The crisis is financial, it is not economic

Taking issue with Mike Macnair, Arthur Bough insists that the global economy remains in a long-wave upswing and advocates the setting up of workers' cooperatives

In a recent Weekly Worker article Mike Macnair says he agrees with Trotsky’s objections to the ‘long wave’ theory of economic cycles.[1] But Trotsky supported the idea of the long wave. [2] He opposed a mechanistic view, recognising the role of political intervention and exogenous factors, such as wars and revolutions.

Soviet economist Nikolai Kondratiev responded: “Wars and revolutions also influence the course of economic development very strongly. But wars and revolutions do not come out of a clear sky, and they are not caused by arbitrary acts of individual personalities. They originate from real, especially economic, circumstances. The assumption that wars and revolutions acting from the outside cause long waves evokes the question as to why they themselves follow each other with regularity and solely during the upswing of long waves. Much more probable is the assumption that wars originate in the acceleration of the pace and the increased tension of economic life, in the heightened economic struggle for markets and raw materials, and that social shocks happen most easily under the pressure of new economic forces.

“Wars and revolutions, therefore, can also be fitted into the rhythm of the long waves and do not prove to be the forces from which these movements originate, but rather to be one of their symptoms. But, once they have occurred, they naturally exercise a potent influence on the pace and direction of economic dynamics.” [3]

Kondratiev is more dialectical. Mike’s argument is like the discussion of the role of the individual in history. Individuals (events) shape concrete history, but cannot explain history, as opposed to the powerful economic and social forces, which give rise to them, and by which they, in turn, are shaped and constrained.

Overall growth

Even if you reject the theory of long waves, the economic data is this. Between 1980 and 1990 global trade rose from $4,000 billion to $6,000 billion, remaining flat until 1994. Between 1994 and 2000 it rose from $6,000 billion to $12,000 billion. But, the sharpest rise has most notably been since 2002 rising from $12,000 billion to $28,000 billion by 2007. [4] In 2007, for the first time since 1969, not one of the world’s economies was in recession. China was growing at 10% per annum, Azerbaijan and Angola at 26%, Mauritania at 18%. These kinds of economies have continued to grow strongly even during the aftermath of the credit crunch.

When old industries are in decline, and the baton is being past to new dynamic industries, it always looks like a terminal crisis to the former. The same is true when old developed economies are in relative decline. There is due concern that unemployment in developed economies has risen by several hundred thousands, but the developing economies are today creating millions of new jobs every year!

As I wrote in a response to Mike’s views some months ago, “… although there is clearly a crisis in the peripheral euro zone economies, as a whole it continues to grow, with Germany ... growing at more than 3%, and remaining the world’s second largest exporter after China. In the second quarter of 2010 Germany grew at an annualised rate of 9.5%, and 3.9% in the third quarter ... Austria grew at 3.6%, whilst Poland grew at 5.3%. Sweden ... 6.8%!” [5]

In its latest assessment, the International Monetary Fund forecasts world growth to be around 4% per annum. Economic growth has slowed in the last few months, but such slowdowns are normal for capitalism. There has been a three-year cycle for at least the last 30 years, and another slowdown was due, with or without the existence of the financial and political crisis. The money hoarding, which Hillel Ticktin spoke about in his recent Weekly Worker article, is a result, not of capitalist crisis, but of capital throughout the globe making huge profits over the last decade or so, and even now most firms continue to report rising profits. [6]

There is a financial/political crisis, but it cannot be simply equated with a ‘crisis of capitalism’. It even has to be distinguished from an economic crisis, though the former may well create the latter. Once this is understood, the actions of states and governments can be better evaluated.

Mike says the IMF proposals for the recapitalisation of the European banks would require funding from governments, because private investors are unlikely to do the necessary. The proposals for refinancing, via the European Financial Stability Facility/European Stability Mechanism, based on leverage, mean the issuing of EU bonds in all but name. Such bonds would attract investment from global investors, because of Germany’s backing. On October 5, the French finance minister agreed the banks needed recapitalisation, but said this should be done by Europe, not nation-states. That needs a measure of fiscal union. Slowly, bureaucratically, then, they are moving towards a political and fiscal union. The question is whether the market will give them time to achieve it.

Why does Mike think the ‘haircut’ suffered by the banks and financial institutions will be paid for by the northern European middle and working class? The capital will be raised via long-term borrowing in the capital markets, rather than through short-term fiscal transfers by member-states out of their current budgets. The latter does imply that either taxes rise or budgets are cut; the former does not. It implies either: money printing, leading to inflation; or higher bond yields; or higher taxes in the longer term. In that all these could mean higher costs for workers, they may pay this price. But, that is not at all guaranteed. If it prevents a financial meltdown, and the economic crisis that would follow, it implies higher capital accumulation than would have been the case, which means higher demand for labour-power and higher wages. The raising of the €2 trillion via long-term borrowing on capital markets would not cause the contagion Mike describes, because of being planned in advance, and, compared with the sums these markets deal with, it is not such a massive figure. The danger of contagion arises from an unplanned event, not a planned, coordinated and adequate response.

Rather than meaning “more austerity is coming”, it is intended to provide an alternative to austerity, which the leading circles of capitalism now clearly see as counterproductive. In his BBC blog, Paul Mason sets out three different problems: (a) sovereign debt; (b) distress in the banking system; (c) declining growth: “The IMF and US government believe there is a fourth problem: that austerity measures are exacerbating problems a-thru-c.” [7]

Governments’ responses are not a result of “ideological error”. There could be inertia in some policy circles within the state, just as, in the 1970s, Keynesian orthodoxy continued for some time after it had failed. It is clear that a consensus within national and international state bodies such as the IMF is forming around reversing austerity, and the implementation of coordinated stimulus on a significant scale; hence the talk about a new Marshall Plan.

A political dynamic explains the actions of political parties. The Tories supported Labour’s spending plans up to a few months before the election. The Republicans have said they will vote against any of Obama’s proposals for pure political advantage. They were prepared, under the influence of the Tea Party, to risk wrecking the economy for narrow political advantage over the debt ceiling. Parties have to get elected, and rightwing populist parties have to appeal to their core vote - the small capitalists, middle class and backward sections of workers, who make up the base of these parties. Their interests diverge from those of big capital, which for over a century has required the service of a large, interventionist state: ie, social democracy.


Its not tenable to say Marx argued for co-ops, but did not mean it, which is Mike’s argument about Marx trying to keep the Proudhonists on board. Marx ripped into the Proudhonist version of co-ops in The poverty of philosophy. Marx, in the Critique of the Gotha programme, ripped into statism and the state-aided co-ops put forward by the Lassalleans, whilst arguing clearly in favour of workers creating co-ops through their own efforts. Engels repeated his sentiments in subsequent letters to Bebel. Marx argued clearly for the establishment of co-ops in Capital Vol 3, saying they are the transitional form to socialist property. In his copious notes, which took account of events after Marx’s death, Engels did not see any reason to add or detract anything from Marx’s statement in that regard, even in 1894, when he published it.

I have written at length on why the left’s approach to co-ops is wrong. [8] They continue to grow, and there are plenty of examples of the superiority of co-ops, and other worker-owned enterprises, over those of private capitalists. Last year worker-owned firms outperformed FTSE 100 firms by a full 10%. There are more than a billion co-op members around the world, and they are significant economic players. [9]

I do not want to present it as perfect, but Marxists should consider why the Mondragon Corporation co-op’s average pension of £13,000 is quite a contrast to the miserly UK state or public sector pensions. [10] Mondragon has been able to establish its own workers’ university with tuition fees of around £3,500 pa - as opposed to the £9,000 now being charged in Britain! [11]

I do not make the building of co-ops the be-all and end-all of rebuilding the labour movement. I have spent considerable time uncovering the true nature of Marx, Engels and others’ writing on co-ops, and defending them, because the domination of the labour movement by Lassalleanism and Fabianism for the last 120 years has covered over that truth. [12] It is necessary, as Lenin said, to “bend the stick” in that process. My position starts from the premise that it is necessary for the working class to carry through a political revolution, to demolish the capitalist state and to establish a workers’ state in its place. That needs a mass, revolutionary workers’ party to organise the political struggle. However, I do not believe workers can simply suck this party out of their thumb; nor can the conditions for that political revolution simply arise as an act of political will.

In the 19th century, individual socialists (usually not workers) could develop socialist ideas and build small Marxist circles. But you cannot build a mass workers’ party on that basis. Workers need to see in practice that those ideas have a foundation in reality, and can meet their needs. That is the basis of historical materialism: for ideas to become dominant they must arise out of the material conditions in society, out of real productive and social relations.

It is on these grounds that I argue not just for co-ops, but for rebuilding the labour movement on the basis of an independent working class, creating for itself the kind of self-government, on a wide front, that Marx described, and in revolutionary, class antagonism to the existing forms of property, democracy and state. That applies as much to building defence squads and a militia [13] , to factory committees, as to co-ops. I do not propose the building of these things, because I believe the capitalist class and its state will simply allow it to happen, but precisely because I know they will not, and so the working class will have to engage in a political class struggle - as opposed to the limited sectional struggles involved in trade union and parliamentary, reformist actions - and will have to develop its party, and its interests, as a result. The Cooperative Party emerged for precisely that reason at the start of the 20th century. [14]

If Mike means by his criticism that I do not place much stress on what Ed Miliband says, on what motions are passed at Labour Party and trade union conferences, he is right. In nearly 40 years of being a union militant, holding positions from steward up to sitting on the regional council of the TUC, the most effective thing I ever did was as a young steward building a workplace group that focussed on workers’ own self-activity. Unless you build that solid, mass base of self-active workers, all the rest is a mirage.

It is on that basis that I argue for Marxists working in Labour branches to turn them outwards, to build self-activity within their local communities, and so on. Neither Labour nor any other party can be a mass, revolutionary party without that work being done first, because any mass workers’ party will reflect the existing level of workers’ consciousness. Its the failure to accept that which leaves the sects pure, but sterile.

The problem with Mike’s approach is that, while he rightly criticises the limitations of reformist solutions, he ends up with a maximalist solution, which is propagandist. By contrast, launching occupations against cuts, turning the occupied workplaces into co-ops and building other forms of self-government would enable workers to deliver immediate solutions via their own agency, without relying on those of the reformists. And that is inherently transitional, leading to the maximum programme demands of social revolution. 


1. ‘Mapping the alternative’ Weekly Worker September 29.

2. See L Trotsky, ‘Flood tide’: www.marxists.org/archive/trotsky/1924/ffyci-2/06.htm.

3. ND Kondratieff, ‘The long waves in economic life’ The Review of Economic Statistics November 1935.

4. Financial Times World economy supplement, October 10 2008.

5. http://boffyblog.blogspot.com/2010/12/cpgb-cuts-strategy-falls-between-scylla.html.

6. H Ticktin, ‘The theory of capitalist integration’ Weekly Worker September 8.

7. www.bbc.co.uk/news/business-15185692.

8. http://boffyblog.blogspot.com/2009/03/can-co-operatives-work-part-1.html; http://boffyblog.blogspot.com/2009/03/economics-of-co-operation-part-1.html.

9. www.ica.coop/coop/statistics.html#economic.

10. http://workerco-operatives.blogspot.com/2010/07/mondragon-system-for-pensions.html.

11. www.mondragon.edu/en.

12. www.marxists.org/archive/draper/1966/twosouls/5-lassalle.htm.

13. http://boffyblog.blogspot.com/2009/08/proletarian-military-policy.html.

14. ‘Co-ops against capitalism’ Weekly Worker July 22 2010.