it would be if the movement really began to act on a European scale and to pose the question of a socialist Europe as an alternative to the Europe of austerity.

1. Socialist Worker May 2 2009.

2. ‘Budget: spinning, not turning’ Weekly Worker April 30 2009.

3. www.bbc.co.uk/food/food_matters/foodmiles.shtml.

4. Figures from www.uktradeinfo.com/index.cfm?task=eubackcast.

5. The long series, ‘The economy of analysis’, is still running: http://boffyblog.blogspot.com.

6. Present, with references to earlier posts, in the argument cited in note 5 above.

7. M Hudson Super imperialism: the economic strategy of American empire (New York 1972); N Bukharin Imperialism and world economy (1915).

8. http://londonbookclub.co.uk/?p=847.

9. See my ‘Crisis and defensive demands’ Weekly Worker January 8 2009.

10. ‘Responding to the crisis’ Weekly Worker October 16 2008; ‘There is an alternative’ Weekly Worker March 24 2011.