Conservative Steel Hypocrisy

It's a perfect storm for the Tories. The latest episode in the ongoing crisis in the steel industry caught the government entirely on the hop, with practically the entire cabinet basking in sunnier climes or doing whatever MPs normally do during their Easter break. Scurrying back to London overnight to show the cameras that they're taking the awful news about Port Talbot entirely 110% genuinely seriously, they catch themselves in another bind by straight away ruling out the most sensible policy: the immediate nationalisation of Tata Steel holdings in the UK. Politically, it's like damping down a fire with a litre of paraffin.

The politics of the situation couldn't be more stark. The Tories' strongest gambit has always been their cruel-but-competent line, and it seems enough voters have allowed them to get on with it as long as a) they're not the ones at the sharp end, and b) the Tories appear to have got the engine running smoothly and it's motoring the country in the right direction. This is where things are starting to get tricky.

Their bloody-minded treatment of the junior doctors, the forced u-turn on bashing the disabled, and now their seeming willingness to let 40,000 steel and supported jobs disappear is widening the pool of folk at the sharp end. These are "the strivers", not the skivers. The second is their "vision thing", the much-heralded but entirely vapid "long-term economic plan" is supposedly about Britain's manufacturing renaissance, a rebalanced economy both away from the South East and financial services, and some nonsense about "march of the makers". With all these infrastructure projects in the pipeline and the decision to replace Trident to be taken soon, to have the core base of your manufacturing economy facing shutdown is a headache the Tories could do without, especially when they're singly ill-equipped to deal with it.

There is a cultural/political dimension over the refusal to do for Port Talbot what Labour did for the banks. Part of it is their utter indifference to the fates of the industrial worker. "They do not give a shit", as Paul Mason puts it. And part of it is their deeply skewed, deeply sectional view of how the world works. Taking at face value Tata's claim that Port Talbot is losing just under a million a day (a figure that, rightly, isn't entirely accepted by all concerned), should the government take it on the tax payer could lose up to £350m/year. I say lose, but this money would support tens of thousands of jobs, keep communities viable, prevent many thousands from developing physical and mental health problems, and still churn out a useful product at the end of it. All this is invisible to the Tories, and yet they have zero issue with a £2bn loss for RBS last year, contributing to a colossal £50bn flushed down the proverbial since 2008. What's good for finance isn't good for strategic heavy industry, it seems.

From the Tories' point of view, confronted with China flooding global markets with cheap steel (they have to keep the mills running at the price of severe social dislocation and likely unrest) there is little point having a British steel industry. If steel gets nationalised, then what industry will next ask for a bail out? And what would that do to the chancellors finely-tuned (cough) figures? Well, that's assuming the Tories are spinning a wrong but honestly-held view. The evidence suggests otherwise. It transpires that the Tories have spearheaded efforts to prevent the European Union from doing anything about Chinese steel dumping - in other words, this isn't the headwinds of the global economy mindlessly wrecking all in its wake, the destruction is aided and abetted by our government. Just think about the absurdity of it for a moment: a right wing Conservative government is letting a strategic industry collapse to curry favour with the world's leading communist power. There is profaning the sacred, and then there is this.

The question remains whether they're willing to take another political hit for their intransigence. It's worth noting Jeremy Corbyn was on the ground immediately traipsing around and offering a very clear Labour view - not bad for an "ineffective leader". Meanwhile, all the government can do is dither and mouth platitudes about finding the best solution, which will probably mean throwing subsidies and guarantees at a buyer whereby the profits are privatised and the losses effectively nationalised. Unfortunately for them, coming on top of all their recent difficulties it's hard to see how continued inaction won't inflict considerable political damage to their rapidly re-toxifying brand. It's the least that they deserve.

Mao, McDonnell, and Mirth

As a general rule, quoting from anyone at the dispatch box is a risky business. There are lines that can be fluffed, contexts to be aware of, and a chance the audience in the chamber (and at home) haven't the foggiest about which you speak. The more niche or controversial the figure, the more risk. When yesterday John McDonnell reached into his jacket pocket and produced a copy of Chairman Mao's Little Red Book, you knew straight away it wasn't going to end well.

Yet it could have worked. Could. John made some very serious and pertinent points about Osborne's relationship to the Chinese state, a relationship that would have called down Tory fire and brimstone on the chancellor's head had Labour flogged off a key part of Britain's energy infrastructure to - effectively - the Chinese government. It highlights the Tory approach to selling off infrastructure, that they're okay with state ownership as long as it's anyone but the British state. After making observations about Osborne's new comrades, he could have just got the book out and handed it over with a quip. That was all. That could have worked as a bit of political theatre. Unfortunately, as we know, we ended up in the present ridiculous situation instead.

John, however, isn't the only MP to have recently quoted the Great Helmsman on the floor of the Commons. As @woodscolt79 notes, three members from the Conservative side have done just that. It's all there in Hansard. Should our friend Robert Halfon have said:

"This Gov are more Chairman Mao than Joseph Stalin and we believe in letting a hundred flowers bloom when it comes to devolution."

Or how about chum-of-the-coppers Andrew Mitchell when he noted "As Chairman Mao once said, fishes need water to swim in."

What a pair of inconsiderate bastards. How dare they quote Mao without condemning his heinous crimes. Particularly that Halfon, whose words can only be construed as shading into praise-worthy.

The fact of the matter is there is nothing particularly outrageous about quoting Mao, Stalin, or any other despot you care to mention. Nor does it indicate that those who utter their words would minimise the crimes or prefer for them to be forgotten. While John was foolish to do what he did, I think those imputing further motives need to get a grip.

Britain's China Syndrome

Had Labour done it, the Tories would be screaming bloody murder. I am, of course, talking about the deal with the Chinese to build two nuclear power stations. If the Tories really were standing up for Britain, from a national security perspective it beggars belief that key national infrastructure be handed over to a power they would ordinarily be opposed to. But these are not ordinary times, and for Dave and Osborne, they are quite prepared to do anything to be China's best friend in the West.

On the nuclear deal itself, it's absurd on two levels. First is on the nuts and bolts of nuclear energy generation. In recent years, governments of all stripes and "reformed" environmentalists have green washed nuclear. It's reliable, they say. It's carbon-free, they say. It's sustainable, they say. On all three they're plain wrong. Conventionally mined uranium has, depending on who you ask, between 90 to 200 years worth of stocks left, assuming energy consumption stands still. Which it doesn't. Of course, getting that stuff out of the ground in the first place, transporting it across oceans, and refining it to be reactor-ready is hardly an emissions-free process either. And sustainable? If you can sort out the supply and ensure they remain safe (pray for no more Fukushimas), there's only so many places you can store spent fuel rods, irradiated water, and other by-products for the requisite 50,000 years or so.

Second is the taxpayer subsidy destined to end up in China's bank accounts. 10 years from now, if all goes according to plan, the new Hinkley Point plant will come on stream at the cost of some £25bn. The largest inward investment ever, except the government is acting as guarantor of a fixed energy price. Regardless of what's happening in the markets - you know, those very things Tories ordinarily bow and scrape toward - EDF, the French state company fronting for the Chinese, are guaranteed a floor price for their electricity regardless how low wholesale prices may plunge. In effect, the taxpayer is guaranteeing the investment. But it's not a public subsidy, you understand. The government are very much opposed to those. Meanwhile the vast potential of wind and wave, particularly around the northern quarters of these isles, remain untapped.

Why is this happening? Uncharacteristically, the government have played this straight. They want to be China's best buddy in the West. When their currency becomes fully convertible the Tories need the City of London to be the primary clearing house for capital flows. While London is ideally located between the stock markets of the East and North America, there isn't an exchange in Europe who'd turn down the chance to be the preferred partner of the Chinese government. And, as we've noted before, it helps support a key prop of the Tory base. Naturally, there are many other investment opportunities in Britain for footloose Chinese capital. Osborne has already mentioned the HS2 debacle. Again, billions earmarked for a useless piece of infrastructure from government coffers is a guaranteed return for anyone investing in it. There will be plenty of other opportunities.

Politically, being the number one investment destination for China in the West will help the British economy grow - and if you're a GDP fetishist like the Chancellor those numbers are the only ones that matter. It also allows for infrastructure spending to take place without blowing holes in his deficit and debt reduction schemes, and also allows Dave and successor to stride about the world stage as if Britain matters. We've sucked up to one global hegemon since 1945, so why shouldn't we carry bags for the next one too?

Understanding China's Stock Market Collapse

It's not very often I mention my (very much) erstwhile comrades of Weekly Worker fame, but they are going through something of a purple patch at the moment. Firstly, their call for Marxists to join the Labour Party attracted mainstream attention and proved a useful foil for some on Labour's right who've forgotten to counter politics with politics. And then there is this:

In recent weeks, the Chinese stock market has taken a massive plunge and in July shares suffered their worse month in six years, falling by 29% from the peak in June. This followed a humungous boom in stock prices since the beginning of 2015. Indeed, since August of last year, the market index in Shanghai has risen 160%. And even after the collapse in the last month the index is still nearly 80% higher than this time in 2014.

This stock market bubble is of the proportion of the US in the 1920s that led to the crash of 1929 and the subsequent great depression. Is this what is in store for the Chinese economy as well?

This article from the latest edition of the Weekly Worker is one of the best pieces about the achievements and dangers threatening the Chinese economy - and by extension its effect on the rest of the world - I have read in a long time. It's a long read, but it much better than anything you'd catch in The Economist, FT, etc. Seriously.

Kim Jong-un and the Purge

After decades of loyal service to the Kim dynasty, "despicable human scum ... who was worse than a dog" was probably not the epitaph Chang Song-thaek hoped for. But the very public and very final defenestration of the "traitor for all ages" says a couple of things I think professional Kimologists and the BBC are missing. The idea the "Great Comrade", or whatever absurd title he's using this week, offed his uncle to secure his power is true. But making that kind of observation is a bit like saying Lehman Brothers collapsed because it ran out of money. It doesn't grasp the underlying dynamics, the shifting factions and patterning of influence cloying for favour and office in Kim the Younger's new regime.

Unfortunately, no American or South Korean intelligence assets report directly to me but there are a few points that might help in making sense of the purge, and that about to engulf Chang's hapless allies. First, there is a generational aspect to the purge. The idea Chang was somehow plotting Kim's overthrow is preposterous. Had he been left in post there was every chance he would have carried on as per normal. Chang's real crime was being a holdover from Dad. The pre-eminent position he held in the bureaucracy was independent of Kim III's largesse - at least in a sense, and therefore had to go. And other North Korea watchers are probably right that this is a moment in a wider purge. Beneficiaries of Chang's patronage have to be rooted out because, on paper, they represent a potential source of opposition. Yet it's an opportunity for some, too. Solzhenitsyn's analysis of Stalin's terror, whatever its problems, was nevertheless right to acknowledge how the pattern of denunciation, arrest, and purge cleared out parts of the bureaucracy. It was a career opportunity and a refresh of the apparatus. Old officials, whether loyal or not were packed off to the gulag and in came new blood loyal to the boss at the top. We saw it in Stalin's USSR, in Mao's China, and now (again) in North Korea. Sometimes though a purge can develop a dynamic all of its own. Like China, the party/state bureaucracy is stuffed full of office holders who've been in place for decades. This is a gerontocrat bloc, and a gerontocrat block wedged in the machinery preventing younger, aspirant careerists from climbing the greasy pole. A denunciation here, a whisper there can be all it takes to improve one's promotion prospects. However, when this happens a purge can quickly get out of hand. An exercise in stabilising matters can risk destabilising the whole edifice. I can't see Kim's looking to carry through a terror-scale clean out for precisely this reason, but stranger things have happened.

That said, whether the purge is small or large scale it will certainly be conducted with all the theatrics the regime can muster. All dictatorships are brittle, and history has proven that unreconstructed Stalinist regimes are especially vulnerable. In a society where the party/state reaches into every aspect of social life, so it will inevitably be blamed for absolutely everything that goes wrong. In China and Vietnam, an unintended consequence of market reform is that, occasionally, opposition to the party (from grumbles to protests) are directed at particular enterprises or certain corrupt officials. And in China, there are subordinate political parties that recognise the primacy of Communist Party rule, and a degree of freedom of discussion in the approved media. Hence aspects of the party/state can bear the brunt of dissent without necessarily calling the legitimacy of the set-up into question. Though that still does happen too. In North Korea the relationship between party/state and citizen is not even partly mediated. The perverse personality cult is never out of people's faces, Kim Jong-un's person is identified with the party, the state and the country. So when the drain is blocked or there's yet another queue at the supermarket, it's not the party's fault - it's Kim's.

The lack of mediating relationships helps explain the personality cult and level of repression. Without institutions that can act as diffuse, independent sources of legitimacy and hegemony it has to rely on shock and awe to keep the populace quiescent. For example, what are the Mass Games if not a display of totalitarian power, of coordinating thousands of human being in perfect synchronicity? How to explain the violent rhetoric greeting the fall of Chang, or its penchant for blood-curdling rhetoric vis a vis the USA, South Korea and Japan? The threat of terrible retribution against internal and external enemies is always a matter of managing an atomised population, as much as the dynastic cult and juche ideology tries gluing together 'one nation' out of Brilliant Comrade photo ops and canary melon harvests. Whatever would Disraeli have thought?

Making way for Kim's lackeys and providing someone new for a very cynical two-minute hate, and keeping its cold war opponents on their toes taken together are not satisfactory explanations for the purge. Internally, since Kim III's accession there have been moves to trim down the military. As expensive as they are, nuclear weapons and long-range ballistic missiles are cheaper in the long-run than keeping over a million under arms. From the dynasty's perspective this is rational - not "mad" as outside commentators like to portray. However, managing down a military that is a key prop and source of power within the bureaucracy is far from straightforward. Issuing decrees and expecting generals to meekly accept a trimming of their power will not happen, even if you're a Kim. In the 80s the Chinese Army accepted a diminution of their size in exchange for state-run companies, giving them a stake in Deng's economic reforms. Kim does not have that chip to bargain with, and DMZ brinkmanship can only "distract" the military brass so many times.

But this could put the move against Chang in a different light. Chang was responsible for North Korean business in China, and was known to be an advocate of Deng-style reforms. After all, they've kept China, Vietnam and Cuba from going the same way as the USSR and its satellites. Chang and his faction were, if you like, "realists" and were helping bring home the reddies from Chinese markets. According to China, trade between the two were perfectly balanced, though 90% of transactions are with Chinese currency. Not good news for jucheist self-reliance. Liquidating Chang and his cadre of business bureaucrats could have something to do with the state protecting its sovereignty from Chinese capitalism. Periodic crackdowns on domestic black markets are not unknown, and Kim does not seem sold on Deng-style policies. Or it could be that this potentially lucrative sector of government activity is turned over to some bureaucrats in fatigues. I guess we'll know if those operations are closed down, or continue with new personnel. It could be either of these things, both of them, or neither.

North Korea is unfortunate enough to be inflicted with a disgusting regime, and one that could well be the worst currently in existence. Yet these things are always creatures of circumstance, of economics, politics, development, classes, and geopolitics. If the cold war frontier can be sorted and relations between the Koreas and the US normalised, that could  contribute to the fall of the Kims over the long-run, and see the welcome passing of its grotesqueries into history.

George Osborne and Ruling Class Decadence

If you think this is about the chancellor's youthful larks with Natalie Rowe, you will surely be disappointed. What's more important - and far more damaging - from the standpoint of British capital is his current game of footsie with the Chinese Communist Party. The very notion that not only is he letting the Chinese state build and run a cornerstone of Britain's electricity generating capacity at Hinkley Point C, but will also be shovelling hundreds of millions of taxpayers' cash their way as a sweetener is flabbergasting. Forget the EU and its silly rules about straight bananas, if I was a UKIP'er I'd be hopping about in a panic because the chancellor has handed over a large chunk of British sovereignty to a COMMUNIST power! In fact, what is interesting about this deal is how the hard right, those doughty defenders of this sceptred isle, that die-in-a-ditch-for-queen-and-country brigade haven't so much as raised a murmur of protest. Instead, it has been the liberal-left Keynesian Will Hutton to jab the boot in.

I don't want to spend any time condemning Osborne's obvious lack of aptitude, especially as Will does it so well. But there is one paragraph summing up what is wrong with British capital:

British energy policy, post-privatisation, is a mess. Centrica, which owns British Gas, was EDF's partner in building nuclear power stations. It dropped out claiming that the probable financial returns were not high enough and too uncertain, preferring to spend £500m buying back its own shares to support their price and thus the bonuses of its directors, the kind of capitalism Bambi refuses to reform.

Centrica had the money to build power stations, but concentrated on buying back shares instead. Read that again. Given the option to invest in new power generation and therefore the long-term health of their company, they blew half a billion quid on an immediately profitable but totally non-productive purchase.

Marx often noted that capitalist relations of production are fetters on the development of the forces of production, and today this is an almost banal observation. Even the dogs in the street know that people continually go hungry because there's no money in ensuring everyone's basic needs are met. But perhaps what Marx did not appreciate was the extent to which one country's bourgeoisie differed from another in the degree to which they acted as a brake on capitalist development. And that is Britain's curse, to be lumbered with the most decadent ruling class in Western Europe.

What do we mean by 'decadent'? Writing on China at the beginning of the last century, the classical German sociologist Max Weber observed that the Chinese nobility and mercantile class (sometimes, one and the same thing) were guilty of "irrational" behaviour. In their dealings with the West rather than invest profits in productive capacity so they could compete for emerging markets in manufactured wares, instead they put all their money into land. At that time in China, so went Weber's argument, status in ruling class circles was measured by landholding. So, internally-speaking, this was entirely rational behaviour. But externally this was not the case. Their shortsightedness condemned China to semi-colonial servitude until the Communist Party assumed power in 1949.

The British ruling class are guilty, as a whole, of exactly the same kind of behaviour. Short-termism, flogging off successful companies to overseas competitors, pushing billions into unproductive and socially worthless ventures for a quick turn around, toadying for gongs and royal fripperies - this is the pattern of behaviour our ruling class has grown accustomed. And it's nothing new at all. Will Hutton's political classic, The State We're In forcefully criticises British capital's inability to see further than the end of its nose. He talks about institutions that are par the course in Britain's competitors - state banks, planning, varying levels of corporatism - and how the British state has time and again either avoided these structures or implemented them in a half-arsed way. And this to the detriment of the long-term interests of our beloved bourgeoisie.

In a way, you can understand how we were saddled with the bourgeois equivalent of idlers and wastrels. Britain is where capitalism was born. Capitalism grew "organically" out of the class struggles that attended the final collapse of feudalism. The break down of the ties between landlord and serf under the impact of plague, monarchal absolutism, and war saw the emergence of freelance wage labourers in the countryside. Rather than produce a surplus for the manor out of obligation (backed up by the threat of a visit from the lord's heavies) the relation became an economic one. Gradually, landlord and peasant were replaced by the agrarian capitalist and the rural worker. Seeking outlets for new found wealth, some of these landlords invested in government bonds, but others in new commercial opportunities beginning to open up in towns and cities. Coupled with vast riches flowing into Britain through monopolising high seas trade routes and piracy, capital on a large scale was set into motion, ultimately providing the fund that went on to kickstart the industrial revolution.

This very rough and broad sketch of the emergence of capitalism shows one thing clearly - the bourgeoisie, the class of capital owners, more or less arose "spontaneously". They emerged from the wreck of feudalism as sections of the aristocracy that became something else. They retained their ties to other landed families and crucially the English, and then the British, state and, of course, the royal court. Hence, as Ellen Meiksins Wood has argued that the "backwardness" we associate with Britain - the monarchy, the lords, the unwritten constitution, the baffling pomp and circumstance remained intact because none of it acted as a fetter on the development of emerging capitalism. The French and the other republics that dominate the European mainland are, perversely, symptoms of an earlier backwardness, of a need to reset the states of those nations to enable catch up. Corporatist institutions, long-term planning, both these are characteristic of starting at a lower level and of having to take an interventionist, state-led approach to capitalist development. In Britain where the first bourgeoisie emerged they didn't need any of that. They emerged on the historical scene without the handmaiden of the state, which probably explains why the cretinous liberalism of small state thinking struck deep roots in our ruling class.

Unfortunately, this remains the ruling class conceit now. It doesn't matter that the real economy is beholden to the rapaciousness of finance capital, or that inequality is widening, or that the infrastructure is crumbling, or that London and the regions are dangerously imbalanced, or that their government has pursued self-defeating policies. As long as the dividends continue to pile in and they get their six or seven holidays a year they really, really don't care. This is the class that would sell their granny for a few extra quid, that would sink Britain to preserve their privileges. So much for patriotism, so much for loving their country.

The British ruling class are decadent and clueless, their privilege has made them stupid. They are unfit for purpose, to mangle a phrase.

Shenzhou-10 Launch

Is there anything more visually striking than the modernity of a rocket launch?

Best of luck to the three taikonauts during their fortnight sojourn at China's orbiting spacelab.

Now, this blog has talked about space programmes twice before, so on a lazy night like this I recommend you check them out in lieu of anything new.

North Korea and the Drums of War

There are two sides to every crisis, and the dangerous situation developing on the Korean Peninsula is no different. Unfortunately, the commentary coming out of the BBC sets the tone for the British press. It's the idea that the collective senility that grips the North Korean regime (and what we all like to have a laugh about, including this blog) explains why Kim Jong-un is banging the drum of war. The South, the USA, they're so much innocent bunnies caught in the DPRK's nuclear-tipped headlights. Kim is simply a mad man holding the world to ransom simply because he can.

Well, no. This simply will not do. The dynamics of confrontation are always complex, and it is no less the case on the world's last Cold War frontier. So far, the rhetoric has become more extreme than any point since, well, ever. After all, it's not everyday North Korea issues formal declarations of war and threatens to nuke the Western seaboard. But for all that everything so far remains within the established rules of the Korean game. That isn't to say the situation isn't dangerous. It is.

Context, as they say, is everything, and North Korea is a product of its circumstances as much as any other government and society is. Unlike other satellite regimes of the USSR, early on the North faced its own Cold War frontier. Following the Korean War and the Sino-Soviet split (in which Kim Il-sung allied with Mao), the Soviets were understandably reluctant to provide military aid to such an uncertain ally. Therefore the North had to provide for its own defence to a degree that the likes of East Germany, Czechoslovakia etc. did not. Facing it across the 38th Parallel were ranged South Korean and US military forces, backed by nuclear weapons. Hence the North's development has by virtue of Cold War logic, been skewed toward the military. And, as surely as social being conditions consciousness, the bizarre - to us - juche ideology of self-reliance and grotesque personality cults around the Kim dynasty makes perfect sense to a nation thrown onto its relatively meagre human and material resources as it struggles to throw off a perceived superpower threat. Naturally, as the North have tried to make good the gap so the South and the Americans responded in kind through annual parades of military might, and making available the latest hardware.

As I wrote a few years ago,

The truth is no one has an interest in war. While the US would like to see a united Korea under its military protection as strategic leverage against China, Obama's administration like all those before it know the price paid in lives, materiel, and funds would be too much for the American public to stomach. It's one thing to take on lightly armed decrepit states and insurgencies: it's quite another to enter a war with the prospect of chemical, biological and nuclear weapons being deployed against US troops. Similarly for the South - even if fighting does not dip south of the demilitarised zone, the 10 million inhabitants of Seoul and the 25 million in surrounding areas are well within the range of the North's guns. In all likelihood the area immediately south of the DMZ would be comprehensively devastated. And on top of that the South would face the bill of absorbing the North. The Economist puts the cost for unification at $900bn - it would of course be much higher if the North gets raised to the ground. The North itself knows it cannot win and hopes a combination of hysterical denunciation, rocket launches and nuclear testing will be enough to keep its enemies at bay. I might not think much of Trotsky's analysis of the USSR, but his insight that the Stalinist bureaucracy wants peaceful coexistence with the big capitalist powers so it can carry on living off the backs of workers and peasants is spot on.

But in recent weeks there has been something of a shift inside the North Korean regime. The Brilliant Comrade's alleged involvement in the sinking of a South Korean naval vessel off Baengnyeong Island in early 2010, followed by the shelling of Yeongyeong Island that November helped burnish his military credentials while the Dear Leader groomed him for office. But since assuming power, the apparatus of the party-state has undergone a purge. Out are Kim the Elder's cronies, and in come his own people. There are plots and rumours of plots.

With a grip on power that could be shakier than appearances suggest, Kim needs the Korean People's Army on side. Especially when the policy direction he announced in the new year is likely to exacerbate tensions among this key regime support. It is no secret that North Korea's economy is in a precarious situation, and renewed famine is an ever-present danger. Per-capita GDP is estimated to be below that of Sudan, Papua New Guinea, and Lesotho. It's 18 times smaller than the South's. Back in the summer a well-known defector revealed Kim's desire to emulate China's example - an argument that turned out to be a canny prediction. Basically, this means abandoning the 'Military First' policy that has long been the regime's priority (in 2010, the military consumed 16 per cent of total expenditure). In this context, ramping up the threat level keeps the military disciplined by external threat while resource is directed elsewhere. Furthermore, the North's pursuit of nuclear weapons and ballistics has never been irrational. Despots the world over have noticed that the US and its allies tend to militarily intervene where no real opposition exists. Kim's nukes on the other hand have the advantage of warding off the Americans while reducing expenditure on conventional arms. The "nukes plus economic development" line getting pushed by Pyongyang is, within the realpolitik options it perceives, a reasonable one.

The problem Kim has is when this crisis blows over and the Korean people avoid the abyss, the armed forces will still be there. They can only be kept on high alert for only so long. The difficulty he has is integrating them into his economic development plan. Again, China may provide a possible answer. When Deng Xiaoping initiated the great programme of economic liberalisation in 1979, he struck a deal with the People's Liberation Army that in return for a 20% reduction in military personnel and a lower budget, the army could have access to the market. This involved retooling armament plants for consumer durables like white goods, cars and motorbikes, TVs and so on. 20 years later Jiang Zemin decreed that it had led to a bloated, inefficient and corrupt sector, leading directly to a series of high profile scandals. But in its early phase at least it provided the home-grown commodities a growing domestic economy demanded, gave the army a material stake in the reintroduction of market relationships, provided employment opportunities for laid off conscripts and, crucially, brought off opposition.

But that is an if. Bellicose rhetoric is nothing new, but all it could take is for a jumpy officer on either side to take a pot shot for the conflagration to start - especially so as the North has already cut the hotline with the South. The situation has to be diffused and, as you might euphemistically put it, the US sending a squadron of stealth bombers to the peninsula is "not helpful". But the USA could have a positive role to play. It is, after all, as embroiled as much as the two Koreas. If it is serious about de-escalation and turning the DMZ into a Cold War museum, it needs to take the lead in diffusing the situation - and piously lecturing the North on atomic bombs while it has nuclear missiles and artillery shells pointed in Pyongyang's general direction is not going to do it. A plan for lasting peace requires commitment, and a good place to begin is with the North's primary foreign policy objective since the collapse of the USSR - a non-aggression treaty between it and the USA. With that as the starting point everything else - the nuclear programme, the closure of American bases, cutting the military, normalising relations, aid, and a peace treaty - can follow.

The stand off along the 38th Parallel has its 60th anniversary this summer. The longer it goes on for, the more likely the technical state of war could become a real shooting one. For the sake of millions of lives, it's time this appalling and grotesque relic of 20th century geopolitics was drawn to a close.

Image: "When provoking a war of aggression, we will hit back, beginning with the US!"

Urban Decay in America and China

Urban decay and regeneration is the political and social challenge right at the heart of local politics here in Stoke-on-Trent. With the major industries stripped out and a further assault on the local public sector thanks to the Tories' demented cuts, this isn't a problem that will be solved any time soon.

But spare a thought for poor Detroit. Nothing in this country comes close to the devastation deindustrialisation has wreaked on Motor City. The video below is a glimpse of a once mighty city rapidly going to seed. There is more here too.



Remarkably, China too is beginning to experience a similar problem for very different reasons. As the old industrial cities of the Rustbelt fall into rack and ruin, grossly underpopulated cities are springing up in China. Economic collapse is tearing down Detroit. An incredible property bubble is driving the construction of massive, empty metropolis. See this fascinating video:

What Castro Really Said

Never posted anything about Cuba before and then two show up at once. Regardless of what the hard of thinking might say, Castro hasn't come out as a convert to neoliberalism and said Cuban "socialism" is a failure. No one reading his interview in Atlantic Magazine could possibly reach this conclusion, unless they hate the regime and/or are grinding the market fundamentalist axe. Sadly, for a man as verbose and expansive as Castro his discussion of Cuba's "failure" is rather truncated. Perhaps AM are holding back the best bits for next issue. The relevant bits and pieces are:

I asked him if he believed the Cuban model was still something worth exporting.

"The Cuban model doesn't even work for us anymore," he said.

This struck me as the mother of all Emily Litella moments. Did the leader of the Revolution just say, in essence, "Never mind"?

I asked Julia to interpret this stunning statement for me. She said, "He wasn't rejecting the ideas of the Revolution. I took it to be an acknowledgment that under 'the Cuban model' the state has much too big a role in the economic life of the country."

Julia pointed out that one effect of such a sentiment might be to create space for his brother, Raul, who is now president, to enact the necessary reforms in the face of what will surely be push-back from orthodox communists within the Party and the bureaucracy. Raul Castro is already loosening the state's hold on the economy. He recently announced, in fact, that small businesses can now operate and that foreign investors could now buy Cuban real estate. (The joke of this new announcement, of course, is that Americans are not allowed to invest in Cuba, not because of Cuban policy, but because of American policy. In other words, Cuba is beginning to adopt the sort of economic ideas that America has long-demanded it adopt, but Americans are not allowed to participate in this free-market experiment because of our government's hypocritical and stupidly self-defeating embargo policy. We'll regret this, of course, when Cubans partner with Europeans and Brazilians to buy up all the best hotels)

Hardly a disavowal of the Cuban revolution. It seems the government are taking a leaf out of the Chinese book and allowing a controlled return of the market in certain sectors of the economy. Whether they will avoid the inequalities and social problems those reforms have brought to China remain to be seen. But the much smaller size and population of the island means the party/state bureaucracy can monitor their reforms more closely (as Andy has variously written, despite China's foreboding and brutal reputation, the state is quite institutionally weak outside its Eastern heartlands). Cuba also has its own homegrown experience of the blackmarket to draw on: the impact this has had on Cuba's social fabric and the contradictions set in train will, if state planners have any sense, inform the introduction and condition the reviews of the reforms' performance.

From the standpoint of maintaining Cuba as a bastion of anti-capitalism in the Western hemisphere and given the present balance of forces in the world, these reforms are probably necessary. Cuba is no North Korea located in sunnier climes, but the longer it carries on in the old way the more likely the economy will seize up. That said market reform will certainly exacerbate and generate contradictions within Cuban society, but at the same time they offer an opportunity for developing cooperatives, encouraging debate on various types of ownership and could add to the pressure for democratisation (there seems to be a real movement in Cuba pushing in this direction).

Roots of the Recession

A couple of weeks ago Keele was treated to the inaugural professorial lecture of Bülent Gökay. Having attended a number of his thought-provoking lectures over the years (including this one on peak oil), I thought it would be relevant to my interests, and so it proved. Bülent's paper, 'Tectonic Shifts and Systemic Faultlines: A Historical Perspective on the 2008-9 World Economic Crisis' was written from the perspective of the heavily Marxian-influenced world systems approach and set out to make sense of the present crisis. Is it the case the crazy actions of rogue bankers were to blame, or is there something deeper going on?

Unlike those that have gone before, the present economic crisis stands unique in the speed at which it happened and how no corner of the globe has remained untouched. However, as far as Bülent was concerned most mainstream commentators are at a loss to explain why it happened (see, for example, Alan Greenspan in the BBC's The Love of Money - with his theories in shreds he is forced to blame the crisis on that hoary old canard, human nature).

For those that go beyond essentialist arguments, one needs to look at the processes and longer-term historic trends that are involved. Most immediate, of course, was a boom driven by credit, overlaid with sophisticated speculative financial instruments and the fact economic decision-making happens away from the public gaze and in secret away from the eyes of competitors. Exacerbating and causing this overheating of the global economy were the policies of successive US administrations. As the world's hegemonic power and economic policeman, through the World Bank, IMF and direct aid it encouraged global deregulation and speculative, unproductive economic activity. In so doing capital became almost footloose and seemingly able to roam the world at will, seeking out the most profitable opportunities. This way national economies overlapped and enmeshed with one another at ever greater speed. So when it started unravelling and plunged the world into deep crisis not only were all the failings of neoliberal globalisation exposed, the crisis represented a challenge to the US's leadership.

In many ways this is a crisis made in America. Sub-prime lending, which is widely blamed as the trigger for the crisis was an exceedingly speculative activity. Lending mortgages at (initially) extremely low interest rates on repayments and without the need for a down payment proved attractive to many working class Americans. The lenders naively assumed that once the higher rates kicked in, larger repayments could be met by ever increasing incomes and/or the climbing house prices. Lenders believed this was the chance for risk-free profit, and so did many others, which was why investment banks like Lehman's funneled massive funds into this sector. The other side to this was the US's decline as a manufacturing power. With US-led overseas restructuring via the World Bank and IMF it became easier for capital to uproot plant and transport it half way round the world to churn out goods at a fraction of the labour costs of the home market. But in that market itself, with a drying up of profitable productive uses to which capital could be put, fiddles like sub-prime mortgages seemed like a good outlet.

There's no need to repeat the rest of the story. But there is a danger the crisis might, at some point in the future, repeat itself. The only lesson seemingly taken on board by governments, policy wonks, bankers and economists is the need for more regulation. It goes deeper than this, it was a crisis of the structural changes inaugurated by neoliberalism that encouraged particular kinds of economic behaviours, rather than reckless actions per se. However, the powers that be have stuck with subjective Greenspan-style "explanations" because it suits them to do so. None of them would dare admit the economic policies they foisted on the world these last 30 years have been wasteful, irresponsible and extremely damaging.

For Bülent the present crisis is an outcome of ongoing tectonic structural changes. On the one hand there has been the growth of finance at the expense of manufacturing, and on the other has been the loss of US power and the rise of alternative centres of capital accumulation.

Turning first to finance, in the West and particularly Britain and the US, the switch to the economic dominance of finance capital was rooted in their response to the falling rate of profit. Up until the late 1960s capitalism was booming as it basked in the high water mark of manufacturing. The ratio of profit to (productive) capital investment increased and economies expanded, fuelling full employment and the expansion of welfare states. From the late 60s the tendency for the rate of profit to fall reasserted itself. Rather than being locked into a long-term decline, UK and US capital looked for a way out. The election of Thatcher and Reagan saw them undertake attacks on labour movements and welfare, The resulting restrictive labour laws allowed capital to hold down or cut wages while increasing working hours. Governments attacked welfare spending to fund tax cuts on profits. Privatisation of state assets allowed for new accumulation opportunities. And overseas, weak developing economies were laid open to the predations of Western capital. Productivity rose but real wages lagged well behind. The proportion of wealth coming to workers stopped growing and went into reverse. Widening inequality gaps became the order of the day. Credit assumed an ever greater role in the economy and managed to lubricate the wheels of capitalism, but they could only delay and not stop them from coming off. But at least for a period mega profits poured into the coffers of the wealthy and super rich.

The second point is hegemonic. After the end of the Second World War, the devastation inflicted on the metropolitan centres of capital outside the US (Western Europe, Japan) meant they had no choice but to accept the restructuring of the global economy in America's interest. As they recovered under US leadership they became very effective competitors. While US profit rates were declining Japan and West Germany boomed. Relative economic decline however did not set in until the end of the Cold War, at which point the economies of south-east Asia took off in a rocket of state-directed development. China and India in particular are responsible for most of this growth, and not just because of their massive reserves of cheap labour. Not only are they workshops for the world, their internal markets are growing too. Presently China possesses the third largest domestic market. For Bülent this is the stirring of a new world order to come, one where the West is no longer hegemonic.

This is why the regulatory "solutions" proposed by Western politicians are clearly inadequate. No amount of regulation is going to alter the tectonic shift in capital accumulation toward the East. The uni-polar world of US dominance is rapidly becoming a thing of the past - the world is heading toward a multi-polar phase. And in the economies at the heart of the global crisis, governments are moving to cut public spending, and companies (even ones relatively untouched by the recession) are shedding jobs and freezing wages. Holding these down - in the absence of cheap credit - is storing up more trouble for the future.

In sum, I thought the talk was very interesting, but I have a couple of issues. First, Bülent talked about the present crisis as an economic and ideological crisis. Undoubtedly that is true - Greenspan's comments are echoed in New Labour's continued neoliberal habits of mind, albeit one that has been much toned down. The Tories on the other hand (and Republicans in America) cling on to the sinking neoliberal ship for want of anything else. But Bülent did not expand on the relationship between ideology and economics and how they reinforced each other through the 80s until recently. Second there is class struggle. Its importance is acknowledged as capital (aided and abetted by the state) took on and won battles with trade unions in America and Britain. This found short-termist answers to the tendency for the rate of profit to fall. But I think class struggle is the main missing actor in this narrative. Neoliberal deregulation and privatisation, and firms' ability to hold wages down while intensifying the rate of exploitation would have proven impossible had the key battles of the 1980s been won by labour movements. The credit bubble, the downgrading of manufacturing and today's economic crisis are the bitter fruits of what happened 20 or so years ago.

Will capital ride out the present crisis by successfully making the workers pay for it? Time, and struggle, will tell.

Xinjiang Erupts

This piece by Vincent Kolo, one of the CWI's China correspondents takes a look at the background and events of the last several days in Xinjiang province.

A peaceful sit-down protest in the capital city Ürümqi by around 300 Uighurs, the Turkic-speaking minority that is the dominant population group in Xinjiang, was transformed by trigger-happy police into perhaps the most serious ethnic clashes seen in decades. Xinjiang, known as East Turkestan to many Uighurs, has seen ethnic tensions rise as a result of Chinese state repression that went into overdrive after “9/11” and the global “war on terror”, discrimination of non-Chinese speakers, and a yawning wealth gap that puts the indigenous population at the bottom.

The anger boiled over on Sunday 5 July as hundreds of riot police waded into what had been a peaceful protest by Uighurs, mostly youth. Xinhua News Agency report that around 1,000 Uighurs rioted, overturning police barriers, attacking bystanders and smashing vehicles. Witnesses quoted in Western media said that up to 3,000 rioters faced around 1,000 police and paramilitary police. Chinese media gave the figure of at least 140 people killed and 816 injured, warning that the death toll could rise. These reports state that 261 motor vehicles and around 200 shops were attacked or burned.

“The casualty toll, if confirmed, would make this the deadliest outbreak of violence in China in many years,” writes the New York Times. Already, this represents the most serious outbreak of violence in Xinjiang since 1997 and threatens to eclipse the horrific death toll in Tibetan areas last year. A total clampdown is now in force in Ürümqi with martial law declared and telephone and internet services cut. Dozens of casualties, from both Han and Uighur communities, have been taken to city hospitals.

China Central Television (CCTV) showed footage of Uighur protesters attacking and kicking people on the ground. Other people sat dazed with blood pouring down their faces. As with the rioting in Lhasa, the Tibetan capital, in March 2008, such images will inflame anti-Uighur sentiment among sections of the Han Chinese who make up 92 percent of China’s population. Indeed, this is the intention of China’s ruling elite, who undoubtedly want to seize upon events in Ürümqi to create a welcome popular diversion from the deepening economic crisis and growing discontent that threatens to spoil the ruling ‘communist’ party’s celebration of 60 years in power this October. Typically, the central thrust of official propaganda is that the violence in Xinjiang was fomented from outside by exile groups - the message being that all Chinese should unite behind “their” government to protest against “foreign interference”.

No one should be fooled by this ‘spin’ on the events in Xinjiang. Reports at this stage are fragmentary, but the peaceful character of the initial protest in Ürümqi seems clear. Associated Press report that: “Accounts differed over what happened next in Xinjiang’s capital of Ürümqi, but the violence seemed to have started when a crowd of protesters – who started out peaceful – refused to disperse.” An American eyewitness was quoted by this agency saying that police pushed the protesters back with tear gas, fire hoses and batons, and protesters replied by knocking over police barriers and smashing bus windows. “Every time the police showed some force, the people would jump the barriers and get back on the street. It was like a cat-and-mouse sort of game,” he told AP.

Racist clash at Guangdong factory
The protest was held to demand answers from officialdom over an incident in Guangdong, southern China, on 26 June. A horrendous communal (ethnic) clash between Han Chinese and Uighur migrant workers at a toy factory in the city of Shaoguan resulted in two Uighurs being killed (although there are reports the number could be higher) and 118 injured from both ethnic groups. The incident was started by a Han Chinese worker who had lost his job at Early Light, a private company, that until recently employed over 50,000 workers in southern China. Rather than blaming the boss – Hong Kong’s ‘toy billionaire’ Francis Choi – this worker vented his anger on the 600 Uighur workers brought to the province as cheap labour (even cheaper than Han). This worker, who has since been arrested, circulated a false story on the internet claiming six Uighur men had raped two Han women at the factory. Gangs of Han workers attacked the Uighur dormitories with knives and metal bars and the Uighurs defended themselves with the same means – a bloodbath ensued.

This incident is highly symptomatic of processes in China, as tensions reach breaking point over unemployment (at a post-1949 record), pay cuts (200m migrants have been pitched into a new ‘race to the bottom’ competing for fewer and fewer factory jobs) and official corruption that penetrates almost every sphere of human activity. With all protest channels closed down and workers’ self-organisation outlawed, anger against the state is rising but so too is racism, crime, drug abuse, suicide, and other expressions of hopelessness. As a footnote on the Shaoguan incident, Choi, the billionaire toymaker, is officially worth US$1 billion and boasts a mansion with over 30 sports cars in its car park. The minimum wage set by Shaoguan’s government, which is the norm for most migrant workers, is just 500 yuan a month (approximately US$73). Such are the extremes of the ‘two Chinas’ today: A migrant worker would have to work for 261 years, not spending one fen (cent) of his wage, in order to buy one of Mr Choi’s Ferraris; yet such abysmally low wages are being fought over sometimes with tragic and bloody consequences.

The outbreak of street fighting in Ürümqi represents a ‘feedback loop’ from the clashes in Guangdong. Reports have circulated that police also took part in attacking the Uighur workers in Shaoguan, that several Uighurs despite being victims were among those arrested, and there are rumours that the mobile phones of Uighurs in Shaoguan had been confiscated to prevent them speaking out. Angered by these reports, and suspicious of another official cover up, a crowd of Uighurs went to the streets of Ürümqi to demand answers and protest against what is obvious discriminatory treatment.

State racism
The Shaoguan incident, widely reported on the internet and even in official media, has undoubtedly aroused deep indignation among Uighurs who have seen millions of Han Chinese move into Xinjiang, dominating the growing private sector (the population of Ürümqi, 2.3m, is now 70% Han Chinese), while Uighurs who move to other parts of China face systemic discrimination and racism, are harassed by police and other authorities, and ostracised as ‘untrustworthy’ and ‘prone to violence’ by some layers of the Han Chinese population. Racist ideas in any society can be cultivated by rulers to further their own policy interests. So it was with the rise of antisemitism in Europe, and “white supremacist” ideology against Afro-Americans in the U.S. And so it has been for decades in China with official distrust of the Uighur minority and their stubborn adherence to their own language, culture and religion, which in the bureaucratic-mandarin mindset poses a threat to “national interests”.

These prejudices are much in evidence now in the official version of the Ürümqi events. The claim that exiled Uighur spokeswoman Rebiya Kadeer, based in the U.S., is behind the riot cannot be taken seriously. Xinjiang’s Governor Nuer Baikeli has stated that, “After the [Shaoguan] incident, the three forces [i.e. separatism, militant action, and religious extremism] abroad strived to beat this up and seized it as an opportunity to attack us, inciting street protests.”

This claim is no more plausible than the claims the Dalai Lama orchestrated the rioting in Tibet last year, at a time when he was pleading to be allowed to attend the Beijing Olympics, the target of an attempted boycott campaign by his own supporters. Similarly when Han Chinese and other groups of workers stage strikes and street protests, the regime routinely points to the “black hands” of radical intellectuals, human rights activists, leftists, or falun gong practitioners, who they allege must be behind such actions - as if workers are too stupid to struggle on their own account!

In Xinjiang, while support for independence runs deep among Uighurs and other minorities, this is not yet a universal trend, and in this particular case it does not seem to have been the motor force of the protests. Eyewitnesses report that some Uighur protesters carried the Chinese flag. This is quite logical given that the aim of their action was to secure basic rights and assurances for Uighurs working elsewhere in China, but also in the hope the flag would offer some protection against repression and precisely the sort of propaganda against “separatism” that is now raining down. Having spread from Guangdong to Xinjiang, there is now a very real danger of racist revenge attacks on Uighurs in other parts of China, aggravated by chauvinistic government propaganda to justify the crackdown.

Police fired shots
From what are still sketchy eyewitness accounts it seems the security forces, after issuing several warnings to clear the area, attacked the demonstrators with gas and reportedly also cattle-prods, thus transforming a peaceful if angry protest into the worst violence in more than a decade. Even without a full picture of events (which may never emerge) this scenario seems very plausible. Several witnesses reported hearing gunfire in the evening of 5 July, by which time the riot was in full swing. Why would a several hour-long sit-down protest suddenly and without provocation go on a rampage, especially in a city where Uighurs are the minority, and where police numbers are overwhelming? As The Times (UK) points out: “Ürümqi has for years been one of the most well-controlled cities in Xinjiang because of the high and rapidly growing population of Han and the large presence of security forces.”

Are the security forces capable of turning one of the “most well-controlled cities” into a bloodbath? To answer this question we only need to look at their record elsewhere in China, where heavy-handed policing is a well-known major cause of unrest and rioting. We can point to the Weng’an incident (Guizhou province) one year ago as an example, and the Shishou incident (Hubei province) last month as another. There are too many other examples to list here.

The ruling party’s influential Outlook News Weekly commented as recently as its 15 June issue: “Party officials must pay close attention to mass incidents without making mountains out of molehills and seeing them as colossal ‘political incidents.’ Treating these incidents as anti-government actions and subsequently suppressing them with strong force would be the precise method of exacerbating problems, and would have the direct result of aggravating the opposition between officials and civilians.”

This is not the first time central government organs have urged a sensitive approach, fearing that local protests can easily spin out of control because as the same article explains, “social contradictions have already formed certain foundations of society and the masses, creating a powder keg ready to explode at the first hint of a flame...” Yet despite these wiser counsels, so contradictory and unstable is the octopus of the Chinese state that while the head may urge caution, its tentacles proceed to do the exact opposite, clinging to what they understand best: brute force. This seems to have been the trigger for the latest eruption in Xinjiang.

Socialism and working class unity
A riot by its very nature is a blind and destructive action, an act of desperation. It is not a method for achieving conscious political demands; it does not follow a democratically agreed structure (which is outlawed and therefore very difficult in China), and in conditions like those in Xinjiang this can easily boil over into attacks on innocent civilians targeted for their ethnicity. Socialists in no way support or advocate rioting as a means of political struggle, but neither do we join the chorus – led by the Chinese dictatorship – that puts the blame upon the Uighur protesters for this turn of events. The responsibility for what happened lies with the Beijing regime and its security forces, whose zero tolerance towards public protests and any form of independent action and thought is creating social explosions all over China. This is exactly as socialists warned. One year ago, we warned on chinaworker.info: “Beneath this surface ‘calm’, however, Xinjiang remains a time bomb...” [The National Question in Xinjiang, chinaworker.info, 15 January 2008]

Socialists are completely opposed to the Chinese regime’s policies in Xinjiang and the repression now underway in Ürümqi. The Chinese state acts in Xinjiang in the same way it acts over incidents of unrest elsewhere: to defend the interests of the moneyed elite and the untrammeled rule of the current dictatorship. An independent non-government enquiry should be established to look into the events of 5 July and 26 June, including representatives of the Uighur community chosen by themselves. Working class unity over religious and ethnic lines represents the only way out of this crisis. Full democratic rights, including an end to linguistic and ethnic discrimination at school and work, and the right of self-determination for national minorities, are an indispensable part of this struggle. Building a new socialist labour movement, based upon the bedrock of independent trade unions that organise all workers regardless of nationality, sex, religious beliefs, and hukou status, is the urgent task of our time.

Lynn Walsh on the Crisis

This Saturday saw Socialist Party members from across the West Midlands descend upon Birmingham for an afternoon school on the economic crisis. We heard from SP deputy general secretary, Hannah Sell on the politics of the crisis in Britain, but I would like to concentrate on the contribution made by Lynn Walsh, editor of Socialism Today.

Lynn began noting how the last 16-17 years should have been a golden age for capitalism. The Soviet bloc had collapsed and what remained, principally China, embraced the market (even if the market in China is primarily between state-owned firms). The working class suffered a series of defeats that had stunned it into political quietude. Wages stagnated and the labour markets in Britain and the USA became more flexible than ever before (i.e. flexible from the point of view of capital, not from the shoes of our class). Bosses had the whip hand, real wages stagnated and the finance sector was deregulated. In other words, they'd never had it so good! And yet it still came crashing down around their ears.

For Lynn this was very much a crisis of speculative capitalism. This came into being as a response to the crisis in the Keynesian regime of accumulation of the post-war period. Reagan and Thatcher's programme (though, it has to be said, Carter and Callaghan were moving in this direction prior to being dumped out of office) deregulated the finance sector, privatised as much as they could and concentrated policy on the control of the money supply. Their "achievement" was to see an increasing share of total profits accrue to finance capital. In 1980 just 10 per cent of profits were from financial activity. In 2008 that figure, depending on who you believe, stood at between 30-50 per cent. Particularly in Britain speculation was a more attractive option than manufacturing - the profits for banking were twice as large.

The hegemony of finance capital was strengthened every time the boom it had created began to falter. The bursting of the dot com bubble? September 11th attacks? Just cut interest rates and make more government bonds available. But cheap credit can't keep the economic boat afloat forever. Something was bound to bring the edifice down, which as we now know, was the breakdown of the US sub-prime mortgage market.

The availability of cheap credit enabled millions of Americans to get on the housing ladder, and mortgage providers were only too willing to oblige. Proper credit checks went out the window as agents could accrue fees on the basis of a successful sale. In other words there were tempting short term gains to be made, which overrode the ability to keep up payments. Very quickly the finance industry cottoned on to this problem - if the debts are of poor quality it is very difficult to sell them on the markets. The solution was to chop them up and mix them in with good quality mortgages in securities. The advantage of doing so is the risky mortgages are tempered by the prime. If someone defaults on their mortgage it doesn't really matter because the payment guarantees of the prime debts cancels out the loss. At least this was what the top credit agencies thought - these packages were awarded a AAA rating, an almost zero risk! The promise of a virtually guaranteed return helped drive the expansion of credit, spurred ever more complex ways of packaging and repackaging debt and drove a boom in house building. But an economic bubble inflated by debt cannot be sustained indefinitely.

In early 2007 the credit locomotive hit the buffers. Finally the credit system began to run up against its limits as more and more people defaulted on their mortgages. Not only did the bottom of the mortgage market fall away, because of the shake 'n' bake packaging of debt no one knew whether one security was riskier than another. The composition of debt was completely unknown. Just as one apple spoils the barrel, the whole lot became toxic very quickly and the damage rippled out across the financial system, damage exacerbated by these packages being used as collateral for inter-bank loans. They panicked, inter-bank lending froze and the debts started getting called in. Northern Rock and Bear Sterns were early casualties, but more were to follow.

The crisis matured during the summer months and erupted back into the open in September. As stock markets plunged and the city went cap in hand to the US and UK governments, Bush and his advisers tried to draw a line in the sand as Lehman Brothers collapsed. They were mindful of the angry response welling up from the depths of American society and were keen not to be seen bailing out tremendously wealthy companies. The decision to let Lehman Brothers go to the wall was political. But alas it was to have tremendous economic repercussions. It's no exaggeration to say it helped deepen the panic in the markets and spread the crisis around the world. Lehman's debt obligations ignored the borders of the United States. All of a sudden it looked as though many more financial institutions were in for a rougher ride. This time governments did step in - the US and its $700 billion bail out, which, under the pressure of events, moved from a strategy for the buying up of banking debts to outright nationalisations, which currently stand at nine big and regional banks. But the UK government has really set the tone. No doubt some were impressed by the audaciousness and the apparently decisive actions taken by Brown and Darling. £500 billion has been pledged to sure up the system and the banking sector is now part nationalised. But it was events that forced their hands. The British banking system was on the brink of a 1929-style meltdown if they hadn't so acted.

But one question a lot of people are asking is where the money has come from? Printing presses haven't been going into overdrive, so Zimbabwe-style inflation is a very remote prospect. For Lynn the money governments got their hands on came from three sources. First, the last 16 years saw the largest redistribution of wealth in modern times - from the poor to the rich. Some corporations coined it like never before and those not compromised by the crisis are looking for safe places to invest their capital. The rate of return may be low but at least (for the moment) government bonds appear to be risk-free. Then there's China. By virtue of its position as the new workshop of the world it has accumulated tremendous trade surpluses. Some two trillion dollars are sitting in Chinese banks. So they have the money AND the interest in bailing out the West. If their markets dry up its rapid economic growth could run out of steam, throwing oil onto an already combustible domestic situation. And finally there are the oil producing states, particularly in the Middle East. Because of their low populations and underdeveloped infrastructures, the Arab ruling classes deposited their surpluses in Western banks for speculative accumulation. Like the corporations, this capital is looking for secure outlets.

The ruling class and their system have left a right mess. But things are much clearer for socialists. It shows up the failure of free markets. It illustrates how vast amounts of money can be found when the system is threatened. It reveals the hollowness of neoliberalism. And, incredibly, some sections of capital are falling over themselves to show their ingratitude. The part-nationalisation of banks via a system of government-owned preference shares have riled some up. You'd think they'd rather see banks fail than have the government getting first dibs on any profits, or have its appointees running the show (even if, like themselves, they are city people).

A socialist response to the crisis would be outright nationalisation of the banks, but crucially they would be taken out of the hands of the executives, speculators and spivs and run democratically by the people that work there and those who deposit in them. This would enable an immediate programme of debt cancellation, a replacement of repossessions by transferring defaulting borrowers homes into rented housing at cheap rates and a restitution of loans to small businesses on favourable terms. And because the crisis is global, similar measures would have to be taken all over the world.

These measures may be radical and complex, but they're a damn sight more realistic than the pious hope of fixing the cycle of boom and bust and the social devastation it leaves in its wake.

Neoliberalism and Disaster Capitalism

As part of a nationwide tour to promote the paperback edition of her latest book, The Shock Doctrine, Naomi Klein visited Manchester today for a short talk about the rise of 'disaster capitalism'. Her starting point is the story of how neoliberalism (or corporatism as she preferred to call it) has spread its tentacles across the globe. The received wisdom pumped out by the media and "learned" academics is free peoples and free markets go hand in hand. As totalitarianisms and dictatorships have crumbled, the liberal democracies and deregulated capitalist economies that have sprung up in their wake is the clearest, most perfect expression of freedom to date. Klein's task is to puncture this myth and show the alternate, real history of neoliberalism.

Klein's thesis is simple, but explosive. The neoliberal love-in with democracy is a complete scam. The truth is neoliberalism does not flourish in stable democratic societies; it thrives best when democratic freedoms are curtailed, suspended and suppressed. Her talk began with Hayek, Friedman and the rest of their friends in the Mont Pelerin Society. In the immediate post-war period their doctrines were consigned to the fringes. It had appeared the pursuit of Keynesian-inspired economic policies had done away with mass unemployment and capitalist crisis. But as the system broke down in the 1970s, neoliberalism increasingly came to the fore as a programme that could resolve the crisis in capital's favour.

This was not just conjecture, it was based on neoliberal experiments in Latin America. Up until the 70s, developmental policies across the continent were dominated by 'pink' economics. These were standard mixed-economy fare not dissimilar to the prevailing Keynesian orthodoxy, but were deemed too close to 'communism' in the eyes of some of the US ruling class. The US government part-funded a programme sponsoring cadres of Latin American graduates to study under Friedman in Chicago. In the context of the cold war, it was hoped they would return home and affect a sea-change in economic policy that, in the long run, would benefit capital. However the arguments of these 'Chicago Boys' fell on deaf ears. It took bloody coups in Chile and Argentina before they were given the freedom to restructure their economies according to neoliberal precepts. The results - according to David Harvey's recent book - were a strengthening of the capitalist class at the expense of everyone else by subordinating society to ever greater degrees to the market. These policies were then introduced in a more watered-down form in the USA and Britain.

But returning to Klein, a quarter of a century of neoliberalism in Argentina ended up turning the country into a basket case. Almost overnight in 2001 it went from globalisation's poster child to an embarrassing relative it would rather keep locked up under the stairs. For example, the Chicago Boys pushed through a complete deregulation of the banking sector, opening it to unfettered take over by overseas financial interests. But once the Argentine economy went into meltdown they took their money and ran, wiping out savings and plunging millions into poverty. These same millions took to the streets. Neighbourhood committees sprang up filling the gap left vacant by bankrupt local government, and factories standing idle by capital flight were occupied and reopened. For Klein this massive movement signified the first successful national uprising against neoliberalism, which has no spread to nearly all the continent.

This neoliberal shock therapy - only possible once all forms if democracy had been suppressed - is possible in other crisis situations, such as those that can be found in the aftermath of natural disasters. The Asian tsunami in 2004 is a case in point. While working class people the world over dug deep and donated hundreds of millions to aid agencies, money and resources under the control of our governments came with strings attached. Sri Lanka's east coast infrastructure was destroyed by the sea and tens of thousands were drowned, but philanthropy was the last thing on our rulers' minds. If the Sri Lankan government wanted access to Western 'reconstruction' money they had to pass laws establishing labour market flexibility and privatise water and electricity. This it did four days after the waves. And there was more to come. Within six months the government had forcibly enclosed the affected areas up to 200 metres from the coast denying survivors the right to return. This land instead was turned over to (primarily Western) construction interests for the building of new ports and hotels. Such is the reality of neoliberal "aid".

The Sri Lankan example is symptomatic of what Klein calls 'disaster capitalism' - the privatisation of responses to every situation of crisis and disaster. This has reached its apogee in the US heartland itself. The disaster of September 11th was the catalyst for opening up the security, correctional, surveillance, and intelligence complex to market forces. Insurance companies, risk management agencies, think tanks, glorified private detectives and mercenaries now comprise a $200 billion market that did not exist before 2001. For this sector uncertainty is good for business. The worst things get for us, the better they are for them.

We can see a clear line of descent. Neoliberalism began as a response to the general crisis of Keynesian/mixed capitalism. It has been imposed during situations of crisis as shock therapy. And now it is the received wisdom informing all responses to all crises - even those caused by previous neoliberal policies.

Asked if Russia and China offer alternative authoritarian models to neoliberalism, she suggested they were both examples of how neoliberalism happily co-exists with autocracy and undermines democracy. In the Chinese city of Shenzen, a city originally built 30 years ago as part of China's 'special economic zones', a new experiment with free market economics is going on. The repressive functions of the Stalinist police state are up for tender. Plans exist to increase the current 200,000 CCTV cameras by a factor of 10. This will require building an infrastructure capable of transmitting and recording millions of hours of footage and software speeding up the process of analysis. And who are stepping up to this market opportunity? IBM, General Electric, etc. A clearer case of markets facilitating the repression of democracy and freedom is seldom found.

On the Katrina disaster, we saw a rolling out of the same programme that befell Sri Lanka. Klein suggested (in my opinion wrongly) the left failed to make much of a case in the US about the scandal of the levys because it was 'indecent'. Unfortunately the right had no such scruples. Haliburton turned up sniffing for construction contracts and Blackwater sensed an opportunity for deploying some of its mercenaries. In all between them they came up with 32-point programme that basically amounted to the privatisation of the entire public infrastructure in New Orleans, from the drains to the schools. The tragedy is an alternative was possible, it just wasn't profitable. Public money was available and could have been used to bring the people themselves into the reconstruction effort. Disaster victims are agents too and rebuilding is the best form of therapy. They are the experts, they know what they want their city to be. But disaster capitalism is the opposite. It has dispersed and disempowered the city's working class and hired cheap migrant labour for the reconstruction. In short, New Orleans has become capital's playground.

One recurring problem with Klein's work has been the question of agency and alternatives. In answer to the perennial 'what is to be done?' she has previously looked to the anti-capitalist/global justice movement encompassing the varied and various social movements that opposing capital piecemeal or in their entirety. Again today she did not move beyond that position, except to say we need to draw lines in the sand and assert key principles. Unfortunately this is not much to be going on with, seeing as capital has been freely burying the hard-won gains of previous decades. What is missing from Klein is the need to build a clear political alternative to neoliberalism, which immediately brings socialism and Marxism back into the political picture. As a former Ralph Miliband fellow at LSE she cannot be unaware of this.

But there is no doubting she can pull a crowd. The audience for her talk was a new one on me. It was the first time I had been to something you could broadly call a left event where the majority of the 200 or so present were younger than my tender 31 years. And it's not difficult to see why. Klein's work is uncompromising in its hostility to capitalism. However neoliberals try to prettify their system, it is fundamentally exploitative and unjust. We all deserve something better, and given the chance, we can build it.