2020s >> 2022 >> no-1416-august-2022

Cooking the Books 1. Structural imbalance 2. Arms economy

Structural imbalance

Good Morning Britain (ITV 28 June, bit.ly/3IymiUu) pitted Dave Ward, General Secretary of the Communication Workers Union against Matthew Lesh of the Institute of Economic Affairs (IEA). Ward correctly identified Lesh as representing the bosses, the IEA being a free-marketeer thinktank funded by big business.

Lesh argued that a large increase in wages would lead to Royal Mail becoming uncompetitive and losing business to other parcel delivery firms paying lower wages. He also claimed that ‘there’s not enough profit margin for a 10 percent pay rise for all workers’.

He is right about capitalism running on profits but going concerns always have enough profit to pay something if workers are in a good bargaining position. When negotiating, unions take into account whether an employer can pay. They are not so stupid as to insist on a claim that would bankrupt an employer with the result that their members lose their jobs.

Trade union negotiations take place within a system where businesses have to make a profit and this places a limit on what unions can achieve for their members. Ward recognised this, saying that there was a ‘fundamental flaw in the system’ within which unions had to operate, a ‘deep structural imbalance of power and wealth’, a ‘structural problem of how the economy is run, how businesses operate that have got to change’.

This would seem to be an oblique reference to capitalism which is based on the owners of the places where wealth is produced and services provided being in a powerful position vis-à-vis the rest of the population. It means that the non-owners can only get a living by selling their labour-power to some employer. Employers hold the whip hand; their employees have to settle on terms which allow businesses to operate at a profit.

Although Ward said ‘it is time to challenge some of the fundamentals of how the economy operates’ and called for ‘a new deal for working people, a new social settlement in the UK’, he was rather vague about what this would involve. The only thing he mentioned on the programme was fixing a maximum ratio between the pay of those at the top of a business and that of the workers, to which Lesh responded by making the (valid) point that, although the bosses were paid high salaries, they weren’t high enough to be used to pay much of a wage increase to those they employed.

In an article in the Morning Star (18 June) Ward was more forthcoming. Criticising the Labour Party for having ‘completely failed to set out any coherent vision to end inequality and division – and build real solidarity amongst working class people’, he called on the unions to get together with ‘local community organisations’ to demand ‘new democratic models of public ownership to deliver better housing, health care, social care, education and transport.’

These are not improvements that unions have the power to deliver. Governments can’t deliver them either, as the failure of reformist governments everywhere has shown. They have all ended up giving priority to profit-making and coming into conflict with workers and their unions. Capitalism is a profit-making system that simply cannot be run in the interest of wage-workers. ‘How businesses operate’ cannot be changed within it.

The only way to end the ‘structural imbalance of power and wealth’ within which unions – and reformist governments – have to operate is to make the means of wealth production the common property of the whole of society. Then production can be re-oriented to directly meeting people’s needs. If Ward had advocated socialism – as a trade unionist who was a socialist would have done – he could have wiped the floor with Lesh. Instead it was a stalemate with Ward having no answer to Lesh’s point about businesses having to be allowed to make a profit.

An arms economy?

Speaking in June at Eurosatory, a weapons industry fair, French President Macron said that France ‘has entered into a war economy’ (bit.ly/3AI99pQ).

Strictly speaking, this is not true as a ‘war economy’ is when a state at war mobilises its economy for the one aim of winning the war. France is not currently at war, even though it is playing its part in arming NATO’s proxies in Ukraine. All he seemed to mean was that the French state should devote more resources to equipping its armed forces with the most up-to-date weapons of death and destruction and, as he was speaking at a merchants of death trade fair, selling some to other states.

There is another sense in which the term ‘war economy’ has been used – ‘military Keynesianism’. Keynes argued that there was no tendency under capitalism towards full employment and that the situation could occur, as in a slump, where not enough paying demand was being generated to bring about full employment. His answer was that the state should step in and increase its spending so as to boost demand. ‘Military Keynesianism’ is if this spending is on arms.

This appeared to work in Germany where the Hitler government’s spending on re-armament did reduce unemployment. In the US, too, the mass unemployment of the 1930s was not eliminated till the US entered the war. When the war ended this was not followed by a slump as many expected (including ourselves). One explanation that was offered for this was the continuing high level of government military spending.

One variety of this was the ‘permanent arms economy’ theory, espoused in Britain by the SWP’s predecessor, the International Socialists, and expounded by its economic expert, Michael Kidron. In an article with this title in 1967 (bit.ly/3c8gEfM) and repeated in his 1968 book Western Capitalism since the War, Kidron said he shared ‘the assumption that we should collapse into over-production and unemployment were it not for some special offsetting factor’. That factor, he went on to argue, was a ‘permanent arms budget’.

He offered two explanations of how this worked to save capitalism. The first was pure military Keynesianism. ‘Expenditure on arms is expenditure on a fast-wasting end-product’, he wrote, that ‘constitutes a net addition to the market for ‘end’ goods’ and that ‘one obvious result of such expenditure is high employment and, as a direct consequence of that, rates of growth amongst the highest ever’.

But he also advanced the opposite view that arms spending slowed down the rate of capital accumulation and the fall in the rate of profit this caused and saved capitalism in that way. ‘Were capitalism left alone to invest its entire pre-tax profit, the state creating demand as and when necessary, growth rates would be very much higher’. It was this over-accumulation which, if unchecked, would lead to ‘collapse into over-production and unemployment’.

He was right about government arms spending slowing down capital accumulation as, having to be paid for out of taxes on profits, it reduced the amount of profits available for re-investment. But he was wrong that this saved capitalism from collapse. For, while there is indeed ‘a permanent threat of over-production’ under capitalism this is for other reasons than any long-term trend for too much capital accumulation leading to a fall in the overall rate of profit.

In any event, the permanent arms economy turned out to be not so permanent. It did not prevent the post-war boom, caused by reconstruction and the expansion of world markets, coming to an end in 1973 and replaced by a two-year period of slump that no government expenditure on arms or anything else was able to end. Keynes was wrong and so was military Keynesianism as an explanation of the post-war boom.

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