Friday, June 23, 2017

Europe’s crisis: the Cluj debate with Mark Blyth

Another brilliant  analysis from Michael Roberts on how the capitalist economy functions. I am not an economist, but through my association with people like Michael Roberts, Mick Brooks and others that are, not least Marx himself, I have a fundamental grasp of how production takes place and surplus value and wealth accumulation occurs in a system of production in which the means of production are privately owned and set in motion on the basis of profit. That this profit, has its source in surplus value produced during the labor process that the capitalist controls and is value for which the capitalist returns no payment (wages), it is stolen in that sense. In other words, profit has its source in the unpaid labor of the worker.

It is not possible to reach conclusions Robert's reaches if one doesn't understand this basic fact and the contradictions and consequences of such social organization like the tendency of the rate of profit to fall due to what Marx called the rise in the organic composition of capital.  Working people can grasp the fundamentals of this economic world view as it really does objectively merge with our life experience. Understanding the general processes at work in any science, including social science, can ground us in reality and assist us down the revolutionary path to change objective conditions, alter the world around us. Building a living breathing social force (organization) that can assure a correct idea becomes accepted by millions in society is the task facing us and all workers must play a role in that.  Like all phenomena, there are the general processes at work and more complex aspects of it that must be studied if we are to fully understand it. Understanding the former is enough up to a point, for the moment, the latter I will leave to Michael Roberts and his colleagues. RM

by Michael Roberts

I’ve just returned from Cluj, Romania’s second largest city, where I discussed the Euro crisis and the future of Europe with Mark Blyth of Brown University.  Mark Blyth has published a number of books, including Austerity: a dangerous idea, which covers the history of the austerity doctrine as he sees it and its impact on the global financial crisis and on Europe’s economies.

The intellectual think-tank, Tranzit, organised the event brilliantly and it was very well attended.  The discussion was billed as a debate between a Keynesian and Marxist analysis of Europe’s economic crisis.  But, of course, there were many areas of agreement between Mark and myself on the events leading up to the global financial crash and subsequent slumps particularly in the periphery of the Eurozone and on the impact of the policies adopted by the European leaders and the Troika with the distressed states of Ireland, Portugal, Spain and Greece.

In my presentation, I argued that the great European project that started after the second world war had two aims: first, it was to ensure that there were never any more wars between European nations; and second, to make Europe as an economic and political entity to rival America and Japan in global capital.  This would be led by Franco-German capital.

The move to a common market, customs union and eventually the political and economic structures of the European Union was a relative success.  The EU-12-15 from the 1980s to 1999 managed to achieve a degree of harmonisation and convergence: the weaker capitalist economies growing faster than the stronger.

But the move towards further integration with a single currency and the enlargement of the EU to now 28 (soon 27) countries was not so successful.  Now it was divergence, not convergence that was the result: the weaker capitalist economies (in southern Europe) within the euro area lost ground to the stronger (in the north).

Franco-German capital expanded into the south and east to take advantage of cheap labour there, while exporting outside the euro area with a relatively competitive currency.  But the weaker states built up trade deficits with the northern states and were flooded with northern credit and capital that created property and financial booms out of line with growth in the productive sectors of the south.

This divergence was exposed in the global financial crash and the ensuing Great Recession.  The banking system of the southern states was driven to bankruptcy as property prices collapsed and companies and households were unable to meet their debt servicing costs.  This also put French and German banks at risk.  The weaker governments could not bail out their own banks without help and that meant agreeing to drastic austerity measures from the EU’s stability funds and the IMF.

At debate in Cluj, in my view, were two things: why did the period of success for the EU project turn into failure with the global financial crash?  And was the imposition of austerity programmes the main cause of the depression after the collapse in Portugal, Greece etc; or at least, would a reversal of those Troika-style measures have got Greece etc out of trouble?

My view was that the cause of the change from fast growth and convergence from the 1970s to slow growth and divergence from the 1990s can be found in the sharp decline in the profitability of capital in the major EU states (as elsewhere) after the end of the Golden Age of post-war expansion.

This led to fall in investment growth, productivity and trade divergence.  European capital, following the model of the Anglo-Saxon economies, adopted neo-liberal policies: anti trade union laws, deregulation of labour and product markets, free movement of capital and privatisations.  The aim was to boost profitability. This succeeded at least for the more advanced EU states of the north but less so for the south.

The introduction of the euro added another limitation on growth in the south and convergence with the north.  The euro was not an ‘optimal currency union’ (to use the mainstream economics term) because of this.  A strong euro was bad for exports in the south and gave investment power to the north.  The debts being built up by the south with the north were exposed in the crash and sparked the ‘euro crisis’, but only after the global financial crash.

The EU leaders had set criteria for joining the euro, but these criteria were all monetary (interest rates and inflation) and fiscal (budget deficits and debt).  They were not convergence criteria for productivity levels, GDP growth, investment or employment.  Why? Because those were areas for the free movement of capital (and labour) and capitalist production for the market; and not the province of interference or direction by the state.  After all, the EU project is a capitalist one.  Thus some countries clearly unable to converge were still incorporated into the euro area (Greece, Italy).

The imposition of austerity measures by the Franco-German EU leadership on the distressed countries during the crisis was the result of this ‘halfway house’ of euro criteria.  There was no full fiscal union (automatic transfer of revenues to those national economies with deficits) and there was no automatic injection of credit to cover capital flight and trade deficits – as there is in full federal unions like the United States or the United Kingdom.  Everything had to be agreed by tortuous negotiation among the Euro states.

Why? Because Franco-German capital was not prepared to pay for the ‘excesses’, or the problems of the weaker capitalist states.  Thus the bailout programmes were combined with ‘austerity’ to make the people of the distressed states pay with cuts in welfare, pensions and real wages, to repay (virtually in full) their creditors, the banks of France and Germany and the UK.  Eventually, this debt was transferred to the EU state institutions and the IMF – in the case of Greece, probably in perpetuity.

But would a reversal of austerity on its own have turned these economies around without the pain of huge cuts in living standards?  In the debate, I argued that it would not.  The evidence shows that there is little correlation between faster growth and more government spending or bigger budget deficits.  Indeed, during the Great Recession and subsequently, many countries with faster economic growth also had low government spending and budget deficits (see the graph below – if austerity causes poor growth, the line should be sharply from bottom left to top right, but it is nearly flat).  It seemed that faster economic growth was more dependent on other factors – in particular, more investment and in turn higher profitability.

The evidence shows that those EU states that got quicker recovery in profitability of capital were able to withstand and recover from the euro crisis (Germany, Netherlands etc), while those that did not improve profitability stayed deep in depression (Greece).

Reversing austerity or leaving the euro and devaluing would not do the trick.  I used the example of tiny Iceland that did renegotiate its debts and devalued its currency, but it made little difference to the hit that the Icelandic people took in living standards, because, in this case, inflation rocketed to eat into real wages.  In contrast, Estonia and Ireland adopted austerity measures.  But what enabled these economies to turn round and raise profitability was mass emigration of their workforces, which drove down the costs of capital (internal devaluation).

But so weak and corrupt was Greek capital that even drastic austerity and mass emigration have not raised up the economy on a capitalist basis.

Thus my argument was that we can look for the main cause of the crisis in the euro in the falling profitability of capital in Europe prior to the crisis, which was then triggered by the global financial crash and Great Recession.

Now Mark had a different analysis.  First, he pointed out that profits as a share of GDP in the US are near record highs, so how could the crisis be caused by low profitability or profits?  The American multi-nationals are rolling in money and cash; and tax havens are bulging with hidden profits.

Sure, we could agree that the undeniable drop in profitability in the 1970s played a role in the growing difficulties for the EU project and the introduction of neo-liberal policies.  But, in his view, as I understand it, it was these neo-liberal policies attacking real wages that caused the crisis of 2008-9, not falling profitability.  Real wages were held down and so the rising gap between production and consumption had to be filled by a huge expansion of credit (financialisation).  This eventually came tumbling down and kicked off the financial crash.

This analysis is basically the ‘post-Keynesian’ one in economic parlance and Mark mentioned several times the leading post-Keynesian Michal Kalecki in this context.  In this theory, crises are the product of the change in the distribution of product between profits and wages.  The crisis and stagflation of the 1970s was ‘profit-led’, when strong and confident labour forces forced up wages and squeezed profits and full employment led to inflation (Phillips curve style).  But the crisis of 2008 was ‘wage-led’, as wage share in the economy had plummeted and excess (household) credit designed to sustain consumption led to financial instability and collapse (Minsky-style).  Marx’s law of profitability of capital based on a rising organic composition of capital (not the distribution between profits and wages) was irrelevant to this narrative.

The 1970s was an era of profits squeeze and inflation.  According to Mark, this period of ‘stagflation’ (low growth and inflation) was ‘abnormal’; it did not fit into the post-Keynesian analysis that argues that only a full employment economy would generate inflation – as measured by the so-called Phillips curve that shows a trade-off between full employment and inflation.  But by the end of the 1990s, inflation had returned to ‘normal’ levels and now the problem was the post-Keynesian one of ‘wage squeeze’ and ‘underconsumption’.  In this period of ‘secular stagnation’ huge injections of credit did not drive up inflation as the monetarist economists expected but merely fuelled financial speculation and instability.

Now, in my view, this post-Keynesian analysis fails theoretically and empirically.  Was the 1970s collapse in profitability caused by wages rising too high and squeezing profits?  The empirical evidence shows that profitability was falling by the mid-1960s, well before any perceived rise in ‘wage share’ in the major economies.  And this coincided with a rise in the organic composition of capital, as in Marx’s law of profitability.  Profits squeeze only came later in the early 1970s. As Marx said in Capital Volume 3 (p239): “The tendency of the rate of profit to fall is bound up with a tendency of the rate of surplus-value to rise, hence with a tendency for the rate of labour exploitation to rise. Nothing is more absurd, for this reason, than to explain the fall in the rate of profit by a rise in the rate of wages, although this may be the case by way of an exception.”

If profits are the result of the exploitation of labour power and not merely the result of the distribution of production between wages and profits, then it is profits that matters for capital, not wages.  Keeping wages down and profits up is good for capital accumulation.  The contradiction does not lie in the wage-profit nexus but in the limitation in the increase in the productivity of labour as a counteracting factor to the tendency of the rate of profit on overall capital to fall.

Profit share in GDP may be at highs (at least in the US) – although its has been falling back recently.  But this only measures profit per output or profit margins, not profits against the stock of capital accumulated and invested in an economy.  Rising profit margins show capital is making bigger profits; but that can still mean overall profitability is falling.  Yes, many large multinationals are ‘awash with cash’, but there are also many more companies making only enough profit to service their debts (zombie companies) and corporate debt to GDP in most economies is at record high levels too.

Yes, corporations squeezed the share of value added going to wages from the 1980s to boost the rate of surplus value and reverse falling profitability.  But it only had limited success.  By the early 2000s as the euro area started, profitability was falling across the major economies.  Indeed, far from wages and consumption collapsing prior to the Great Recession, as the post-Keynesian thesis would suggest, it was profits and investment that did so, as the Marxist thesis would argue (graph shows inv in green and cons in blue).

Actually, over the period from the 1980s, wage share in most economies did not decline that much.  And when adjusted for social benefits, the share of total value going to labour was pretty stable.  In the graph below, the wage share for the US is measured against GDP and against national income.  Following the blue line, we can see that the ‘profits squeeze’ only began in the early 1970s (well after profitability fell).  Following the average black line, we can see that employee compensation to national income was pretty stable, if not rising in the post war period.

US personal consumption to GDP rose, not so much because of rising household debt filling the gap between output and wages, but because wages from work were supplemented by health and social benefits (so the green line below more than matches the blue line of personal consumption share).

Finally, there are policy implications from these rival theses.  If the euro crisis and the Great Recession were the product of wage compression and too much credit, then the solution for the EU project may just be better taxation of profits, more wage increases and public spending.   In other words, we need a return to the social democratic consensus of the Golden Age, when apparently the right balance between profits and wages was achieved.

Indeed, this scenario is exactly the view and policy objective of post-Keynesian analysis.  Two leading post-Keynesians summed thus up in a recent paper, when they said: “in contrast to other heterodox economists, especially from the Marxian tradition, Post-Keynesians believe that it is possible even within a capitalist economy to counteract effectively these destabilizing tendencies through appropriate macroeconomic policy actions of the state, as long as the political conditions are in place, as it happened to some extent during the early post-World War II “Golden Age”, especially as implemented by certain social democratic regimes, which had held power on the European continent and who were committed to full employment.” I assume this was at least one reason why Mark Blyth, when asked in Cluj, said that “je ne suis pas Marxist”.

However, if the cause of the euro crisis is be found in the main contradiction within capitalist production for profit, namely the law of the tendency of the rate of profit to fall (which brings about recurring and regular slumps in production whatever the ratio of distribution between profits and wages), then a managed solution within capitalism is not possible.  Crises would still re-occur.  And indeed, austerity then has a certain rationality in the very irrationality of capitalism, as it aims to raise profitability, not production or wages.

It is a vain hope that we could return to the golden age where wages and profits were ‘balanced’ (apparently) to avoid crises.  Modern capitalist economies are not generating high levels of profitability, full employment and investment as in the 1950 and 60s – on the contrary, they are depressed.  And they are depressed not by the lack of consumption (US personal consumption to GDP is at its height), but by the lack of sufficient profitability, notwithstanding Apple or Amazon’s huge cash piles.

If there was an abnormal period, it was not the ‘stagflation decade’ of the 1970s where the Phillips curve did not operate, as Mark argued.  It was the Golden age of the 1950s and 196os, when profitability was high after the war and capital could make concessions to labour (under pressure) for higher wages and a welfare state.  Indeed, the Phillips curve is still not operating as Keynesians and post-Keynesians expect.  Where is that curve?; it should be from the top left to the bottom right, but it was nearly flat in the 1970s and it is even flatter now.

Japan, the US and the UK now have record low unemployment rates and yet wages stay low and inflation is virtually non-existent (speech984). Instead of stagflation, economies have stagnation.  Now capitalism is in a new ‘abnormality’, if you like, a long depression, where it can concede nothing to labour, certainly not a social democratic consensus to balance profits and wages.

Thursday, June 22, 2017

Washington shooter Hodgkinson just a troubled individual without work.

Hodgkinson, just a troubled unemployed guy
by Richard Mellor
Afscme Local 444, retired

Well I’m back home catching up on US news.  While I was away some guy, a Bernie Sanders supporter by all accounts, went on a “rampage” at a baseball practice for a congressional charity game. Leaving out the absurd idea that a bunch of millionaires and billionaires play a game of baseball to help those less fortunate than themselves, one has to be drawn to the take on this event.

A Depressed Tourist?
The man, James T Hodgkinson, is white, American, and Christian although his religion is not mentioned (and it shuldn't be) in other words, he’s a domestic killer. Americans have become quite numb to events like these as mass killings are almost a daily occurrence. This one is even mild by comparison, he wounded three and critically injured a fourth the Wall Street Journal reports today.

The FBI has determined that Hodgkinson was a “troubled man” and have mapped out his “descent” in to, I’m not quite sure what to be honest. “Descent” in to violence perhaps. At present, neither the FBI nor the Wall Street Journal, a paper not without a point of view and quite free expressing it, seem to know why Mr. Hodgkinson did what he did.

I am very impressed with the approach the FBI and the Journal are taking here. The FBI is still investigating but it does appear that the agency is looking in to the social causes of Mr. Hodgkinson’s mental breakdown rather than shooting from the hip. 

“I think he was struggling in a lot of aspects of his life.”, says Timothy Slater,  the head of criminal investigation at the FBI’s Washington office. He was running out of money, was unemployed, his marriage was not going well, “It was just a pattern of life where you could tell things were not going well” he says. heavens, is this the FBI speaking?

This is truly a sea change in the approach of any agency of the US government when it comes to crime and social issues. Search the cause, deal with the symptoms through healthy correction rather than violence and incarceration that accomplishes nothing. Understand the cause and we'll eliminate the effect.

The FBI is not concerned that Hodgkinson had more than 200 rounds of ammo in his storage locker or that he had a list of six other members of Congress on him. It doesn’t appear Hodgkinson planned this attack and a look at Hodgkinson’s Internet search history didn’t “suggest” the list was a hit list.

“We don’t know what the list was for…There’s no indication that that was a list to target or there was any threats associated with those names on the list” says Slater. The fact that Hodgkinson visited congressional buildings and took photos is nothing to worry about Slater adds, “…those appeared to be the photos of a tourist” The FBI better watch out, Bannon will be attacking it as a nest of liberals.

Shootings like this are commonplace but what is different here is the approach of the state forces. Every effort is made to avoid using the “T" word here to the point that the investigating body is functioning more like a non-profit committed to understanding and helping the homeless and mentally ill.

I wonder what it is, what is not going well in the lives of millions of Muslims and former colonial and/or Middle Eastern people that would lead them to “descend” in to the place the FBI believes Mr. Hodgkinson has descended to---what would bring them to strap explosives to their bodies and destroy any living thing around them. What would lead them to a fascistic, nihilistic life.

I wonder if Mr. Hodgkinson had been Muslim and foreign if this story would read different.

Britain: Politics and People Not What the US Media Portrays

By Richard Mellor
Afscme Local 444, retired

Well I’m back in familiar surroundings after a two-week trip to Britain and a couple of days in Paris. As expected, my body clock is a bit messed up and it will take a coupe of days to return to West Coast time so I can catch up on blog work.

I didn’t have computer access for half of the time as I forgot some important items, a power cord being one of them, and then my phone broke so I was incommunicado for a bit.  The other thing is that this was more of a vacation trip. A good friend and former co-worker, a long-time union activist as well, had never been. He was planning a trip with his partner but she passed away so we went and took her memory with us.

I want in this post just to touch on the issue of the mass media and how it responds to events, particularly the US media. I was, as I say, on vacation so I didn’t have my nose buried in the papers or Internet news like I do here in the US. But I did manage to read the papers pretty much every day and it was quite exciting arriving on June 8th as voters went to the polls. They were voting in a snap election Prime Minister Theresa May called confident her and her Conservative Party would get a mandate to march on with a swift exit from the EU and to savage domestic austerity policies.

As was reported on this blog, the Tories suffered serious setbacks as Jeremy Corbyn and the Labor Party made some huge gains. May was humiliated and is unable to govern alone, her only option being to form a coalition of the damned with the right wing, Protestant nationalist, racist and homophobic Democratic Unionist Party of Northern Ireland.

Gasp! Republican Corbyn Doesn't Bow Head at Queens Speech
The tragic fire at a block of council flats (social housing) in West London near where we were staying has damaged May and the Tories further. We have posted numerous reports on this.  It is generally believed that if an election were held today, Labor Party leader Jeremy Corbyn, would be elected and the Labor Party in power. Corbyn has faced ridicule along with vicious personal attacks from the gutter press with right wing rags like the Daily Mail, Telegraph and Daily Express leading the way.  From what I could see, the entire bourgeois press pretty much supported the Tories or the Liberal Democrats which, shows, as does the election of the degenerate Trump in the US, the disdain the general public has for established media and established parties. I read that there is a movement against the print and Television media with some even burning papers in response to the propaganda rags that they are. Momentum, the Movement that has arisen to support Corbyn appears to be a lively fairly youthful movement in the main relying on social media as an organizing tool.

What struck me also was the reporting on the mood there by the Wall Street Journal. I should state again that we was there only two weeks although we stayed a few days in Banbury in the Midlands and visited Chester and York before returning to spend five days in London and two in Paris where we met some friends. On the way to York we drove through the tip of the peak District stopping in Penniston for a coffee. We found this delightful little café run by a daughter, her mother and friend, four women in all baking goodies for weary travelers. We had a lovely time and shared much humor while there. They gave us some treats to take with us when we left.

While in London, a white man drove his care at a group of worshipers leaving a Mosque in Finsbury Park where I lived at one time. They were leaving midnight prayers when he hit them. I haven’t followed these evens for almost 36 hours as I was traveling but the guy was captured by locals and held until the police arrived.

I read one article in the WSJ and it reported of a “cascade of violence” in London. It talked of people being “on edge” and the divisions opening up between race, class and religion. In other words, it painted this picture of a nation in fear, a nation whose population was on the brink of fracturing, descending in to civil war. 

Perhaps I am overly critical, but I have often written of the fear the US media injects in to US society. I jokingly point to the African Bees that we were once told would invade the country, Communists, Somali Warlords, hordes of Muslims, brown skinned peoples from our southern borders taking our jobs and on “benefit holidays” as an English woman I spoke to referred to it with regards to the European immigrants in the UK. And of course, there’s Putin and the Russians who are undermining our freedoms and democracy.

In two weeks one can’t see it all and talk to everyone. There are genuine fears about immigration, and terrorism, jobs and health care, that are all actually due to domestic policies rather than the perceived threats created by the capitalist press. But I found, as did my friend, a genuinely optimistic response to the election results. There is the usual disdain for politics as usual and the entrenched political class and their party in particular but despite the London Bridge attacks and the Manchester bombing, people continued with their lives as before. When I lived in London it was the IRA that were placing bombs in garbage cans and such.  
White Horse pub at Kings Sutton

With few exceptions, we were met with a very positive mood, one that sought out unity and a collective response to the social ills that have their roots in a decaying social system. We met a Welsh family in a village pub on one of the canal boat holidays. They all opposed blaming religion or national identity for people’s actions, “terrorists are terrorists” they said. I reminded them of the days when Welsh Nationalists were blowing up Welsh road signs written only in English. It got the ear of the Anglo-Saxon ruling class but it was terrorism by official standards.

Another thing that remains is a fondness for the American people. I was there in 2003 at the march of two million or so against the bombing of Iraq. I was with the US contingent. No one was hostile, they wondered what happens that an imbecile like Bush could be elected. Now we have Trump, who makes Bush almost appear cuddly. People might despise the US government as many Americans do. But most will say that Americans are friendly people.

We stayed in Marble Arch where the Edgware Road meets Hyde Park and it was a vibrant, rich community of Turks, Kurds, Lebanese, Indians. There were tourists from all over the world there. As I wrote previously, we had a great laugh with three young Somali women in an outdoor café smoking Shisha with those big Hookah’s (Water Pipes).  On hearing Roger’s (my buddy) American accent they reminded us that they were banned from the country because the were terrorists being Somalis and Muslims and all. We all had a good laugh as they told us there were only 12 million of them on the planet. We had a chance to visit the center of the Tamil community in East London as we visited a friend that lives there.

As we took the bus from Marble Arch down Oxford Street to Piccadilly Circus we could see the sidewalks on both side of the road were literally packed with people. I doubted that there were but a handful of people even aware of the Mosque attack or much else; they were there to enjoy their holidays.

At Piccadilly I found the guy who works a booth selling souvenirs. I had videod him and his buddy who gives bus tours around London when I was there last March and we had a laugh about Trump. That was before he became the Predator in Chief of course.

The response to the Grenfell Tower response was also amazing. The conservatives had cut the fire department which added to the tragedy that was a result of social cleansing, removing working class and poor people from the area and giving the private sector free rein in housing construction and maintenance.  There were protests and rallies that followed and further attacks on the Tories and Theresa May.  There is a huge outcry about this war on poor people and anger at the rich. Most of the victims would be Muslim as well it looks like. It appears that there are another 600 hi-rise buildings constructed with the same flammable cladding used at Grenfell Tower.

The first day we arrived we drove up the A40 towards Banbury. This first day in a pub we stopped in we had one of the few negative experiences. We got in to a discussion with a group sitting next to us and one of them said that “You don’t hear English spoken here anymore”. We found that a bit odd as everyone we spoke to that day spoke it; the Bulgarian who drove the rental car shuttle, the Romanian woman and her Punjabi co-worker at the desk and everyone on the road up. I happened to use the term anti-immigrant with reference to their views and one woman angrily responded to that. She wasn’t anti-immigrant just those that come for the benefits and good life. Perhaps the reader is familiar with this argument, you know, like the Mexicans and Central Americans do here.

But as Roger put it, it wasn’t that English isn’t spoken here anymore, it’s her desire that “only” English is spoken and not by Poles, Latvians, Syrians or others from overseas. One good thing about people like Trump, he forces these people out in to the open where all cards can be laid on the table.

I am not trying to paint a rosy picture here, trying to imply they aren’t having similar problems that we are here in the US or that there is not nationalism or racism developing in response to the rise of the right amid capitalist decay. The election of Trump has emboldened the racists and anti-social, anti-working class elements; they are in Britain too. But maintaining racial, gender and religious divide at a level that suits their class interests is important for the ruling class----there is no basis for being overly pessimistic, just the opposite.

Sorry for what might be a bit disjointed collection of tales but I am still jet lagged. I loved my visit as did one of my closest American friends but it’s always good to be back home wherever home is.

Saturday, June 17, 2017

Nowhere to turn for Theresa May and the Tories

She had it right but in the wrong order
by Roger Silverman, London Socialist

Whichever course they choose, the ruling class are in a hopeless mess. The Tories have lost any authority; the Labour Party is dangerously radicalised; any alternative parties (Liberal-Democrats, UKIP, the SNP) have been squeezed out. They are desperate to stave off the threat of a left Labour government, but what alternative do they have? A Tory/DUP government can't survive for more than a few months; it will stagger from vote to vote, at the constant mercy of rebellions, defections and by-election defeats. One option that is being floated is to form some kind of "national government" consisting of the remnants of "New Labour", soft-Brexit Tories, and what's left of the Liberal Democrats.

But such a combination would probably be no more capable of cobbling together a majority than Theresa May plus the DUP; moreover, it would be so blatant and transparent a device that it would only further inflame millions of Labour supporters. Sooner or later they will have to accept the election of a Labour government, and rely on a combination of disloyalty on the part of the PLP right wing (including some of those who are currently belatedly fawning around Corbyn), and the deployment of a whole array of dirty tricks to destabilise and overthrow it: racism, terrorism, economic sabotage, etc. 

In such circumstances, Labour should stand firm against any muddle, dithering or timidity and must not shrink from a decisive confrontation.

British people respond to Grenfell Fire and call for Social Housing

By Richard Mellor
Afscme Local 444, retired

I am sitting here in a coffee shop next to Marble Arch not far from the tragedy that unfolded here in London when Grenfell Tower, a block of low-income flats went up in flames. So far there are 30 dead but dozens are missing and some may never be found.

There were protests last night at Kensington Town Hall and also at Downing Street as the anger is beginning to express itself more openly. I am not going to go in to details about the corporate and state negligence that led to this disaster, inadequate safety measures, complete disregard for human life pretty much sums it up. I should qualify that mind you, human beings that don’t have money, and in capitalist society money is social power. Possessing great wealth even allows you to molest and violate women whenever you get the urge.

The other day my friend and I were walking down Edgeware Road looking for a place to eat. Anyone that knows me and Martinez are aware that we have no trouble talking to strangers because we believe there really is no such thing as strangers------“nothing human is alien to me” said my old pal Marx.  We walked past this café where everyone was outside. The weather was good and a lot of them were smoking shisha out of those big Hookah’s. Shisha is a flavored tobacco and I remember doing that when I was in Iraq in 1971 by the river.  There are a lot of Lebanese, Kurdish and other Middle Eastern restaurants here. It is a trendy area very close to the site of the fire.

We ended up chatting with three young Somali Muslim women. They wore the traditional headscarf but were all born here or came here young. They were perhaps in the mid twenties. Learning we were American (when Rog spoke not me) one of them mentioned how they can’t come to America, they’re banned.  “There are only twelve million of us in the world”, the cheeky one said to us making some other remark about how such a small group of people from a poverty stricken country destroyed by colonialism and presently being bombed on a regular basis by US imperialism can be such a threat to the American way of life. We had such a lovely time with them, they were no different to any young women from any culture.  This was their rebellious moment, out there smoking shisha.

As I looked at the pictures of the known victims of the Grenfell fire I noticed that a huge number of them were Muslims. There were others from other parts of the world as well, some Eastern Europeans perhaps. One thing they all had in common was they were poor or were low-income workers. One Labor MP commented on the inequality in Britain today comparing the situation to Dickens’ time when he wrote A Tale of Two Cities. This is what globalization has done, forced workers from poorer countries, former colonial possessions in the main, to the advanced capitalist economies in search of work. In my early childhood in England it was the Irish that were dominant in that role.

This has caused some problems as workers compete for work. I remember the Irish laborers that I worked with on the roads in the sixties, literally peasants who had never left their own villages back home. Irish contractors and middlemen exploited them, English contractors did the same and they were made fun of, racial jokes abounded as they do not speak English properly (of course it’s not their language) and they were illiterate in many ways. Like our Mexicans and other Latino immigrants, they were blamed for bringing down wages as they were “willing” to work for less. I am sure they would, as would the many Eastern European workers in low waged jobs here be “willing” to work for higher wages if that option was on the table.

The right wing politicians and the capitalist press both here in the UK as well as the US exploit this situation to their own ends blaming immigrants for the driving down of living standards.   Overwhelmingly we have found a positive atmosphere here at the defeat the right wing Tory party and its leader Theresa May received in the recent election. May has been humiliated and there is political chaos here as they have not been able to form a government. The Conservatives cannot govern alone and are dependent on the Democratic Unionist Party, the right wing Protestant nationalist party in Northern Ireland to help them. The DUP is a racist, homophobic and partially criminal gang.

We traveled up north visiting Banbury and the surrounding countryside as well as Chester and the great Cathedral at York travelling through the northern part of the Peak District oin the way. I’ll hopefully write a bit more about this but we have been happy with how people have treated us, all people. I’ll write more about this when I get back hopefully.

On the first day we came we stopped in a pub and got to talking to a group of English people, they all voted for Brexit (to leave the EU) .  While this vote is more complicated as all issues can be, thee people were racist and xenophobic. I happened to use the term anti-immigrant and the woman got a little mad with me. I raised this because one of them said, “you don’t hear English spoken here anymore.”. This is nonsense of course as that’s all we heard. The Bulgarian driver from the airport spoke it, the Romanian clerk at the care hire spoke it and so did her Punjabi co-worker. 

The woman said she didn’t mind immigrants that work she objected to “benefits migrants” who come here and are a drain on the state. When I asked her how she knew these details or has sources she simple said “I know”. But Roger put it so well, “What she really means…” he said, “…is that she only wants English spoken.”  Any person with a brain knows that immigrants work hard, that’s why they leave their homes, traversing great distances facing extreme danger to face abuse from racists and xenophobes. Nothing stops people trying to find ways to feed themselves and their children. Why people do that is what we have to understand. One thing positive about Trump is that he’s forced these characters out in to the open. These people were a minority and the outpouring of help and support from the British people throughout the country for the fire victims has been immense.

I’ll end this post here but in the time it took me to write this, a Saudi woman sat next to me here and reminded me what the name of the Shisha pipe is called. I thanked her in Arabic and could see that pleased her. She asked me if I spoke it, unfortunately not, but hello, goodbye and thank you are easy to remember. Outside a very sickly, possibly mentally ill woman (homelessness will do that to you) is barely standing on her tiny feet with her hand out. A guy just stopped and gave her a MacDonald’s meal.

The Tory Party and May are in a sever crisis. We are in a period in which the capitalist class in the advanced capitalist economies are facing their worst political crises since the war. We are not in a revolutionary situation but I believe definitely at the gates of a revolutionary era. The future depends to a great deal on the leadership of the working class. And though the industrial working class has shifted from Europe and the US to Asia and more than 50% of industrial workers are women which is a good thing; the successful overthrow of capitalism and the filth that goes with it will not be possible without the US working class settling accounts with US capitalists.

I am happy to be part of the human race.

Friday, June 16, 2017

Grenfell Tower tragedy: why?

Angry protestors descend on Downing St. demanding justice
By Mick Brooks

First we must offer our condolences to the friends and relatives of the victims of this terrible event. We don’t know what caused the fire. We don’t know what the final victim count will be.  We do know that this should never have happened and must never happen again.

First we need to spell out the positives. The work emergency services, particularly the firefighters were tireless and heroic. The response from the local community to support those made homeless was brilliant. Volunteers have been working all the hours.

Unfortunately the official reaction from Kensington and Chelsea Council and the Tory government has been at best dilatory and at worst an attitude of stony indifference.

The horrifying pictures of the flames leaping up the tower block show that Grenfell Tower was not properly fireproofed. Yet there had been a refurbishment last year. The visual evidence in the photos is that the cladding actually fed the flames.

The type of cladding used can have a plastic or a fire retardant mineral core. Plastic cladding is banned in the USA, but plastic is cheaper. A fire retardant core in the cladding for the whole of Grenfell Tower would only have cost an extra £500, but someone thought saving a little money was more important than saving the lives of working class people.

Likewise the tenants have been complaining that the gas pipes recently installed were not boxed in with fireproof materials. The fire alarm installed during the refurbishment was inaudible. The emergency instruction to stay in your flat in the event of a fire may have led to the death of tenants of the tower.

Labour MP Jim Fitzpatrick, a former firefighter, has queried why sprinklers were not installed as a safety measure. Former Tory Housing Minister Brandon Lewis admitted automatic sprinklers save lives, but said it was not the government’s responsibility to encourage developers to fit them. Apparently they are expensive, so the decision should be left to the builders.

The ‘Guardian’ has accused, “a government in hock to a grasping building industry running a policy of austerity that has starved local councils of cash”. Cuts kill.

The refurbishment was carried out by a firm called Rydon. As usual these days much of the work was subcontracted out. So we have a chain of subcontractors, none of whom are responsible for the success and safety of the project as a whole. Each can blame the others for any faults. Rydon has responded curtly to questions and deadbatted to the effect that existing building regulations were adhered to. So that’s good enough, then.

In 2009 there was a fire at Lakanal House, South London, in which six people died. The coroner made a number of recommendations in order that no such tragedy should ever happen again. His recommendations were ignored. It was quite clear then that existing building regulations were inadequate for fire prevention. The government has since dithered and dithered. No new regulations have been drawn up.

Grenfell Tower was social housing. Management of the block was handed over by the Council to Kensington and Chelsea Tenant Management Organisation. KCTMO has relentlessly brushed aside complaints from the Grenfell Action Group for years. The tenants seemingly have no way of making their concerns and fears known. The Grenfell Action Group commented in 2016:

“It is a truly terrifying thought but the Grenfell Action Group firmly believe that only a catastrophic event will expose the ineptitude and incompetence of our landlord, the KCTMO, and bring an end to the dangerous living conditions and neglect of health and safety legislation that they inflict upon their tenants and leaseholders. ..Unfortunately, the Grenfell Action Group have reached the conclusion that only an incident that results in serious loss of life of KCTMO residents will allow the external scrutiny to occur that will shine a light on the practices that characterise the malign governance of this non-functioning organisation.”

KCTMO’s bureaucratic arrogance is part of a wider problem. Kensington and Chelsea is one of the richest boroughs in one of the richest cities in one of the richest countries in the world. Yet the area around Grenfell Tower is desperately poor and has been treated by the Council, Tory since the year dot, like part of the third world. Volunteers and donations flooded in after the disaster, yet those people desperate to offer their help complain of a lack of co-ordination that should have been led by the Council.

Boris Johnson as Mayor of London closed three fire stations close to the area. Paul Embury, the Regional Secretary of the Fire Brigades Union, predicted at the time that he would have “blood on his hands. It will be only a matter of time before someone dies because a fire engine did not get to them in time. You cannot close 10 fire stations and slash nearly 600 firefighter jobs without compromising public safety.” When questioned about the closure of frontline services in London at the London Assembly, Johnson told his critics to “get stuffed”.

The Grenfell Tower tragedy has unleashed widespread and justified anger. The incident shows that, to the Tory establishment, working class lives just don’t matter. It shows all that is wrong and rotten in Tory Britain. The government is offering an enquiry. The fear is that this will just kick all the problems raised into the long grass.

There is understandable panic among high rise residents all over the country about their own safety. They deserve better than bland assurances from the likes of KCTMO. We need proper answers and we need them now. If plastic cladding is a fire hazard, then it must go, no matter how much it costs. Austerity is all too often penny wise and pound foolish.

In the meantime the plight of those made homeless must be urgently addressed. Residents of Grenfell Tower fled in their pyjamas and lost everything. They have to be urgently rehoused. They must be housed nearby with their families and friends in support, and their children’s access to their local school maintained.

That is why Jeremy Corbyn’s call for empty houses in the Borough to be requisitioned is correct and necessary. There are almost 20,000 empty homes in London, more than a thousand in Kensington and Chelsea alone. Many of these are owned by shady trusts operating out of tax havens such as the British Virgin Islands, as what even Boris Johnson described as “gold bullion in the sky”.

It is grotesque that, in the face of desperate human need, these houses remain empty. Hopefully the Grenfell Tower tragedy will be a wake-up call, leading to a major reversal of the priorities in Tory Britain where profit is more important than people.

This article was first published by the Labour Representation Committee

Grenfell Tower Fire: A Market Driven Disaster

This was totally unavoidable
By Richard Mellor
Afcme Local 444, retired

I’m sitting here in a coffee house not far from the tragedy that occurred when a fire engulfed the Grenfell Tower block of flats housing working class and poor people in west London.

As is always the case, the experts are all trying to figure out what went wrong. There’s nothing like a few deaths and public exposure to send the CEO’s and other figures in the corporate world and their agents in the body politic scurrying for cover.

This public housing was called council housing when I lived here but referred to as social housing today.  Some $13 million was spent refurbishing Grenfell Tower and just as they do in the US, the private contractors and firms fall over each other to get their snouts in to the public trough.  Public spending for hospitals, transportation, education, is condemned, propping up the private sector and profits is OK though.

There is much speculation that the cladding used in the refurbishing was the cause of the fire spreading so rapidly. The panels used to cover the building were not fire retardant and are also banned in the US. But this disaster, like Katrina, the West Texas explosion, the poison water in Flint Michigan and other US cities that working class people are forced to drink, is not and accident, it is a market driven catastrophe. For one week or more, thousands of West Virginia residents went without water as chemicals from the private West Virginia Water Company were leaked in to the Elk River.  The culprits will pay a fine for this but we will not stop system -induced crises without changing the system that causes them.

While Trump rails against Muslims and Theresa May warns of immigrants, events like these will hopefully drift away, absent from mass consciousness other than the minds of the victims and their relatives. It shows how similar our lives are no matter where we live. As Marx argued, workers have no country. The rich will always betray the poor the Irish rebel leader Henry Joy McCracken once said.

The refurbishing of Grenfell Towers was an attempt to make what the authorities and the investors consider an eyesore in to something that won’t put off the tourists and people they want to move in to the community as part of the gentrification of the area. It is not unlike the situation that I saw in New Orleans when I went there after Katrina hit. Katrina was a good opportunity to rid the city of public housing and its inhabitants that had resisted gentrification there. . “The council want to develop this area full of social housing, and in order to enable that they have prettified a building that they felt was ugly...” says the local Labor MP for the area Emma Dent Coad who won the seat from the conservatives in the recent election. Her campaign was based on fighting gentrification and the need for more social housing.

Social housing is not good for property speculation.  Capitalism does not consider housing human shelter, but a commodity to be traded, to be bought and sold, like pork bellies. Human beings are just commodities after all. “People in Grenfell Tower have been complaining that the aesthetic refit hadn’t helped them at all. It was more about making it look better for the people who want to regenerate the estate,”, Ms Coad told the Guardian UK. These deaths are murders.

There are 17 known deaths so far but there are still many people missing. The papers said this morning that it could be possible that they may not be able to identify everyone and a fire dept. spokesperson said that he hoped the death toll wouldn’t rise above 100.   What many residents fear now is that they will be re-housed out of the area.  Land and housing speculators, paraphrasing Barack Obama’s old chum Rahm Emmanuel, don’t want a good disaster to go to waste. One must take advantage of every opportunity, disaster or not.

What was a lucrative project, the refurbishing of an eyesore to those investors developing the area and their political allies, was spread out among a number of different private companies. They are all keeping quiet at the moment as a criminal enquiry has been launched.

One risk consultant spoke of the dangers when so many separate “links in the chain of contractors” exist with the potential for safety problems. Apparently local authorities once had their own architecture departments but that has changed and it is all done externally now with competing parties. The “partial privatization” of the inspection process sometimes “leads to a race to the bottom” says the risk consultant.  As with the competition between workers for who can work the fastest and cheapest to help their bosses in competition with their rivals, it is a “race to the bottom” for us and a “race to the top” for the boss and the investors and speculators in land and housing.

Fining corporate entities for such tragedies does not solve the problem. It is unlikely individuals will be sent to jail for a catastrophe like this as it is the corporation that is the guilty party. Ms Coad’s electoral victory and the Labor Party’s gains in the recent election and call for more social housing is a positive step forward but in the last analysis, only when the housing of people is a collective project based on social need and not profit, will market driven disasters like these become a thing of the past.

Wednesday, June 14, 2017

Investment, profit and growth

I’m always banging on about the close connection between the movement of investment (expenditure on the means of production) and economic growth.  In my view, the evidence is overwhelming (The profits-investment nexus) that it is investment that is the main swing factor in booms and slumps, not personal consumption as many Keynesians focus on.  And it is also a key factor in the long-term growth of labour productivity.

A new analysis by the Levy Forecasting Center, an institute that follows closely the views of Keynes, Kalecki and Hyman Minsky, also confirms this view.  The report comments that “unsurprisingly, net fixed investment is strongly related to growth.”  

The slowdown in real GDP growth since the end of the Great Recession is clearly connected to the slowdown in business investment growth

Business investment in the US has ground to a halt and the age of the existing means of production has risen as ageing equipment and technology is not replaced.

As Levy puts it: “In 2009, net investment as a share of the capital stock fell to its lowest level in the post-World War II era and the nominal capital stock even declined. Although net investment has rebounded somewhat in the recovery, its level as a share of the capital stock remains well below the historical average and it declined slightly in 2015.”

Levy points out that investment growth contributes to labour productivity growth most directly through capital deepening—the increase in capital services per hour worked.  “That had added nearly 1 percentage point a year to labor productivity growth in the post-war period to 2010. But since 2010, capital deepening has subtracted from productivity growth and contributed slightly more to the slowdown from 1948-2010 to 2010-15 than did the slowdown in total factor productivity growth.”  In other words, it was just the slowdown or cutback in the sheer amount of investment that did the damage, even more than any slowdown in the use of new techniques.

However, the Levy Institute then fails to explain this investment slowdown. It argues that “this broad-based investment slowdown is largely associated with the low rate of output growth both in the United States and globally”.  This is a circular argument. The slowdown in economic growth is due to the slowdown in business investment, and that in turn is due to the slowdown in growth!

This is close to the argument of the Keynes-Kalecki thesis (espoused by the Levy Institute) that it is investment that creates profit, not vice versa. This nonsensical view should be countered with the realistic one that is the movement in profitability and profits that moves business investment.  And as I and others have shown empirically, this is what happens in a capitalist economy.

For example, Andrew Kliman and Shannon Williams have shown that the fall in US corporations’ rate of profit (rate of return on investment in fixed assets) fully accounts for the fall in their rate of capital accumulation.  And they conclude that “Since a long-term slump in profitability, not diversion, is what led to the trend towards dis-accumulation, it is unlikely that the trend can be reversed in the absence of a sustained rebound of profitability”.

Indeed, if we delineate the rate of profit in the non-financial productive sectors of the economy, we find that profitability has struggled to rise since the 1980s and so along with it, business investment growth has slowed.  Anwar Shaikh, in his latest book, Capitalism, adjusts the official data for measuring the US rate of profit and shows that profitability has stagnated at best since the early 1980s, rising to a modest peak in 1997 before slipping back to a post-war low by 2008.

Similarly, Australian Marxist economist Peter Jones has shown that if the ‘fictitious’ components of profitability are removed from the calculation of the US corporate rate of profit, then the ‘underlying’ rate of profit has never been lower (  Profitability of productive capital consolidated during the 1990s but then dived to post-war lows just before the Great Recession, with little recovery since.

The US rate of profit (excluding ‘fictitious profits’) %

The Levy analysis also makes the valid argument that high corporate debt is impeding new investment.  Non-financial corporate sector debt relative to ‘value-added’ (i.e. sales revenue) is at a historically high level and this is weighing on capital spending.

US business investment in the first quarter of 2017 had a slight uptick after falling for four quarters. That followed a return to positive territory for corporate profits in the second half of 2016 after going negative in early 2016.

Does this mean that investment and economic growth is set to pick up finally?  Not according to Levy.  Levy interestingly (in opposition to its own Kalecki thesis) note that “looking back, the capex decline in 2015-16 and the subsequent rebound lagged the profits decline and recovery.”  But Levy reckons that the “corporate profits recovery is likely to stall by mid-year and capital spending will follow with a lag”.  If that happens, the US economy will be heading down, not up, by the end of the year.