Issue 223 of SOCIALIST REVIEW Published October 1998 Copyright © Socialist Review
Global capital is looking ever leaner, more flexible, trying to impose a global reach on its markets. Capital can't work without a reserve army of the unemployed to make it work at least in the short term. Will it work in the long term? All the signs are that the recent crises are not freaks of nature that can be patched with a little bit of intervention from the IMF or the buying up of assets by US companies. We are facing a very serious crisis and when you hear people say, 'Things can only get better,' my response is, 'Things can only get worse.' There are limits to the market and I want to outline evidence to that effect.
In the system that came into place after the war there was some form of sharing of risk, the idea of a welfare state. Capitalists had to pay their taxes to build up welfare states to make the workers feel a bit better. There was always the risk for capital that the Soviet Union would appeal so much to the workers in the West that they would go over to some form of Communism. In order to keep them sweet there had to be concessions: a free health service, free education, a real rise in living standards. Since Communism has collapsed, the result--far from being a triumph for working people in the west--has been an absolute disaster. Without an external enemy all those people who are running global capital can remove those concessions. The real attacks on welfare states didn't come in the 1980s, under Reagan and Thatcher. The attempts to downsize welfare states have actually happened in the 1990s under first Major, then Blair, and under Bush and then Clinton. So the balance of risks has changed and nearly all the risks are now placed on labour in the sense that workers have to accept a fall in living standards, higher unemployment and a drop in the social wage.
The idea now is that we are living in a completely classless society. Politicians tell us that we are all part of a joint enterprise. The CBI comes in from one side, TUC from another, government holds the ring in the middle and we're all on the same side. This is a very static view of class. The argument runs that, because the blue collar working class has actually diminished in size, class doesn't matter. But there is a new industrialised working class, the people who work in call centres who are no different to people who worked in manufacturing before and after the Second World War. Class is really a question of power rather than of any static relationship. It's quite obvious that there is a class which wields incredible power and there is a class which holds virtually no power at all. That's the new dynamic of the class system in the 1990s. The market will eventually come up against the limits of its action.
The supporters of the market system don't really have a sense of history. In the early 19th century there was an attempt to build a completely deregulated, unfettered free market. There are obvious parallels between what happened in the 1830s and 1840s and the last 20 years. The repeal of the Corn Laws is similar to the attempt to open up global free trade and free movement of capital. Welfare to Work systems force people into work at low wages mirroring the New Poor Law, which forced people onto subsistence wages or into the workhouse. In the 19th century even conservatives understood that this system was inherently unstable, that complete free markets didn't deliver what they were supposed to. They delivered incredible instablity and produced a political reaction which saw the rise of the trade union movement and of a political movement for democracy. In the end the conservatives made concessions. Some controls were put on the robber barons in America and welfare states were set up in Britain and in Germany. They needed to inject some equality into the system or face its collapse. That seems to be one of the things that Blair and Clinton have not taken on board, with all their talk of the 'Third Way', as if it's some sort of new idea. It isn't new at all. History shows that we are repeating the same sort of process as occurred In the earty 19th century.
The new system, globalisation and the free market system, has no memory. These ideas are not new, ideas of a utopian free market system, that the market can solve everything, that it is necessary to take government out of the system completely. The problem is that, while we are all consumers, we are all producers as well. The attacks on producers which are supposed to deliver great benefits to consumption cut both ways.
The forgetfulness of history suggests that some of those hard lessons are going to be repeated. The whole point about globalisation is the need to compete to survive, to make things more productively to avoid going out of business. In the Asian markets, there is a problem of over-supply, particularly in South Korea with the over-supply in the production of computer chips. Having devalued their currency the Koreans are trying to export their way out of trouble, flooding the market with computer chips, driving down the price and eating into profit margins. The result is quite obvious. There is a relentless global search for ever cheaper production sites where capital can move production to find workers who will do the same work for less. Capital pays lip service to environmental and Labour standards. Some of the more right-on companies say they are dedicated to these standards but you find exactly the opposite. The logic of this manic global capitalism prevents them, even if they wanted to, from doing the things that they say. For all the talk of competition being a good thing, what global capitalism desperately wants above all else is to create a single monopoly. It wants to get complete dominance of the market place. The idea that Bill Gates of Microsoft is some kind of 'nice guy' capitalist is clearly false when what he really wants is to make Microsoft the one dominant supplier of computers and software. Capital is forever looking for new markets, because the one way to try and solve the problem of over-supply is to increase the level of demand by getting into a massive new market and balance out the over-supply, at least in the short term.
The crash in south east Asia and the domino effect through those countries and beyond was entirely predictable. There are parallels with 1929, when people said that the crash was a financial crash. The US economy at the time was incredibly robust and was brought down by a speculative bubble. But the reason there was a speculative bubble is because it was believed that the US economy could continue to churn out vast amounts of goods, and profit margins could be kept up. Exactly the same is happening now. The US stock market is massively overvalued because Wall Street believes that the corporate earnings of the last few years are going to continue--which they won't. At some point the Asian crisis is going to ripple across the Pacific to America. It's already obvious that price earnings ratios on Wall Street are as high now as they were in 1929. Wall Street is ripe for an absolute fall and I think it's possible that Wall Street will crack over the next six to 12 months. In 1929 the reaction to the crash was that everyone tried to cut production, tried to sell assets, which will intensify the extent of the financial crash and turn it into an economic crash in just the same way as the financial crash in South Korea, Thailand, Malaysia and Indonesia has actually turned into an economic crisis nine months later.
The book The Age of Insecurity by Larry Elliot and Dan Atkinson claims that we're in a new phase of capitalism because there's been what they call a cultural shift from the 1960s to 1990s. There clearly has been an ideological shift. I was brought up in Britain in the 1950s. We took for granted free school milk, free welfare foods, that poverty was diminishing and you wouldn't end up homeless. The established ideology in the 1960s was Keynesianism. The established ideology of not merely the Labour Party but of the Conservative Party with the exception of the extreme right wing fringe, was the welfare state. What we hear from both New Labour and the Tories today is far to the right of that.
We have to try to explain why the change took place and to understand that capitalism as a system lost control of itself in the mid-1970s. In the 1930s there was a deep crisis, but first one country and then another seemed to find some way of emerging from it. Then followed the period of the most sustained expansion of the system capitalism has ever known, from 1940 to 1973. Capitalism could afford to allow workers to improve their living standards through the welfare state. The big argument on the left was, will capitalism ever enter into crisis again? Then in 1973 suddenly capitalism entered a new phase of deep and deepening crisis.
Capitalism didn't undergo a period of expansion because it accepted Keynes's ideas. To see why you only have to read Keynes, who started off as a free market economist, developing a picture of capitalism which shows its absurdity and deep crisis. Through the crisis of 1929 to 1932 capitalism as a system could not solve its own problems. The capitalists came along and said cut wages because they couldn't sell the goods produced. But if you cut wages, you sell even fewer goods. Keynes argued that there is no logic to how much you can go through the process of cutting wages. When workers have no wages whatsoever, then you can't go any further in cutting them.
Keynes had ideas but when it came to practical situations he couldn't implement them. It is known that he was critical of a labour government cutting the dole by 10 percent in 1931. At the last minute Keynes shied away from any public attack on the government. He wrote, 'Our methods of control are unlikely to be sufficiently delicate or sufficiently powerful to maintain continuous full employment.' In the end Keynes had no answers.
In their book, Larry Elliot and Dan Atkinson say what they stand for is social democratic methods against the methods of the market. By social democracy, they mean the aspiration of a better, fairer and more equal society, spanning between the ideas of Roy Hattersley and Tony Benn. It's a laudable idea but the reality is that no social democratic government faced with the crisis of capitalism. has ever been able to implement any change.
Was it challenges to the power of capital that actually brought about expansion in the postwar period? All the economic studies that have been done show that the economic policy of the postwar period, of Keynesian intervention into the free market, was not to keep the market expanding but to stop the capitalist boom getting out of hand. In the 1950s the British government would intervene in the economy every three to four years, with credit squeezes, to slow the economy down and to try to stop employment rising too fast.
In 1973 people who had been brought up on the Keynesian idea that you could intervene in the system to keep it running found that these methods couldn't work when faced with the reality of the first major crisis to hit the capitalist world in the postwar period. Overnight they switched their ideas. The free market sect had previously been a fringe group on the edges of mainstream economics. Faced with a crisis, suddenly half the Keynesian economists and most of the politicians caved in to the free market ideas, because they had discovered the hard way that you can't intervene in capitalism to deal with the crisis.
This has implications for our understanding of the situation today. It would be nice to think that all we have to do is exert pressure and somehow the capitalists will see the logic and there will be a solution to the crisis. If Keynes couldn't manage it in the 1930s, then George Soros is not going to manage it in the 1990s. In some ways it's more difficult now. At least in the 1930s most companies operated within a national market and you could imagine the state intervening. Although today most capitals are still rooted in a national base, they operate internationally and it becomes much more difficult to conceive how any narrow, nationalist state is going to solve the crisis. The problems of the system are in some ways of a much greater scale than they were in the 1930s. That crisis began in 1929 and was over by 1942. We've now been through 25 years of crisis. Although it is not as deep as the 1930s the intractability is greater. The fundamental factor which solved the crisis in the 1930s was not Keynesian ideas but the drive towards war and this had a paradoxical effect. The horror of capitalism became even worse but it had the strange effect on the economy of solving some of the short term economic problems of the system. Since 1973 there has been more drive towards war. There's been the new cold war in the 1980s, the bombing of Iraq and the Gulf War, but it's not enough to solve the crisis of the system. You can argue that it may be one explanation of why the level of unemployment is still not as high as it was in the early 1930s, but it has not solved the crisis of the system.
But what are the answers? Keynes says we can't trust the capitalists ever to think about a rational society as they are driven by profit. They can only do it by cutting working class conditions and making people work harder. Yet at the same time this process makes it more difficult to sell the goods they produce, conditions which lead to falls in rates of profit and deeper crises of the system. The only way to overcome this, says Keynes, is socialisation of production. Then we can produce the goods that people need and we won't be worried about the long term tendency of rate of return to fall. Keynes then argues for socialisation of investment. But how can you achieve that unless you have control over production? Socialisation of investment means taking the profits from the capitalists and telling them what you're going to do with those profits. The trouble with Keynes was that he wanted a reformist answer to a system that was in such crisis, but in the end called for socialisation of investment, which is a revolutionary demand. Whichever way you look at it to take from the capitalists their control over profit and say we're going to determine how profit is going to be used is a revolutionary demand. But Keynes himself wouldn't go that far. He shied away from putting forward any practical proposals to the crisis in the 1930s. In the 1990s we have to draw the same conclusion: that if you want to work within the system there's no practical alternative. In the early 1980s there were lots of people in Britain talking about an alternative economic strategy, a new Keynesianism. Who was proposing this new strategy? Robin Cook, Margaret Beckett, Mo Mowlam and John Prescott. How is it now that they're in the same camp as Tony Blair, who never believed in any change to the system? It's just not enough to give the capitalists advice on how to run the system or to look for a new Keynes. We have to talk in terms of a fundamental struggle to overthrow the system.
There is quite a lot of common ground between what Chris and I are saying. My problem is twofold. Yes, a lot of what Keynes said was completely wrong, but then a lot of what Marx said was completely wrong. The revolution shouldn't have happened in Russia, it should have happened in Britain and it didn't. In the early 1930s the German Marxists sat around waiting for the revolution to come because of the crisis and we ended up with Hitler. The second point is that there were real benefits to ordinary people in the years after the Second World War.
I do think there is a crisis, I do think it's growing but it's a bit easy just to say we're going to have a revolution. How, where? We can sit here and play fantasy revolution like we play fantasy football. How do we get from where we are now to this point in the future, do we just sit around and wait for it to happen? I don't see a revolutionary consciousness, a revolutionary situation in this country. I have been accused of being an inveterate reformist and I throw my hands up and say yes I am. I'm too impatient to sit around waiting for the inevitable revolution. That's the point at which I have problems with what Chris says.
I don't know whether it's better to be a fantasy revolutionary or a fantasy reformist. I certainly don't want to spend my life waiting for a revolution but I know a lot of people who have died waiting since 1974 for reforms. The argument is a false one. People in class society reach a point in which conditions become intolerable for them and they start fighting for reforms. The fight for reforms becomes a fight against the system.
The working class in Britain does not have a revolutionary consciousness today. However, in a 1995 survey, in a period of recovery, most people believed that life would be worse for their kids, not better. If a recession materialises, how are people going to feel in two years time? With the bitterness and anger there will be clashes and struggles. That creates an atmosphere where the fight for reforms can begin to develop people's understanding of a fight to change the system in its entirety.