The Cuts Who Benefits?

The Commune have a Public Meeting on 3rd November in Sheffield, on the subject - "Welfare Capitalism And The Cuts"

The questions they are posing are important.

1 Are the cuts an economic necessity?

2 Will the cuts smash or restructure the Welfare state?

3 Do we simply defend the welfare state?

4 Can trade unions defend jobs and services?

They are questions I have addressed here, and in comments at the Commune, at AVPS,
and at The Weekly Worker, amongst other places.

My simple answers to these questions would be.

1. No, the cuts are not an economic necessity, as I've outlined here. In fact, a look at Ireland shows that the consequence of the Cuts is likely to be to reverse the economic growth that had begun, send the economy into a sharp recession, and to undermine the very basis for being able to pay down the debt.
The fact, that similar policies are being adopted by other Governments, and could be adopted in the US, if the Republicans, under pressure from the Tea Partiers, win the elections next month, I think signify that, along with this sharp recession, will come a serious and brutal restructuring of Capital. That restructuring would take place anyway, but would have been more drawn out. I am in the process of producing a blog that will elaborate on this.

2. Every developed Capitalist economy developed a Welfare State, during the 20th Century. I've referred to Engels argument that by the latter part of the 19th Century, Big Capital had adopted the programme of Social Democracy.

Its strategy revolved around the idea of a social democratic consensus, of social justice and all that entailed. It gave workers the vote, it introduced legislation on Health & Safety, and on working hours. It embraced Trades Unions as a channel for transmitting its own ideas about social harmony into the working class. In part, as Engels says, these measures reflected the fact that this Big Capital had surpassed the days when it made profits by means of screwing every last minute out of the workers - Absolute Surplus Value - in favour of the more effective means of Relative Surplus Value - reducing the Value of Labour Power by cheapening wage goods. But, in part, as he says, this increased role for the State, and introduction of these rights for workers, also worked to its advantage, as against its smaller competitors, who still relied on the old penny pinching forms of exploitation.

At the end of the 19th Century/beginning of the Twentieth Century, workers had developed a series of their own organisations, besides the Trades Unions. They had Friendly Societies, in which they accrued funds to provide for unemployment, sickness and old age.
They had Retail Co-operative Societies that had grown to dominate the retail sector for provision of workers basic needs, and which had also established its own Wholesale Society, as well as a range of production to supply them. The Co-op also provided, Education, and Welfare Benefits for its workers and members. Workers also organised their own adult education via the Plebs League and the National Council of Labour Colleges, which it opposed to the WEA set up by the bourgeoisie to try to impose bourgeois ideas on workers.

It was no surprise that Capital responded to independent workers organisations by using the power of the State to impose its own provision on workers, and to undermine the independent workers provision. The Liberals introduced National Insurance which soaked up workers funds with the promise of a State Pension.
In the 1920's the Tory Neville Chamberlain introduced further welfare reforms to protect the poor and provide a social safety net, and essentially laid the basis for the Welfare State. The Liberal Beveridge codified all of that, which was introduced by the post-war Labour Government.

Modern capitalism needs a healthy and well educated working-class. It needs to ensure that workers devote sufficient funds to buying those commodities to that end. State Education, and a State run Health System ensure that workers get, and pay for, the level of Education and Healthcare that Capital deems necessary at any particular time.

Capital has every incentive to try to ensure that the provision of these commodities, and the others provided by the Welfare State, are provided as efficiently as possible - around 40% of workers wages go in "taxes" of one form or another to purchase these commodities - they form a significant component of the Value of Labour Power, so Capital wants to reduce that cost as much as possible. But, it does not want to reduce the cost at the expense of quality. Cheaply, but poorly, educated and repaired workers are of no more use to Capital than shoddily produced materials or machines. The European model of socialised provision appears to be the best solution Capital has come up with. It combines a State Run Insurance Scheme with actual provision, of Healthcare at least, by large private companies who compete to drive down costs and raise quality. France, which is generally considered to have perhaps the best healthcare system in the world, is an example of that.
The idea that Capital would move to this kind of model was theorised back in the 1970's by Aglietta in "A Theory of Capitalist Regulation:The US Experience" (1979) where he describes the moves in Europe, which he describes as Neo-Fordism.

I have also referred to the way Big Capital, in the US, is looking to the State to intervene to lift some of these burdens from its back and transfer them to the State. It is consistent with the general practice of Neo-Liberalism of socialising costs, and privatising profits, what has been termed "Socialism For the Rich". In a 2005 article in the US "Fortune" Magazine, Matt Miller wrote,

“But seen in this context, the prescription-drug bill last year was the first step in the Republican-led socialization of health spending. Companies have been clobbered funding retiree health plans. The GOP felt their pain, and presto, $750 billion over ten years moved from private to public budgets...

The bigger hurdle may be stereotypes. Business's sensible drive to get Uncle Sam to take on more of the health burden will run into the nihilistic (but potent) "big government" rhetoric of the GOP--plus the party's delusion that we can keep federal taxes at 17% to 18% of GDP as the boomers retire. If Republican pols want to help Republican CEOs solve their biggest problems, this caricature of a political philosophy will have to give way to something more grown-up. Just as the Nixon-to-China theory of history says it will ultimately take a Democratic President to fix Social Security, it may take a Republican President to bless the socialization of health spending we need. ..Ask yourself: When we're on the cusp of decades of wrenching challenges from places like China and India, doesn't American business have enough to do without managing health care too?”

Fortune.

So, the answer is that Capital, having spent so much time and effort constructing the Welfare State, has no desire to scrap it, but it will be restructured where greater efficiency can be obtained.

3. The answer, to point 3, should be obvious from what I have said. Of course, we have to defend what we have in so far as it comprises part of workers living standards. But, what we defend is the idea that there are certain things such as Education, Healthcare, Social Care etc., which should be provided by society, and, as far as possible, should be made available on the basis of need not on the ability to pay.
But, Marx always made clear his distinction between "Society" and "The State". When he spoke about "Society" in these terms he was talking about the working class acting collectively to make its own provision.

The Capitalist State is huge, and these aspects of it are equally huge. It would be Utopian, to believe that workers could immediately establish their own alternatives to such provision. There are examples of workers coming together to create schools, under their ownership and control, and the Co-op itself is entering this arena. There are even examples of hospitals being taken over by their workers. But, isolated pockets of worker ownership are likely to suffer from diseconomies of scale, and be subject to all the pressures of operating within a Capitalist environment. The answer to the question is no, we should not simply defend the Welfare State. We should demand that, at the very least, it be made open and democratic, by real workers and users control. But, the Labour Movement, in particular the Trades Unions and the Co-op should combine, to use the power and expertise of both wings, to develop a strategy to bring as much as possible under the direct ownership and control of workers and users, because that is the only way of ensuring that real control can be exercised, and the interference of the State can be minimised.

4. It is clear that Trades Unions can defend jobs and services, but only within limits. The experience of UCS is important here, as I set out in my blog, The Lessons Of UCS. The workers work-in succeeded in stopping the closure. But, by handing the yard to the bosses state, the workers ultimately lost.
The State rationalised, and the workers exchanged exploitation by Private Capital for exploitation by an even more powerful State Capital. Even at a Trade Union level, the jobs saved came at the cost of thousands of jobs lost elsewhere in the industry. It is the same lesson as that of workers in France, in May '68, who, were demobilised, having taking over their factories. As Marx demonstrates, ultimately, as long as workers remained trapped within the Capital-Labour relation, Capital will win such struggles. In the 1960's and 70's printworkers resisted the attempts of management to impose new working practices. In the end, in the 1980's, new bosses, like Eddie Shah, came along, armed with brand new technology that did away with the need of the skills of the skilled print workers, undermined the basis of their strength, and, by setting up on new sites, were able to recruit non-unionised, unskilled labour.

In the Public Sector, things are more complicated. On the one hand, the Public Sector is where the vast bulk of union members exist, and it has strength from that. But, in some ways, Public Sector workers have become like a new Aristocracy of Labour, and the divisions that creates, within the working-class, can be exploited by Capital. Moreover, as Greece and Spain has demonstrated, at a time when the State is looking to reduce its expenditure on Public Services, and on wages, it is not clear that strikes do anything other than play into the hands of the bosses, which saves money as a result of those strikes. As Engels put it,

"and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends."

If we are to win, we have to develop more intelligent tactics and strategies than just strikes and "more militancy". The TU bureaucrats are happy to pursue such a strategy, because it is consistent with emphasising their role as negotiators and middle men. It keeps the struggle wholly within the bounds of bourgeois ideology, with no threat to the sanctity of Capitalist property. Most of the sectarian Left is happy to follow such a course too, because they have no other immediate solutions to offer, and they hope, by involving themselves in such strikes, to incrementally build their organisations. But, Marxists have a duty to go beyond the narrow concerns of the sects, to offer workers immediate practical solutions, which at the same time take care of the interests of the movement in the future, as the Communist Manifesto describes it. That means that Public Sector workers, in the unions, have to link up with the wider working-class, and, instead of allowing the struggle to be confined to one about simply protecting jobs and services, transforms it into a struggle also about the nature of those services, and who should own and control them.

The lesson of UCS was that, in not just occupying, but also reducing the Capital that previously dominated them, back to its rightful status, as mere tools, and means of production, the workers stepped outside the Capital-Labour relation, they broke the hold of Capital over them, and challenged the sanctity of private property, private property which they, and other workers, had actually created, but which was used against them. Instead of strikes, we need to build the greatest unity between public Sector Workers and Service Users. Rather than strikes, to deny users of their services, we need occupations, and work-ins, to ensure and demand that services continue to be provided. And having shown, in practice, that workers, themselves, can provide these services efficiently, without the need for private or state bosses, we should demand that the reality be stamped with legality, that the workers ownership and control of these services be formally recognised by the State.

Why Charlie Bean Could Be Disappointed

A week or so ago, Bank of England Deputy Governor, Charlie Bean, appeared on TV to say that one reason the Bank was keeping interest rates so low was to punish savers, and to persuade them to spend their savings. The economy was depending on them spending, he said in order to boost consumer demand in the economy. Of course, given that private sector investment is low, and the other part of aggregate demand - Government Spending is being cut, which will also negatively impact investment and consumer spending - that is important.

The problem that Charlie and policy makers have is that the economy is bifurcated. Different parts of it are not just doing different things, but doing opposite things. Demand and economic activity is declining along with consumer and business confidence, because of Government policy. That creates pressure to keep interest rates low, and along with every otehr country in the world to engage in Monetary Easing in a hope to encourage economic activity, and to devalue the currency as part of the growing international currency war, as each economy goes into protectionist mode trying to keep imports out, and to boost its own exports. But, on the other inflation is rising, and has kept rising for nearly two years despite repeated assurances from the Bank that it was about to fall. A Lower pound means that Britain's import dependency - we have to import many raw materials and foodstuffs, and since the devastation of manufacturing brought about by the Tories in the 1980's, we are also reliant on large amounts of cheap manufactured goods from China and elsewhere, without which the cost of living would be much higher - results in the already rising prices of those imports rising even faster.

As I've said before, the State is not too unhappy about that. Debt is measured in nominal terms. The more inflation rises, the more nominal GDP increases, and so debt to GDP falls. In effect, creditors are paid back in funny money, devalued currency. It also has another postive effect related to Charlie's hopes. If inflation is rising, then people think that all those things they were intending to buy, they had better buy now, before the price goes up.

But, there is that other side of the economy. The reduced level of economic activity, and uncertainty means that shops and factories with unsold stocks may want to get rid of them quickly to avoid the possibility that in a recession they might not be able to sell them. That will mean that bargains will be there to be had. Moreover, workers in both the Public sector, and in the Private Sector dependent on the Public Sector, will be worried that they might not have a job in a few weeks time. Phillip Green's report out today will strengthen that beleif. It showed what most of us have known for a long time. Inefficiency in the Public Sector is not the fault of lazy workers, but of bad top management, and the fact that the private sector rips off the Public Sector. If his report is acted upon then private sector firms can expect to get much fewer lucrative contracts, and to get paid much less for what it does supply. Somehow I doubt that will happen! But, workers in general may well decide in such uncertain times, not to follow Charlie's advice. Instead, they might think that any savings they have would be well used to pay off the credit cards which charge them usurous rates of interest, to pay off their mortgage rather than risk it being foreclosed on them etc.

But, there is another reason they might decide to save rather than spend despite the high consumer inflation and the low interest rates. That is that a much bigger part of potential spending is moving in the opposite direction. Over the last 20-30 years, many workers, particularly in parts of the country like London and the South-East, have been priced out of the housing market, by a bubble in property prices. I have been arguing for the last few months that that bubble was due to burst, and the latest figures show that it is probably bursting in dramatic style.

Figures from the Halifax show that in September - which is the strongest month of the year for hosue sales - house asking prices fell 3.6%. That is the biggest monthly decline since current records began in 1983. It is bigger than any monthly decline during the house price crash of 1990, when house prices fell by 40%. That is the measure of how dramatic the collapse is likely to be. Moreover, as i've pointed out previously the decline is being restrained so far by the measures introduced in 2008/9 to counteract the financial meltdown, the historically low interest rates, the fact that banks have been holding off repossessions, in the hope of an economic upturn, and so on. When those things are removed, a trully massive collapse is likely. A graph produced by Left Foot Forward shows how much.



Just to go back to 2000 prices would mean a 50% fall. In 1997, when Japan's Bubble burst again property prices fell almost 90%. As an indication of how high prices are, and how much they could fall consider this. My sister bought her semi-detached house in 1972 for £2,000. Today, it would sell for around £120,000. If prices fell 90% as they did in Japan, that would mean a price of £12,000, or still 6 times what it originally cost!

This has huge consequences. For all those people who have been priced out of the housing market over the last 30 years, such a fall would be a massive windfall. Imagine you were thinking of buying even a £100,000 house. In the last month alone, the 3.6% fall in prices means you have gained £3,600 in real terms for doing nothing. That is a hell of a return for sitting on your hands, and a very strong motive given that house prices are likely to continue to collapse for putting aside as much cash as you can. Even consider someone like my sister who was able to pay off the £2,000 Capital sum on their mortgage long ago, as inflation reduced its real value. Yes, you might have lost £108,000 in the nominal value of your house, but the other consequence is that if you had been thinking about buying a £240,000 house, you could now buy it for just £24,000 or only £12,000 more than you would get for your existing house, a saving of £108,000!!!

The huge savings that could be made for people in such circumstances - and there are still 30% of people in rented accommodation, plus those who might be wanting to move to more expensive properties - far outweigh the losses from higher consumer inflation. That is a strong reason that the authorities might not get the consumer spending they want. There is a strong reason to beleive that. Its basically what has been happening in Japan for the last 20 years.

The Late Great Solomon Burke

I've just heard that Solomon Burke, has died aged 70. In tribute this is his Northern Soul hit, "Cry To Me." I hadn't actually heard it before until, during the 1990's I was spending a lot of time going through the new fangled Compact Discs at the local Library during my lunchtimes.

Northern Soul Classics - 6 x 6 - Earl Van Dyke

This is one of the first instrumentals I can remember hearing. A classic Norhern dancer from Motown's session musicians. The late Earl Van Dyke, was the main keyboardist and band leader of the Motown backing group the Funk Brothers, who most people beleive gave Motown its distinctive sound. A look at the discography shows just how many records he was involved in.

UK Debt - The Facts

Some interesting data on the UK's Debt, which the Tories tell us is so bad that – THERE IS NO ALTERNATIVE but to slash Public Services – is to be found here at UK Public Spending. It shows that, in fact there is nothing exceptional about the current level of Net Debt. For nearly 200 years between 1700 and 1900 it was at levels many, many times higher than today as a percentage of GDP, as it was again for nearly 50 years from before WWI, and until the early 1950's – a period during which Governments were, of course, mostly Liberal and Tory or a Coalition of the two!









But, at £772 Billion, the total UK PUBLIC debt, is actually smaller than UK Private debt, as can be seen here. In fact, at £1.4 trillion, Private debt is almost exactly double the Public Sector debt. So what are the Liberal-Tories proposing to do about that? They are keen to tell us that the country is paying more in interest payments than it spends on various Public Services, but they never mention that the average family spends more in interest payments to rip-off banks and credit card companies, and to repay mortgages than they spend on food, or on clothes for their kids etc.

Yet, although, the Government is keen to tell us that they have to rip up Public Services to repay its debts, far from advising citizens to slash their own spending, to rip up their credit cards, to sell their houses to be able to pay off the mortgage and so on, we have Charlie Bean from the Bank of England coming on TV, and telling us all to go out and spend whatever saving we might have!

As with much of the rest of the policies of the Liberal-Tories its all just a part of the Big Con.

Pensions - How Dare they?

Today the BBC have been reporting on the review of Public Sector Pensions by John Hutton. It would be interesting to see how much he was paid for a few weeks “work” chairing this review. This is the same John Hutton, who as a Labour MP was raking in large sums of money from giving his name to the Board of Hyperion Power Generation, of the US, and who was a legal advisor to the bosses organisation the CBI, for two years. It is the same John Hutton, who in the run up to the election, along with his colleague, Patricia Hewitt, who also rakes in large sums from associations with Big Business, did everything they could to scupper Labour, and help the Tories into power. Its no wonder that the Tories have repaid such support for their cause by giving Hutton this job. The surprise is that the Labour Party continue to allow such people to remain as members!

Hutton's report points out that those at the top of the Public Sector get more out for what they pay in than those at the bottom. There is no surprise there. That is true throughout every aspect of Capitalist Society. Those who sit on Boards of Companies like Hyperion get paid tens of thousands of pounds, just for having their name associated with it. The work they put in amounts at most to turning up for the odd Board Meeting every few months. Meanwhile, a worker at McDonalds works their butt off 8 hours a day and more, for a year to earn the same amount if they are lucky. In the Public Sector, at every higher echelon, its not just higher salaries that are enjoyed. The higher you go, the more holidays you get, the more you are entitled to get a cheap Lease Car at increasingly subsidised rates including the costs of Insurance and so on. This is the basic unfairness and inequality hard wired into Capitalism.

But, in this case, as with the proposals for bureaucratic control over “High Pay”, or the Tories mangled proposals over Child Benefit it is not the truly rich who are being targeted, it is not the Capitalists who make millions of pounds from their Capital alone, each year, but the Middle Class, and the purpose of that is to cover the real attack, which is on the workers below them, who will lose out proportionately more, once again. Hutton himself had to admit that the average Public Sector Pension was modest, but that didn't stop him arguing for cutting it! It didn't stop him arguing that the one piece of certainty that Public Sector workers have – that they have some idea what their pension will be when they finish work – should be removed with the scrapping of Final Salary Schemes.

But, the BBC's Panorama on Monday, showed who the real villains are when it came to workers Pensions. It was, not surprsingly, the same Financial Institutions that caused the Financial Crisis, and which is the reason the Tories are now trying to load the cost of that on to workers with cuts in services, and in pensions. It found that the investment of workers funds was almost like the kind of Ponzi scheme that others have recently been jailed for. It involved, workers money being taken in by Pension Companies, who then placed it with other institutions based on how much of a kick-back those institutions would give them, and a large cut in commission, and administration charges was deducted by each of these institutions. In total these organisations were deducting so much that workers pensions were being reduced by anything between 30%-60%.

“In one HSBC pension plan, £120,000 paid in over 40 years would result in fees and commissions totalling £99,900.

The company said its pension product is competitive.”

Panorama reported. They also compared this with the Netherlands where a scheme similar to the NEST (National Employment Savings Trust Scheme) proposed by the last Labour Government exists. That scheme provides its pensioners with pensions 50% higher, for the same contributions than the average UK Pension. Surprise, surprise, the Tories are proposing to scrap the NEST scheme.

One of the most shocking things from the Panorama programme was that one of the worst offenders was the Co-op Individual Personal Pension. Out of a total of £120,000 in deposits over 40 years, it would take out almost £96,000 in fees!!! That is disgraceful, and reflects what I have said elsewhere about the limitations of Consumer Co-ops and Mutuals compared with Worker Owned Co-ops. I demonstrated that difference in my blog Worker Co-operatives and Pensions, which showed that the average pension for a worker at the Spanish Mondragon Co-ops, is £13,600 a year. That compares with a pension of just £3,500 a year for the average Local Government worker in Britain!!!!

But, as I have also argued in the past at least with the Co-op, there is the possibility of exercising control and supervision. There is no such possibility with either the State Pension, which Governments tinker with at will, or with worker's company run Pension Schemes, which in reality just provide cheap finance for Big Capital, and as Panorama has demonstrated, a massive easy earner for those Financial Institutions who exercise control over them.
Its not as though, the returns these Institutions achieve are even very good, even without the deductions they make to line their own pockets. Panorama reported that nearly all of the Fund Managers charged with investing these vast sums – and who are themselves often paid in millions not thousands of pounds – fail to meet their own benchmarks! Workers would often have been better off just putting their money into a simple Tracker Fund that matched the returns of the various Stock and Bond markets!

But, of course, the Tories are not proposing a review of these Pension Funds, and the fact that workers in both the Public and private Sectors are being royally screwed, both by the exorbitant charges they make, and by the appalling lack of performance that those being paid such large sums have demonstrated. When Bernie Madoff did something similar with the money of the really rich, he was soon brought to book, and put behind bars, but the Finance Houses are free to rip off ordinary workers at will, and the Tories whose friends they are, are not going to lift a finger to stop them. Instead, they will ask workers once again to pick up the tab.

But, as I have said before - Why Won't The Unions Fight For Control Of Our Pensions - there is a solution to this short of the revolution. If every socialist, every trade unionist became an active member of the Co-op, we could demand an opening of its books, we could see exactly where the money is going. The Co-op says that much of its costs are due to the external costs of investment management. If that is the case, then there is a good case for bringing that in house to rein in those costs. Perhaps they could ask the Mondragon Co-op to take it over for them! But, having obtained that control, having created the kind of pension System that the workers at Mondragon are able to enjoy, then it should be incumbent upon our Trade Unions to insist that the money in all our other Pension Schemes be transferred to it, and that real Workers Control be exercised over it.



Once again we should not let the Liberal-Tories set the agenda. We should not see our only alternative to the cuts they propose to be to simply defend what we have. On the contrary, now is the best time to demand something better, something that takes control out of the hands of the bosses and their state, and gives it back to us.

See Also:permaculture - Mondragon - An Alaternative To Capitalism

Economists On The Current Situation

There have been a number of statements about today by Economists and Investors like George Soros about the current situation. George Soros, who famously made £1 billion, in a single day, betting against Sterling, has blamed austerity measures, particularly in Germany, for sending Europe into what he sees as a deflationary spiral. He is quoted by CNBC,

"Additional fiscal stimulus — and not fiscal discipline — is the way out of the crisis for both Europe and the United States, Soros said in a speech at Columbia University on Tuesday.

"Deficit reduction by a creditor country such as Germany is in direct contradiction of the lessons learnt from the Great Depression of the 1930s. It is liable to push Europe into a period of prolonged stagnation or worse."

That is in direct contradiction of the policies being pursued by the Tories in Britain, and their right-wing, populist co-thinkers in Europe, and in the Republicans in the US.

Meanwhile, Joe Stiglitz, has warned that the Currency War, I have previously spoken about, which is being fought out by each country printing more and more money, in order to lower the value of its currency, is throwing the global economy into chaos. Stiglitz says that each country is increasing liquidity to stimulate its own economy, but the effect is to caue chaos. As I have written elsewhere, there would be no reason for that if this were a co-ordinated policy by states, which was combined with fiscal stimulus. The real chaos arises from the combination of increasing liquidity at a time when those states are tightening their fiscal stance. His comments were basically echoed by the IMF's Straus-Kahn.

Meanwhile, the US Fed's, Evans argued that much more QE was required by the Fed to stimulate economic activity in the US.