Politicians are not neutral legislators or representatives of all the people. They have their own class interests and en masse represent, serve and legislate for these class interests. It is only through discovering their class interests that we can understand why the way they act the way they do, why their legislation, policies and budgets
Transatlantic trade and investment: Governments to be legally subordinate to corporations Soon the Public Health (Standardised Packaging of Tobacco) Bill (2013) will go through Dáil Éireann, and hopefully for all of us it will force tobacco companies to sell cigarettes in standardised cartons, with graphical health warnings. Or will it? Welcome to the “Transatlantic Trade
This is the question presented by elements of the left, as if that’s it: that’s the sum total of what the so-called left can offer working people. We can either reform elements of capitalism but maintain its essential features, and this will solve the unemployment crisis, inequality, and a variety of other systemic but undesirable
“Austerity” is working— It’s class war “Austerity” is simply capitalism squeezing as much as it can out of workers and out of public wealth. It is capital’s offensive against labour. It is paying workers as little as possible and making them work harder in return. It is taking money out of public services such as
Below is reprinted an excellent article by Gavin Mendel-Gleason and James O’Brien originally published at http://spiritofcontradiction.eu/rowan-duffy/2013/11/28/the-transition . This article is an important contribution to the growing debate on how we actually build socialism and move beyond mere sloganeering. The period of transition between our current capitalist economic and social system and a socialist economy is
Politicians are not neutral legislators or representatives of all the people. They have their own class interests and en masse represent, serve and legislate for these class interests. It is only through discovering their class interests that we can understand why the way they act the way they do, why their legislation, policies and budgets prioritise some classes over others.
Below is a brief overview of the class interests of the Fine Gael party. Thanks to EON for this research.
- 67% of FG TD’s have more than 1 income
- 23% of FG TD’s have a shares portfolio
- 28% of FG TD’s are directors of companies
- 69% of FG TD’s have land or property
- Of those with shares 65% hold shares in more than 1 company
- Of those with directorships 47% are directors for more than 1 company
- Of those with land/property 51% have more than 1
Transatlantic trade and investment: Governments to be legally subordinate to corporations
Soon the Public Health (Standardised Packaging of Tobacco) Bill (2013) will go through Dáil Éireann, and hopefully for all of us it will force tobacco companies to sell cigarettes in standardised cartons, with graphical health warnings. Or will it?
Welcome to the “Transatlantic Trade and Investment Partnership,” an international agreement between the United States and the European Union, the negotiations on which were re-started on 13 November. The aim of this massive treaty is to remove any international trade disputes and to bring in totally border-free and free-market economics. And we all know where that will lead us to.
Speaking last Tuesday [19 November], the minister for health, James Reilly, said he would be “astonished” if the new law would not be challenged, even though he must have known that in Australia there has already been a legal challenge to essentially same law, which the Australian government brought in and which was upheld by the Australian Supreme Court.
The American corporation Philip Morris International, one of the biggest tobacco companies in the world, has now taken a case against that sovereign state. Using the TTIP, it has asked a secret tribunal to award it a vast sum in compensation for the loss of what it calls its intellectual property, i.e. its brand on cigarette packets.
“Investor-state claims” (actions taken by corporations against governments), or the threat of them, inhibit the capacity of national governments to pass public-health and environmental protection legislation. Arbitrations under the TTIP are carried out in secret by trade lawyers, who earn income from the parties and are not accountable to the public or required to take into account broader constitutional, legal or human rights norms.
In Canada one government official said recently: “Even if these cases don’t succeed they can exert a powerful effect on legislation . . . I’ve seen letters from New York law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involve dry-cleaning chemicals, pharmaceuticals, pesticides, and patent law. All these new initiatives were targeted, and most of them never saw the light of day.”
To further conceal the details of the TTIP and the consequences of many of these elements in the proposed agreements, the American negotiators are attempting to obtain “fast-track” authority for the treaties in Washington, meaning that negotiations do not take place in public and that the final agreement will be submitted to the president for signature, with Congress compelled to vote yes or no, without amendment.
People need to be aware of what is going into this huge agreement and to be vigilant. Going on past agreements, we cannot wait on the EU to stand up for citizens.
This is the question presented by elements of the left, as if that’s it: that’s the sum total of what the so-called left can offer working people. We can either reform elements of capitalism but maintain its essential features, and this will solve the unemployment crisis, inequality, and a variety of other systemic but undesirable features of the system, or we can “call for” a revolution, and the workers, once freed from their union-bureaucrat oppressors, will down tools and seize state power—usually without questioning the role of the European Union. With a ten-point plan to accompany it, we’re all set to save humanity.
Thankfully, this is not the only option for working people, and a real alternative is beginning slowly to emerge.
From the outset of this crisis the CPI has led the radical, class-based analysis of the system, which has identified the response of the establishment as socialising corporate debt to stabilise the financial system—of which our tax-haven economy is a part and on which a section of the ruling class is so dependent—and transferring wealth from working people to the rich by means of “austerity.”
This response has been co-ordinated by both the domestic and the foreign elite, through the means of the external troika of the European Union, European Central Bank and International Monetary Fund and the internal troika of Fine Gael, Labour Party, and Fianna Fáil.
The CPI was the first to call for repudiating the debt, and the first to say that austerity is working: working for the ruling class, here and in Europe.
These are strategic, class-based demands, not shallow leftist commentary. They are demands designed to expose the class nature of the system and to target its contradictions and weaknesses. This is where a real, meaningful alternative exists.
This is not just to boast. The CPI hasn’t got all this worked out, nor has it got the resources to popularise this in the way it could be done: it is purely to point out what a real way forward for the left is, and how left unity can actually be built rather than just called for.
Electoral opportunism and short-term ego-based politics have prevented the left from developing this strategy the way it needs to be. And, unfortunately, many of those same parties and forces are the ones that make the loudest calls for left unity.
The real alternative for working people is the long, difficult but necessary task of creating the conditions in which socialism can be built. This involves a significant deepening of political education within trade unions and communities, recognising the hardship working-class families face and not irresponsibly leading them into battles that leave them hopelessly exposed and then abandoned.
The demands we make and mobilise around must be on our agenda and not just defensive reactions. All defensive struggle is important. We must, through comprehensive analysis, identify the strategic weaknesses of the system and put forward popular demands that both educate and mobilise and that expose the class nature of the system, and target its weak points. These demands must expose the class nature of economic and political power, not merely advocate a reform or tweaking of capitalism.
So, what are some of the strategic weaknesses in monopoly capitalism?
The debt is one. Both finance and non-finance corporations have become increasingly involved in a complex web of debt and risk, as a means of financing expansion and monopolisation but also as a means of securing profits from price speculation. Debt-based products are also used as a means of hedging risk. States throughout the EU, with the backing of the ECB, have stepped in and bailed out these institutions by socialising their debt and transferring our wealth to their balance sheets, showing the true nature of state-monopoly capitalism and also the fundamental nature of the EU as a protectorate of European monopoly interests.
So repudiating the debt and transferring it back to the fragile private sector is striking at the heart of fundamental structural weakness within the system. It is a demand for weakening capitalism, not bringing about a capitalist recovery.
The environmental crisis is another strategic weakness. There is now no doubt that capitalism’s drive to achieve increasingly difficult profits is destroying our eco-system and threatening human existence. Profit-creation doesn’t just alienate labour: it also alienates the natural world. Our planet is used as a commodity for re-creating capital, and this drive for growth ignores the physical limitations of what the planet can provide and sustain. Capital’s attempts are increasingly desperate, as fracking and other highly irresponsible practices become normalised.
Identifying the fundamental contradiction between capitalism and the environment, and connecting the environment in a real way to the struggle to protect public services and jobs, is essential. Ireland has the potential to develop renewable energy sources: this should be harnessed in a public and planned way as part of a campaign for energy self-sufficiency and job creation. Capital, released from our oil and gas if nationalised, can be used to make this transition.
As an island nation, our seas present us with huge resources, but these too must be harnessed in a sustainable way. Sovereign control over our seas is necessary for making use of them in a planned way, to provide maximum use value for people but in a long-term and sustainable way.
And thirdly, the system suffers from a chronic lack of democracy. Sovereign control over our political and economic system is vital. Democracy is meaningless without the ability of democratically elected and recallable citizens’ representatives to make decisions without external interference from EU regulations, treaties, or directives, with the ability to make decisions free from the threat of immediate and terrible war by the financial markets, the ability to tax capital and wealth as we choose, and the power to direct capital into investments that are useful and productive, rather than those that provide the highest return in the shortest possible time.
This strategy will be less electorally popular in the short term than mindless sloganeering and promises that deceive working people while avoiding the difficult questions and analysis of the present-day capitalist system and the reality of monopoly capitalism, dominant politically through the European Union. Nonetheless it is the strategy that genuine socialists must pursue.
Like-minded socialists and progressives from various parties, movements and unions must continue the positive work in 2014 of building this strategy and injecting these ideas into every debate and particularly into the trade union movement.
“Austerity” is working— It’s class war
“Austerity” is simply capitalism squeezing as much as it can out of workers and out of public wealth. It is capital’s offensive against labour. It is paying workers as little as possible and making them work harder in return. It is taking money out of public services such as health and education and giving it to “entrepreneurs” to try to enrich themselves. It is the transfer of wealth from working people to the rich and the transfer of debt to working people. Austerity is class war.
Austerity is not new, but it has been intensified since the crisis. Capitalists seized the opportunity of the crisis to follow a strategy of reducing the cost of labour to help boost falling profits and to put the state into debt, both to protect institutional and wealthy investors and to force further privatisation of valuable state assets.
If you strip away financial speculation, capitalism has suffered decades of virtually no growth. In these circumstances austerity is the system’s response to get more for less from working people.
Who benefits from austerity?
Quite simply, the richest benefit. Those with capital to invest benefit from the protection of bondholders, from the reduced wages for workers, and from the sale of state assets and services. Capitalists benefit from austerity: the evidence shows that the richest 10 per cent have got richer as a result of austerity. Austerity is designed to benefit them, and it is working.
How has it affected people?
Austerity has hit working people hardest, in a variety of ways. Public investment has ceased, and a recruitment freeze has been imposed, resulting in fewer jobs. Social welfare has been cut to such an extent that hundreds of thousands of people have been forced to emigrate, while those who stay live in poverty.
Private companies have reduced the number of permanent positions and not replaced workers who have left. Wages have been frozen or cut. Pensions have been closed down and some wound up. Hours of work have been lengthened. New precarious working contracts have been introduced. Funds for public services have been slashed, hitting hardest those who rely on them and driving workers to subsidise further profits for private enterprise.
These are not unfortunate side-effects: this is exactly what austerity is designed to do. It is deliberate and organised class war.
Why permanent austerity?
Austerity policies have existed for decades. Wages have barely kept pace with inflation. A massive credit bubble, and growth based on debt and financial speculation, disguised the fact. Austerity is a reality of capitalism today, as global monopoly capital places downward pressure on wages in the west and moves production to the east.
Austerity is not designed to “fix” the economy: it is designed to increase exploitation, to maximise profits, and will continue to do so until labour fights back and challenges the system.
The government will celebrate its “exit” from the Troika programme, but this will not end austerity, and workers should not be fooled by the triumphalism of Fine Gael and the Labour Party. Austerity is here to stay, until working people mobilise to defeat it.
We believe in democracy and in the people
Many people have lost faith in political parties, and understandably so. It is clear that mainstream party politics is now a profession that consists of managing the affairs of big business, both foreign and domestic. Our democracy has been whittled down to arguments about senates and liberal rights, with little or no engagement on major issues, such as the economy, economic power, and sovereignty.
But this does not mean that politics is useless: their managerial-style politics is, but ours is not. We have to fight to control and extend democracy and ultimately fight to take the power back!
How did we get here?
The recent strategy of the state has been to rely on exports and foreign direct investment, a strategy we consider inadequate. But putting faith in foreign investment to sort out the economic problems of the country has a long history in this state.
The move to reliance on foreign direct investment was implemented by direct government policies, and this direction was supported ultimately by all the establishment parties in Dáil Éireann. Fundamentally, democracy and sovereignty mean being able to develop and direct society and the economy for the greater good and the needs of society, employing both human and natural resources to their full capacity. Reliance on foreign investment is contradictory to these principles.
Building a strong, home-oriented economy was introduced in the 1930s and 40s to a limited degree. The policy of moving the economy away from building large-scale native industries can be traced back to a shift in official policy from the 1950s.
• The United States was bargaining with Marshall Aid after the Second World War to open up the economy for American interests, namely a gateway to the potential EU market.
• This meant Ireland abandoning any notion of being an independent producer, opting instead to take up the role of host to foreign investment and transnational corporations. This was a capitulation to imperialism by the class forces in power at the time.
• The Irish state effectually conceded that it could not resolve its own economic problems and was now reliant on exports by foreign-owned companies. It was only logical, therefore, from their class position that Ireland should take up membership of the EEC (now the EU) in 1973 and complete the process of consolidating the rule of imperialism.
• Ireland became a strong link between the United States and the European Union, reinforcing its role as a dependent country in the service of imperialism, in the form of the EU, Britain, and the United States. (In 2011 the United States was the source of half of all industry based on foreign direct investment and more than 70 per cent of its employment.)
Is foreign investment a long-term solution to the crisis?
Foreign direct investment has never provided sustainability, and in today’s global world it is even more volatile. It is not a solution. For one thing, it accounted for only 8½ per cent of total employment in 2011 and 14 per cent of total wages (because of relatively high-earning jobs) while it contributes only about 5 per cent to the total tax income of the state. Foreign-owned industry accounts for 73 per cent of our total exports, yet of the €21 billion it spent on raw materials only €2¼ billion, or 10½ per cent, relates to materials obtained in Ireland.
There is no doubt that foreign direct investment plays an important role in the economy as regards the creation of profit, but not from an employment or tax point of view, which is more relevant to working people.
European and American imperialism and our class collaborators
The EU and its subservient establishment in Ireland are primarily responsible for the debt crisis. It was the European Central Bank—an instrument of the EU—whose policy it was to facilitate the flooding of peripheral countries with cheap credit from the core countries, to prevent stagnation in the core countries. It is the euro that requires the bank guarantee and the bail-out of the financial system, to protect itself and the economic stability and debt of the core countries. It is our adoption of the euro that prevents the option of devaluation. It is our adoption of the euro that prevents diversification of the national debt that might reduce it and reduce its risks.
At present all our debt is held in euros. It is the EU that is dictating budgetary policy. It is the EU that imposed the massive €85 billion potential debt on the state and the conditions attached to it.
Yes, the IMF is a parasite, and it is taking advantage of the crisis to impose its economic policies on behalf of the United States and monopoly interests; but it is secondary in responsibility to the EU and our corrupt establishment.
It is also the EU and the United States that will stop any progressive moves towards a more independent, productive path if it interferes with their interests. After all, it was in the interest of US imperialism to open up Irish borders in the 1950s to gain access to EU markets and subsequently to benefit from the tax and privacy laws implemented in Ireland.
The Irish establishment abandoned the notion of developing vibrant native industries, opting instead to be middlemen for the lords of transnational corporations, which inevitably led to membership of the European Union and adoption of the euro.
So, to get to where we want to go we must first recognise our enemies. These are not the citizens of the United States or of EU countries but the class that these governments and institutions represent. Once we know who our enemy is, we can then set about working to unite our allies.
The long-term solution is socialism
The Connolly Youth Movement believes that there is really only one viable long-term solution to the economic crisis, which is a crisis of capitalism, and that is for the working class and its allies to stand together, organise and build together with the goal of bringing the main means of production—the land, natural resources, the factories, the banks—into common ownership so that we can plan the policies that would provide for an expanded public service system, social welfare, housing, health, education and jobs and can finance this programme from industry and our resources.
In a word, the long-term solution is socialism.
We also recognise that this general goal will not be something that most people will be calling for in the near future. People need to believe in an alternative that will bring about effective change in society, but they also need an idea of where the alternative begins and where it ultimately leads. We can all call for socialism, but more importantly we need to have concrete measures and strategies now that will open up a path for people to begin to support a socialist programme of government and production. We need to turn a small minority of believers into a large majority of supporters.
We put forward four pillars that constitute the basis for building support for socialism:
- First pillar: fishing and farming
- Second pillar: oil and gas
- Third pillar: sustainable-energy industry
- Fourth pillar: repudiating the debt
An independent course has been an integral part of large social changes in the history of our country, and so there is a potential to recapture the rebellious spirit of the past, of Tone and Connolly, and bring it to the twenty-first century.
Independence and control in these four pillars is both a popular demand and a strategic one in gaining social control over the economy.
1. The first pillar: farming and fishing
The largest industry that actually uses Irish materials is agri-food, where more than a half (52 per cent) of all materials used are purchased within the country. This industry adds €24 billion to the national economy, generates 6½ per cent of gross value added, accounts for almost 10 per cent of Ireland’s exports, and provides 7½ per cent of national employment.
When employment in inputs, processing and marketing is included, the agri-food industry accounts for almost 10 per cent of employment. This is a comparatively low figure, however, when we look at the fact that we have some of the best grasslands on the planet and some of the richest fishing grounds in Europe.
Fishing and farming have been the bedrock of the economy for centuries, because of the country’s geographical position and its rich resources. So why is it that from 1991 to 2002 employment in agriculture, forestry and fishing fell from 14 per cent of the work force to 5 per cent (approximately 4 per cent now), or that the Irish fishing fleet is entitled to only 18 per cent of the fishing quota of its own territorial waters, with a total of €1.18 billion available annually?
Two policies, directed by EU law—the common agricultural policy and the common fisheries policy—have been determining factors in the haemorrhage of some of the most productive areas of the Irish economy. This has to be undone. Democracy and sovereignty must return to fishing and farming—but more than that, they must be planned and developed to their full potential and liberated from short-term private interests.
With the common agricultural policy, farming has been turned into a grant-based system rather than a productivity-based system. Yes, some farmers have benefited from EU grants—mainly large farm owners; but farming as a viable profession in which to earn a decent living has declined rapidly, leading to an exodus of young people from the countryside.
Between 1991 and 2007 the number of farm enterprises fell by a quarter, while the size of the average farm increased by a quarter. Making a living on a small farm is very hard work, which is why small farms are disappearing. A co-operative farming system could be greatly advanced, in which the state could provide machinery and different measures for lowering their costs, in turn creating an incentive for younger generations to become involved in food production in a communal environment. This would increase employment, increase yields, and create revenue for the government. Knock-on industry could be developed in rural areas to complement agriculture and boost native exports.
The limitations of the common fisheries policy have meant that fishing villages around the country have also been in decline, putting great pressure on the local economy and leading also to young people leaving for the cities or, more probably, to emigrate.
To see the importance and the potential wealth in expanding the fishing industry and taking back our fishing waters but, see the balance sheets at the bottom of this article, but not well known is that it is a total net benefit to EU of €140 billion.
Contrary to popular belief, Ireland has been a significant net contributor to the EU when the commercial value of its exclusive economic zone, its fishing grounds, are taken into account. With our rightful ownership of this wealth we would also have the ability to expand and build a research-based fishing industry. There could be specialised port facilities, shipbuilding and repair yards, processing plants, the fishing fleet itself, fisheries research ships, and various support ships. The personnel to crew these ships could be trained at several schools and on board special ships. The potential for job creation is massive, even without taking into account the upstream and downstream processes involved in fishing.
The Irish seafood industry provides an estimated 11,600 jobs, supporting the economic viability of many coastal and rural communities. The potential to double, treble or even quadruple that number is the reason why, looking at the present common fisheries policy, Ireland is not able to maximise its own resources.
2. The second pillar: oil and gas
We can’t talk about using resources and potential sources of revenue without mentioning the wealth of oil and gas reserves that can be tapped in our exclusive economic zone. The government’s conservative estimate put the value of these reserves at €420 billion. Thanks to a government policy introduced in 1987 by a corrupt Fianna Fáil minister, Ray Burke, the state’s share in our offshore oil and gas was reduced from 50 per cent to nil, and royalties were abolished.
The transnational oil companies, such as Shell (Topaz) and Statoil, have full claim on these resources and can even write off 100 per cent of their costs before declaring their profits. Even then the tax on these was reduced from 50 per cent to 25 per cent in 1992 by the then minister, Bertie Ahern.
This has rightly been labelled the Great Oil and Gas Giveaway, and the whole fiasco has been a dark episode in the history of the state.
But these are only policies put on paper by government ministers who robbed the people of access to valuable wealth and resources. Energy self-sufficiency is an essential part of a real alternative strategy; and, just as those ministers signed away our natural resources, we can claim them back and rewrite the terms under which companies are allowed access to them.
The nationalising of our oil and gas and creating a state industry would not only provide us with revenue but could also provide funds for research and development of clean energy resources.
3. The third pillar: a new electrification of Ireland
Although we have proven reserves of oil and gas, if we were to nationalise our resources tomorrow, extracting all of it for consumption in the near future, this has to be debated, considering the effect that pollution and the reliance on fossil fuels has had on the planet. Any alternative strategy must incorporate a viable and sustainable path to the continued health of the planet and all its inhabitants, and therefore the expansion of renewable energy sources for our energy needs must take priority.
Being an island on the far western edge of Europe, hugging the Atlantic Ocean, Ireland is in a prime position to harness the raw power of nature in the form of wind, wave and tidal energy, both onshore and offshore. A new phase of electrifying Ireland could begin immediately, with heavy state funding in research and development and in the construction of a nationwide grid of renewable energy sources. The initial cost would be high, but the long-term cost of not developing these types of alternative energy sources could be catastrophic.
At the moment Ireland is still dependent on fossil fuels for its energy needs (about 75 per cent) and heating (90 per cent). Developing renewable energy would also mean that we would be much less reliant on importing fossil fuels (which is a cost to the exchequer and the environment). If we reached excess supply we could export some of our electricity production, meaning it would be a net contributor to national wealth.
A private firm would not be able to fund such a big project but would invest only in profitable areas and small-scale development, pocketing the profits and under-developing the whole network. We believe the Department of Communications, Energy and Natural Resources would need to oversee a state enterprise, building a large-scale renewable energy grid with homogenised technology and capital to make full use of our abundance of natural resources in maximising energy-efficiency.
4. The fourth pillar: repudiating the debt
All the measures mentioned above could greatly improve the state of the nation and transform it from being an outpost for foreign direct investment into a leading producer in sustainable food, technology, and energy.
However, we can’t escape the fact that having a ratio of government debt to GDP of 125 per cent is unsustainable, with general government gross debt hitting €204.5 billion, whereas in 2007 it was €47 billion, or 25 per cent of GDP.
It’s clear that the bulk of Ireland’s “sovereign debt” is not in fact sovereign debt but is a consequence of the 2008 guarantee and of the policy of saving the financial system and the euro, at the expense of the solvency of the country.
The Irish people have paid 42 per cent of the total cost of the European banking crisis. Each person since the bank guarantee of 2008 has paid an estimated average of €9,000, whereas in the EU as a whole it is €192. We are paying out €8½ billion a year, or a fifth of our taxes, on interest alone!
This is a burden that we believe is unjust and unforgivable. We are being forced to pay a debt that is not of our making. The banks’ debt is not sovereign debt: it was not borrowed by the government to build schools or hospitals, or to develop our natural resources. This is private and corporate debt, and we should refuse to pay it.
We must never give in to the argument that we have to get on with paying back this debt, no matter how tough it will be for us. This is a debt that we as a people should not be liable for, so we must reject what gets said and put it to the people to repudiate the debt.
The circular flow of income
The four pillars described above are not only viable ways in which we can get working people on the road to recovery but are a basis on which a path to socialism can be constructed.
We believe that Ireland can be much more than a playground for big business. The potential new revenue from pursuing an independent path in fishing and farming, nationalising our oil and gas, building a renewable power industry and repudiating the debt can become the pillars with which to build and develop our economy in other areas. The injection of revenue into the economy from each of these pillars will have a much higher probability of expanding the economy because of the multiplier effect. These sectors use a high percentage of native materials, which feeds into knock-on industries, as opposed to foreign direct investment, which is what is being presented to us by the establishment parties to bring us out of this crisis.
We have a great wealth of human resources, with a highly skilled and educated population (though that resource is now under serious attack). The high-technology and pharmaceutical sectors can be integrated in a plan of more state ownership, of repatriating profits to parts of the economy that need it, such as the health service, transport, and education. The aim of state ownership will be to facilitate greater equality in the distribution of wealth and allow for long-term planning in sustainable jobs, resources, services, and the environment.
We in the CYM see these as attainable goals for the near future; but they won’t come about by chance, just as economic policies in the past didn’t come about by chance but by concrete policy decisions by those in power.
Take the power back!
To fully use these pillars we have to be willing to fight for them, to fight not only for our future and the future health of our children but for the continued health of this planet. Essentially what membership of the EU and every other imperialist bond has meant has been capitulating to imperialism and developing on its terms. It has eroded both our democracy and our sovereignty, our ability to develop and direct society and the economy for the greater good and needs of society. Instead, marginal interests have enriched themselves at our expense.
These policies have stifled the potential productive growth in strategic areas where Ireland could be a leading producer in agri-food, a leader in innovation and development, and perhaps most important of all, a pioneer in sustainable growth and development. They have led to the Great Oil and Gas Giveaway and to the greatest debt burden this country will probably ever see.
But it’s not alone these imperialists’ work; to blame it all on them would be folly. Ireland has its own guard of collaborators, first of all in the form of the internal troika parties of Fine Gael, Fianna Fáil, and the Labour Party. It has its own class of millionaires and billionaires: despite the economic crisis, the top 10 per cent in Irish society actually saw their income grow over recent years, while the rest of us have only unemployment, increased taxes, cuts to social welfare, education and health, all the other austerity measures, or emigration, heaped upon us. It’s about time we organised to take the power back!
Now is the time for us to wake up to this reality: that class warfare has been initiated against us by the imperialist powers, the capitalists and their class collaborators here in Ireland. It’s up to us, the youth of today, to change the corrupt and debilitating policies of yesterday and to begin building the nation of tomorrow.
Connolly Youth Movement, November 2013
|EU funds received||€72 billion|
|Irish contribution (1973–2013)||€31 billion|
|Net benefit to Ireland||€41 billion|
|Commercial value of Irish fisheries||€201 billion|
|Ireland’s share (1975–2010)||€17 billion|
|Net benefit to EU||€184 billion|
Below is reprinted an excellent article by Gavin Mendel-Gleason and James O’Brien originally published at http://spiritofcontradiction.eu/rowan-duffy/2013/11/28/the-transition . This article is an important contribution to the growing debate on how we actually build socialism and move beyond mere sloganeering.
The period of transition between our current capitalist economic and social system and a socialist economy is a very controversial subject among socialists. Maintaining an active dialogue and critique of this period is absolutely critical to our strategic and tactical understanding of how to achieve a socialist society. Nothing springs from the naked void fully formed1. We need to examine the best avenues open to us for changing our current social direction into a society we would like to bring into existence.
Capitalism is like a hot ember placed on a flammable object – the fire consumes the body in patches and gulps, some areas taking longer to catch, some areas exploding with flame and some areas quickly charred and brought to heel. Yet capitalism smouldered for a long period before catching fire. An economic, social and political regime can appear to remain stagnant while an apparent marginal economic activity moves towards dominance and finally erupts. Capitalism, which was once a marginal approach to economic activity, exploded onto the scene of history with dynamic force; a force which in a few centuries almost completely eliminated feudalism. A theory of social change will have to take into account the conditions which allow new social systems to ignite. It must also recognise that societies can exist in an admixture of various different economic systems. For this reason studying the entrance of capitalism onto the political scene is deeply important. Its genesis can give us clues to its demise.
No period is so exemplary of the manner in which capitalism erupts onto the political scene as the French Revolution. This revolution brought France from a period of decadent and decaying absolutist monarchy into republicanism, a radical departure for the entire social system. When it occurred there was already a new mode of production which was threatening to become ascendant. A bureaucratic, professional or “middle” class was seeking to expand its role in society. At the same time England was already seeing rapid capitalist development and its consequent dynamism threatened to leave France far behind.
Feudalism requires direct coercion to obtain surplus from those who produce. The peasant can live off his or her own subsistence, so it is only through direct taxation that the ruling class can find a share. This is a very inflexible system and it has a tendency to require a large security state and a large state bureaucracy to oversee taxation and advise the use of threat by the security state. It also does not encourage innovation, since those that produce have little incentive to change their mode. Acquiring much above subsistence does them no good since it is likely to be taken from them by force. For example, mechanisation of agriculture is exceedingly hard for feudalism to manage2.
By contrast, this new mode of production, capitalism, was cutting-edge and outward looking. It encouraged trade and direct investment of returns in production itself. The reinvestment of surplus into the method of production itself enabled growth that could not be duplicated by feudalism. Additionally, it did not require direct taxation or forced labour to obtain surplus. Instead, workers were paid wages and the surplus was taken from the sales of the commodities produced, significantly simplifying the relationship for the ruling class and reducing the need for primitive methods of coercion.
Because of the economic meltdown suffered by France, the question of taxation and how it should take place came into direct conflict with this new middle class. The middle class found that it was being completely stymied in its efforts to unbind itself from the feudal regime by legal means. At the same time, economic unrest led to great and periodic riots. With these factors in place, the middle class moved forward, sometimes cautiously, or in the case of the Jacobins, sometimes ferociously, to completely eliminate the fetters on this new and vastly more dynamic mode of production.
The more modern Russian revolution took a very different course. The political aim of revolutionaries in the French revolution ranged from constitutional monarchism to radical democracy, but economically the ideas of how the economy would change were dominated by an envy of England. By contrast, the masses of society in the Russian revolution took up the banner of socialism. They were not looking to replace the economic system with that of a competitor, but instead hoped to forge a new one from scratch. The complete collapse of the Tsarist regime and the incompetence, financial weakness and disorganisation of the middle classes gave a window for the better organised Bolsheviks to take a stab at power buoyed by the help of a supportive mass movement of peasants and workers.
When in power, they sought to establish a new mode of production entirely ex post facto; a mode of production with which they themselves had spent far too little time imagining or experimenting, and one which came not from the activities of the general population, but instead almost entirely by state decree. While this was not their intention, the collapse in production and the pressure wrought by a worsening civil war led them down the cul-de-sac of war communism. Bukharin, a Bolshevik and member of the central committee, and previously a partisan of war communism realised this problem earlier than many of the other Bolsheviks. Eventually Lenin himself realised that the Bolsheviks would have to retrench and take a longer view to the transition and reorganisation of the economy; a view which lead to the establishment of the NEP. Nor were the Bolsheviks unique in their lack of a clear route to socialisation. Even the SPD didn’t have a clear idea of how to proceed towards socialisation, hence the flurry of work in the aftermath of the German Revolution, e.g. Kautsky’s The Labour Revolution, which attempted to navigate a road forward. But this was very late in the day to be working out a feasible route through unknown territory.
Milovan Djilas 3 has promoted a theory as to why so many problems were encountered in attempts to implement socialism. Essentially his theory states that the change in the mode of production might need to precede the revolution. Indeed, his contact with the problem was not the result of idle theorisation. Djilas was involved with an attempt to implement socialism in Yugoslavia after the success of the Yugoslav Partisans in World War II. The tremendous difficulties they encountered in changing the economic structure of society led him to look for some theoretical explanation. Djilas was steeped in Marxist theory and so he naturally looked for an explanation using Marx’s theories of historical change. The mode of production and its relationship to former revolutions therefore rose to the fore.
The Old Mode of Production
Assuming that Djilas’ thesis is correct, that indeed the new mode of production must be ready to replace the old order, and do so in a way that creates active participation of the mass of society, then what does this new mode of production look like?
To understand how we might change the mode of production, it is useful to think about capitalism itself and how it functions. The analysis of capitalism presented by the 19th century socialists and put most forcefully by Marx, describes capitalism as an economic system. This system has a class of capitalists whose major income source is the investment of their income in production with the expectation of profits. More precisely, they hope to engage their income in commodity production while paying less for labour and inputs than the sale price of the produced commodity on the market. There are also indirect capitalists, who invest in various different bodies which will administer the actual production for them as well as secondary, tertiary and so on, financial instruments, which are ever greater abstractions of the actual productive process but which rely fundamentally on profits in production itself. The wage labourer is the other major class in this system, known as the working class, involved in this production process. These workers sell their labour power in productive processes which capitalists see as enabling profits.
This mode of production leaves some individuals with a much greater income capacity than others. While it is true that wage labour can take on virtually any arbitrarily high number, it is equally true that the vast majority of the income is weighted towards some low-end peak. In fact, it follows quite nicely what is known as the Boltzmann-Gibbs distribution4. Income, is in fact, bi-modal, and the income of the capitalist class is distributed according to a different modality. It is instead Pareto-distributed. The underlying fact which may be obscured by this technical jargon is that the capitalists tend to make vastly more money than the rest of us. Wage labour does not give us the same type of access to the social product.
This inequality of access to what society produces is a tremendous problem. It leads to a very lopsided political economy which resembles plutocracy more than republicanism or democracy. The rich and profit-making interests, including corporations, control the lion’s share of all political decisions and virtually all financial decisions about the development of the economy, and what is required of investment. Our only input is in the periodic voting for various candidates pre-approved by corporate interests and a choice of various commodities to purchase. The latter wields even less power than the former.
This inequality of access, however, is only part of the problem. Perhaps worse still is that the circuit of capital requires profit at all costs. In the schematic description given by Marx we have: M→C→(M+ΔM). That is, capitalists put forward money M, to create commodity C in order to make back their investment in addition to some profit M+ΔM.
This profit motive for the production of all goods and services has two major deleterious effects. The first is that all goods which are public goods or common goods can not be usefully integrated into the system. They do not exhibit scarcity naturally, and therefore do not naturally command a price. Digital media such as music, films, software etc., are properties that do not exhibit scarcity after the initial prototype copy is produced. One can say either the labour content of each copy approaches zero, or equivalently that the marginal cost of production approaches zero. The response capitalism has come up with to date is the imposition of state force to require public goods to mimic private ones, and the situation may be even more dire with common goods. This has huge implications for our modern information age.
The second major problem is that production with the sole view of increasing profits puts enormous force towards the externalisation of costs (which are sometimes called externalities). The health of workers and the amount of their wages, the environments of workers and consumers, the quality of the goods, and any sort of knowledge asymmetry between the consumer and the producer, all lead the capitalist to produce a great amount of dis-utility while bundling up an actual or expected utility into the commodity which still obtains price. The relationship with the consumer and the worker is tantamount to predation. However the damage to common goods such as the environment is downright anti-social.
While the second problem makes capitalism undesirable and perhaps terminally destructive, the first problem threatens to go beyond even this and make it entirely unworkable. The extension of the security state which is absolutely necessary for price to be attributed to public goods may come to resemble extraction of the type more familiar from feudal times.
The New Mode of Production
Socialists are often loathe to get into the exact details of what a socialist economy would look like. This is caused, perhaps in equal measure, by complete ignorance and an extensive knowledge of just how large the space of possibilities is. Indeed many proposals have been given about how a socialist economy might best be run.
The question of which system is desirable, in detail, is quite important. Unfortunately we cannot determine in abstract which system will work best and what problems will develop, though we can make guesses. To fully understand the consequences of an economic system can only be decided experimentally. This leads us to the chicken and the egg problem. How can we promote a new system without knowing what it will look like and if we don’t have a new system to promote, how can we convince the broad masses that we should remove the presently existing system – however deformed our present system becomes.
The most viable solution to this Gordian knot is to attempt to create the new modes of production experimentally…… now. It is the corporation which gives us the best experimental laboratory currently within reach and it is the democratically controlled corporation, or cooperative, which gives us the form most likely to succeed in a radically egalitarian programme of transformation.
This idea is not new at all. In fact, it was believed to be a necessary component of the struggle for socialism by both Marx and the Anarchists during the first international. The instructions given to delegates of the first international in 1866 which we put here gives a flavour of just how accurately the early socialists were thinking about this component:
It is the business of the International Working Men’s Association to combine and generalise the spontaneous movements of the working classes, but not to dictate or impose any doctrinaire system whatever. The Congress should, therefore, proclaim no special system of co-operation, but limit itself to the enunciation of a few general principles.
(a) We acknowledge the co-operative movement as one of the transforming forces of the present society based upon class antagonism. Its great merit is to practically show, that the present pauperising, and despotic system of the subordination of labour to capital can be superseded by the republican and beneficent system of the association of free and equal producers.
(b) Restricted, however, to the dwarfish forms into which individual wages slaves can elaborate it by their private efforts, the co-operative system will never transform capitalist society. to convert social production into one large and harmonious system of free and co-operative labour, general social changes are wanted, changes of the general conditions of society, never to be realised save by the transfer of the organised forces of society, viz., the state power, from capitalists and landlords to the producers themselves.
(c) We recommend working men embark in co-operative production rather than in co-operative stores. The latter touch but the surface of the present economical system, the former attacks its groundwork.
(d) We recommend to all co-operative societies to convert one part of their joint income into a fund for propagating their principles by example as well as by precept, in other words, by promoting the establishment by teaching and preaching.
(e) In order to prevent co-operative societies from degenerating into ordinary middle-class joint stock companies (societes par actions), all workmen employed, whether shareholders or not, ought to share alike. As a mere temporary expedient, we are willing to allow shareholders a low rate of interest.
Instructions to Delegates, First International, 1866
Lest Marxists attempt to claim this is some concession to deviations from the correct programme required for pragmatic purposes we should also quote Capital:
The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organisation all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of making the associated labourers into their own capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.
Karl Marx, Capital, Volume III, Chapter 27
In both of these quotes we see some very clear thinking regards cooperatives. Neither quotes give the view that cooperatives are unproblematic. However, both try to find ways to work with an imperfect form to maximise its capacity as a vehicle of socialist transformation.
There are at least two basic problems with cooperatives. The first is that the working class already has tremendous trouble accessing capital. This means that it is very difficult to find ways of funding the initial start-up cooperative which one might wish to create. In addition capitalism is ruthless at extinguishing those firms which are not productive and consequently, cooperative or not, the majority of firms will be bankrupt within the first five years. This presents a major pragmatic stumbling block.
However even after the cooperative starts there are dangers which are spelled out by Marx and the First International. Within capitalist society each constituent firm must attempt to sell at or below the price that other competing capitalist firms set on the market. The increase in the number of cooperative firms as a movement would not mitigate against this fact; it would simply increase the number of stars in the constellation of the capitalist system which are under worker self-management. This would not be a worthless undertaking in itself, but neither would it in itself be a threat to capitalism.
There are, however, some reasons to be hopeful. Firstly the need to form profit is not immediate for the worker-controlled firm. There are other opportunities present for the firm in terms of the use of surplus gained from production. It is always possible for workers to either make use of this surplus for new investment into their own capital or into expansion of the cooperative system. Workers can also suppress their own wages to weather periodic fluctuations in the market in a way that other small businesses generally can not.
In order to be a successful movement, however, the cooperative movement requires a very big vision: a vision of a transformed society and the attendant actions which could create it. In order to do this the cooperatives will have to attempt to make real the Association of Producers. The association of producers was a broad vision of the integration of productive efforts of the workers on a cooperative, rather than a competitive basis. It would be production under the purposive direction of the workers themselves on a basis not driven by the profit motive.
It was a long standing problem of various cooperative movements and the Kibbutzim that whatever cooperative organisations or federations they made, they rarely found systematic ways of moving goods amongst themselves excepting for the sale of goods to each other through the market. A proper transformational movement would have to seriously experiment with a new system of internal exchange.
This is not an unthinkable idea. Indeed when a capitalist firm finds that it requires the services of another capitalist firm it has two choices. It can either pay a premium on the service which includes the profit margin required of capitalist firms to stay in business or it can acquire it outright and take the services at the cost of their production. In the latter case we see that the capitalist firm has moved the boundary at which surplus takes place from between the firms to between the two firms and the rest of the capitalist world.
Cooperatives can also avail of this fact. There is no need to charge other cooperatives surplus. The goods and services of an ever-larger association of producers should start bringing down the cost of goods within the entire network to within margins which would make capitalists jealous.
However, it is possible for cooperatives to go even further in this vertical integration to attempt to deteriorate the necessity of the wage itself. The greater number of useful goods and services that cooperatives in such a conglomeration produce, the greater number of potential goods could be given to employees “in kind”. This would certainly provide a “reduced cost” to the worker in the cooperative system, but it could also potentially be used to avoid taxation. The lower the wages the less tax, and corporate tax is incredibly low. This tactic is already used widely by corporate executives. The production for production and the production for worker consumption would form a sort of “inside-outside” system in which profits were only necessary at the boundary. All other surplus would be under collective and democratic administration.
The founding principles of many cooperatives state that they should favour business with other cooperatives. This principle should be realised to its fullest extent. Much as in the United States, tariffs between states are illegal and all tariffs must take place at the outer-boundary of the state, so too should cooperatives look to eliminate surplus amongst themselves.
Capital, Capital everywhere……
But how can we expect to find ourselves with the wide diversity of cooperatives which be necessary? This can really only happen with access to capital, the absence of which is the condition of labour under capitalist production itself. But the evolution of capitalism points to a potential solution that wasn’t available to the movement in the 19th century: the internal dynamic of capitalism’s own development has lowered the cost of start-up capital in some very profitable industries, e.g. software, to the point of more or less just the cost of the reproduction of its workers. It’s also the case that workers are much better off than they were in the middle of the 19th century. Indeed a vast amount of capitalists’ wealth is derived from their control of worker owned pension funds and the like. It is entirely feasible that small parts of these funds, together with voluntary contributions from ideologically committed workers would be sufficient to bootstrap the process of getting sufficient capital to set the co-operatives in motion.
But more than just a start is needed. In order to ensure that the expansion of a co-operative mode of production occurs we will need cooperative organs of finance. The cooperatives themselves must have a privileged bank. In fact such peoples’ banks were not only talked about but already Proudhon was attempting to establish one by 1849. This bank would invest only in cooperative endeavours which agreed to abide by some principles which would ensure the inside-outside type approach to the sale of goods and services described above.
Initially such a tactic would require some hard working and lucky activists to involve themselves in a large and long term project. It would require that they actively and politically attempt to find the largest surplus generating activity possible and that they devote the greatest amount of these surplus resources, not to themselves, but to the establishment of more cooperatives and the political movement that will be required to shield the movement from the machinations of big capital, which will certainly occur.
The Other Dimensions
Such a movement, if it were successful, will necessarily come under threat. No ruling class leaves its stage of history without being thrown off by more competent actors. Consequently it would be naive to assume that a quiet transition to a new socialist system could be created without the ruling class impeding its progress. Any programme of transition will have to take this into account.
One of the stages on which the battle will have to be fought is the political. Currently political parties of the left are almost universally supportive of Keynesian policies and/or redistributive justice through taxation.
Despite this, the active participation of political progressives in politics, indeed in the current electoral system will be a requirement. There are useful tasks which must be carried out. It is a fact that legitimacy can best be derived by attempting something through what is widely considered legitimate means first. It’s true that the capitalist class will have no compunction about resorting to undemocratic means or even a generalised investment strike to crush a rising co-operative mode of production which threatens the very foundations of their dominance. But in doing so, they open the possibility for harsh counter-measures such as an resorting to expropriation of the means of production without compensation. While, for socialists, such measures may be politically counter-productive as a ‘first move’ against capitalist firms, since they would likely be perceived as unfair, the rules of the game change when the responsibility for blocking the expansion of democracy, in this case through the promotion of co-operatives, is laid at the feet of the ruling class.
There is no sense attempting to go straight to revolution without first holding the Estates General, before making the Tennis Court Oath. Even the wave of collectivisation in Spain in 1936 arose as part of the counter-measures instigated by workers against the fascist attempt to overthrow the democratically elected government.
Among the sectors of society which will be indispensable in the transitional society are the trade unions. The unions comprise a different relationship to capital and especially to productive and useful organs of the state such as health, transport and utilities. However the unions and syndicalism have a very hard time wielding much power beyond the power to obtain wage increases and better working conditions. The threat of general strike has never actually propelled forward revolutionary success, however terrified the capitalist class was of it during the early part of the 20th century.
The only syndicalist revolution of any note was in Catalonia and it was incomplete and short lived, even if it has surpassed every socialist revolution since. The difficulty for syndicalism is that it is predicated on immediately moving to extra-legal means, that is, expropriation, prior to the point at which it can go into production. In addition it must somehow do so without losing the necessary functions of the managerial and bureaucratic elements of the organisations. It is no secret that these organisations are not run with the view to ensuring that working members are in possession of all the skills necessary to run these firms. This creates a complicated power asymmetry even in the case of successful expropriation. Indeed accounts of the Catalonian situation tell of the rehire of managers and technical personnel who had to be chased down and forced back to work to ensure production and it is unlikely that production would have been successfully continued by the worker collectives without their co-operation, which itself was dependent on the coalition of the CNT with their political representatives in Popular Front.5.
How then can we enable these companies to come under the control of their workforce? What is the best way to engender the radicalisation of the unions themselves? One method, proposed by Cockshott et al.6, is to pass legislation is passed which encourages such a transition. First each good would be printed with a labour value which would estimate the total labour content of goods produced. This would enable workers to clearly see the difference between the wages that they receive and the amount of surplus which is garnered by the capitalists who invest. The second stage would allow unions to sue for the full value of labour for the workforce. Such legislation, adjudicated by jury, both privileging unions and encouraging workers to form or join them, would, on one condition, completely suffocate the capitalist class and would quickly turn control towards the actual workers in the largest enterprises in society. The condition is that the workers organise themselves to take advantage of the favourable environment created by these pro-labour laws. In this scenario, the state is an enabler of socialisation rather than the sole agent of socialisation.
This approach is a more realistic view of how democratic control of large assets could take place without having to go through a state directed nationalisation which has seldom lead to much real participation. Companies which do not see active participation by their union members would never be able to succeed in such a programme. The corollary is that those which do have the active participation of the members will be able to succeed, with the longer-term result that the emerging socialist mode of production is built on a very solid foundation of popular support, a support that is umbilically linked to workers’ own material interests.
Of course, as always, many socialists will say that this approach is naïve in viewing the capitalists as legalists. However, this charge of naïveté hardly amounts to much. Should the capitalists decide to thwart the legal process there is reason for a now activated and organised section of the working class to legitimately lock horns, and possibly with much greater popular support, on a more favourable footing.
It will not just be the unions which can useful be assisted by legislation however. It is also necessary for the continued existence of the cooperatives that they be defended politically by either blocking legislation intended to disarm them or putting forward and supporting legislation which enables them to gain an advantage over capitalist firms, e.g. by making it easier for co-operatives to gain access to access credit or by prioritising co-operative firms when tendering for state projects.
To do any of this, however, will require another component; a party of the working class. This party will have to defend the unions and the cooperatives from attack as best as it is able and attempt to remove any impediment which can feasibly be removed to the establishment of a greater democratic movement of workers control over the means of production. The party will have the charge of promoting the historic mission of socialism; that is, the necessity of workers to take into their own hands the administration of the production and investment in society for their own interests, rather than the narrow interests of profit.
The unions and the cooperatives are those that are best able to garner surplus as they are taking part in the relations of production. It is from here that we will fund the political party and the other institutions of the working class which have atrophied in the modern era, such as workers’ media, workers’ cultural centres and whatever organs we find ourselves in need of.
The party must be constituted as a broad workers’ political party which does not adhere to any specific sectist ideology. The tendency to define politics in terms of narrow political visions is incompatible with any approach save failure or insurrection. The need to simultaneously succeed in garnering cooperation amongst cooperatives and unions as well as those sympathetic to a more egalitarian approach necessitates a broad political approach. The traditional Leninist model of exegesis from the holy canon of Marx, Lenin and Trotsky and the anarchist approach of total disengagement with electoralism both need to be abandoned as a model for the party itself. The party will, however, have to accommodate itself to tendencies of these and other types if it is to be successful as is witnessed by the Left Bloc in Portugal, the Left Front in France, SYRIZA, and even Die Linke in Germany. It’s a curious fact that even in the contemporary period, parties which take this approach are vastly more successful than the narrowly ideological Trotskyist or anarchist parties yet this approach is still rare indeed in the Anglophone world.
Since the dominant elements of the left of the political spectrum have very little in the way of a plan for transition, the ground lies relatively barren. However, due to the capitalist crisis and the failure of the Trotskyist/Anarchist strategies to gain any traction there is a resurgence of interest in both an alternative to capitalism and an alternative to the simplistic insurrectionary route to it.
Capitalism did not ignite until the conditions were appropriate. Similarly we can expect that socialism will not burn until the fuel is dry. Our task then is to discover the conditions which will allow socialism to come about. Once these are understood then we can devote our energies to ensuring that these conditions are created.
Gavin Mendel-Gleason and James O’Brien
Originally published at http://spiritofcontradiction.eu/rowan-duffy/2013/11/28/the-transition
2011 witnessed the implementation of some of the most comprehensive undemocratic structural changes in the EU since the Lisbon Treaty. New rules on economic governance have been passed effectively giving the Commission increased powers to meddle in the economic and fiscal affairs of member states. Labor market policies are being altered in favor of more flexibility and lower wages, and austerity measures are being institutionalized through mandatory limits in public spending. Such dramatic changes have been advanced swiftly and quietly, under the pretext of restoring stability in the eurozone.
As the race to save the euro continues, critical economists have spoken up as to why the policy responses of the European institutions despite being far reaching in terms of the framework of EU decision making are merely cosmetic in terms of solutions to the euro crisis. Alternative proposals for a progressive exit from the euro crisis are laid out here.
Read these alternative ideas here EU Economic Governance and Alternatives
Abandoning the single currency doesn’t have to be hellish.
The euro zone is full of stricken countries these days, yet near-hysteria usually greets the idea that these countries’ best way forward would be to leave the currency bloc.
The great fear is that to reintroduce a national currency, a country would have to forcibly redenominate private assets and liabilities in the process. For firms, households and investors, uncertainty about whether their euros will eventually be confiscated and replaced with a debased national currency could lead to capital flight, economic chaos and years of litigation, if not worse.
But there is an alternative to forced redenomination. Greece or any other country in the euro zone could easily reintroduce a national currency without generating the kind of financial and economic calamity envisioned so far—provided it got the mechanics right.
The key is to fix the initial amount of new currency to be issued while allowing the market to set the price at which the exchange takes place. In this scenario, the central bank would announce that it is willing to purchase euros from domestic banks, the Greek public and anyone else, using newly issued drachmas as payment. All such transactions would take place during a specified transition period and be entirely voluntary. This would not be an exercise in confiscation.
After the transition period, the Greek government would deal only in drachmas in its day-to-day financial transactions. Nobody would be forced to hold drachmas, but those wishing to transact with the government would need drachmas to do so.
At the start of the transaction period, the central bank would announce the initial rate at which it offered to exchange drachmas for euros, but it would explicitly make no promise about what the rate will be in the future. The initial rate would be entirely arbitrary, as indeed would the name of the new currency.
But let’s suppose they kept the same name and opted for, say, 360 drachmas per euro. This is close to the rate at which Greece adopted the euro and, along with the old name, would give the new currency a familiar feel. In economic terms, however, the initial rate is largely irrelevant.
The central bank would also promise to issue a precise amount of drachmas over the course of the transition period. This amount in our example would be 360 times the central bank’s estimate of the total amount of euros held as cash by Greek residents and as clearing deposits by banks operating in Greece—that is to say, roughly the amount of currency in circulation in Greece.
The central bank would also fix the duration of the transition period. If for instance it were set at three years, or 36 months, then the central bank would announce that monthly sales of drachma for euros would be at least 1/36th of the total amount to be issued during the transition. The monthly rate might eventually be higher if the demand is strong enough—that is, if people quickly gained confidence in the new currency.
The price offered for euros would be adjusted on a daily basis to generate sales of euro to the central bank of the required magnitude. Sales on the first day may well be zero. But as the offered buying price increased, gradually some people would be willing to have a gamble. Eventually a price would be found at which there were significant demand for the new drachmas. People would be taking the risk that the price of euros will increase in the future—that is, that the new drachma will depreciate.
On the other hand, there would also be the possibility that the drachma will appreciate, in which case failure to unload one’s stock of euros will imply a speculative capital gain forgone. There are always people willing to take such risks for the right price.
Once such a price were found, the flow of drachmas to the general public and banks would roughly match the envisaged minimum volume. As people began to realize that other people and financial institutions were willing to take the risk of buying this new financial asset—the future value of which could only be guessed at—more and more would be willing to take that risk. There may well be such strong demand that the offered price to buy euros could eventually be reduced.
It wouldn’t really matter where the exchange rate ultimately settled. The central bank would be getting something (euros) for nothing (pieces of paper or metal carrying the label “drachma”). This is known as seigniorage.
Once there were sufficient drachmas in circulation, a market for exchanging drachmas for euros would develop alongside the central bank’s “drachma window” and eventually take over. At that point Greece would be able to have an independent monetary policy again—for better or worse.
Returning to the drachma would not cure all of Greece’s woes. The consequences of years of irresponsible fiscal policy, bad microeconomic policies and inadequate supervision of commercial banks cannot be put right simply by reintroducing a national currency.
But it’s important to understand that abandoning the euro wouldn’t unleash hell upon Greece, either. An orderly, market-based solution is available if and when the decision is made to pull the trigger.
Mr. McLeod is an adjunct associate professor of economics at the Australian National University’s Crawford School.
A conversation with Phil Pilkington on Europe’s disgraceful triumphalism regarding Ireland’s ‘exit’ from its ‘bailout’Contrary to conventional wisdom, Ireland was never bailed out and, moreover, it is nowhere near escaping the debt prison to which it was confined by its, supposed, ‘bailout’.
After the burst of the property market bubble, following the post-2008 credit crunch, Europe’s Central Bank demanded that the government shift the losses of five Irish banks, worth €60 billion, onto the shoulders of the taxpayers. Of citizens that had neither a legal nor a moral duty to burden this load. Why? So as to shield the fragile German banking system from the repercussions of taking large losses. The Irish took their wrath out on their government and elected another one which, nonetheless, saw as its priority the full implementation of the savage austerity program that came attached to the huge loans that the government accepted in order to repay the banks’ losses. The result was a catastrophic downward spiral for Ireland’s social economy and its people.
But now the newspapers and the electronic media are full of the ‘good news’ that this ‘fiscal consolidation’ program has ‘succeeded’. That Ireland has returned to the markets. That we have the first, tangible proof that the bailout worked. That Ireland is about to regain its sovereignty and the Irish can, once more, look at the Germans, the French, the Dutch proudly in the eye, restored to the land of the free and the creditworthy.
Alas, a far as I can see, all that has happened is that, after five years of a continuous comedy of errors, Europe’s leadership has now decided to declare victory, with Ireland as Exhibit A that the combination of bailout loans and severe austerity work. And if this required being economical with the truth, so be it.
For those who do not wish to be economical with the truth, let’s look at some numbers:
- Number of people employed: Reduced by 12.8% since January 2008
- Unemployed persons: Up from 107,000 in January 2008 to 296,300 today
- Annualised domestic growth rate: -1.2%
- Net emigration: 33 thousand annually
- Government deficit as a proportion of GDP: 7.3%
- Public Debt: 121% of GDP in 2013, up from 91.1% in 2010 and 105% in 2011
- Household debt: 200% of GDP
- Value of assets underpinning household debt: -56% since the crisis began
- Mortgages in arrears for more than six months: 17% of all mortgages
How can anyone claim that this economy constitutes a ‘success story’ and a cause to celebrate the end of the debt-deflationary spiral? Two are the arguments on which EU triumphalism is built. First, Ireland’s spectacular export performance (annual exports exceeding the nation’s GDP!) and, secondly, the collapse of its 10 year government bond yields to levels that make it possible for Dublin’s return to the money markets, rather than a return to the ESM for more bailout loans.
Let’s unpick these two great success stories, beginning with exports.
Ireland is the largest, floating tax haven on the planet. Companies like Google and Apple famously launder their revenues via Dublin in a manner that reduces massively their tax payments while bolstering to ridiculously fictitious levels Ireland’s GDP. Anyone who disputes this must offer an alternative explanation of the fact that each of Ireland’s Google employees produces €4.8 million of revenues annually! All this means that the wonderful export statistics translate neither in corporate taxes nor in a significant number of jobs from the which the government can claim income and indirect taxes so as to service its debts.
Turning to the government bond yields, an interesting question arises: Why are they so low when the data above reveals that Ireland, in view of the sluggish domestic economy, remains perfectly incapable of refinancing its gargantuan public debt? Why are bond dealers no longer dumping Irish government bonds (like they were doing in 2011 and until June of 2012)? The answer is simple: Because they gathered that the ECB and Berlin will never let Dublin default given Europe’s desperate need to proclaim Ireland as ‘proof’ that their policies are working. Bond dealers, put simply, trust that the ECB, via Mr Draghi’s OMT or otherwise, will find ways of allowing Dublin to redeem its bonds even if the Irish people and their government remain firmly lodged in debt prison.
With these thoughts in mind, I turned to Phil Pilgington for his views on the matter. Have I missed something crucial here? Here is his answer to me question: “Phil, what is your reaction to ‘news’ that Ireland has exited successfully from its troika program?”
Phil Pilkington’s perspective:
Ah, Ireland’s return to the land of the markets… Let’s divide your question into two parts: economics and politics:
First of all, 10 year government bond yields. They were around 5% in Ireland until early 2010 in the lead up to the 2010 bailout. They then spiked around the beginning of 2011 due to the bailout and the uncertainty surrounding that action. But they quickly came down as investors realised that the country wasn’t going to go bust due to its access to said bailout funds. By 2012 the interest rates were close to 6%. And with the announcement of the OMT in that year they crawled down to under 4% in the beginning of 2013.
What does this mean? My reading of it is this: Investors are convinced that (i) the Troika/ECB would back the country so long as they adhered to the rules and (ii) Ireland would indeed adhere to those rules. If we assume that these two hypotheses are true, which they probably are, then investors are looking at a 4% yield for almost no risk in an environment where yield is completely dead.
Let me stress: this has NOTHING to do with recovery in Ireland, as the government is falsely proclaiming. Quite the opposite, in fact. The recent growth figures, for what they are, are totally skewed by foreign profits being washed through the country. I show this clearly here:
In summary: The claim of a successful Irish Program is complete rubbish. The Irish government has gotten its interest rate down through a mix of Troika/ECB backing and confidence in the government’s ability to follow the rules, but all the underlying economic problems are still there and will not go away. The Irish debt-to-GDP will continue to rise in the foreseeable future.
Will the inevitable rising stock of debt prove problematic politically in the EU? No one can predict the political repercussions at the moment the Irish and German electorates realise the truth of the matter.
Now, onto the politics…
The problem here has become ever more clear to me as time moves forward. But in order to understand it I think you need to understand the Irish political style.
Since the 1980s Ireland has tried basically to run its economic policy by appealing to the rest of the world. That is, by “sucking up”. Whatever everyone else is saying, Ireland will do with gusto. Mix this with a little bit of clever behind-the-scenes diplomacy and you have Irish economic policy.
After the crisis, the new government basically followed the formula that (supposedly) worked so well in the 1990s and 2000s. So, when the IMF/Troika/ECB said gGet your bond yields down through compliance…” the Irish government did exactly that.
There is a widespread belief in Ireland that this will automatically lead to economic growth. This belief is, of course, entirely irrational, but that matters little. The politicians have convinced themselves that, as long as they achieve this target, all else will be well. This is the typical delusion of politicians who are given an arbitrary target of some form.
So, what will happen in Irish politics now that this target has been reached and nothing changes? That is an interesting question and difficult to answer, but I shall have a go.
I think that leftwing parties like Sinn Fein and former right-wing parties like Fianna Fáil, who have re-branded themselves as center-left, are going to gain massively. I think that people will come to ask questions now that the government’s target, which has been pursued ruthlessly for nearly five years, has been reached. They will ask: Why has it made no difference to the real economy? They are bound to become agitated. As a result they will switch parties and throw those in government out. What will happen then? I have no idea. But the seeds have been sown.
So, it seems that Phil’s view from Dublin is not that different to mine. The Emerald Isle remains in the same prison of the original debt-deflationary cycle. And what seems to be a bright light shining through the cell’s cracks is just the neon light of Europe’s propaganda.
These two issues in Ireland are related. The more social welfare we cut the more people, especially young people, are forced to leave. The below stats are thanks to Unite the Union Research Officer Michael Taft:
Must read report for all those seeking to resist the illegitimate and odious debt that this Government, the EU, ECB and IMF have imposed on working people.
We are living in a global economy experiencing a profound crisis. At the centre of this crisis is debt. Although debt plays this central role in our society – and its woes – a fierce debate rages as to what debt is and what it means. Our report shines a light on this at-once very concrete, yet slippery concept. We do this by looking not simply at the statistics of debt – how much each country owes to whom – but at how millions of individual lives are blighted by this economic reality.
We study ten diverse countries, all heavily indebted. These countries – from Africa, Asia, South America and Europe – are both ‘rich’ and ‘poor’, former imperial powers and former colonies. Despite these differences, the people of these countries share certain experiences – of living with, and fighting against, debt.
Far from being a dry economic notion, debt is at the heart of power and politics in the world. Debt is at the centre of an economic orthodoxy which has ruled the roost for more than 30 years, creating soaring levels of inequality in a world characterised by unprecedented pinnacles of wealth, surrounded by deep reservoirs of poverty and suffering.