Austerity: The madness of a dying system

The ruling class has no alternative to austerity and the drive to create a pristine capitalism. Not only is that impossible, but, as shown by South Africa, the working class is beginning to revolt. This is an edited version a speech by Hillel Ticktin, editor of Critique, on November 17

Capital will kill and destroy: that is its nature

If one looks at the current situation, one would have to conclude not that we are coming out of a crisis, but that the ruling class is becoming more and more afraid. Mervyn King, the governor of the Bank of England, says that the real position is getting worse. Why is he saying that? One could say, of course, that he is coming to the end of his term, and that he has to say how bad everything is. But it is clearly more than that. There really is a degree of pessimism now within the ruling class itself, which he is expressing.

The second aspect of the situation is that austerity has more or less become the dominant mode of discourse. Barack Obama represents the left wing of the ruling class, and even he frames his policy within it. Except that his austerity is not the same as the Tea Party austerity, which seems to rule in the Republican Party and would have been the policy if Romney had won. Nevertheless, there will be a form of austerity, whichever side you take in mainstream politics at the moment.

In this country it is obvious that Ed Miliband has more or less accepted that line as well. In fact it is the line that was set in the 1930s - the Austrian line, as it was called. Paul Krugman has said that austerity is in effect a means of control. Behind the word ‘austerity’ one can hide the form of control, hide the fact that there is a ruling class that is doing very well, and that society is, if anything, becoming more unequal, not less so. That can be hidden behind the word ‘austerity’ - that is what Keynes said and what Krugman has been saying.

One might have expected Keynes to have said that if he had been a reformist. But he was nowhere near the left, and was strongly anti-working class. However, one has to accept that the ruling class, in order to survive, has to make concessions at certain times. And in order to make concessions they have to recognise their own real position, and make it clear that by making concessions they are retaining control. It amounts to removing the veil of commodity fetishism and saying, ‘Yes, we are here in control, despite these concessions’.

However, the austerity line is the reverse: it amounts to a refusal to accept what is real. Yet it is the dominant viewpoint now. In 2007 I attempted to analyse the different forms of capitalist control - both those that are inherent in the nature of capital itself and the substitutes employed at this time - and see how far they could be maintained. Austerity is part of that.

At the present time no alternative policy is being put forward. Krugman is isolated and the Keynesian approach is not being advocated, except in a very limited sense. Obviously, it was used in 2008-09 to pump money into the system, and it did save the world economy from going into a bottomless slump. Without that taking place the system really would have collapsed. What would have happened afterwards we do not know. But they simply had to act, but, having done so, they are now reversing the line.

They are not prepared to countenance the Keynesian solution, and so the only place left is austerity. Various people, including Krugman, are saying that the policy is mad. It is mad because it is impossible. Welfare cannot simply be abolished, which is what it requires. Apart from anything else it would mean a collapse in demand, and at a technical level it would mean reintroducing debtors’ prisons. How else do you deal with a situation where millions of people are near to starving and where there would be riots? So, it is impossible, simply because the population would not accept it. Of course, the ruling class understands that, and a number of economists who advocate austerity are not that stupid either. But I have to say many of them are - much of what has appeared in the press is simply nonsense.

In attempting to balance the budget, they are actually restoring the reserve army of labour. In other words, they are returning to a classic form of capitalism, as outlined in Capital volume 1. This is particularly prominent in volume 3, where Marx examines the nature of crisis, although it is also present in volume 2 of Theories of surplus value.

However, there are at least some sections of the ruling class who see that it is impossible to actually do it. That if they try to do it, it will increase the momentum towards change, or cause riots; as in South Africa. The trade unions and working class may start to act as a unified class and that would be highly dangerous. This is the contradiction at the heart of capitalism itself.

It was not like that in 2007. They had not yet got to this point, and nobody knew people were quite so mad. That the Tea Party is mad is obvious, but that the mainstream ruling class would actually proceed in this manner - the Conservative Party in the UK and the CDU in Germany - was totally unexpected. That is a paradox and, of course, a weakness. It does serve the purpose of providing a cover, as it puts forward a false enemy. It appears to be a policy which can be reversed, but they do not want the alternative policy: that is to say, they cannot re-inflate the economy; they ruled that out from the 70s onwards.

Why was there a shift towards finance capital at that time? Some people argue in terms of the falling rate of profit, but there are many arguments against that viewpoint. I think that they simply ruled out reflation because it would lead back to the 70s. If the working class got back to anywhere near full employment, it would start being able to act collectively as a class again; it would become far too powerful. So it is not that they cannot do it: they will not do it. They simply will not take the Keynesian road.

Redistribution?

One can also look at the question more generally. I am thinking in particular of what was said in 2007 by Bill Gross, head of Pacific Investment Management, which holds more than $1 trillion in government bonds. It may only be half of what the Chinese hold, but it is still pretty important. It was he who declared that British bonds were toxic, and it was this that justified the government’s policies of austerity. The influential viewpoint of that company was one of the reasons that the US credit rating was downgraded.

Speaking at the 2007 annual general meeting of his company, he said that it was “far better to recognise that only twice before during the last century has such a high percentage of national income gone to the top 0.1% of American families”. This was long before Occupy, and not from a person on the left. It was “far better to understand”, he continued, “that society should place an initial emphasis on abundance, and the state should continually strive to distribute the abundance more equitably”. One might think that the following might perhaps be a quote from Skidelsky, in his phase as a leftwinger, but it is still Gross: “… when the fruits of society’s labour becomes maldistributed, when the rich get richer, and the middle and lower classes struggle to keep their heads above water, as is clearly the case today, then the system ultimately breaks down”. He continues: “… boats do not rise equally with the tide; the centre cannot hold.”1

This from a member of the Republican Party who has to be considered an integral and central figure in the ruling class. But that was in 2007. The situation is clearly much worse today, in terms of income distribution, for example.

The most important aspect of the crisis is the fact that money is not capital. That is to say, there has been a build-up of money which cannot be invested, and when that happens value does not create more value. There is no self-expanding value and money which does not self-expand is not capital. This build-up of trillions around the world is obviously the problem today - the reason why things are getting so desperate and people are starting to demand the government adopts a different policy.

However, the level of unemployment has not risen in the way it did during the great depression. In America it may not be wonderful, but it is a lot better than it was in 1933. That is so precisely because of the policies adopted, which in part has meant that around the world, particularly western Europe and the United States, companies have tended to keep workers on, while effectively decreasing their wages, or have allowed workers to retire early.

The effect is that, although unemployment has risen, it has not done so as fast as it did in the great depression. That is why most economists do not refer to the current situation as a depression, although it does constitute one from Marx’s point of view - a point also made by Krugman. A depression is not a matter of one or two quarters without growth, but long-term stagnation, in which there are ups and downs.

The point is that in the recent period the capitalist class has been doing very well: profits have actually gone up during a depression. Well, that cannot last, but it is actually what has happened. So if Bill Gross were to repeat his remarks today (although I am not sure he would) he would have to go even further.

This affluence does not just apply to the top of the capitalist class; it also applies to managers. The income of the top percentile in Britain, the top 11,000 earners, has increased by 50%. As a result, top managers who were previously receiving, say, £2.5 million a year are now getting five million. Not bad. So for some people it has been a rather good depression.

There is increasing antagonism towards people who pocket so much money, although it is not class antagonism as such. Yet the whole argument around companies that are avoiding tax is really a blind alley. That is the nature of capitalism - companies and individuals must always strive to minimise their tax bill. Instead of making a big deal about a managing director who is making 10 million, why not just tax them at say 95% or even 99%? They would still be doing very well compared to most of us.

The reason that will not happen can be explained by the nature of capitalism itself. Obviously, the logic would not just be to tax the capitalist class, but for the state to redistribute their entire wealth to the working class. But that would not be capitalism. So campaigning on the basis of this or that company, or this or that terrible capitalist who does not pay their taxes is really just a way of avoiding fighting the system.

However, that is the kind of form that resistance has taken, and that clearly is where we are today. But the left just seems to go along with this miseducation of the population. In fact why is it ‘responsible’ to pay tax? Why do we want to pay for more wars?

South Africa

An interesting aspect of this is that in the third world we can see control beginning to fray. There is an obvious case of this in South Africa, and I would like to say a few words about that. A central question is the crucial role of Stalinism in maintaining the system. Now obviously, the Soviet system no longer exists, and the Chinese Communist Party is a kind of afterlife - market Stalinism, Stalinist capitalism, or whatever one calls it. It is a form of derived Stalinism.

In South Africa, Stalinism is still playing a key role. The fact is - and I have to say this because people do not generally understand it - in 1994, the capitalist class preferred to put in a non-racist government. The whole concept of racial capitalism is simply wrong. The theory was that, in order for capitalism to develop in South Africa, the capitalist class had to use racial discrimination.

I do not intend to go on about this, as I have written a book about the question,2 but it does appear to me to be simply wrong. But it was the basis of the South African Communist Party’s ideology that took a nationalist line rather than a line against capitalism, putting off the day that capitalism could be overthrown to some time in the future. That, as you know, is the hallmark of Stalinism - there is always some reason why communism is always something for the day after tomorrow.

In South Africa the SACP adopted the line that the essential thing was to end racial discrimination, but the capitalist class would be unwilling to do so. In fact, it meant that they could stop paying white workers between 10 and 20 times what black workers were paid. From the point of view of the capitalist class, this was simply an incubus that they did not need. The result was that the rate of profit was not high and they regarded it as preferable to abolish the wage difference, which is what they did. As a result, profits have gone up, and so it was a successful change from the point of view of the capitalist class.

The South African government includes not only members of the Communist Party, but those who to a large degree they have been influenced, or controlled, by the Communist Party. The major trade unions have also been controlled by the SACP. So when there is an industrial dispute it has been compared to ‘playing tennis with yourself’ - on one side of the net there is a minister who belongs to the SACP and on the other an SACP union leader.

The unions are closer to Soviet-style unions, except that it is cleverer than that, because they do go on demonstrations, they do demand higher wages and they go on strike. But it is easy to put wages up every year because the real wage is something different. Although it is hard to work out the real figures, one could argue that sections of the workforce have either the same wage as in 1994, when the government came in, or a lower wage.

That is the way South Africa has been run for the last 20 years, and why people should have put up with that is not very clear. But things have finally snapped.

The point of going through this description is to show that the form of control rested to a large degree on Stalinism: the way they actually control the unions and the propaganda they are putting forward. When the government arrived in 1994, and before then, there were slogans all over the place calling for socialism - there was a level of socialist consciousness. But the overall understanding of what socialism would mean and how it would take place was very low, and a lot lower than it was in the 1950s. The level of understanding among the left was very poor.

Unless you understand the nature of Stalinism, you will not understand what has happened in South Africa. And unless you have a more general theory of the global economy, with Stalinism bound up in it, then you will not understand the current economic situation either. The world is in transition - away from capitalism, whilst remaining within capitalism - and there are three sets of laws in operation: the laws of capitalism, the laws of transition and the laws of decline.

In South Africa there are people now in power who talk about socialism, who have spent many years in jail fighting the apartheid regime and who appear to be honest. Some of them are honest and genuine, of course, although many are now millionaires. There is the wonderful example of Cyril Ramaphosa, the former general secretary of the National Union of Mineworkers, who is now a multi-billionaire and director of the company against which workers in Rustenberg have been on strike. He is not the only one.

The point is that there is a highly complex situation, with obviously a very low level of education, including socialist education. The ANC government has one of the worst records on education. According to The Economist, it comes somewhere like 120th in the world. So it is not surprising that it has taken 20 years for people to react. It is little wonder that people do not understand socialism when there is a government of multi-millionaires proclaiming themselves to be communists and socialists, presiding over an economy where the majority have very low wages.

That includes the opposition within the African National Congress milieu. Even someone like Julius Malema, the expelled former leader of the ANC Youth League, who calls for the nationalisation of the mines, is simply an opportunist. He is personally very well off and in fact seems to act as a spokesman for outside interests.

Despite this complexity we are now seeing the beginnings of a revolt. So far it is taking a trade union form - demands for higher wages, for more workplace control and so forth; and concessions have been made. And it is not just in the mines. It began in the platinum and other mines, but now it has spread throughout industry and even agriculture. There is a generalised revolt of workers in South Africa, precisely because of the conditions they have to endure, and without there being any understanding, any theory whatsoever, about the underlying causes.

Since perhaps the 50s and 60s, there have been perhaps two countries where Trotskyism has been some kind of force. One was Ceylon, where a Trotskyist faction entered into government, and the other was South Africa. In the Western Cape in particular Trotskyism was dominant on the left, even when it was not dominant in the country as a whole. It is no accident that quite a significant number of Trotskyists come originally from South Africa. The late Neville Alexander came from that tradition, and was immersed in it in Cape Town. But now it has been degraded, and the level of discussion is very poor. So I do not think you can expect very much more to happen at this time, but it does give hope: if the working class is acting as a whole, then that provides impetus for a left to be formed. One that is to the left of the Communist Party, of course.

Control undermined

Global profits have tended to go up since 2009. But here you have an important source of those profits - the third-world extraction of minerals - being threatened. If you look at the FTSE 100, the Financial Times bellwether of companies, a large proportion of those whose profits are under threat are in mining. There is an acceptance that capitalism is in trouble, which is not surprising: they are in trouble and they are going to be in trouble.

Hence the importance of South Africa technically, politically and economically. The interaction between South Africa and other countries on the continent means the revolt will spread. There are many migrants in South Africa because even the low wages paid to workers there are higher than in other African countries. So it is not surprising that workers try to get into the country, and that is why the population has grown so fast in spite of the Aids epidemic. In the 50s, the population stood at around 12 million, and now it is over 50 million. Life expectancy went down under president Thabo Mbeki, dropping to something like 45, but, now that proper HIV medicine is available, it has gone back up to 51.

South Africa is an example of what is happening, and the degree to which they control is being challenged. What I have argued is that, on the one hand, there are the classic means of control: commodity fetishism and the reserve army of labour; on the other hand, they have already been partly shot through. In the period from 1945 to, say, 1972, there was no reserve army of labour in Britain: it is hard to talk of what existed as a simple reserve army, when there were welfare benefits and what Marx would have called a surplus population. But now the intention is to fully restore the reserve army of labour - and for that the reduction of welfare benefits to the absolute minimum is necessary.

Any such attempt will, of course, result in big problems for the capitalist class. Workers will fight for their rights and the fact that capitalism has been overthrown, even if the result was Stalinism, has meant that it can be seen through and exposed, and this will continue to happen as long as capitalism exists. Anyway, the point is that the revolt will spread - it must spread. The stories of what happened, that people were shot down and tortured, are well known. So we can expect the revolt to spread to other countries on the continent - and I would think to other continents too.

Notes

1. ‘Enough is enough’ Pimco Investment Outlook: http://media.pimco-global.com/pdfs/pdf_sg/IO%20August_07_SGP%20Final.pdf?WT.cg_n=PIMCO-SINGAPORE&WT.ti=IO%20August_07_SGP%20Final.pdf.

2. H Ticktin The politics of race: discrimination in South Africa London 1991.

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