Interview with Emeritus Professor John Foster, Social Sciences, University of the West of Scotland

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1 Interview with Emeritus Professor John Foster, Social Sciences, University of the West of Scotland Describe the current crisis It is a capitalist crisis affecting the most developed capitalist economies the United States, Japan and the dominant EU states and the economies most closely dependent on them. Those countries with significant state sectors, particularly the BRIC countries, continued to grow vigorously through the first five years of the crisis as highlighted by the 2012 UN Trade and Development report. The origins of the current crisis The crisis emerged in the financial sector as a consequence of speculation in debt, the creation of fictitious capital and the inability of some banks to cover obligations. An economic crisis followed as the scale of fictitious capital became manifest and new investment ceased. The underlying causes were: Financialisation being a combination of the deregulation of financial markets, making for the growth of unsecured speculative lending by banks, together with an intensifying concentration of the ownership of productive assets and their increasing control by a narrow range of financial institutions The long-term decline in the labour share of national income in most advanced capitalist economies particularly the US, Britain, Germany and France as production was outsourced to cheaper labour venues in eastern and central Europe, Africa and Asia after the demise of the Soviet Union and the concurrent decline in vigour of trade union organisation A long-term increase in the relative cost of subsistence goods as countries in Asia and South America industrialised and placed new global pressures on supplies of food and fuel A decline in the pace of innovation in capital goods arising from the growing ownership of productive assets by financial institutions with short-term profit horizons and the contraction of public sector investment programmes The short-term maintenance of mass demand for subsistence needs, such as housing, through bank lending leading to high-risk, high profit speculation in unsecured debt on a massive and ultimately unsustainable scale. How useful is Marxist political economy? It is essential. Without an adequate explanation of causes counter-crisis remedies are likely to be misconceived even on capitalist terms. Non-Marxist explanations stress: Psychological factors such as investor confidence (Keynes animal spirits) Lack of labour market flexibility preventing market clearing crisis resolution: lower wages stimulate new investment 1

2 The unsustainability of non-wage costs of labour reproduction such as benefits, pensions and social services The resulting remedies, central bank credit creation, wage restriction policies and major cuts in social services have now been in force for six years and have failed to create anything but the most tepid recovery. Britain s GDP remains 3 per cent lower than that in 2007 although real wages have fallen below their 2003 level. Marxist explanations focus on the basic contradictions of a system of production based on the private ownership of the means of production. These contradictions are: Long-term The concentration of ownership in fewer and fewer hands as the nature of production becomes ever more social in character and dependent on the combination of many different processes. Arising from this concentration of ownership, the tendency to monopolisation and, as Marx pointed out in Capital Volume III, the merger of the ownership of productive capital with bank capital leading increasingly to the creation of fictitious capital and the dislocation of capitalist exchange. Medium term The dependence of capitalist production and its calculation of profit on the labour value of commodities. The resulting contradictions are most easily understood if the economy is considered as a whole in terms of manpower planning as used in the last war. The amount of labour power available to capital to produce investment goods and for its own consumption is determined by the surplus available over and above that required for the production of subsistence goods for the maintenance of the labour force. The ratio between the two is described as the rate of exploitation. Its size varies and is dependent on the ability of capital collectively to extract additional or surplus value from labour in the course of production over and above the cost of its reproduction. The rate of profit is measured by the value of this surplus living labour as against the cost of living labour involved in producing subsistence goods plus the replacement cost, in terms of living labour, of all capital, that is, stored up labour embodied in capital goods utilised in production. The key medium term contradiction that results is the tendency of the rate of profit to decline as living populations of labour tends to increase more slowly than the rate at which capital, in terms of stored up labour, is accumulated. There are, however, offsetting factors. It is these that provide the analytical framework for assessing the nature of medium-term crises like the present one. These are: 1. The ability of capital to shift the ratio between surplus and subsistence uses of labour by absolutely reducing consumption by driving down wages. This increase in the absolute rate of exploitation has its limits. 2

3 2. The ability of capital to cut the labour cost of subsistence goods either through technological innovation or through securing cheaper supplies externally. This results in a relative increase in the rate of exploitation by releasing more surplus labour over and above that used for reproduction. 3. Cutting the replacement labour cost of capital goods through innovation 4. Exporting capital to venues where there is a higher rate of exploitation The protracted and difficult character of the current crisis has been caused by: the scale of fictitious capital creation which has to be treated as real capital/stored up labour the long-term decline in innovation as a result of a fall in levels of productive investment as against speculative investment (and intensified since 2008) the relative increase in the cost of subsistence goods as pressure is placed on global resources through industrial development elsewhere the decline in the areas of the world available for safe or high profit investment over the last decade Hence the continued focus of crisis-resolution measures in the advanced economies on Increasing the absolute rate of exploitation Rendering new areas of the world safe for investment and preventing other areas from becoming unsafe Neither response has been very successful and the first is in the short-run directly counterproductive because it cuts demands for consumer products and hence investment in labour-saving technology [it will depend for its success on the longer-term re-tooling of the economy towards luxury consumption to match the new income distribution]. As a result of these policy failures governments especially in Britain, the US and Japan are relying on sub-keynesian solutions of currency devaluation and increasing money supply. However, these also are counter-productive in the current stage of capitalist development as they do not result in productive investment and innovation but remain within the financial system and create asset bubbles which further increase the dead-weight of capital. This is one consequence of capitalist economists failing to understand their own economies in Marxist terms as well, of course, of the self-interest of the super-rich who benefit. What have been the lasting changes in the capitalist economies? The two most fundamental have been: Financialisation in terms of the concentration of ownership of the means of production in investment banks and the alternative investment sector The increasing role of the State in maintaining the conditions required for extracting profit. The protracted and dangerous character of the current crisis has required an unprecedented increased in the state regulation of, and support for, the financial sector and of the state redistribution of revenue to the private sector through the privatisation of state assets and services for the social reproduction of labour. National finance capital is today more, not less, dependent on its own state than before. 3

4 Globalisation is itself not a new feature of capitalism being an essential feature of its development since the 17 th century in terms of the internationalisation of markets and movements of both capital and labour. What is relatively new is the emergence of global and regional institutions for the negotiation of terms of trade between states. However, the actual function of these institutions is far more specific: to mediate relations between dominant (imperialist) powers and subordinate states as in the case of the IMF, WB, NAFTA and in Europe the EU and the ECB. These have virtually no role in regulating the currencies or international trade policies of the major imperialist powers. The US, Japan and Germany make their decisions on these matters. Characteristics of capitalism today An intensification of the contradiction between the increasingly social character of production and the private character of appropriation and ownership An intensifying contradiction between monopolitisation/financialisation and the ability to sustain the pace and scale of investment required for innovation In consequence a re-emergence of systemic challenges from state relying on a degree of social ownership of the means of production most notably China. However, it would be incorrect at this stage to overestimate the depth of these contradictions and any resulting challenges. Capitalism has shown itself previously able to overcome as in the 1930s and 40s what appeared to be fundamental crisis. More critical still, capitalism will not be replaced automatically. Any replacement will depend on the working class and its allies having the cohesion and sense of purpose to impose a new system and dismantle the current state system on which monopoly capital depends. What is austerity in Europe designed to do? It has a two-fold objective: 1. To increase wage flexibility through a long-term reduction in labour s collective bargaining power. The neo-liberal assumptions of the EU make this the only way of attempting to secure a post-crisis return to equilibrium. 2. To effect a step change in the political/institutional relations between the dominant imperialist states and subordinate states in the EU - with state power being concentrated in the hands of the former and their finance capital elites. Why have the massive injections of capital into the US economy not resulted in job creation? The injection is of credit/fictional capital and, as a result of the financialisation of the US economy, this has not resulted in productive investment but has simply added to the scale of speculative investment in financial assets particularly equities. The only successful injections of capital have been those where the state has directly financed the car industry ($24 billion) and, far more powerfully, paid for specific hardware and software for military purposes (in excess of $500 billion). 4

5 Can capitalism be revived by Keynesianism? The effectiveness of Keynesianism in the past depended on stimulating investment in production by dominant monopoly producers through an inflationary expansion of money supply and sometimes the direct creation of consumer demand through employment-creating projects. This operated to redistribute income to those who could control their prices at the expense of those who could not (small business, farmers, third world producers) and therefore gave large-scale capital the incentive to re-invest. This variant of Keynesianism operated very effectively between the 1940s and the 1960s in a period when it was politically necessary to restore the legitimacy of the capitalist system. It was less so from the 1960s in face of economic and political resistance from third world countries, small business and labour resulting in inflationary crises. This form of Keynesianism would not be very effective now, as already noted, because of the scale of financialisation. Keynes always insisted that the multiplier effect arising from employment in the creation of real goods. However, a variant of Keynesianism has been advanced by Hyman Minsky and his associates. This proposes to counteract the financialisation of the economy by the state take-over of banking and its use by the state to facilitate reinvestment in all areas where there can be a productive (exploitative) relationship between capital and labour (which would remain under private ownership). It is unlikely that this approach will be introduced unless the legitimacy of the capitalist system comes under very much more substantial political challenge than exists at present. What demands should be made in building socialism Two caveats: 1. Any answer must, in its specifics, be matched to particular countries 2. Demands by the working class cannot be related to building socialism (which can only be undertaken after the rupturing of capitalist state power) but to the period preparatory to it In this period of capitalist crisis the demands of the working class should have two main objectives Strengthening the collective organisation of all working people: their confidence, their ability to defend their immediate interests in all spheres and their political understanding of the class nature of capitalism Developing political alliances with small producers in ways that expose the effects of finance capital control and thereby expose the class character of its state power The resulting demands would, in important respects, be different in Britain and Ireland. Significant challenges in Britain There have so far been only quite limited demonstrations of popular discontent in Britain compared with Spain, Portugal or Greece - particularly surprising given the 15 per cent cut in real wages. 5

6 There are, however, some developments that do worry the British ruling class a) the leadership of a number of key trade unions has shifted to the Left in a way not seen since the 1970s even though the trade union movement is much weaker than it was then. This has been manifested in the support of the TUC for the People s Charter and in 2013 for the People s Assembly and its programme of co-ordinated industrial action and civil disobedience b) the cohesion of its wider political base, essential for the parliamentary control of the Conservative Party, is beginning to fracture most notably through the rise of UKIP and its challenge to the EU (membership of which is of central importance to the City of London and the strategic alliance with the US) The government s response has been: a) to step up the promotion of racist interventions aimed at immigrants and asylum seekers b) to seek to pit those in work ( hard-working people ) against benefit seekers c) to divert opposition to the EU into a token renegotiation of the terms of EU membership particularly aimed at winning back support from small and medium business d) to seek to break the political links between the trade union movement and the Labour Party to halt any parallel politicisation to that which occurred in the 1970s and 80s Mobilisation for the People s Assembly may help to offset a), b) and d). So far there has been only limited success in raising the issues of democracy, popular sovereignty and the EU in the trade union movement essential to offset c) and develop a more strategic alliance between the working class movement and other strata. 6

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