The present
economic crisis has been described in various ways by mainstream
commentators. All manner of “solutions” have been posed, both by the
bourgeois politicians and economists, and by the reformist leaderships
of the working class. What these commentators and representatives cannot
admit is that this crisis will not be solved by this or that reform.
Society is living through a crisis of capitalism and the choice facing
mankind is simple: socialism or barbarism
The present
economic crisis has been described in various ways by mainstream
commentators. All manner of “solutions” have been posed, both by the
bourgeois politicians and economists, and by the reformist leaderships
of the working class. What these commentators and representatives cannot
admit is that this crisis will not be solved by this or that reform.
Society is living through a crisis of capitalism and the choice facing
mankind is simple: socialism or barbarism.
At the onset of
the “credit crunch” in 2007-08, we were told by various commentators
that this was simply a financial crisis – a crisis of credit. With the
bailing out of the banks and the conversion of private debt into public
debt, a series of sovereign defaults and bailouts began, first with the
default by Iceland, and then with the bailout of Greece, Portugal, and
Ireland. As a result we are now told that the crisis is a sovereign debt
crisis and a crisis of the euro. The situation is described by some
bourgeois commentators – with the aim of hiding the real nature of the
crisis – as being nothing more than a “crisis of confidence”.
In
turn, other bourgeois commentators now complain that the crisis is one
of political leadership. As a result, unreliable and weak
representatives of the ruling class such as Berlusconi in Italy and
Papandreou in Greece have been cast aside and replaced with
“technocratic” governments. Meanwhile, governments that embrace
programmes of austerity, such as the coalition government in the UK, are
held up as models by the bourgeoisie for the rest of the world, and are
rewarded with a triple-A credit rating as a result.
Accompanying
these various descriptions of the crisis – as a financial crisis, a
crisis of credit, a sovereign debt crisis, a crisis of the euro, a
crisis of confidence, and a political crisis – we see these same
commentators put forward an array of so-called “solutions”. In response
to the financial crisis, we are told that we simply need more regulation
of the financial industry; to combat the crisis of credit we must
restore liquidity. To tackle the sovereign debt crises, the reformist
leaders suggest that we “tax the rich”, introduce a “Tobin” or “Robin
Hood” tax, and “stimulate growth”. Meanwhile, to solve the crisis of the
euro, we are told either that insolvent countries must leave the euro
or that there must be a fiscal union to accompany the eurozone monetary
union. Finally, the bourgeois representatives suggest that “confidence”
must be restored by cold, impassionate, ruthless governments through
“reforms” (i.e. austerity). Where democratically elected governments are
unable to do this adequately and reliably for the demands of the
markets, then these governments are simply replaced by unelected
technocrats in “the national interest” (i.e. the interest of the money
lenders).
What all of these explanations and descriptions fail to
admit, however, is that these various crises – the financial crisis, the
sovereign debt crisis, the euro crisis, and the political crisis – are
not the underlying problem, but are, in the final analysis, reflections
of the real crisis facing society – the crisis of capitalism. In turn,
these respective “solutions” to the various crises that are put forward
will solve nothing. These commentators and representatives are all
attempting to find a solution under capitalism, but no amount of
tinkering with the system will overcome what is fundamentally a crisis
of capitalism.
Financial regulation
After the onset of the
crisis in 2007-08, all eyes turned towards the bankers and the rest of
the financial sector across the world. The crisis was blamed on the
greed of the bankers and the laissez-faire attitude of the financial
industry. “If only our economies didn’t rely on the financial sector so
much!”; “If only we had smaller, more regulated banks!” These were the
cries that were heard in the wake of the sub-prime mortgage scandal, the
collapse of Lehman Brothers, and the subsequent credit crunch.
It
may well be true that bankers are all inherently greedy people (some go
so far as to call them all psychopaths) and it is a fact that the
financial sector holds an enormous sway over the economies of many
countries. One must ask, however: who allowed these bankers to take such
outrageous risks with the money of ordinary people? Who allowed the
financial sector to grow to such large proportions and dominate the
economy without any oversight or regulation?
Firstly, it should be highlighted that the dominant role of finance capital in the economy is not new. In Imperialism, the Highest Stage of Capitalism,
written in 1915, Lenin described the growing role of finance in the
global economy, whilst Marx wrote about the importance of credit in Capital.
In
Britain, the expansion of the financial sector qualitatively changed in
the 1980s with the “Big Bang” under the Thatcher government, when, in
October 1986, the rules and regulations relating to the London Stock
Exchange and banking were relaxed. A similar process developed in the
USA under President Reagan. This expansion of the financial sector
continued – and was actively encouraged – under New Labour in Britain
and Clinton and Bush in the USA, right up until the crash of 2007-08.
The
growth of the financial industry from the 1980s onwards was not a
random event or chance occurrence. Nor was it simply the result of
“neo-liberal ideology”, as is often suggested. The ideology of those in
power is a reflection of the material interests of the ruling class,
which in a time of crisis cannot tolerate niceties for the masses such
as welfare and public services. In such times, the reformist leaders –
who have been nice and obedient to capital by keeping the labour
movement in check – are cast aside, and a more openly confrontational
government is demanded by the bourgeoisie.
The growing role of
finance from the 1980s onwards can be seen in two interlinked
tendencies: on the one hand, the massive expansion of credit; on the
other hand, the increasing amounts of capital invested, not into real
production, but into speculative activity such as derivatives and other
newly invented financial products.
Both of these tendencies were
an attempt to overcome the economic crisis of the 1970s. As the trade
unions were weakened and wages were pushed down in order to maintain and
increase profits, credit was used to artificially expand the market
(i.e. effective demand), by lending families and young people money
through mortgages, loans, and credit cards. In the UK, for example,
wages (as a percentage of GDP) have decreased from 65% in 1973 to 53%
today. Meanwhile, average household debt in Britain has increased from a
value of 45% of GDP in 1980 to 157% of GDP in 2005.
This cheap
access to money was needed to overcome a crisis of overproduction, which
arises from the fact that, under capitalism, more value is produced by
workers that is paid back in the form of wages. As the Marxists have
explained before (Britain: Fighting the Cuts),
credit is therefore needed to make up the difference and overcome this
fundamental contradiction of capitalism, which arises from the private
ownership of the means of production.
The increasing amount of
speculative activity, meanwhile, was an attempt to make money out of
money, instead of investing in real production, which would only have
served to increase productivity and thus increase the amount of excess
capacity in the system and exacerbate the crisis of overproduction.
The
enormous expansion of credit was actively encouraged by politicians and
their economic advisors across the world, not only through financial
deregulation, but also by encouraging people to borrow greater and
greater amounts of money. In Britain and the USA, for example, families
were encouraged to buy homes (through sub-prime mortgages and the cheap
selling off of council homes) – the value of which families could then
borrow against – whilst student grants were replaced by student loans
and increasing amounts of student debt (which now stands at around $1
trillion in the USA – more than credit card debt! [Student loans: The indebted ones].
These
attempts to overcome the crisis of the 1970s have, of course, only
exacerbated and delayed the crisis, increasing the magnitude of the
underlying contradictions, and leading to an even more severe crisis
now.
When one blames the current crisis on greedy, risk-taking
bankers and the overreliance on finance, one must, therefore, first ask:
why has this situation come about and who has allowed for this to
happen? To complain that bankers are greedy says nothing new. All
capitalists are greedy, because the system that drives them – capitalism
– is a system based on an unquenchable thirst for profits; the greed of
the bankers and financiers is only a more obvious, open, and naked form
of this desire for profits at the expense of all else.
Given that
politicians and governments were implicit in this whole process, it
quickly becomes clear that we cannot simply appeal to these same
governments to handcuff the bankers on our behalf. This highlights that
the problem is not just a question of economics, but a political
question also of who runs the economy and of how the wealth in society
is controlled and distributed.
Since the beginning of the crisis,
the call from many has been for more regulation of the financial
industry, for the separation of commercial and investment banking, and
for a breakup of the big banks. All of these demands have been put
forward with the intention of protecting ordinary savers from the
gambling of financiers, and to prevent a repeat of the need for the
state (and hence taxpayers) to save the banks.
Evidence suggests,
however, that such regulatory measures would make little (if any)
difference. Take, for example, the separation of commercial and
investment banking. Firstly, one can see examples of purely commercial
banks, such as Northern Rock in the UK, which still needed to be bailed
out (in fact Northern Rock was the first of the banks to be recently
bailed out in Britain).
Secondly, it should be noted that the
separation of commercial and investment banking is not a new idea, but
was in fact implemented in the USA with the Glass-Steagall act in 1933
in an attempt to curb speculative activity (déjà-vu?). Importantly, this
act was removed by the Clinton administration in 1999 as part of the
general deregulation of the financial industry.
This example shows
the limits and redundancy of trying to regulate the financial sector
(or indeed any part of the capitalist system). Any regulations that are
put in place to “save” the economy are only ever rules on paper under
capitalism, which can simply be removed, re-written, or torn apart at
the whim of the ruling class. The only way that such rules and
regulations can be guaranteed is if they are enacted by a workers’
government under the control of the labour movement. And if society was
able to go that far, why not carry on going and expropriate the
capitalists altogether by nationalising the banks and the other
commanding heights of the economy?
The same can be said in
relation to all rights and reforms that are won by the working class. Of
course Marxists support any genuine reform, right, or regulation that
benefits ordinary people – indeed revolutionaries are often leading
figures in movements that fight for such demands – but we must also
point out the temporary nature of such reforms, which, under capitalism,
will simply be taken away when the economy goes into crisis and
capitalists seek to restore their profits. The recent removal of
democratically elected governments in Italy and Greece under pressure
from the market is another prime example of this.
There are also
those who seek to regulate the banks by breaking them up into smaller
entities, the idea being that a series of smaller banks will be less
likely to cause a global financial crisis if one of them goes bankrupt.
The people who make such suggestions are like the Utopian Socialists
that Marx and Engels describe in the Communist Manifesto:
"This
form of Socialism aspires either to restoring the old means of
production and of exchange, and with them the old property relations,
and the old society, or to cramping the modern means of production and
of exchange within the framework of the old property relations that have
been, and were bound to be, exploded by those means. In either case, it
is both reactionary and Utopian.”
These Utopians
desire, in effect, to roll back the wheel of history and go back to a
time of small producers. But the concentration of capital is an
historical fact, as observed long ago by Marx and Engels in the
Communist Manifesto. It is now also a recognised scientific fact, as
documented in an academic paper highlighted by the New Scientist,
which reports that approximately 40% of the wealth in the world
economic network is controlled by 147 companies –the vast majority of
which are banks and financial institutions.
It is clear that the
financial industry has an enormous amount of power and that huge banks
dominate and control the global economy. The solution, however, is not
to break up these giant entities into smaller pieces or to try and
regulate these monolithic financial institutions. Instead, the solution
is to seize these companies – which are privately owned and which
operate as part of an anarchic worldwide economic system – and to put
them under democratic workers’ control within a rationally planned
economy.
The fact is that the crisis of capitalism cannot be
overcome through rules and regulations, but can only be solved by the
transformation of society – by the living forces of workers and youth
taking economic and political power from the capitalist class and
welding this power in the interests of society as a whole.
Taxing the rich
Alongside
the call for greater financial regulation, the other most common demand
from the reformist camp is to “tax the rich”. It is unsurprising that
this demand has found an echo amongst such a wide layer of society,
especially when the growing disparity of wealth is so flagrantly
flaunted by the rich. In Britain, the richest 1000 people increased
their wealth by 30% in the last year to an astonishing total of £336
billion, despite the crisis. Meanwhile, the executives of Britain’s 100
biggest companies enjoyed an average pay rise of 49% over the past year.
Figures
for the tremendous amounts of tax that is avoided and evaded by the
rich are commonly cited; for example, the tax collectors’ union in the
UK, PCS, estimates that over £120bn is avoided, evaded, and uncollected
every year. With a budget deficit of around £150bn in the UK, it would
seem that cuts and austerity aren’t quite so necessary after all.
What’s
more, certain members of this wealthy elite – realising that there is a
limit to how much you can get workers to pay when so much wealth is
concentrated in the hands of so few – are even demanding that they be
taxed more, with figures such as Warren Buffett, the famous American
investor, and Luca di Montezemolo, the chairman of Ferrari in Italy,
amongst those who have recently asked their respective political leaders
to increase the rate of taxation on the rich.
But, like the issue
of financial regulation described above, two questions must be asked:
how have the rich been allowed to avoid and evade paying their taxes up
until now? And who will tax the rich and make them pay their fair share?
Again,
governments have been all too eager to lower (personal and corporate)
tax rates for the wealthiest over the past 30 years in a race to the
bottom in order to entice the rich to live (and invest) in their country
instead of another. For example, in 1974, the UK Labour government
introduced an 83% tax rate on the highest earners. By 1988, the Thatcher
government had reduced this to 40%, whilst the current 50% rate on top
earners (introduced by the previous Labour government) is considered
temporary by the current Tory-Liberal coalition government. Meanwhile,
over the same period, the main rate of corporation tax in the UK was
reduced from 52% to 30%.
Indeed, the vast majority of the
capitalist class is not quite as keen as Mr Buffett on being taxed more,
since such a tax increase would bite into profits. In general, even the
slightest whisper by governments regarding the possibility of raising
tax rates for the rich is met with cries of indignation by the
capitalists and their mouthpieces in the media, who complain that such
taxes will discourage investment and thus stifle economic growth. In
effect, these people are holding a gun to the heads of governments,
threatening them with a strike of capital.
Meanwhile, the
bourgeois politicians and media raise a hue and a cry about anyone who
mentions the possibilities of taxing the rich. In the USA, President
Obama has been called a “socialist” by the Republicans and the
right-wing media, who accuse of him of trying to start a “class war”.
But as Warren Buffett commented: “there is class warfare, all right, but
it’s my class, the rich class, that’s making war, and we’re winning.”
In
the USA, the question of taxes on the rich has also become a pivotal
issue for the Republican presidential nomination campaign, with
candidates stumbling over each other to promise lower and lower tax
rates with accompanying catchy titles, as The Economist reports:
Mr
Santorum, for example, wants manufacturing firms to pay no corporate
tax at all (one of his three zeroes). Ron Paul, a libertarian candidate,
wants to do away with federal income tax altogether. Mr Cain denounces
the current tax code as “the twenty-first-century version of slavery”.
There is a consensus among all the candidates that the federal corporate
tax rate of 35%, the highest in the rich world, must be slashed. Most
candidates would like to put an end to taxes on capital gains and
dividends as well.”
The Democrats have acted no
better, with Obama allowing himself to be held to ransom by the
Republicans in negotiations over how to reduce the deficit; the
Republicans refuse to budge on their demand for no tax increases, and
the Democrats capitulate.
Of course certain concessions can be
squeezed from the capitalist class, but only if the fire of revolution
is held to their backsides as a warning of what they could potentially
lose. But, similarly to the question of regulation and reform, any
attempt to tax the rich and make them pay more can only be made
permanent if it has the full force of the labour movement behind it, as we have explained elsewhere.
And again, if a mass movement of workers and youth is able to achieve
such a permanent reform, why not go the whole way and seize the wealth
of the rich by nationalising the banks and the other major monopolies?
The
reformist leaders sweat and writhe at such a suggestion, creating
hysteria and warning that the capitalists must not be provoked, but must
be sweet-talked into parting with their money. Such people imagine that
you can tame a tiger by slowly removing its claws one-by-one. In any
case, if ever there was a case of provocation, it is the massive
austerity programmes being demanded by the bourgeoisie, which have
unsurprisingly elicited tremendous responses from workers and youth.
Even more audacious is the sight of these same members of the
bourgeoisie sipping on champagne as the masses protest beneath them (see
this video from around 53 seconds in). This is the real provocation!
In
addition, it is one thing to talk about getting taxes from the rich in a
time of boom when there is more to go around for everyone; it is
another thing to try and tax the rich in a time of crisis. Of course,
such issues are of little concern to the reformist leaders, who scorn
the Marxists for their “idealism”, whilst assuring the masses of their
“pragmatism”. But it is the reformists who are the real idealists, with
their utopian suggestions to “tax the rich”, and it is this same
“pragmatism” that leads the reformists to carry out cuts on behalf of
the capitalists once they are in power. This is the nature of reformism
in a time of crisis; it turns into its opposite, leaving reformists with
nothing but counter-reforms to offer.
This idealism of the
reformist leaders is also clearly put on display by their “alternative”
to cuts in the form of “stimulating growth”. But, as we have explained
elsewhere (Marx vs. Keynes),
the idea that the economy can be jolted into activity at the click of a
button or that capitalists can be encouraged to invest at the whim of
governments is utopianism in the extreme. Rather than governments taking
such a long-winded, roundabout route to funding public spending – i.e.
encouraging capitalists to invest and then pleading with them to hand
over some of their profits – why not just expropriate the capital of the
1%, put it under public control, and invest the wealth in society for
the needs of society?
[To be continued…]
