Plan B? There is no Plan B! (at least not yet!)

If you keep abreast of the current economic pronouncements by politicians and economics analysts you will discover there is no Plan B for dealing with the ongoing economic and financial crises. This is because there is unanimous agreement between them on the economic and political strategy they think is needed. It is an approach that has been adopted by all left, right and centre politicians in Europe and North America. It is a single strategy which I shall refer to as Plan A.  It is one which is guaranteed to increase social tensions and resurrect the open class warfare of the Thatcher era in 21st century Europe and perhaps also in North America. The reasons for predicting this are unmistakable. Governmental Plan A’s involves, the following 3 essential strategic elements.

1.  placate the financial bond market and continue borrowing money from it.

2.  increase prices and reduce wages along with state welfare expenditure.

3.  try to encourage and stimulate economic growth.

On close examination, the differences on this line of attack between left, right and centre politicians in the western democracies are not substantive. They merely differ over the speed of price increases and/or the intensity of welfare cuts. On everything else there is comprehensive agreement between them. This single plan, promoted by the economic and political elite, emerges from their confused and incomplete understanding of the dynamics of capitalist economics.  If they really understood the system they are up to the neck in, they would realise that these three elements are exactly the same ones that produced the present financial and social crisis in the first place.  Suggesting Plan A is like hoping to put out an already burning fire by providing it with more oxygen.  Let us consider each of the above three elements in turn.

Element 1. Government borrowing. If Governments spend more than what they receive, they like anyone else get into debt. For the last 50 years, governmental debt in general has been rising, but this for a short time was offset to some degree by the increased taxes from businesses and from those in employment. However, these two sources of government income have become radically reduced in Europe and North America because of two main factors. The first was the increasing productivity of post-war industry and commerce from the introduction of automation and new technology. Although this created increased wealth, for the rich, it also resulted in a gradual reduction of the number of workers required by industry and commerce and thus a loss of their income tax deductions for governments. At the same time these unemployed workers increased the welfare expenditure of the state through unemployment pay and other benefits. The second factor was the deliberate export of productive capacity to low-wage economies, in the rest of the world. This too reduced taxes from employment and businesses. It is estimated that there is now a spectacular 25 million people unemployed in North America alone. The numbers across the EEC countries are not be far behind.  Such high unemployment also means there are fewer people to purchase products and services at price which creates profit, leading to further business failures and losses in tax revenue.  The combined result was less tax from businesses, zero taxes from the growing numbers of unemployed and increased welfare expenditure. This growing difference between the shrinking amount of state income and growing state expenditure has been filled by government borrowing from the issue of government ‘bonds‘. As this debt-gap increased the interest demanded by the lenders has also increased to its present levels. In other words, because of the economic re-structuring of capitalism, there has been a need to increase government borrowing and this became an increasingly serious problem until in 2011 the lenders are threatening not to lend unless governments take drastic measures to close the gap. Hence the so-called debt-cisis.

It is important to recognise that the previously noted tendency for capitalist enterprise to increase productivity, seek lower wage costs and thus reduce the numbers employed is an integral part of the capitalist system. It cannot be stopped or even slowed down as long as the system of capital dominates the form of production. Thus tax revenues, from the two above sources will continue to fall even with any future economic growth. This is because under competitive, capital investment, modern economic growth will employ the latest technology, require fewer workers, will seek lower wage costs and demand considerable tax breaks. Therefore, even with growth, the only way to reduce government expenditure in the future, as in the present, will be to radically reduce the expenditure of the state. Given that European and North American governments – of all shades – will seek to maintain huge (and rising) expenditure on armed forces and the other state institutions necessary for their own rule, reductions will impact greatest upon those institutions fundamental to the welfare of working people, education, pensions, wages, health services and welfare benefits.. This will present ordinary people with two choices. Either to resist their deliberate gradual or sudden impoverishment or to just passively accept their fate. Recent events, globally as well as in Europe, have demonstrated it will not be the latter.

Element 2. Price increases and welfare cuts. Despite large-scale unemployment and growing relative poverty, there has been a consistent rise in prices of basic necessities, such as housing, heating and energy. Such price increases have occurred despite the fact, that due to the productivity of labour, the real value and costs of these necessities has actually gone down. These apparent increases in prices, have not been the result of rising difficulties or costs in production, but the effective devaluation of currency paid to working people.  This is most startlingly revealed with regard house prices or bars of Gold. It is a fact that in 1970 a typical working class house in the UK could be purchased for between 1000 and 2000 pounds sterling yet in 2000 the same house with very little improvements would need 100,000 to 200,000 to purchase it. Houses, in such cases (even with improvements) have not gone up so much in real value, if at all, but the value of currency has certainly gone down.  It is public knowledge that government politicians have repeatedly de-valued the various currencies of Europe and North America. The same logic applies to the value and price of Gold. And of course, a similar effect has been seen with regard to wages. Wages appear to have gone up, but in actual fact it is the value of currency which has mostly gone down.

When governments claim expenditure has been increased for welfare it is often the case that this too is merely due to the deflated value of currency. More monetary units are provided but each unit purchases less. This act of deliberate de-valuing has been done again recently with the policy of ‘quantitative easing’. This is just a technical term for printing more money, which in effect further devalues what commodities and services the basic unit of currency will purchase. An additional source of increased prices, particularly in the UK was given an accelerated development when the Thatcher Government privatised, electricity, gas, water. For the government this gave a ‘once-only’ relatively small boost to its revenue. Later transport and other areas were also privatised with the same so-called ‘windfall’ boost to government revenue and yet further price increases for the ordinary citizen.  All these privatised essential services increased the costs of living to a disproportional degree for working people. The next phase is to privatise health services. This whole process is where the economic dynamic of capitalist economic and political decisions created, and continues to create, social and political instability and re-stimulate forms of defensive class struggle.

Element 3. Economic growth. The encouragement of economic growth has been the consistent mantra from all political parties within the advanced countries of Europe and North America. Indeed, since the end of the Second World War, there has been unprecedented economic growth. Such was the productivity of working people in these ‘advanced’ countries, that for a decade or two, exports were absolutely necessary to absorb the rapidly growing surplus production. The global market quickly became a frantic reality as consumer markets were negotiated, created and manipulated in every country of the world. During that period (1950’s – 1990’s) wealth accumulated so fast in the hands of the capitalist class that eventually much of it could not find a source of further profitable investment within direct productive activities. Like other wealth before it, it became excess capital in terms of direct manufacturing and productive requirements. For these reasons, the owners of this wealth increasingly sought investment alternatives in the purely financial sectors of the capitalist system.  Two developments in this financial sector bear crucially upon the recent and continuing economic and financial crisis and the present governmental debt crisis. The first development was the introduction of ‘futures’ markets and financial instruments known as ‘derivatives‘. These two investment vehicles were purely speculative and created no new real wealth but simply captured a considerable share of the wealth created by others.  They ‘appeared’ to create enormous wealth in figures, but most of it was fictitious. This became apparent when such speculative adventures became dramatically unstuck, most recently visible in the field of mortgage investments (USA and UK predominantly). These and other ’toxic debts’ (ie bad speculative investments) sparked the chain reaction of dramatic bank failures in 2008 which then had to be rescued by tax-payer money.

The second development was that a lot of the excess capital, created by the economic growth, noted above, was funnelled into the safer, less speculative,  bond market. Here we come full circle. As noted above, bond markets are where governments and others borrow big money. As also noted, governments needed to extend their borrowing because of the flight of capital, and on hand was a ready made source of excess capital.  In other words the movement of one section of capital (productive capital) away from Europe and North America provided a golden opportunity for another section of capital (finance capital) to exploit the gap in government revenue and make further profits out of it. This group bought the government bonds of European, North American and other countries and now intend that the worker (as tax-payer) will have to pay them back plus interest, no matter what further hardship this entails. For them it is just another taken-for-granted profit opportunity! So we can see; the system basically works like this. Workers produce the wealth in the first instance as wage slaves – and then the wealth they created is used to exploit them yet again – as slaves to government debt!  The owners of capital are the economic equivalent of a flock of vampire bats restlessly searching for every artery from which to suck the life-blood out of working communities. [see ‘The return of Marx-1 at <> for a more detailed analysis. ] So in terms of Plan A the lesson is obvious! Further economic growth, under the system of capital, will not create sufficient jobs, it will just produce more surplus capital. It will create more wealth which will fund further bouts of speculation and/or go to finance further government debt. Under capitalism it is heads the capitalist win; tails the rest of us lose. Furthermore, with regard to the mantra of economic growth, the planet is already suffocating under the pollution and ecological destruction caused by the past and present levels of production. Further growth, even if this becomes possible, under this system, just means further pollution and further environmental degradation.  In short, Plan A means yet more of the same, for the ordinary citizen, the working person and the environment. It is no way out of the problems facing humanity. The planet and working people need Plan A like we each need a hole in the head.

A plan B is therefore necessary and it will have to come from those who will suffer most from Plan A. Since the present system is incapable of reform, all interim tinkering with the system will ultimately fail. More radical measures will be required. Plan B will need to involve the following basic requirements. Production will have to be taken out of the hands of capitalists for their greed knows no bounds. Production will have to become sustainable because nature, unlike capital, has very definite bounds. All speculation will have to be prevented and governance taken out of the hands of pro-capitalist politicians of all shades and placed in the hands of collectives of ordinary people. The working out of, and the working for a Plan B, is the most difficult undertaking which faces humanity. In the coming struggles of resistance by working people to the imposition of Plan A, this Plan B task and the reason for it, needs to be patiently and consistently explained. This explanatory objective is the responsibility of those who have seen through the ‘emperors new clothes’ of economic growth and has already come to this revolutionary conclusion.

R. Ratcliffe (August 2011.)

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