The article below was written as a critique of the economic left-nationalist policies advocated by Jeremy Corbyn, the new and left-wing leader of the British Labour Party. We’re putting it up on Redline as it is very relevant to New Zealand too.
In many ways it is not surprising that after decades of the dominance of finance capital we are witnessing opposition to the growing gap between the rich and the poor – an opposition that is becoming part of general discourse.
Of course, Occupy, the People’s Assembly and numerous anti-austerity campaigns have paved the way for this debate in the United Kingdom and in more recent months Jeremy Corbyn and John McDonnell have given it more momentum. But recently more mainstream figures have been raising the problems posed. According to the New York Times, in the US “2016 hopefuls and wealthy are aligned on inequality”:
“Appearing at a candidate forum in late January, three likely Republican presidential contenders – Senators Ted Cruz, Marco Rubio and Rand Paul – all made a striking confession: they considered “the increasing gap between rich and poor” to be a problem.”1
Of course, the solutions they propose differ to a certain extent from the response of Hillary Clinton, who has a vision of “a growth and fairness economy, an economic agenda intended to lift middle class wages, expand social services and increase taxes on the wealthiest Americans to combat a widening gap between rich and poor.”2
In fact it is very difficult to find anyone, even amongst the capitalist class, who admits being in favour of ‘poverty’ or too big a gap between the rich and poor. So what accounts for this and what is proposed to combat it?
The more foresighted factions of the capitalist class took up this discussion a while back. Books and articles from the likes of Paul Krugman and Joseph Stiglitz – not forgetting Tomas Piketty and his Capital in the 21st century – all addressed this issue, long before John McDonnell named them as advisors in his Labour conference speech in September: “We will draw on the unchallengeable expertise of some of the world’s leading economic thinkers, including Joseph Stiglitz, Thomas Piketty, professor Mariana Mazzucato, Simon Wren Lewis, Ann Pettifor and former member of the Bank of England monetary committee David Blanchflower, and many, many others drawn in for their specialist knowledge.”3
Piketty emphasises, maybe more than the others, the fact that national growth is hampered by this inequality, but such Keynesian arguments have their supporters in the institutions of global capital, including the International Monetary Fund, whose managing director, Christine Lagarde, has also often expressed concern about “inequality”.4
How did we arrive at a situation where the richest 1% own nearly half of all global wealth, where the salary of an average worker is 1/300th of that of the CEO – a tenfold increase since the 1970s? The situation is so bad that both the IMF and World Bank have raised this as an issue. They estimate that, in order to end “extreme” poverty by 2030, 7,500 people will have to move up the economic ladder every hour for the next 15 years!
This inequality is the direct consequence of capital’s extraction of surplus value. It arises directly from the social relations of capital, relying on imperialist exploitation of the ‘third world’ and frequently provoking war. It is aided by rules allowing for the free movement of capital and concealing profits in tax havens, while at the same time controlling the movement of labour through immigration and border controls. However, these are issues our Keynesian economists do not want to address.
In his defence of Corbyn, Krugman made some obvious comments about the other contenders of the Labour leadership contest, who “had chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis”.5In this respect, of course, Corbyn was right to distance himself from media/conservative falsifications about the 2008 crisis. During his leadership campaign he often mentioned the fact that the crisis was not the fault of nurses, teachers or the Labour Party, placing the blame on the banks. But, as both Krugman and Simon Wren Lewis say, the alternative proposed by Corbyn should be recognised as centre or centre-left politics – there is nothing radical or ‘socialist’ about expressions of concern about poverty. Nor is there anything radical in the solutions proposed by these Keynesian academics – now all signed up by the people’s shadow chancellor, John McDonnell.
In fact the crisis was not just the ‘fault of the banks’. It was an inevitable consequence of capital’s drive to expand, in the same way as the dominance of finance capital is not just an accident – or the product of nasty bankers, conservative politicians or policies associated with the ‘unacceptable’ side of capitalism. They were and remain the rational logic of capital and, unless we start talking about the fundamental causes of ‘inequality’ – capital’s need for exponential growth – we will fail to identify the real causes of the current situation. But this will continue, as long as political organisations – be they left Labour, Syriza, Podemos or even the Socialist Workers Party and Socialist Party in England and Wales – prefer to focus on poverty and inequality, as opposed to capital, exploitation, structural crises …
Avoiding Marxist terminology may help bring people together for a campaign – you can’t have the Green Party leader speaking for you as a supporting act if you insist on Marxist analysis.6Nor is it easy to explain surplus value on the doorstep. However, the crucial question here is whether you believe that in the 21st century capitalism can be reformed and that such reforms can end poverty, or, on the other hand, that the current crisis can only be resolved through the fight for socialism.
This initial attempt at understanding the academic critics of inequality and neoliberal capitalism, most of whom are now McDonnell’s economic advisors, is necessary to show the limitations of the proposals that will dominate Corbyn’s economic policies in the campaign to win the next UK general election. Of course, there is nothing wrong with exposing the devastating effects of neoliberal finance capital. This includes the myth perpetuated by mainstream media and governments of various stripes that there is no alternative to neoliberal capital, that the trickle-down effect resulting from the free market will enrich everyone and that such free-market capital is a prerequisite for and integral part of liberty and democracy. Piketty has done us a service by showing, using examples and statistics, that on the contrary unfettered market capitalism, combined with privatisation in many parts of the world, has produced oligarchy, and that it has created such levels of inequality that underconsumption is causing a drop in growth rates, thus endangering the very future of capital.
Of course, politicians such as Barack Obama and Hillary Clinton, and capitalists such as Bill Gates, who has welcomed Piketty’s book, fear current levels of inequality are explosive and therefore the issue should be tackled. And, of course, policies to ‘end inequality’ under capitalism have also gained support amongst sections of the left.
In the words of Yanis Varoufakis: “It is the left’s historical duty, at this particular juncture, to stabilise capitalism; to save European capitalism from itself and from the inane handlers of the euro zone’s inevitable crisis.”
Wealth, capital and exploitation
The general thesis of contemporary Keynesian arguments is very clear. Inequality in wealth and income hampers capitalist growth, and therefore solutions must be found to save capitalism. Piketty, Krugman, Stiglitz et al do not envisage any other mode of production. Piketty totally opposes the Marxist tradition – a point he emphasises whenever he can.
Piketty, therefore, deals only with inequality and not at all with the inherent problems of the system of capital. He is unable to deal with its principal contradictions. So, for example, he fails to make a distinction between capital in the popular sense, as money invested for profit, and capital as consumption – a house or land acquired for personal use. And because he is so clear about the desire to save capitalism from itself, Capital in the 21st century has resonated beyond the usual Keynesians: it has gained support amongst owners of major capital, as well as mainstream commentators worried about the system’s future.
Piketty’s book is important and you cannot argue with his statistics. He has collected a lot of information, albeit in a Eurocentric fashion and dealing mainly with advanced capitalist countries. However, he confuses cause with result: inequality in wealth is a consequence of capitalist exploitation. Another major criticism of his Keynesian approach – which shows itself in the presentation of national solutions, unworkable under the dominance of global capital – is the absence of any mention of the unequal relations between states and imperialist exploitation. As Hillel Ticktin points out in his critique of Piketty’s book:
“How you can leave out imperialism in this context is difficult to understand. The income coming into the United States, Britain and France in that period as a result of imperialism completely altered the nature of capitalism in that period, as is well known.”7
Having said all this, the popularity of the book does tell us something about the problems facing finance capital. First of all, it is always dangerous to build grand theories just on the basis of statistics, as Piketty does. Compare this approach with Marx’s scientific method. Marx explains how money is turned into capital invested in commodities – the means of production and raw materials – to produce new commodities, and these are sold on the market to gain more money for the capitalist: ie, the cycle of production, M-C-M´. That method is far more scientific than summarising a statistical trend using a formula. The formula in this case has another problem, in that its emphasis is on the wealth of individuals, whether they are capitalists or have inherited their money. We are told that in some ways money accumulates more money, without explaining how the process of accumulation has made all this possible – ie, what Marx called vulgar economics. Piketty focuses on the grotesque amount of wealth accumulated by the “one percent”, but it is not as simple as that. This is only one issue amongst many in a much bigger scenario.
Because he confuses wealth and capital, he does not deal with the capital of major companies, and he has no idea (nobody has any idea in fact) of the wealth controlled by the giant transnationals, financial institutions, banks, insurance companies and hedge funds. We do not know how banks or major insurance companies are using or recycling their capital. Piketty relies on figures that support his thesis of what is wrong with the economy in the 21st century. He wants to prove we are returning to the economy of the 19th century, but the solutions he proposes – ie, those taken up by Keynesian economists in the mid-20th century – are not going to work.
When he looks back at crucial world events and their effect on capital – the way the two world wars changed class mobility and so on – as with the capital-wealth relation, he is once more looking only at results, at consequences. The two world wars were a direct consequence of inter-imperialist competition, but for Piketty their significance lies in the fact that they changed the way wealth was passed from one generation to another: if you like, inherited capital lost some of its power. However, the long boom following World War II resulted from a number of historical events: the Bolshevik revolution of 1917, the fact that the European working class, having fought two world wars, subsequently refused to accept a return to pre-war conditions. Yet a return to the 19th century or the early part of the 20th century was impossible – something absent from Piketty’s book. Also missing are the cycles of boom and slump that have dominated contemporary capitalism – the crisis of 2008 gets a mention, but we are not told the reasons why it took on such dimensions.
Nevertheless, sections of the bourgeoisie – many of whom have no association with Keynesianism or social democracy – are now advocating a new approach seemingly influenced by what he writes. According to Hillel Ticktin, lack of investment has produced what has been called “secular stagnation”. But this is just an expression of the fact that we are living through a depression. In this situation the more astute sections of the bourgeoisie recognise that there is likely to be an increasing degree of discontent and they have to find another way. This, he says, is the role that Piketty is performing. However, as comrade Ticktin says, banking everything on “progressive taxation” is hardly the solution.
Piketty claims that moderate growth based upon increased productivity and knowledge makes it possible to avoid the “apocalypse predicted by Marx”. Here we see that even if he has read some of Marx’s work, he certainly has not paid much attention, because he has completely missed Marx’s references to advances in technology and their predicted effect on productivity. Yet Piketty’s states: “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of capital.”8
In response, we have to make it clear that, first of all, when Marx makes apocalyptic predictions about capitalism, he does say that it all depends on the way class struggles develop. However, Piketty has taken such predictions out of context in order to defend a new vision to reform the system, to return to the glorious years of mid-20th century capitalism. This is actually a very old vision, and one that has failed. It failed precisely because capitalism cannot accept the demands of the worker. Thirty years ago, the bourgeoisie made a conscious decision to discard the kind of “progressive taxation” that Piketty is now promoting: it was a conscious decision taken to reduce the power and potential of the working class; a conscious decision to move manufacturing to parts of the world where low wages and the absence of workers’ rights went hand in hand.
Piketty claims to be debunking Marx, but, of course, his main problem is the absent factor in his own work: ie, the fact that capitalism, over the latter part of the 19th century and the whole of the 20th century, survived because of imperialism, because of the unprecedented exploitation of the working class in the ‘third world’, because of the failure of the Russian Revolution and indeed because of the shortcomings of social democracy. As I have said, the book is very much Eurocentric – it is as though capitalism does not exist beyond Europe and North America.
If this is all we have to go on, how can the left limit its critique of capitalism to what Keynesians and neo-Keynesians say about the gap between the rich and poor? Won’t the ‘ordinary’ worker, whose allegiance such comrades are attempting to win, consider them condescending and dishonest?
Piketty, when asked if his overall prescription is utopian, will no doubt say: ‘Yes, it’s true that the powers-that-be will not just give in – things have to be fought for.’ That is what his book is about – encouraging people to fight for “progressive taxation” and, of course, now Corbyn and McDonnell say they will pursue such a policy in an advanced capitalist country.
However, the economic proposals put forward by the “people’s chancellor” should be viewed in the light of the current state of the economy.
First, taxation. One of the most important parts of the new economic policy, advocated by economist Richard Murphy, deals with increasing corporate taxation and closing the ‘tax gap’ (according to Murphy, avoidance and evasion by high-income individuals and corporations adds up to around £93 billion per year in Britain. In addition, he estimates than in 2014 the difference between what the treasury was owed and what it actually got was £122 billion. The recovered tax would pay for improved welfare.
Although Murphy is credited with proposals for ‘country-by-country reporting’ – the idea that transnational corporations should be asked for a better breakdown of accounts, to show when profit is taken out of one country and taxed in another – the reality is that tax havens in Europe and worldwide are part and parcel of the current economic order. They operate within the confines of existing international legislation and any attempt to tighten the rules in the United Kingdom will lead to corporations and individuals concealing more of their income, thus evading tax payment. There is no solution to the issue of tax evasion unless radical policies are adopted worldwide to close down all tax havens. So the notion that welfare, university tuition fees and pre-school childcare can be paid for through the money gained from ‘closing the tax loopholes’ is not realistic.
Then there is a proposal for ‘people’s quantitative easing’ (PQE), which involves the government instructing the Bank of England to print money (in the current context to create electronic reserves) in order to purchase bonds issued by a National Investment Bank, which would then invest in public infrastructure projects. According to Murphy and other supporters of this proposal, it would “stimulate the economy, boost employment and tackle climate change”.9
Rightwing claims that PQE would lead to rising inflation have been dismissed by Martin Wolf, and even the economic writers in The Daily Telegraph do not attach much weight to such claims. After all, most capitalist economies have been engaged in various levels of QE (without the ‘P’!) at least since 2008 – “trillions! – without producing a large and obvious impact on inflation or real growth”, according to Matthew C Klein, writing in Financial Times.10
The problem with PQE is twofold. The first concerns capital’s rationale for its shift towards monetary policy and finance capital. This was undertaken primarily to reduce the power of the working class, to increase the rate of exploitation in the ‘third world’ and to create a reserve army of labour. All of these reasons are as relevant today as they were in the 1970s.
However, it is possible that in different circumstances bourgeois economists would pick up a version of this idea in order to circumvent a crisis. Who knows? Even chancellor George Osborne might steal the idea. To illustrate this, let me quote from the Financial Times again:
“We don’t understand the negativity. Some of the specific arguments justifying the proposal may be flawed, but the core idea is sound and possesses an impressive intellectual pedigree. In fact, it could help solve one of the most troublesome questions in central banking: how policy-makers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects.
“One of the oddities of ‘monetary policy’ is that it has almost no direct impact on how much money there is to go around. Virtually all of what we commonly think of and use as money is actually short-term debt, issued and retired at will by private financial firms. Monetary policy-makers can affect the incentives of these profit-seeking entities, but they have little control over the amount of nominal spending occurring in the economy.
“Nudging the unsecured overnight inter-bank lending rate up and down can encourage lenders to adjust their leverage, but good luck tying that to the traditional price stability mandate. (Also, a friendly reminder that the level of interest rates is basically irrelevant for corporate investment.). . . .
“Our preferred approach would be direct deposits into household accounts offered at the central bank. It’s simple and doesn’t require any political debate about how best to spend the newly created money. But Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the monetary policy committee of the Bank of England, except that he focused on small businesses.”11
Martin Wolf is even more optimistic:
“Some proposals – notably higher public investment at a time of low interest rates – make sense. Some, such as letting the Bank of England inject the money it creates directly into the economy, make sense in quite restricted circumstances. Some – such as nostalgia for nationalisation and the idea that £120 billion a year in lost tax revenues can be readily found – make no sense at all.12
However, a consequence of this diversion of investment to infrastructure would be the effect it would have on the City of London. A considerable section of the UK economy, especially the prosperous south-east, relies heavily on financial and marketing services associated with the City and, although many of these services are parasitic, if the City lost its current favoured position in favour of Frankfurt or Paris, the effect would be considerable, and devastating job losses would ensue.
Speaking at the Labour Party conference in September, Corbyn confirmed that the party is to set up a task force that will consider how to implement the plans for nationalisation of the rail network – the Labour leader told the press that there was “overwhelming support for a people’s railway”. And, according to John McDonnell,
“Public ownership does have an important role to play, but this will be through smart forms of 21st-century common ownership and control. For example, rail will be renationalised, but with a form of joint management involving workers and passenger representatives. Energy would be socialised from below by the massive expansion of renewable energy production and supply by local communities, local authorities and co-ops on the successful German model, removing the monopoly of the big six energy companies.”13
Nationalisation of the railways would undoubtedly be a popular move, given the current state of the privatised operators. However, the concept of worker-consumer representation, fashionable in previous decades, on boards still dominated by state-appointed managers, involves tinkering with capitalism and cannot in itself resolve current problems of inadequate investment, inefficient timetabling and inadequate workers’ rights. Then there is the issue of compensation for the current rail companies. . .
The nationalisation of the six major energy companies, originally proposed by Corbyn/McDonnell, but currently dropped by them, would have been even more difficult. It would have provoked legal action from investors, some of whom are insurance and pension trusts, as well as massive compensation.
And, of course, there must be compensation. After all, Jeremy Corbyn has promised to:
“champion entrepreneurs and small businesses by taking specific measures including tax cuts for small businesses and increased spending on training … My ‘Better Business’ plan will level the playing field between small businesses and their workers, who are being made to wait in the queue behind the big corporate welfare lobby the Tories are funded by and obsessed with.”14
Making such promises might have short-term electoral benefit. However, the plight of small capital in an advanced capitalist country cannot be alleviated in isolation from the general direction of global capital, dominated by big corporations and their ability to circumvent competition. This is another example of the failure to understand “capital in the 21st century”.
All this reinforces once more the impossibility of applying national ‘solutions’ to global economic problems within the confines of capitalism.
The above first appeared in yesterday’s Weekly Worker in Britain; see here.