The Third International after Lenin

Wednesday, December 7, 2011

Capitalism: the current stage, and prospects


There is no reformist way out of the crisis of capitalism

The present economic crisis has been described in various ways by mainstream commentators. All manner of "solutions" have been posed, both by the bourgeois politicians and economists, and by the reformist leaderships of the working class. What these commentators and representatives cannot admit is that this crisis will not be solved by this or that reform. Society is living through a crisis of capitalism and the choice facing mankind is simple: socialism or barbarism.

At the onset of the "credit crunch" in 2007-08, we were told by various commentators that this was simply a financial crisis – a crisis of credit. With the bailing out of the banks and the conversion of private debt into public debt, a series of sovereign defaults and bailouts began, first with the default by Iceland, and then with the bailout of Greece, Portugal, and Ireland. As a result we are now told that the crisis is a sovereign debt crisis and a crisis of the euro. The situation is described by some bourgeois commentators – with the aim of hiding the real nature of the crisis – as being nothing more than a "crisis of confidence".

In turn, other bourgeois commentators now complain that the crisis is one of political leadership. As a result, unreliable and weak representatives of the ruling class such as Berlusconi in Italy and Papandreou in Greece have been cast aside and replaced with "technocratic" governments. Meanwhile, governments that embrace programmes of austerity, such as the coalition government in the UK, are held up as models by the bourgeoisie for the rest of the world, and are rewarded with a triple-A credit rating as a result.

Accompanying these various descriptions of the crisis – as a financial crisis, a crisis of credit, a sovereign debt crisis, a crisis of the euro, a crisis of confidence, and a political crisis – we see these same commentators put forward an array of so-called "solutions". In response to the financial crisis, we are told that we simply need more regulation of the financial industry; to combat the crisis of credit we must restore liquidity. To tackle the sovereign debt crises, the reformist leaders suggest that we "tax the rich", introduce a "Tobin" or "Robin Hood" tax, and "stimulate growth". Meanwhile, to solve the crisis of the euro, we are told either that insolvent countries must leave the euro or that there must be a fiscal union to accompany the eurozone monetary union. Finally, the bourgeois representatives suggest that "confidence" must be restored by cold, impassionate, ruthless governments through "reforms" (i.e. austerity). Where democratically elected governments are unable to do this adequately and reliably for the demands of the markets, then these governments are simply replaced by unelected technocrats in "the national interest" (i.e. the interest of the money lenders).

What all of these explanations and descriptions fail to admit, however, is that these various crises – the financial crisis, the sovereign debt crisis, the euro crisis, and the political crisis – are not the underlying problem, but are, in the final analysis, reflections of the real crisis facing society – the crisis of capitalism. In turn, these respective "solutions" to the various crises that are put forward will solve nothing. These commentators and representatives are all attempting to find a solution under capitalism, but no amount of tinkering with the system will overcome what is fundamentally a crisis of capitalism.

Financial regulation

After the onset of the crisis in 2007-08, all eyes turned towards the bankers and the rest of the financial sector across the world. The crisis was blamed on the greed of the bankers and the laissez-faire attitude of the financial industry. "If only our economies didn't rely on the financial sector so much!"; "If only we had smaller, more regulated banks!" These were the cries that were heard in the wake of the sub-prime mortgage scandal, the collapse of Lehman Brothers, and the subsequent credit crunch.

It may well be true that bankers are all inherently greedy people (some go so far as to call them all psychopaths) and it is a fact that the financial sector holds an enormous sway over the economies of many countries. One must ask, however: who allowed these bankers to take such outrageous risks with the money of ordinary people? Who allowed the financial sector to grow to such large proportions and dominate the economy without any oversight or regulation?

Firstly, it should be highlighted that the dominant role of finance capital in the economy is not new. In Imperialism, the Highest Stage of Capitalism, written in 1915, Lenin described the growing role of finance in the global economy, whilst Marx wrote about the importance of credit in Capital.

In Britain, the expansion of the financial sector qualitatively changed in the 1980s with the "Big Bang" under the Thatcher government, when, in October 1986, the rules and regulations relating to the London Stock Exchange and banking were relaxed. A similar process developed in the USA under President Reagan. This expansion of the financial sector continued – and was actively encouraged – under New Labour in Britain and Clinton and Bush in the USA, right up until the crash of 2007-08.

The growth of the financial industry from the 1980s onwards was not a random event or chance occurrence. Nor was it simply the result of "neo-liberal ideology", as is often suggested. The ideology of those in power is a reflection of the material interests of the ruling class, which in a time of crisis cannot tolerate niceties for the masses such as welfare and public services. In such times, the reformist leaders – who have been nice and obedient to capital by keeping the labour movement in check – are cast aside, and a more openly confrontational government is demanded by the bourgeoisie.

The growing role of finance from the 1980s onwards can be seen in two interlinked tendencies: on the one hand, the massive expansion of credit; on the other hand, the increasing amounts of capital invested, not into real production, but into speculative activity such as derivatives and other newly invented financial products.

Both of these tendencies were an attempt to overcome the economic crisis of the 1970s. As the trade unions were weakened and wages were pushed down in order to maintain and increase profits, credit was used to artificially expand the market (i.e. effective demand), by lending families and young people money through mortgages, loans, and credit cards. In the UK, for example, wages (as a percentage of GDP) have decreased from 65% in 1973 to 53% today. Meanwhile, average household debt in Britain has increased from a value of 45% of GDP in 1980 to 157% of GDP in 2005.

This cheap access to money was needed to overcome a crisis of overproduction, which arises from the fact that, under capitalism, more value is produced by workers that is paid back in the form of wages. As the Marxists have explained before (Britain: Fighting the Cuts), credit is therefore needed to make up the difference and overcome this fundamental contradiction of capitalism, which arises from the private ownership of the means of production.

The increasing amount of speculative activity, meanwhile, was an attempt to make money out of money, instead of investing in real production, which would only have served to increase productivity and thus increase the amount of excess capacity in the system and exacerbate the crisis of overproduction.

The enormous expansion of credit was actively encouraged by politicians and their economic advisors across the world, not only through financial deregulation, but also by encouraging people to borrow greater and greater amounts of money. In Britain and the USA, for example, families were encouraged to buy homes (through sub-prime mortgages and the cheap selling off of council homes) – the value of which families could then borrow against – whilst student grants were replaced by student loans and increasing amounts of student debt (which now stands at around $1 trillion in the USA – more than credit card debt! [Student loans: The indebted ones].

These attempts to overcome the crisis of the 1970s have, of course, only exacerbated and delayed the crisis, increasing the magnitude of the underlying contradictions, and leading to an even more severe crisis now.

When one blames the current crisis on greedy, risk-taking bankers and the overreliance on finance, one must, therefore, first ask: why has this situation come about and who has allowed for this to happen? To complain that bankers are greedy says nothing new. All capitalists are greedy, because the system that drives them – capitalism – is a system based on an unquenchable thirst for profits; the greed of the bankers and financiers is only a more obvious, open, and naked form of this desire for profits at the expense of all else.

Given that politicians and governments were implicit in this whole process, it quickly becomes clear that we cannot simply appeal to these same governments to handcuff the bankers on our behalf. This highlights that the problem is not just a question of economics, but a political question also of who runs the economy and of how the wealth in society is controlled and distributed.

Since the beginning of the crisis, the call from many has been for more regulation of the financial industry, for the separation of commercial and investment banking, and for a breakup of the big banks. All of these demands have been put forward with the intention of protecting ordinary savers from the gambling of financiers, and to prevent a repeat of the need for the state (and hence taxpayers) to save the banks.

Evidence suggests, however, that such regulatory measures would make little (if any) difference. Take, for example, the separation of commercial and investment banking. Firstly, one can see examples of purely commercial banks, such as Northern Rock in the UK, which still needed to be bailed out (in fact Northern Rock was the first of the banks to be recently bailed out in Britain).

Secondly, it should be noted that the separation of commercial and investment banking is not a new idea, but was in fact implemented in the USA with the Glass-Steagall act in 1933 in an attempt to curb speculative activity (déjà-vu?). Importantly, this act was removed by the Clinton administration in 1999 as part of the general deregulation of the financial industry.

This example shows the limits and redundancy of trying to regulate the financial sector (or indeed any part of the capitalist system). Any regulations that are put in place to "save" the economy are only ever rules on paper under capitalism, which can simply be removed, re-written, or torn apart at the whim of the ruling class. The only way that such rules and regulations can be guaranteed is if they are enacted by a workers' government under the control of the labour movement. And if society was able to go that far, why not carry on going and expropriate the capitalists altogether by nationalising the banks and the other commanding heights of the economy?

The same can be said in relation to all rights and reforms that are won by the working class. Of course Marxists support any genuine reform, right, or regulation that benefits ordinary people – indeed revolutionaries are often leading figures in movements that fight for such demands – but we must also point out the temporary nature of such reforms, which, under capitalism, will simply be taken away when the economy goes into crisis and capitalists seek to restore their profits. The recent removal of democratically elected governments in Italy and Greece under pressure from the market is another prime example of this.

There are also those who seek to regulate the banks by breaking them up into smaller entities, the idea being that a series of smaller banks will be less likely to cause a global financial crisis if one of them goes bankrupt. The people who make such suggestions are like the Utopian Socialists that Marx and Engels describe in the Communist Manifesto:

"This form of Socialism aspires either to restoring the old means of production and of exchange, and with them the old property relations, and the old society, or to cramping the modern means of production and of exchange within the framework of the old property relations that have been, and were bound to be, exploded by those means. In either case, it is both reactionary and Utopian."

These Utopians desire, in effect, to roll back the wheel of history and go back to a time of small producers. But the concentration of capital is an historical fact, as observed long ago by Marx and Engels in the Communist Manifesto. It is now also a recognised scientific fact, as documented in an academic paper highlighted by the New Scientist, which reports that approximately 40% of the wealth in the world economic network is controlled by 147 companies –the vast majority of which are banks and financial institutions.

It is clear that the financial industry has an enormous amount of power and that huge banks dominate and control the global economy. The solution, however, is not to break up these giant entities into smaller pieces or to try and regulate these monolithic financial institutions. Instead, the solution is to seize these companies – which are privately owned and which operate as part of an anarchic worldwide economic system – and to put them under democratic workers' control within a rationally planned economy.

The fact is that the crisis of capitalism cannot be overcome through rules and regulations, but can only be solved by the transformation of society – by the living forces of workers and youth taking economic and political power from the capitalist class and welding this power in the interests of society as a whole.

Taxing the rich

Alongside the call for greater financial regulation, the other most common demand from the reformist camp is to "tax the rich". It is unsurprising that this demand has found an echo amongst such a wide layer of society, especially when the growing disparity of wealth is so flagrantly flaunted by the rich. In Britain, the richest 1000 people increased their wealth by 30% in the last year to an astonishing total of £336 billion, despite the crisis. Meanwhile, the executives of Britain's 100 biggest companies enjoyed an average pay rise of 49% over the past year.

Figures for the tremendous amounts of tax that is avoided and evaded by the rich are commonly cited; for example, the tax collectors' union in the UK, PCS, estimates that over £120bn is avoided, evaded, and uncollected every year. With a budget deficit of around £150bn in the UK, it would seem that cuts and austerity aren't quite so necessary after all.

What's more, certain members of this wealthy elite – realising that there is a limit to how much you can get workers to pay when so much wealth is concentrated in the hands of so few – are even demanding that they be taxed more, with figures such as Warren Buffett, the famous American investor, and Luca di Montezemolo, the chairman of Ferrari in Italy, amongst those who have recently asked their respective political leaders to increase the rate of taxation on the rich.

But, like the issue of financial regulation described above, two questions must be asked: how have the rich been allowed to avoid and evade paying their taxes up until now? And who will tax the rich and make them pay their fair share?

Again, governments have been all too eager to lower (personal and corporate) tax rates for the wealthiest over the past 30 years in a race to the bottom in order to entice the rich to live (and invest) in their country instead of another. For example, in 1974, the UK Labour government introduced an 83% tax rate on the highest earners. By 1988, the Thatcher government had reduced this to 40%, whilst the current 50% rate on top earners (introduced by the previous Labour government) is considered temporary by the current Tory-Liberal coalition government. Meanwhile, over the same period, the main rate of corporation tax in the UK was reduced from 52% to 30%.

Indeed, the vast majority of the capitalist class is not quite as keen as Mr Buffett on being taxed more, since such a tax increase would bite into profits. In general, even the slightest whisper by governments regarding the possibility of raising tax rates for the rich is met with cries of indignation by the capitalists and their mouthpieces in the media, who complain that such taxes will discourage investment and thus stifle economic growth. In effect, these people are holding a gun to the heads of governments, threatening them with a strike of capital.

Meanwhile, the bourgeois politicians and media raise a hue and a cry about anyone who mentions the possibilities of taxing the rich. In the USA, President Obama has been called a "socialist" by the Republicans and the right-wing media, who accuse of him of trying to start a "class war". But as Warren Buffett commented: "there is class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."

In the USA, the question of taxes on the rich has also become a pivotal issue for the Republican presidential nomination campaign, with candidates stumbling over each other to promise lower and lower tax rates with accompanying catchy titles, as The Economist reports:

Mr Santorum, for example, wants manufacturing firms to pay no corporate tax at all (one of his three zeroes). Ron Paul, a libertarian candidate, wants to do away with federal income tax altogether. Mr Cain denounces the current tax code as "the twenty-first-century version of slavery". There is a consensus among all the candidates that the federal corporate tax rate of 35%, the highest in the rich world, must be slashed. Most candidates would like to put an end to taxes on capital gains and dividends as well."

The Democrats have acted no better, with Obama allowing himself to be held to ransom by the Republicans in negotiations over how to reduce the deficit; the Republicans refuse to budge on their demand for no tax increases, and the Democrats capitulate.

Of course certain concessions can be squeezed from the capitalist class, but only if the fire of revolution is held to their backsides as a warning of what they could potentially lose. But, similarly to the question of regulation and reform, any attempt to tax the rich and make them pay more can only be made permanent if it has the full force of the labour movement behind it, as we have explained elsewhere. And again, if a mass movement of workers and youth is able to achieve such a permanent reform, why not go the whole way and seize the wealth of the rich by nationalising the banks and the other major monopolies?

The reformist leaders sweat and writhe at such a suggestion, creating hysteria and warning that the capitalists must not be provoked, but must be sweet-talked into parting with their money. Such people imagine that you can tame a tiger by slowly removing its claws one-by-one. In any case, if ever there was a case of provocation, it is the massive austerity programmes being demanded by the bourgeoisie, which have unsurprisingly elicited tremendous responses from workers and youth. Even more audacious is the sight of these same members of the bourgeoisie sipping on champagne as the masses protest beneath them (see this video from around 53 seconds in). This is the real provocation!

In addition, it is one thing to talk about getting taxes from the rich in a time of boom when there is more to go around for everyone; it is another thing to try and tax the rich in a time of crisis. Of course, such issues are of little concern to the reformist leaders, who scorn the Marxists for their "idealism", whilst assuring the masses of their "pragmatism". But it is the reformists who are the real idealists, with their utopian suggestions to "tax the rich", and it is this same "pragmatism" that leads the reformists to carry out cuts on behalf of the capitalists once they are in power. This is the nature of reformism in a time of crisis; it turns into its opposite, leaving reformists with nothing but counter-reforms to offer.

This idealism of the reformist leaders is also clearly put on display by their "alternative" to cuts in the form of "stimulating growth". But, as we have explained elsewhere (Marx vs. Keynes), the idea that the economy can be jolted into activity at the click of a button or that capitalists can be encouraged to invest at the whim of governments is utopianism in the extreme. Rather than governments taking such a long-winded, roundabout route to funding public spending – i.e. encouraging capitalists to invest and then pleading with them to hand over some of their profits – why not just expropriate the capital of the 1%, put it under public control, and invest the wealth in society for the needs of society?


There is no reformist way out of the crisis of capitalism – Part Two

Another variation on the demand to "tax the rich" is the call for a tax on financial transactions, otherwise known as a "Financial Transactions Tax" (FTT), "Tobin Tax" (after the Nobel economics laureate, James Tobin, who first proposed the idea in 1972), or "Robin Hood Tax" (i.e. taking from the rich and giving to the poor).

The Tobin Tax

The idea of an FTT has even been proposed recently by high up figures such as Wolfgang Schäuble, Germany's finance minister, and Rowan Williams, the Archbishop of Canterbury, who have proposed an EU-wide FTT to curb speculative activity and make the financial sector contribute more for the cost of the crisis.

The idea was instantly rejected by David Cameron and George Osborne, the British Prime Minister and Chancellor respectively, who said that whilst they supported the idea of an FTT "in principle", they did not think it would be implementable in practice unless it was global. It should come as no surprise that Cameron and Osborne would be against implementing a tax that could bite into the profits of their banker friends in The City.

The Buttonwood columnist in the Economist  points out the implausibility of a European-only financial tax:

"London is the global centre for foreign exchange trading. This trading is conducted electronically at very low cost; ICAP, the broker, says the cost averages $2 for every $1m traded. A Tobin tax of just 0.01% [the proposed rate] might not sound much but would equate to $100 for the same trade, 50 times as much. Why would anyone want to pay it? Such trades would be routed to New York or Singapore in an instant."

The threat of finance moving its capital is not mere scaremongering, but is an undeniable fact. The Asian economic crisis of 1997-98, which wreaked havoc on the economies of a whole region, showed how easily and quickly capital can be withdrawn from a country, and the devastating effect that such a withdrawal can have.

Some European ministers have proposed that the FTT could be introduced in the eurozone countries only. The Financial Times highlights the problems with this suggestion:

"According to the European Commission's own estimates, roughly 62 per cent of the revenues generated by an EU tax would come from London."

And the Economist continues with the criticism of a eurozone-wide FTT:

"The big flaw in the plan is that taxable transactions are likely to migrate outside the EU. Although the commission bills its proposals as the first step towards a global agreement, it is hard to discern sweeping international enthusiasm for the idea. The commission's own numbers, partly based on an unhappy Swedish experiment with an FTT from 1984-91, suggest that derivatives traders could relocate as much as 90% of their business outside any tax zone..."

"...The commission's own assessment suggests that the FTT could reduce long-run GDP in Europe by anywhere from 0.5% to 1.8%. At a time of economic frailty, that seems perverse."

All available evidence shows that international treaties cannot be implemented on a capitalist basis. With examples such as to the Copenhagen climate summit in 2009, which ended with no binding agreements, and the trade negotiations organised by the World Trade Organisation (WTO), which began in Doha in 2001 and ended in complete collapse in Geneva in 2008, one can see that international treaties or regulations of any kind consistently come up against the contradiction of the nation state, with individual governments doing whatever it takes to protect the profits of the capitalist class in their own country. The implementation of a global FTT would encounter the same barrier, which cannot be overcome on a capitalist basis.

Even if such a tax could, somehow, be implemented at a global level, what is to stop the global financial industry from simply passing this cost on, for example, by reducing the access to credit for small business and families? By passing on the costs, the FTT would end up simply being an additional regressive tax, like a sales tax or a carbon tax, on ordinary people.

The "Robin Hood Tax campaign", a UK-based campaign supported by all manner of well-wishers – from charities, philanthropists, and trade union leaders to bourgeois politicians, economists, and businessmen – provides a number of fairly insubstantial sounding responses to some of the criticisms levelled above, even going so far as to say that Britain could implement such a tax in isolation.

But again, as with the question of financial regulation and any other tax on the rich as outlined above, it must be asked: who will implement such a tax? With Cameron and Osborne in Britain immediately pouring cold water on the idea, evidence suggests that it is complete utopianism to think that a bourgeois government might implement any sort of Robin Hood Tax in a period of crisis. Once again, it is the so-called "pragmatists" and "realists" who are seen to be the most utopian and idealist of all.

The example of Greece – where an austerity programme is being implemented due to pressure from the financial markets and where a democratically elected government has been forced to step down by these same creditors – shows that governments are not able to dictate to the financial sector; in fact, it is the opposite. To paraphrase an old Soviet Union slogan: under socialism, government controls finance; under capitalism, finance controls government.

A recent article in the Economist highlights this point and is worth quoting from at length:

"The Europeans created the euro to prevent the crises caused by currency speculators, only to find themselves pushed around by bond investors...

"...In theory, there is an easy answer. If you don't want to be bothered about the bond markets, don't borrow from them...

"...Countries can escape from the tyranny of the markets by turning to official lenders: other countries, the International Monetary Fund or the European Financial Stability Facility. But such creditors are just as keen on extracting their pound of flesh (in terms of economic reform) as the private sector...

"...Just as voters cannot repeal the laws of gravity, they cannot insist that foreign creditors lend them money...

"...Over the centuries, countries have tried various rules—the gold standard, balanced-budget requirements, independent central banks—in an attempt to limit government profligacy. But when those rules fail, the markets assert their own grim discipline."

In other words, one cannot admonish the financial markets and the bankers and simply try to regulate them or tax them. These bankers and financiers have simply operated according to the laws of capitalism. If one accepts capitalism, then one must also accept the logic and the laws of capitalism. If you say "A", then you must also say "B", "C", and "D".

It must be emphasised, once again, that the only government that could implement such a financial tax would be a workers' government under the control of the labour movement. Even then, such a tax, in order to avoid a strike of capital would – like any financial regulation or tax on the rich – have to be international.

But then why stop at such an international financial tax? Why not put the financial system – which, as the New Scientist article above highlights, is by nature an incredibly powerful international system already – under public, democratic control, so that the wealth within this system can be put to use as part of a rational, international plan?

Put simply, there is no solution on a capitalist or nationalist basis. It is international socialism or nothing.

The euro: to leave or stay?

Some commentators have tried to paint the economic problems in the world as one confined to the highly indebted states within the eurozone. Such people, however, conveniently fail to acknowledge that the first country to default was Iceland, which is not even in the eurozone. In addition, they seem blinded to the austerity that is being implemented across the industrialised world, including in other European countries that are not part of the euro club, including Romania and the UK. Indeed, despite being able to devalue its currency, Britain is not in a particularly advantageous position; according to The Economist, 40% of British exports go to eurozone countries and there is approximately $350 billion of exposure of British banks to debts of Portugal, Ireland, Italy, Greece, and Spain (PIIGS). It is clear, therefore, that the fate of the British economy is tied by a thousand threads to the fate of the eurozone, despite the UK's independent currency.

It has been proposed by some (from across the political spectrum) that the "solution" for Greece is to leave the euro in a controlled manner. The idea behind such a proposal is that over time the independent Greek currency (the drachma) would be devalued, Greek industries would become more competitive, and increased exports would pull the Greek economy out of its slump.

It is true that an independent Greek currency would be devalued. However, such devaluation would likely happen extremely rapidly, given that the new currency would (rightly) be considered worthless. Meanwhile, proponents of the Greek exits from the Eurozone seem to forget that a rapid devaluation of any Greek currency would (in addition to making exports cheaper) make imports vastly more expensive. The result would be enormous inflation, which would just be austerity for the Greek people by another name.

In addition, it must be asked: which industries in Greece are expected to provide the basis for these exports? And who are they expected to export to? Even Germany, the economic powerhouse of Europe and the second largest exporter in the world, is finding it difficult to find a market for its exports and is consequently experiencing a rapid decrease in its expected rate of economic growth, with just 0.1% growth in GDP between April and June of 2011.

It should also be pointed out that Greek debts are denominated in Euros, whilst any revenue would be in the new (devalued) currency; therefore any departure by Greece from the euro and introduction of a newly devalued currency would see the real price of Greek debt soar, and repayment costs would be impossible to meet. Finally, a Greek exit from the euro would likely be accompanied by a flight of capital from the country and a strike of foreign investment. All of a sudden, a Greek exit from the euro, in and of itself, does not seem like such an appealing "solution". As the Economist put it recently: "Austerity, high unemployment, social unrest, high borrowing costs and banking chaos seem likely either way."

The other alternative, for Greece to default on its debts, is also not a solution if implemented in isolation. By itself, a complete default could be even more painful than austerity for Greece. The country would be instantly cut off from the credit markets, meaning that they would have to eliminate their budget deficit immediately. In addition, much of the Greek debt is in Greek banks, so the government would also have to worry about the possibility of bailing out its own banks.

A Greek default would quickly cause contagion, with banks elsewhere in Europe (which are exposed to Greek debt) going into crisis. These banks, in turn, would be bailed out by their respective states, simply transferring Greek debt onto the balance sheets of other countries' economies in a similar manner to what was seen (on a far smaller scale) when Iceland defaulted on its debt. The final result would be a spread of the austerity that the Greek masses have been experiencing to the rest of Europe and beyond, as governments everywhere carry out cuts in response to their newly inflated public debts.

The other proposal regarding the euro crisis that is commonly cited these days is that of a fiscal union to accompany the eurozone monetary union. This idea comes in a variety of flavours, including: having the European Central Bank (ECB) issue "Eurobonds", jointly underwritten by all Eurozone countries; getting the ECB to provide unlimited funds for the indebted PIIGS countries; or even having what would effectively be a political union, with European authorities in Brussels setting legally binding budgetary constraints.

The first two variations of this proposal amount to the same thing – using the ECB to transfer money from the stronger economies in northern Europe to the weaker, highly indebted countries elsewhere. In reality, this means a massive transfer from Germany to the PIIGS. If it were simply smaller economies such as Greece, Ireland, and Portugal that needed bailing out, then this might be possible; but now Italy and Spain are in the sights of the financial markets, both of which are large economies with even larger debts. And it may not end there; there are also concerns over French banks, and therefore over the French economy in general by association. It is far from certain whether the shoulders of Germany are broad enough to take such a burden.

It must also be made clear that such a transfer of money under a fiscal union would not be a one-off, but would be a continual process, since the main problems (i.e. budget deficits and low economic growth in the PIIGS economies) would not be eliminated. The other question, of course, is: where would all this money in Germany come from? Ultimately, from the German taxpayer, i.e. the German working class. Any transfer of money from Germany to the rest of Europe, therefore, would simply be accompanied by a transfer of austerity from elsewhere to Germany. A United States of Europe on a capitalist basis, therefore, would simply be a United States of Austerity.

Others have suggested that the ECB should simply create money to buy up the debts of Greece, Italy, Spain, etc., but this has been met with disapproval by Angela Merkel and other German politicians, who are (as a result of bad experiences with hyperinflation in the past) instinctively against anything that looks, sounds, or smells of printing money. Indeed, there is no real difference between this and the quantitative easing programmes carried out in the USA and the UK, which have thus far done little to solve the economic woes in these countries, and which in the long run will only lead to inflation and thus austerity for ordinary people by other means.

In terms of the third variation of the "greater European unity" proposal – for a political union with national economic targets decided in Brussels – it should be pointed out that such a proposal has already happened– and failed. When the euro was first created, it came with certain budgetary conditions, defined by the Maastricht Treaty, which had to be met, such as targets for budget deficits and public debts. Countries, including Germany, very quickly broke these targets; and as the Marxists pointed out at the time, such measures were deeply anti-working class, since meeting such targets on a capitalist basis inevitably meant cuts to public services and welfare.

Finally, it must be emphasised that a United States of Europe on a capitalist basis would solve nothing. At heart, this is because the crisis is not simply a crisis of the euro, but a crisis of capitalism, as we have explained previously. One only has to look at the United States of America, which has both a political and fiscal union of fifty different states, to see that a union of capitalist states solves nothing. In the USA, there is a massive debt crisis at both the federal (national) level, and also at the level of the individual states. A "super-committee" of Republicans and Democrats has failed to come to an agreement over how the deficit should be cut; as a result, there will be automatic large cuts to public spending. Meanwhile, the precarious positions of some states' finances have already led to cuts to state expenditure, and in some cases, such as Wisconsin and Ohio, to the state government taking on the labour movement and attempting to take away trade union rights, such as the right to collective bargaining.

Far from moving in the direction of greater unity, Europe is moving in the direction of breaking up. The possibility is now being openly raised of countries voluntarily leaving the euro, which could easily accelerate into a full on breakup of the euro, with countries seeking to get out of the crisis through competitive currency devaluations. But such a move would also be accompanied by protectionism with each country trying to keep out the exports of its neighbours. This would put the whole European Union project – which is built upon the principle of free trade between member states – at risk of falling apart, as The Economist explains:

"The few left in the euro (Germany and perhaps a few other creditor countries) would be at a competitive disadvantage to the new cheaper currencies on their doorstep. As well as imposing capital controls, countries might retreat towards autarky, by raising retaliatory tariffs. The survival of the European single market and of the EU itself would then be under threat."

The fact is that there is no international solution under capitalism. Internationalism on a capitalist basis simply means international austerity. Nor is there any national solution, as has been pointed out above, in relation to Greece and the possibility of departure from the euro. Nor is there the possibility of so-called "socialism in one country", as history has shown. Each and every country is part of a global economic system, and one cannot have an island of socialism in a sea of capitalism. Socialism is international or it is nothing.

Crisis of confidence

Certain bourgeois and reformist commentators, as we have seen, have simply described the crisis as a "crisis of confidence". Such people blame the credit rating agencies and financial speculators for creating fear by downgrading countries' credit ratings and demanding higher interest rates for lending to governments. But such an explanation puts the cart before the horse. The credit rating agencies are only pointing out what is established fact – that certain countries are unlikely to be able to pay back the money they have borrowed due to high levels of debt, budget deficits, and low economic growth. The job of the credit rating agencies is to warn investors of potentially risky assets (such as government bonds) that are worth avoiding. Meanwhile, when creditors demand a higher interest rate, they are simply recognising that there is a greater possibility that they will not be paid back in the future. Blaming credit rating agencies for causing the crisis is a case of shooting the messenger.

It is not the lack of confidence that causes the crisis, but the crisis that causes the lack of confidence. Marx made similar remarks regarding the idea of a "credit crunch", pointing out that is not the lack of credit that causes the crisis, but the crisis that causes a lack of credit; as the economy enters into crisis, creditors began to withhold money, thus causing a further slowdown in production.

The bourgeois politicians see their primary task as restoring confidence to the markets by proving that they are reliable and trustworthy when it comes to carrying out austerity programmes and cutting their debts. Where they wobble, a "crisis of leadership" is quickly proclaimed by the bourgeois commentators, and reliable technocratic governments are installed.

Indeed, the bourgeoisie are facing a political crisis, with no stable or strong governments; but this is only a reflection of the economic crisis (as we have pointed out elsewhere and of their objective weakness as a class – a class that has outlived its historical role and that has become a fetter on the development of society. The technocratic governments of "national unity" (i.e. bourgeois unity) that have been created are governments of crisis, which have no social basis upon which to rest.

In so far as there is a "crisis of leadership", it is a crisis of the leadership of the working class. Across the world, revolutionary movements are developing, but what is seen to be lacking in all instances is a revolutionary leadership of these movements that can unite the various struggles and point out the alternative to the barbarism that faces workers and youth everywhere.

Instead of a revolutionary alternative, all the current leaders of the labour movement are able to offer –as reformists without reforms – are counter-reforms. Over the last twenty years, on the basis of credit-fuelled growth, these reformist leaders were able to benefit from the fact that the boom left room to maintain a certain standard of living for the working class – with many saying that "we are all middle class now". Now, with the crisis, these leaders cling to their reformist ideology, but, without the material basis below to support it, they are forced to carry out cuts.

At the current time, workers are fighting not to gain new reforms, but merely to keep the ones they have won in the past. In countries such as Greece this process is more advanced, and the embryo of revolution is developing across Europe and the USA (not to forget the revolutionary movements in Egypt and the rest of the Arab world). In the course of these defensive struggles, workers will gain a sense of their own power, and these struggles will turn into their opposite and go onto the offensive. Through a series of victories and defeats, workers and youth will realise their potential to transform society.

The crisis of capitalism

The cuts and austerity being implemented are not ideological, but are being carried out across the world in response to a very real crisis – a crisis of capitalism. Presenting the will to carry out cuts and austerity as ideological implies that the bourgeois – and reformist – politicians that carry them out are doing so out of some ingrained prejudice, rather than because within the limits of the capitalist system they are imposed on the situation by the very crisis of capitalism. In as much as one can talk of "ideology", it is in the sense of an ideology that represents a material class interest – the interests of the financial markets, i.e. those who have money to lend, i.e. the capitalist class – which are asserting themselves over the interests of ordinary people – i.e. workers and youth.

The question is not over this or that cut, this or that tax, this or that regulation. Nor is it simply a question of a euro crisis; of whether to stay in the euro or leave the euro. The real question is simple: who pays? Who pays for the crisis – the crisis of capitalism: the 1% (i.e. the bankers, financiers, and the rest of the capitalist class) or the 99% (i.e. the mass of ordinary people)?

The more serious and far-sighted bourgeois commentators understand the real depth of the crisis facing society, and are also very clear about what needs to be done to protect their class interests, as this statement from the Economist expresses in a very lucid and honest way:

"This newspaper's fervent hope would be that Europeans embrace globalisation by at last getting serious about reforming their rigid economies and their welfare states. Indeed, the present crisis has presented them with a unique chance to break apart the political interests that have held them back..."

"...The welfare state, built on postwar prosperity, has become too expensive for these straitened times."

For "rigid economies" read "reforms and workers' rights", and for "political interests" read "the organised labour movement". Put quite simply, the bourgeoisie is demanding that all the reforms, rights, and welfare that the working class has won through struggle in the past are to be abolished in the interests of the capitalist class and their profits.

Now is not the time to regurgitate reformist platitudes that merely suggest tinkering with the system instead of overthrowing it. The role of leadership is to raise consciousness and increase confidence; to point out the next step that needs to be taken. Now is the time for a bold, revolutionary, socialist programme that links the immediate tasks of defending the living standards of the masses to the need for the masses to transform society – the demand, not simply for crumbs from the table, but for control of the whole bakery.

In short, it is time for the ideas of Marxism, which correspond to the objective needs of humankind and the choice that it faces: socialism or barbarism. These ideas, however, do not spread themselves, but require the effort and organisation of the most conscious and determined layers of workers and youth. We invite our readers to join the International Marxist Tendency in this task.


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