SNAKE-OIL REMEDIES FOR CAPITALISM.

Quack doctors selling snake-oil and other supposedly effective remedies were popularised in US Cowboy adventures on the silver screen when I was a youngster. They rolled into town and offered bottles of the stuff to naïve citizens claiming it had qualities which would cure any ill that the human condition might suffer. Now we have a similar situation with regard to so-called contemporary ‘experts’ in curing the economic woes of capitalism. Each expert has his or her own brand of economic snake-oil and show up on our TV screens offering remedies that they insist are sure to be part of the cure for the sick system of capitalism. Some of these prescriptions have been covered in previous articles, particularly ‘Q3: Bailouts and Banks; and ‘Bonds and Bubbles’. This article will outline some more of them touted in the media as means of solving the crisis. It will hopefully become clear from analysing them that the system cannot be saved by reforming various aspects of it.

1. Saving Capitalism by boosting spending.

As a way of trying to create economic growth, there have been a few suggestions recently by so-called economic experts that the government should not just print more money and give it to the banks, but give every adult a few hundred pounds to spend. The suggestion includes conditions which should be placed upon it; to be spent on sensible commodity items and within a set period of time – for example one or two months. The idea is that people will spend the money, shops will take on more staff, sell their stocks and re-order from manufacturers who will take on more staff and increase production. Whilst it ‘appears’ on the surface to make sense and have its attractions, economically it is a nonsense proposal for the following reasons.

Let us assume, for example, that the UK government gives out £200 to 40 million adults (a total handout of £8 billion) with the above conditions stipulated. In the first months shops are busy, take on temporary staff, have a bonanza and order more goods. The manufacturers, increase production, through overtime and/or temporary staff. Are new factories going to be built? No! Are high levels of permanent jobs going to appear? No! After the months are over, trade drops back at least to previous levels, shops order less, manufacturers cut-back production again. Temporary staff are laid off and the situation is back to its previous condition.

Or is it? Of course not – for at least 3 reasons! 1. Forty million people do not have to buy the things they have just purchased. 2. Retails capitalists have gained a share of the £8 billion. 3.Manufacturing capitalists have got a share. 4. The government is now £8 billion (minus the VAT they get back) further in debt. And so in the months after, the economic level may go further down than before and the government must raise taxes or cut expenditure. And all the above is assuming the very best scenario, for it is by no means certain that all the retail shops will increase the orders from UK based manufacturers. It is more likely the case that they will find ways to purchase cheaper supplies from the global market.

It only sounds a good idea if you don’t stop to think about it, but now more than ever we need to stop to think about things the elite are suggesting. This is not to suggest that giving people some of the money back which the capitalists and government have previously extracted from their labour, is not a good thing in itself, but it is not a cure (or even a partial cure) for the massive contradictions within the capitalist mode of production. And of course as a policy objective it would act as a distraction. A similar process would occur with any country which adopted such a suggestion and that is exactly why it is unlikely to be adopted anywhere.

Another allied scheme for saving the system by boosting spending, is the idea of payment of a ‘living-wage’. The idea that a certain level of wage is necessary to live and that the government-set minimum-wage is insufficient, pre-supposes wage-slavery and the continuation of capitalism. Of course a higher-wage, whilst the system persists is something to campaign for, but the idea of certain local authorities and private companies paying a ‘living-wage’, on a voluntary basis, leaves out of consideration those who are not so employed and those who are unemployed. Since under austerity, the former are getting less numerous and the latter more so, this will do nothing to seriously stimulate the economic activities of a country or region. Nor will it solve the problem of a satisfactory existence for the bulk of society – those who will not get a ‘living-wage‘.

2. Saving Capitalism by increased taxation.

Taxation, is revenue extracted from wages, salaries, profits and sales of commodities. Under capitalism wages and salaries come from the payment for two main types of labour – productive-labour and unproductive-labour. Productive-labour is that which is employed by capital and preserves value as well as creating surplus-value. This value and surplus-value is the source of money-capital from which, wages, profits, rents, interest and those taxes collected from these sources, is paid. In other words surplus-value is the source of direct tax revenue for governments. Even the taxes paid on consumption (VAT) also comes out of the wages and salaries of workers which have their origins in surplus-value.

Government taxation is thus the primary source of the wages and salaries of the states employees. Increasing taxation or improved tax-collection, will therefore lessen the government debt, but by how much? Even during previous periods of full-employment and high taxation it was insufficient to keep all the welfare services and the combined armed services (Army, Navy and Air-force) without extensive borrowing. The rate of taxation would have to be set at an incredibly high rate and tax-dodging completely prevented for taxation to even dent the present levels of sovereign debt. Nor would it underwrite all the present levels of government and state employees along with modern weapon-supplied armed forces.

The trend for capitalism in the past, present and future is to base their productive activities in low wage and low tax countries and so avoid paying wages which attract taxation and avoid company taxation in the advanced countries. So capitalist investment strategies are to outsource production and thus further reduce wages, and taxes in all advanced countries. The rate of removal of taxable profits, wages and interest is far faster than any rate at which tax-dodging could be restrained. Additionally, taxation, particularly indirect taxation (on goods and services) on the poor and low-paid, is already outlandishly high and could scarcely be increased further without repercussions in health and social order.

Increasing taxation on the rich and attempts at preventing elite tax-dodging by the rich ought to be pursued by any capitalist political system with even a modicum of moral integrity – which at present it hasn’t got. But even correcting this will not be – on its own – structurally effective. As long as there are loop-holes through which they can manoeuvre, the rich and their accountants will continue to do so. A sufficiently alert and active tax-fraud regime under the capitalist system would also increase the non-productive salary bill considerably for the state. It would therefore add to the sovereign debt without necessarily covering the extra costs by the extra taxation gained.

3. Saving Capitalism by more/better regulation.

Many commentators have suggested that the current crisis in the financial sector has occurred either because of a lack of regulation or insufficient means of enforcing existing regulation. There is a little bit of truth in this proposition, but it does not explain why these tendencies are there in the first place to need stopping. The logic of capitalist production is the preservation of the capital invested and the creation of surplus-value – the origin of profits. This is a logic which is fundamental and cannot be suspended, without suspending the capitalist system. The surplus-value produced by modern industry is so prolific that each new aggregation of surplus-value into new tranches of capital must seek a profitable source of investment. If there is already sufficient capital investment in the production process in which it arose, then an alternative must be sought – and is sought – by any means!

This logic of preservation and accumulation of capital, in all its forms, acts with considerable pressure which like a viscous fluid will find its way through, under, over or around any regulatory obstacle. And again as with the issue of effective taxation collection and regulation, only extremely large numbers of highly trained regulators across the entire range of financial services, could have any chance of slowing this seepage down – never mind preventing it. And the costs of this size of regulatory regime would also be prohibitive or destructive. No amount of regulation can prevent the opportunities for unethical or illegal transactions occurring and nor the rewards for getting away with it. Hierarchical and wealth extracting societies are fundamentally corrupt and corruption is a corrosive cultural force which renders regulation surmountable.

4. Saving Capitalism by increasing competitiveness.

Competition is a fact of life for the capitalist mode of production. It has destructive effects upon the lives of working people. However, competition is also frequently destructive to capital. It is so destructive that large capitalists try to eliminate competition by buying up competitors, ruining them in various ways or forming ‘agreements‘ such as cartels and monopolies. The idea that one countries competitiveness will produce economic well-being for workers in the home country and hard-luck for those workers in countries not as competitiveness, is an utter nonsense. For one country to be competitive means having a higher productivity, lower labour-costs and lower infrastructure and taxation costs than another country.

But capitalism is now more than ever a global system of production. As noted above, capital looks for places where production can be set up with low wages, low taxation, low levels of regulation and few restrictions on pollution. To be such a competitive location for capital investment – on any serious scale – would require that advanced capitalist countries such as those in Europe and North America will have to lower wages, taxation, regulation, welfare provision and pollution regulations to a standard level or below the current average available in Asia, India, Eastern Europe and South America. Or increase productivity to such a high level that massive levels of relative over-production would occur and increase pollution and resource destruction. And this would not solve, but only exacerbate the fundamental contradictions of the capitalist mode of production.

This is because in general, competition at the global level requires mass-production and mass-production is now conducted with fewer and fewer workers, with more and more relative-over-production of commodities, waste materials, pollution and ecological destruction. And if each country adopts this path – a competitive race to the bottom of welfare standards will ensue. So increased competition will lower wages, lower environmental standards, lead to more exhaustion of raw material resources and more crises down the competitive road of economic growth. Is that the sort of country we want to live in? Which leads us directly to another bottle of economic snake-oil, entitled – ‘economic growth‘.

5. Saving Capitalism by economic growth.

Under capitalism most economic growth is determined by an upward surge in profitability or potential profitability. Economic growth under capitalism, requires the investment of money-capital with the intention of producing sufficient value to return the initial investment plus sufficient surplus-value to leave a satisfactory profit after taxation and other deductions. In short the capitalist mode of production is motivated by the accumulation of capital. The first condition of accumulation is that the capitalist/s must have contrived to sell a majority of his, her or their, commodities, and to reconvert into capital the greater part of the money so received. This requires sufficient market demand, for failure to sell in sufficient quantities and in sufficient time, causes a break in production and a crisis of re-production.

Indeed, the immediate post-2nd World War period saw an unprecedented growth in economic activity and the increasing globalisation of production and consumption. Throughout the mid to late 20th century, the application of new technologies in all spheres of activity, (agricultural, industrial, commercial and financial) enabled the scale of primary and secondary production to be increased exponentially. There became so much growth in the European economies that the primary food producers had mountains and lakes of commodities which could not be sold. The extension of personal forms of credit was able to take up a great deal of this relative over-production – but only for a period of time and only as long as the credit bubble did not burst.

The personal credit bubble has burst and most capitalist economies (according to logic and the IMF assessment for once coincides with logic) are in a period of economic shrinkage. A further associated problem for imagining that economic growth is possible and could solve any of the problems we face, is the nature of the above noted new technologies. Modern capitalist production methods are less labour-intensive, than previous periods. Factories with thousands of workers producing vast numbers of products using basic machinery and tools, is a thing of the past. Large factories are still being built but they are more often than not filled with modern automated and computer-driven machine tools and have fewer workers. There is thus no foundation, internationally or nationally or globally for sustained economic growth.

6. Saving Capitalism by further privatisations.

 

Since the period of Thatcherism capitalist finance-capital and industrial-capital has sought some degree of refuge in buying-out former public service industries as ‘investments’ for restless capital-seeking outlets of profitability. This project via the IMF and the World bank was a strategy introduced throughout the world. It was one of the financial tentacles of the 20th century neo-liberal agenda. Yet this did not save capitalism even though it provided a temporary diversion, from certain immediate investment problems for finance capital. However, in the longer term it exacerbated the contradictions already at play. The crisis we have today has occurred despite massive programmes of privatisation. For it raised the costs of essential services to consumers, who consequently had to cut-back on purchases of other forms of capitalist production thereby exacerbating the crisis.

One of the new targets for privatisation will be roads. These, like the railways, telephones, gas, electricity and bus services, previously privatised, are ideal purchases for finance-capital, for two reasons. First because the major expense has already been outlaid by money provided from taxation. The capital investment in infrastructure and foundations have already been laid. New investment will only be required to improve some minor aspects and erect toll-booths. Second because, in some cases, the ones most likely to be privatised will undoubtedly be almost monopolies. If this goes ahead the most potentially profitable road routes will become subject to toll-booths and drivers will have to pay to travel upon them.

While such additional privatisations will benefit some sections of the finance capitalists it will adversely effect the costs for every other capitalist who uses the roads for transport and of course it will adversely effect workers who need to take journeys along these roads. Furthermore, it will adversely effect other roads as those who do not wish to pay the toll will find alternative routes and thus create extra congestion and extra wear to the road surfaces for which already cash-strapped local governments are responsible. This will engender extra expense for the local authorities for repairs and of course, extra pollution upon these alternative routes.

Other targets for this attempt to save capitalism by privatisation have already begun to be explored. Health, education and social services are already in the sights of the finance-capital world and are making their first inroads with government approval from all political persuasions, left, right and centre. However, as with the other examples considered, privatisations of these spheres of activity will undoubtedly result in increased costs to the consumers, many of their employees will be ‘let go’ as profit orientated managers replace bureaucratic orientated managers. A two-tier system of welfare with those who can still afford it getting a better level of service or more of the service than those who can’t. As now occurs with heating, lighting, water, communications and transport. But as with the other ‘remedies’ it won’t solve the fundamental problems of capitalism.

Conclusions.

So capitalism cannot be saved by such remedies nor if they were introduced would they help the bulk of ordinary people. Unfortunately the capitalist system can be saved, as it was in the 1930’s, but not by one or all of the above recommended elixirs. Capitalism can only be saved by severe political, social and military means. That is the only way it can be rescued from crisis and later resuscitated, both by forced means. The means already adopted by the pro-capitalist elite will consequently devastate human communities on a colossal scale and lead to further problems with the well-being of the planet and its environments. There is however, an alternative. For before that happens, there will be a period of resistance by those who lives and futures will be driven down further. During this period, some people will be faced with trying to imagine an alternative and they will be offered a few.

The right-wing will offer stern leaderships which impose autocratic non-negotiable solutions. The liberal centre will sooner or later collapse as its only position is to suggest going back to the past Keynesian policies – which led to the current situation. The left-wing reformists will also offer a return to the past made up of nationalisations, regulations, increased taxation for the rich and a hoped for, but impractical growth. Sooner or later people will need to confront the uncomfortable fact that the capitalist system is moribund and whatever its previous (dubious) merits, it can no longer satisfy the needs of an intelligent humanity.

The task will begin again (after the practical failures of the 20th century) to imagine and construct a post-capitalist alternative out of the useful remnants of present and past economic and social activity. This will entail casting aside all the counter-productive economic, political and social relations based upon hierarchy and greed. Humanity, needs to be freed from the machinations and control of powerful economic and political elites, (who pursue policies in their own elite interests) and re-create societies which produce for need and welfare of the majority along with ensuring an ecological balance for the planet.

Roy Ratcliffe. (October 2012.)