A very British
International Viewpoint # 237 • October 26, 1992
BRITAIN
THE enforced exit of the British pound stirling from the
European Exchange plunge of the pound. In short the currency markets are right; the British economy is in its worst state since the early 1930s.
The dog that didn't bark crisis
Rate Mechanism
One might have expected the labour
(ERM) in mid-
September, its devaluation of 15% and the public row between the British government and its European Community (EC) partners - in particular Germany - have advertised both the fundamental weakness of the British economy and the crisis of bourgeois strategy.
Behind the British economic crisis lie acute dilemmas for the country's ruling class. The monetarist "miracle cure" of
Thatcherism has created as many problems as it has solved. However, any alternative neo-Keynesian policy based on an attempt to strengthen the structures of production would also face enormous difficulties.
Underlying these tensions is the contradiction between the social nature of capital and its mobility.
JAMIE GOUGH
HE Conservative government of
T
John Major is now in complete disarray, and seen to be so even by its own supporters. It has both lost the main mechanism of its economic policy and failed on its chosen index of success. Since the mid-1980s when the
Conservatives abandoned control of the money supply as the central lever of their strategy, they have relied on a high exchange rate to impose deflation and discipline on the economy. This lever has now been removed in spectacular fashion.
The Conservatives have always presented their strategy as being about "reducing inflation". Right up to the moment of debacle Major was justifying the recession by pointing to the government's success in achieving 4% inflation — below the German rate for the first time in 25 years — and promising zero inflation. The devaluation will now ensure that inflation increases steeply in the years to come.
It is true that the exchange and inflation rates are only indirect and fetishistic forms of capital accumulation. Nevertheless, it is through these forms that bourgeois state economic policy functions. Loss of control of both is a disaster not only for the government but for the bulk of British capital, which has supported government strategy.
The stirling crisis owes something to the high level of German interest rates. But the fundamental reason is the weakness of productive capital in Britain; in the long term exchange rates reflect relative levels of
14 productivity of labour in different coun tries. The devaluation reflects this inescapable reality; the currency speculators -blamed for the crisis by both government and Labour opposition leaders — are no
Balance of trade
The most immediate measure of relative productivity is the balance of trade. This deteriorated continuously in the 1980s and that the recession is worse in Britain than in other imperialist countries - which ought to improve the trade balance - the latter remains in deficit, and would be sure to get worse in the event of any economic revival.
The lack of international competitiveness is reflected in the particular severity of the British recession. This has now lasted two and a half years and is still deepening. Real unemployment is around four million or 14%.
Government borrowing this year will be equivalent to 5% of Gross Domestic Product (GDP), making it impossible for the government to use state spending to combat the recession; indeed there is talk of tax increases, which would further deepen the recession while representing a humiliating policy U-turn for a government that has always appealed for popular support as the party of tax cuts.
The real interest rate is at its highest level since the 1930s but a lasting cut to stimulate the economy is ruled out by the movement to use this open crisis to go on the offensive. Alas, we have a whimper instead of a bang.
The Labour leadership has been hamstrung by the fact that it supported British entry into the ERM before the Conservative government and even supported the high rate at which the pound was pegged This is because they want deflationary discipline no less than the Tories and look to the ERM to impose it, using support from Germany and hoping that the "external" nature of the constraint will provide them with a convenient alibi in any future conflict with workers.
Labour has also ruled out any substantial increase in public expenditure. It has therefore been confined to putting forward some mild proposals for increasing productive competitiveness; more training, incentives for fixed investment and research and development and some stimulus to the building industry. From the trade union leaderships, meanwhile, who took further steps at the recent Trades Union Congress towards US or Japanese style business unionism, there has been a resounding silence.
The crisis thus raises some fundamental questions: First, why has the Conservatives' policy for reviving British capitalism failed so miserably? Second, why has the labour movement's response been so timid? Third, the open failure of neo-liberal policy might be expected to give a boost to a project with longstanding support, particularly in the labour movement - that of "modernization" meaning reorientating both government policy and the City of London financial centre towards the needs of domestic capital. Is this a realistic strategy for British capital and what are its implications for labour?
These problems are not specific to Britain. They concern the contradictions of both neo-liberalism and social democracy in the present period. Furthermore, while these contradictions take particular forms in Britain, this very "peculiarity" of Britain is different from how it is usually pictured on the left.
The British crisis is a particular expression of the crisis of world capitalism, currently visible in recession or slowdown in all the imperialist countries, the instability of the world's financial system and economic catastrophe in much of the semi-colonial world. This situation acts as an external context of the British crisis, most obviously in restricting markets. But there are also contradictions at work within Bri-
October 26, 1992 tain and other imperialist countries which are reproducing and perpetuating stagnation.
Nevertheless, the record of the domestic
British economy has been peculiar: since the beginning of austerity it has continued its historical decline relative to its rivals.
World crisis always exposes and sharpens the inherent unevenness of capitalism, including that between countries. This was the root of the ending of fixed exchange rates in 1971 and of the present currency crisis in Europe. Britain, in particular, has suffered badly from this process.
Neo-liberalism seeks to solve the crisis for capital by creating the maximum space for the operation of the therapeutic processes contained in the capitalist mode of production itself. The destruction of capital values is speeded up, thus reducing the amount of capital with claims on a given profit, in this way tending to increase the rate of profit. Unemployment is not combatted or is actively encouraged as a way of holding down wages and intensifying work.
For these processes to operate at full swing, obstructions to the operation of the law of value have to be reduced as far as possible. Neo-liberalism has sought to weaken and sweep away non- market "institutional" arrangements built up during the previous long wave of expansion, whether these be forms of state intervention and welfare, collective bargaining arrangements, trade union influence or cartels and other forms of coordination between firms; while all these may have been profitable for capital in the earlier period, they are now seen as having become shackles.
In this way capital becomes more mobile, freer to move into new fields of investment, geographical areas and new interfirm relations.
This programme has been carried out in a relatively pure form in Britain, since it goes with the grain of British traditions.
Britain's past imperial dominance produced on the one hand money capital with the world as its oyster, and on the other manufacturing capital which for a long period was not forced to consider competitive strategy because of its historical head start and the cushion of Empire markets.
Capital mobility, free markets and free trade seemed to serve well. Liberalism, in this sense, is dyed in the wool.
Thatcherism achieved certain gains for capital. Between the two cyclical peaks of
1979 and 1989, labour productivity increased at about the same rate as for the Organization for Economic Cooperation and Development (OECD) countries as a whole — something not previously seen in the post Second World War period. This was achieved partly by enormous destruction of less productive plant, partly by labour saving investment, and, to a lesser extent, intensification of work.
Reorganization of production was assisted by successive defeats of the unions. In 1979-89 the rate of profit increased to reach its level of 1970 — low by the standards of a boom but a substantial improvement. As usual, British capital fared better than the British economy: Thatcher's ending of controls allowed an enormous export of capital - £53bn in 1989 alone.
No revival of investment
But big problems remained for capital. The rate of domestic fixed investment was no higher in the late 1980s than in the late 1970s, a far worse performance than in other OECD countries, and an increasing proportion of this investment was in property rather than in plant. Net fixed investment in industry was actually negative in
1981-84. Whole industries, notably computer manufacturing, were wiped out in the eighties. Many of the higher value added
BRITAIN stages of production were moved abroad, leaving behind low skilled and routine production. The present crisis flows from this lack of industrial investment.
Crucial to this failure was Thatcherism's refusal to have an industrial policy. The economies of today's imperialist countries are highly socialized. That is to say, many investments have a long turnover time and therefore need a planned context; firms' plans are highly dependent on those of other firms but are not easily or quickly changed; while there are many essential inputs to production that capital is loath to finance because they are difficult or impossible to keep private, including skilled labour and much knowledge production.
For capital accumulation to proceed effectively, these interdependencies require organization across and even against the private interests of both firms and workers.
This socialization of production has grown inexorably throughout the history of capitalism. The two most successful postwar imperialist economies,
Germany and Japan, have been marked by strong socialization;
in Germany organized by the banks and formal employerunion cooperation; in Japan by joint planning between the large firms in each sector and the state.
Neo-liberalism only sees the negative effects of the socialization of capital: feather-bedding of firms, blocking of investment excessive worker avenues, influence and the exposure of the state to pressures from particular interests. In its crusade to destroy these rigidities, it fails to find the needed new forms of socialization. The Conservatives have instead relied on cost cutting and deskilling.
The lack of attention to socialization has had severe negative consequences. Most of
British industry has continued in its historic traditions of low product and process development, poor marketing, lack of strategic planning and collaboration. The government's cost-cutting strategy has chimed in with British industrial tradition; but in late capitalism pure cost competition is a very poor form of capital accumulation.
The government's success in weakening the unions has been used by employers to enforce speed up, flexibility of jobs performed and an increase in hours worked. But such forms of absolute surplus value extraction only lead to a temporary rise in profits unless they are used to facilitate tech. 15
October 26, 1992
BRITAIN nological innovation which was not the case in 1980s Britain. Deskilling and increased authoritarianism have sometimes provided a breathing space for employers, but as a form of the capitalist labour process it is inferior to the active collaboration and initiative of workers which many German and Japanese employers have been
State investment in physical and social infrastructures — the most obviously socialized branches of production - has been inadequate. The resulting shortages of skills, transport and housing, as well as the chaotic bankrupting of firms and sectors, have hampered production and resulted in inflation, thus undermining the government's cost cutting strategy. This shows that to reduce inflation and create "perfect markets" it is not enough to remove state and institutional interference; in fact, the latter are necessary to ensure adequate investment and thus adequate sup-
From public ownership to private monopoly
The objective inevitability of socialization shows through in the difficulties the Conservatives have had in privatizing state functions (gas, telecoms, electricity supply and so on). In most cases privatization has simply resulted in the creation of private monopolies whose high prices are ultimately a deduction from the profits of other capital, and which systematically underinvest. Attempts to get private capital to pay for, for example, special technological schools, have failed and we have seen farces such as the cancellation of a new underground line in East London due to the bankruptcy of the property company owning the new Canary Wharf development in London's Docklands.
Similarly, attempts' to introduce internal pseudo-markets and competition within the National Health Service and education have failed in their aim of depoliticizing these services. On the contrary they have highlighted the costs and benefits of different parts of the services and encouraged new conflicts over resources. The inherently social and political nature of such services finds new ways to break through.
Lacking any positive industrial strategy to guide state spending the government has been weak in resisting pressures for handouts. The liberalism of British society is reflected in a culture which worships short term income. In the absence of a culture of collaboration within production, social cohesion depends on immediate money and benefits to both capital and labour.
Thus the Conservatives did nothing to end, and actually extended, a series of 16 and wasteful for capital as a whole: tax government handouts which are expensive International Viewpoint # 237 rebates on house purchases, open ended subsidies to property companies, farmers and the arms industry and feather-bedding of the privatized industries. The handouts to capital have gone to the least innovative and risky industries. This weakness is not merely about buying political support (though it is that too); it follows from the lack of strategy.
The same weakness lay behind the Conservatives relaxation of money controls and credit during the mid-80s, paralleling the Reagan boom in the USA. Certainly, in periods of crisis, capital itself tends to create debt to get around its problems; and attempts to reap profit through speculation periodically cause inflation of capital values (the Tokyo stock exchange being the most spectacular example of recent years. But in both Britain and the USA, government succumbed to pressure from capital and chickened out of the deflation demanded by neo-liberalism. It is no coincidence that these are the two most liberal, strategy free, imperialist countries.
The result has been that, whereas much manufacturing capital has been bankrupted, there has been an enormous overblown increase in capital values in business and consumer services, property and the stock market. This excess capital depresses the aggregate rate of profit. And Thatcher/Reagan Keynesianism has now gone into reverse: the unprecedented debt mountain now threatens both capital invested in production and the world banking system, while consumer debt severely depresses final demand.2
These contradictions show the superficiality of the once fashionable British Eurocommunist view - promoted by the influential journal Marxism Today - that Thatcherism had created a new and hegemonic political economy. In reality the Conservatives' strategy, while it has a powerful logic, is undermined by its inability to address the socialization of produc
The promise of "modernization"
The failures of neo-liberalism give renewed credibility to the project for the "modernization" of British capitalism. This project has a long history stretching back to the mid nineteenth century when Britain's productive weakness first became
The modernizers want to make Britain more like Germany, dirigiste France or, lately, Japan. They seek to defend domestic industry and government policy from the City of London, with its priorities of foreign investment and short term profits. Sterling is seen as chronically over-valued in the interests of money capital; the modernizers welcome the current devaluation. They seek to make productive industry itself pay more attention to long term planning and coordination between industries. There is to be greater institutionalized cooperation between capital and labour, through incorporation rather than unemployment — a shift away from mediation through money alone.
This project has a real logic and appeal not only to workers but also to capital to the extent that the latter is still dependent on the domestic economy. For example, the shares of the big four British banks, which are strongly internationalized, fared worse in the 1980s than those of industrial companies. They have been hit by failed overseas investments, by the weak domestic economy and now by enforced devaluation. Britain is still important to them.
A mild version of modernization was attempted by Conservative and Labour governments in the 1960s. It was the essence of the Alternative Economic Strategy which had broad labour movement support in the 1970s. In recent years a version of this strategy has been put forward by the prominent leftwing Labour MP Ken Livingstone and left Stalinists: controls on capital export and credit, reduction in military spending to finance industrial investment and training, and possibly selective nationalization to create "pacesetters" 3
Pressures from employers
Under the Conservatives there has been continual pressure from employers' organizations for at least some elements of modernization, such as greater spending on infrastructures and targeted industrial support. Many local councils and other economic agencies have attempted to carry out local modernization strategies with the support of capital and labour, though with limited resources.
If modernization were carried through in the way its proponents envisage it would undoubtedly benefit accumulation in Britain. And although the internationalization of money and production and knowledge linkages make national action for socialization more "leaky" than ever before, there are still many aspects of socialization that can be effectively addressed within an economy the size of Britain's.4 Modernization potentially has a wide appeal, offering to address problems in production in a "commonsense" and nationalistic fashion.
But the project faces major obstacles First, despite the appeals to national solidarity, it would have to be nasty. The government would have to do away with many of the traditional handouts in order to use spending more productively. In restructuring industries, some firms would suffer in order that the industry as a whole would benefit. If unemployment was not to be employed to moderate wages, a govern-
THE
LAWSON
"Boom
ment incomes policy probably would be.
Moreover, despite the modernizers' promise of greater equality, socialization is inherently uneven. Its benefits go disproportionately to certain industries - for instance knowledge intensive ones, to particular regions and to better qualified workers. The modernizers thus have to persuade many sections of capital and labour to make sacrifices in order to secure promised benefits ten or twenty years later.
This, in essence, is why successive attempts at modernization over the last 140 years have failed. The present long wave of stagnation makes things even more difficult. In tough times both capital and labour are less inclined to make sacrifices; the Liberal Democrats' proposal in the 1992 election to add one penny to income tax to be spent on education was answered by a big drop in their vote. The attitude of British capital to prudent sacrifice is eloquently indicated by the fact that in the last two years of plunging profits dividends have hardly dropped.
Moreover, capital worldwide has responded to the crisis by attempting to increase its mobility and weaken institutional shackles. World capital also knows that, particularly following the inflationary boom of the mid-1980s, there is a continuing need for devalorization of capital. These are not, then, simply British diseases.
In Japan, for example, the holding company system of ownership, which has been a crucial underpinning of long term planning by protecting firms from short term stock market pressure, is under pressure from US capital wishing to enter Japan. The Japanese companies themselves are weakening their jobs-for-life system to become more mobile. This is not to say that all forms of national socialization are being destroyed, simply that this is a powerful tendency. In Britain, this tendency accentuates capital's traditional habits.
Many of the modernizers hope that a deepening of European integration will pull Britain towards the more socialized
THE AMONT BOOM! forms of economic regulation prevalent on the continent. The reality is just the opposite. Though the EC operates some industrial investment policies, its central policies are for cuts in industries with "excess capacity" and removal of "distorting" national industrial subsidies, that is, for weakening socialization. In addition, the ERM and free internal trade necessarily have a permanent deflationary effect on countries with weaker economies, such as Britain. Increased leverage for workers
Finally, organized socialization tends to give the working class increased leverage over management and government. This holds no substantial dangers for capital if the workers movement is very weak - as it was for example in post-Second World War West Germany. In Britain, however, despite the defeats for the unions, capital is not convinced that labour is sufficiently "disciplined" not to use openings provided by modernization initiatives to pursue its independent interests. Only at local level, where labour is geographically fragmented and dependent, has capital been confident of keeping modernization under control.
These contradictions explain why capital, although it has demanded greater attention to socialization by government and has supported local initiatives, has rejected any systematic modernization project. The modernizing Tory "wets" such as Michael Heseltine have little weight within the Major government.
The Labour Party failed to win the endorsement of any significant section of industrial capital in the April 1992 election despite its programme being a carbon copy of their demands. The timidity of the labour bureaucracy in taking up the banner of modernization, despite the dire state of the productive economy, reflects its problems for labour and especially capital.
The open crisis of neo-liberalism has produced, not a modernizing alternative, but paralysis of both the bourgeoisie and
BRITAIN
The modernization project would subordinate labour to capital in a new, more consensual and cooperative fashion. It should be rejected for this reason alone. But it is also important to see its utopian aspect: that both British workers and capitalists have strong reasons for remaining "unmodernized".
An influential view on the British left, most systematically developed in the New Left Review, is that Britain has a reactionary, not-fully capitalist, ruling class. This view lends itself to modernizing projects, a logic expressed recently in NLR's support for a Labour-Liberal coalition.
This analysis views capital in only one of its aspects - production, socialization, use values, geographical rootedness, capital-labour collaboration, and ignores the other side - money, free markets, value, mobility. The latter is no less a part of capital than the former; in fact, the British predilection for money and market freedom corresponds to capital in its most "perfect" form.
Not properly capitalist?
It is true that the one-sidedness of British capital creates problem for domestic accumulation. But it serves British capital well in its overseas investments, and these develop the world division of productive labour.
The most powerful forms of capital, the multinationals, now combine productive and money operations; this is particularly true of British multinationals. And internationalization, mobility and weakening socialization are now strong tendencies within world capital, not merely in Britain.6
We need, then, to see socialization and mobility, productive and money capital, as forming contradictory unities. They are in conflict, and it is this conflict which blocks the modernizing project in Britain. But they are also dependent on one another. This contradiction creates fundamental tensions and dilemmas for world capital and prevents any simple resolution of the crisis. * 1. John Holloway: "The red rose of Nissan", Capital and Class no. 32, 1987. 2. Ernest Mandel: "The twilight of monetarism' International Viewpoint, no. 235, September 14 1992. 3. N. Costello, J. Michie, S. Milne: Beyond the Casino Economy, Verso, London, 1989. 4. For a different view see Ernest Mandel, op. cit. 5. Aram Eisenschitz and Jamie Gough: The Politics of Local Economic Policy, Macmillan, London, forthcoming.
). For a critique of the NLR position along similar lines, capilsm, Verson, don: The Pristine Cultu. 1 7 re of Capitalism, Verso, London, 1991.
Russia and the Commonwealth:
More equal than
International Viewpoint # 237• October 26, 1992 and hyper-centralist form. Nonetheless it remains true that a clear majority of people in Russia (as well as in Ukraine, Kazakhstan and elsewhere) voted for the, admittedly vague, concept of a "renewed Union" in the referendum of March 17, 1992. A recent opinion poll showed that support for some kind of Union is still strong in Russia - 69% of Muscovites said they were sorry about the disintegration of the USSR.2
It is important to grasp how the CIS
ON September 9, Russian President Boris Yeltsin surprisingly called off his trip to Japan, a trip which had been prepared for several months and which elite liberals were looking forward to with hopes of a major breakthrough. This was more than just another minor manoeuvre in the ruling circles.
POUL FUNDER LARSEN - October 6, 1992
A
S Izvestiya noted on its front page on September 11: "The cancellation of the visit testifies to a change in the relationship of forces in the Russian leadership". Suddenly the long drawn out discussion inside the ruling circles over the
"new" Russia's foreign policy objectives, both in relation to the "Near
Abroad" (mainly the Commonwealth of
Independent States CIS) and the New
World Order of the major capitalist powers, was out in the open.
The rifts inside the alliance around
Yeltsin had lately become increasingly clear — particularly over the issue of the second phase of economic reform, where the hardline monetarists around prime minister Gaidar were feeling the pressure from the industrialist lobby!
But the debate on Russian foreign policy displays in a perhaps even more striking manner the compound and unstable nature of the alliance supporting Yeltsin.
The divisions in the apparatus on these issues were clear even before the formation of the CIS in December 1991.
During the protracted negotiations over economic union of the former Soviet republics after last year's coup, two main positions on the role of Russia in relation to the other republics were expressed: The first, a unionist tendency
(at that time rallying around a project put forward by the economist Yavlinskii) called for a centralized economic reform and a strong centre in Moscow to preserve the bulk of the economic links of the (then) Soviet Union.
This option amounted to Russia assuming control of the former all-union centre; it was finally rendered invalid by
18 the demise of the Gorbachevite alliance at the centre and by the drive for independence in the non-Russian republics.
Meanwhile a liberal tendency — expressed in the economic union project drawn up by Shatalin - argued that to begin with Russia should let the other republics go. Later on it could easily assert its hegemony through its sheer economic weight in the region. In short a strategy focusing on institutional guarantees for Russian hegemony was opposed to domination primarily through economic and diplomatic means.
Yeltsin may well have preferred the first option, but in order to get rid of the old centre, and as a result of the de facto secession of most other republics from the Soviet Union (the most dramatic development here being the Ukrainian referendum on December 1, 1991) he had to settle for a solution closer to the second model. The CIS was the resulting compromise.
Break with the totalitarian past?
The Yeltsinites have been arguing that this "break with the totalitarian past of the USSR" and the construction of the CIS was based on the will of the people(s) of Russia. But this claim is very difficult to prove or find evidence for, since the CIS was set up through top level negotiations behind closed doors and Yeltsin gave the population no opportunity to express its view on this decisive constitutional issue.
It is in fact highly unlikely that a majority of Russians would endorse the CIS - although only a minority would want the USSR back in its bureaucratic came into being. The Commonwealth of Independent States founded in Minsk on December 8 only consisted of three republics — Russia, Ukraine and Byelorussia. This unilateral move by these three states - the most prosperous after the departure of the Baltic States - met with considerable anger from those left behind, primarily the Central Asian and Transcaucasian republics.
Two weeks later eight more republics joined the CIS at the Alma Ata summit, but the rationale behind the initial move - apparently orchestrated by Russia — remained clear: the "first class" members should be tied together by a series of formal agreements and institutions (also with the hope of keeping "unruly" Ukraine in its place), while the "second class" republics would be forced to come in for economic reasons but be without real political influence — satellites around a Slavic commonwealth.3