THE BASIS OF A SOCIALIST MANIFESTO … Intro & Chapter 1: Capitalist Economy

The Transition To SocialismPublished: 5 May 2016.
Author: Jonathan Clyne (TSN Policy Coordinator).
Intro by: TSN Editor.

One of the key tasks agreed at the founding meeting of The Socialist Network in Istanbul in August 2012 was the need to discuss and develop a Socialist Manifesto. It is hoped that 2016 will be the year when we are able to deliver on this commitment.

An important contribution towards such a Manifesto is the first draft of a book currently being written by Jonathan Clyne entitled ?The Transition to Socialism?. The early Chapters of the book have recently been the basis for a series of discussions on the TSN?s international Coordinating Committee. As a result of the discussions Jonathan has reorganised the book and updated its content.

Below is then updated Introduction and a new first chapter entitled Capitalist Economy. The  chapters that follow are being prepared for publication shortly on our website. For this discussion around the book we wish to encourage the widest participation and feedback from members of the Network and the socialist movement in general.











Historical turning points are rare. These are years when dramatic events lead to deep changes. Beliefs and ideas that had set the tone for decades suddenly appear hollow. New ones break through globally with surprising strength. 1968 was such a year. The Paris uprising began a left wave. It ended in 1989 when the fall of the Berlin Wall marked the start of the neo-liberal epoch.

The collapse of Lehman Brothers on September 15th, 2008, must also be deemed a turning point. In front of the television cameras, world leaders warned of the collapse of capitalism. They looked panic-stricken and proclaimed that the state must intervene. Previously they had insisted that all would be well as long as the state stayed out of the economy. Now, banks were bailed out and the old saying that ?what is good for General Motors is good for America? turned out to mean nationalisation of General Motors!

At first, the crisis caused a shock among broad layers of the population. But, gradually a new movement began. Although it has swept old men like Jeremy Corbyn in Britain and Bernie Sanders in the US into leading positions, it does not, and cannot, simply pick up from where the movement left off in 1989. The previous left movement did not die because opposition to it was too strong. It ended because all parts of it were influenced by certain economic, political, philosophical and organisational ideas. Ideas connected to Joseph Stalin and the Soviet Union.

The Soviet Union had for decades grown faster than any capitalist country, and had been the only rival super-power to the USA. Its mere existence weighed heavily on the minds of anybody who wanted an alternative to capitalism. Obviously Communists had an affinity with ?Stalinist? ideas. However, social democratic reformists and much of the revolutionary left subconsciously picked up many Stalinist ideas and made them their own, even though they were opposed to Stalinism. It was this fundamental weakness that enabled the opposition to crush the left movement after 1989.

For the new movement to be successful it must develop a new idea of Socialism, different from the old Stalinist model – Socialism as a viable alternative system, where social and economic priorities are set by the majority. It must be a system which can begin to solve the central problems facing society today ? insecurity and war, environmental degradation, declining living standards, and inequality.

A new society cannot be imagined and then imposed on the ashes of the old. If socialism is to be anything more than wishful thinking, it must arise out of present society. To this end, all the important elements of socialism are already present in developed capitalist societies. In a technical or practical sense, it would not be difficult to make the transition to socialism. Indeed, we are close to a tipping point in which a few decisive measures can set society on a new trajectory. Yet, it is a complex task to discover these elements and understand that they together can create a coherent alternative. That is what this book aims to do.


The character of the Epoch

WORLD CAPITALISM HAS UNDERGONE A NUMBER OF LONGER EPOCHS of rapid expansion, and of slower growth. Each epoch consists of several booms and slumps. These are oscillations along an axis decided by the character of the epoch. These shorter up and downturns can be quite dramatic. They can throw millions out of work almost overnight. After having wreaked havoc with peoples? lives for several years, they can then be re-employed. However, it is the character of an epoch that decides the nature of the boom/slump cycle, not an accumulation of cycles that defines an epoch. A change in the cycle, or war, is often the trigger for a new epoch, but it is not its cause. These longer epochs are not due to technological advances, or to the ability or incapacity of the working class to consume. In an individual country, a longer epoch is the result of the shape of the class struggle. And globally, it is the result of the struggle between different ruling classes.

If there are no laws, or laws that are not enforced, competition will be with guns in hand. This is hardly a recipe for economic development. Investment is not going to rise above the bare essentials, if that. On the other hand, an autonomous state with an agenda of developing the economy can channel competitive energy into investments that improve products and create new ones. Investments cause less labour time to be used to produce each product and thereby prices fall. This raises the rate of profit, because the outputs of one capitalist are the inputs of another. Capitalism can flourish for an extended period. In recent history, Japan, South Korea and Taiwan are examples of this process. Going further back, Germany and France also followed this path. Even in the USA during its rise to power, the state played an active role in the economy.

Internationally, there can never be an autonomous state that keeps competition within well-defined boundaries. The closest one can get to this is when the economic power of one nation is much stronger than the rest of the world. Then, it can impose free trade and financial stability on the entire system, and police it. It is in the interest of the strongest power to do so because it need not fear competition and can out-compete others in their home markets. During the last two hundred years, there have only been two such relatively stable periods. The first stretched from about 1840 to 1873, when Britain was the most powerful country and imposed free trade on the world. The other was US hegemony of the capitalist world after the Second World War until the 1970?s.

The first Golden Age of capitalism did not last. During this period, Italy and Germany were unified and the US Civil War led to a decisive victory of the capitalist north. One of the major issues of the US Civil War had been tariffs. The defeated South was strongly opposed to them because it lived off cotton exports. The North wanted to impose them in order to protect its industry from British imports. A unified newly industrialising Germany was not interested in free trade either. When there was a normal cyclical downturn of the world economy in 1873, Britain met its first major challenge since becoming a world power. Unlike in previous slumps, Britain was unable to maintain its global free trade agenda. The new balance of power led to protective barriers being thrown up. The slump turned into the first, and longest so far, global economic depression. This lasted until 1879, but slower growth lingered on for another decade as no single power could enforce free trade and financial stability on the others.

The global scramble for colonies and spheres of influence partially overcame this. The colonies were a zone within which each colonial power?s rules could hold sway. It also enabled a lessening of protectionism between the great powers. It is always easier to reach agreement on dividing the spoils when things are going well for all.

This form of globalisation did not lead to an era of peace. The struggle developed into one of redistributing colonies. Germany and Japan were late developers. Once their economies were large enough, they felt they were entitled to their fair share of colonies to plunder. Two world wars with a depression in between were needed before a new viable balance of power could be achieved. Wars are not just interruptions in normal economic activity. They are the product of previous social and economic activity, and can create a new balance of power.

The End of the Second World War

AFTER THE SECOND WORLD WAR, Germany and Japan were in ruins. France and Britain had been on the decline as great powers for some time. Although they were formally speaking on the winning side, they emerged severely weakened. For the US, things were very different. With help from extensive state planning and high taxation, American factories and infrastructure emerged from the War intact and running at full speed. The US government was able to dictate the post-war terms of world trade. As a result, in 1950 the US alone accounted for 40% of the world?s GDP. A new leader of the capitalist world had emerged. Meanwhile, the increased strength of the Soviet Union encouraged other capitalist powers to gather behind the USA.

After the end of the Second World Was, there was an upsurge of labour struggles. In the United States, there was the biggest strike wave ever and the trade union leadership only narrowly avoided being forced into forming a labour party. In Britain, Labour was elected with its all-time biggest majority, and in Italy and France communists joined the government. In the background, the Soviet Union loomed as a new super power.

World War II planning in the West and the decisive role that the Soviet Union had played in defeating Nazism, made an alternative to capitalism seem plausible. A return to the free-wheeling capitalism of the depression era was not credible or acceptable. Due to working class pressure the state in many Western countries became more autonomous. In the UK, as in many other countries, a Labour government nationalised sectors of the economy, such as steel and coal, which were important for the capitalist class as a whole. In the USA a Republican administration rolled out a massive federal scheme of building a system of interstate highways. Moreover, the rise of the welfare state internationally provided for better educated and healthier workers. And unemployment benefits smoothed the boom/slump cycle somewhat. The combination of autonomous states and one power dominating the capitalist world meant that capitalism grew faster than ever.

During this period the colonial countries threw off their shackles. They benefitted from rapid international growth combined with the existence of the Soviet Union and a ?command economy? block of countries that was also developing rapidly. Some countries, like China and Vietnam, took the command economy model and adapted it to their own countries. Another group of countries, like India and Egypt, balanced between the US and Soviet power blocks extracting benefits from both. A final group of countries (South Korea, Taiwan, and Brazil) while remaining firmly in the US camp, were given substantial aid and concessions in order to make them into anti-communist showcases. Thus, despite imperialist domination the developing world did relatively well in this post-war period, compared to what had been and what was to come.

The leader nation enjoys advantages during golden eras, but these advantages eventually turn into disadvantages. For example, a possessor of the world?s reserve currency (as the UK was before and America became) is also the financier of the world. Therefore, it can invest more advantageously in other countries than in its own country. Investment rates in real production were therefore lower in the USA than in other developed countries. On the other hand, competitors can only compete by investing in upgrading their own industry. Thus, eventually Germany, France and Japan caught up with the industrial might of the USA. In consequence, the US trade deficit deepened. By 1971, this imbalance developed to crisis proportions and President Nixon was forced to declare that the dollar would no longer be convertible to gold and slapped a 10 per cent tariff on imports. A series of protective measured were implemented internationally, and financial instability spread.

 The 1970s – A New Epoch

THE WORLD ECONOMY ENTERED A NEW EPOCH IN THE MID-SEVENTIES. Between 1947 and 1973 productivity in the OECD countries had increased at an average annual rate of 3 per cent. Growth in productivity – production output per hours worked – meant that there was potentially more for all to share. This contrasts with the following period between 1974 and 1991 when the annual average increase in productivity fell to only 1 per cent a year.

Meanwhile, the 1990?s saw a new form of international integration taking place. Germany had always been the most powerful economy in the European Community, but only by a small margin. France, Britain, and Italy were not far behind. However, the unification of Germany in 1990 threatened to undermine that balance.

The Maastricht Treaty in 1992 was a response to this. The EU was established and a timetable for the economic and political integration of Europe laid down. The driving forces behind this strategy were France and Germany. German capital, being the strongest in Europe, had everything to gain and little to lose by gaining a wider arena in which it could easily operate. On the other hand, French capital feared that it was being disadvantaged by the monetary policies of the German central bank, the Bundesbank. To offset this, through the creation of a European Central Bank, French capital hoped that it would gain more control over monetary policy. Political ambitions were involved on both sides too.

The North American Free Trade Treaty (NAFTA) was the reply of the USA to the European development. In East-Asia another trading block took form, led by Japan initially, but eventually supplanted by China. Such greater regional integration meant that productivity rose slightly to an average annual rate of 1.3 per cent between 1992 and 1998. This rate then leaped ahead for a few years, which led to hopes that investment in computers and IT would end the economic problems that had started in the mid-1970s. These predictions proved over-optimistic with productivity rises returning to a lower level.

Overall, regional blocks spurred economic growth up to a point, until tensions between the blocks created greater problems. This surfaced in 1999 with the collapse of trade talks organized by the World Trade Organization (WTO) in Seattle. Nor were later trade talks successful. Relatively unobserved, a qualitative change was occurring in these trade disputes. Previously, a large proportion of disputes had been a war of words with ?voluntary? restrictions sometimes being agreed upon. Now, more painful methods were resorted to. To start with, non-tariff barriers (import regulations, technical requirements, legal complexities, etc.) developed as ?a strategy for impeding world trade?, to quote the Office of the US Trade Representatives. Among other examples, this led to different systems for DVDs and mobile phones in the US and Europe, and different environmental provisions. Trade sanctions were also imposed more frequently. With China?s rise there is increased talk of trade wars.

This is similar to the development of colonialism at the end of the 19th century. Neither colonialism nor regional blocks achieved growth rates comparable to the preceding golden eras when one power completely dominated the capitalist world. In both cases, they led instead to an escalation of conflicts.

With problems in creating substantial growth in the real economy, capitalists turned to carving out other profitable ventures. A big increase in currency speculation was inevitable after the end of the Bretton Woods agreement which had previously fixed currency exchange levels. Vast funds flowed into this direction, turning currency speculation from 5 percent of all international currency transaction to a staggering 95 percent by 2010. Indeed, foreign exchange derivatives exceeded mortgage backed securities even before the crash of 2008.

With the labour movement seriously weakened from the 1980s onwards, the capitalists had little difficulty in convincing neo-liberal governments to de-regulate and privatise in order to create new profitable markets without the bother of having to invest in new real production. Governments were also persuaded into responding to cyclical slumps by lowering interest rates and pumping more money into the financial sector. Speculation achieved scales never seen before. Money invested in the stock exchange did not end up in investment in actual production. Stock market money became part of a giant pyramid game. International and national financial instability increased to new levels.

Although the economies of the OECD countries (the top 35 nations) boomed for some years both in the 1980s and the 1990s, and particularly in certain countries like Greece and Spain, recovery was never as complete as during the golden epoch. Class divisions continued to widen and, in most countries, there were cutbacks or stagnation in many areas such as in the public sector, terms of employment, job availability, pay, and working environments. Inevitably, stress in the workplace increased greatly.

 The Developing Countries

A ?neo-liberal? agenda WAS IMPOSED ON developing countries. These had already been weakened by debt and were left without an alternative to turn to once the Soviet Union collapsed. Deregulation, free trade, and privatisation imposed on most developing countries from the 1980s onwards proved disastrous for many. Most of their industry proved incapable of competing on the world market. Only a few countries like South Korea and Taiwan could compete in such unequal circumstances. In other countries some industries which had been incubated by the state, such as the Brazilian aircraft sector and the Indian IT industry managed to flourish. But for most a the period saw a retreat towards dependence on raw material and agricultural exports. Even in countries like South Korea and Taiwan a weakening of the state brought their growth rates down.

In contrast, a few developing countries, such as Thailand, Malaysia, Singapore and Chile, underwent rapid industrialisation. This was not because their domestic industry could compete but because large foreign companies saw them as convenient place for producing goods cheaply for export. As a result, their development has been lopsided. India owes much of its growth to a similar phenomenon ? the integration of their IT services into the world economy, while several hundred million peasants descended into deeper poverty.

The big exception was China, driven by an economy dominated by a state-owned planned sector. Chinese-owned industry developed by leaps and bounds and became a serious competitor to the industry of developed countries. China went against the trend and reduced its trade barriers considerably, thus aiding world trade. Imports from, and Chinese state aid to developing countries stabilised their economies, especially in Africa, where the trend towards failed states was reversed. That was the general backdrop to the crisis of 2008.

The crisis since 2008

INITIALLY, THE CRISIS THAT BEGAN IN 2008 WAS JUST A NORMAL CYCLICAL DOWNTURN. However, the accumulated speculation and debt that had ballooned in the previous period threatened to push world capitalism into the abyss. To avoid this governments stepped in to save capitalism. But in doing so, they have not been able to anything to restore the real economy. Instead, speculation in stocks, derivatives, and expensive properties have surpassed the levels before the crash in 2008. At the same time, investment and growth remains stubbornly low. Thus, the capitalist world will go into the next cyclical downturn with greater problems than it faced in 2008. For instance, monetary policy has moved from extremely low interest rates to Quantitative Easing (the central bank printing money to buy debt), to negative interest rates, which means that the central bank charges for depositing money there. That means that the government will not have any monetary policies left to use for the next slump. It has also encouraged debt to rise to much higher levels than ever. In the future, the credibility of more governments than the Greek one will be undermined. There is no soft landing in sight for speculative capitalism.

At the same time, since 2008 protectionism has increased. The prime drivers of protectionism are the USA, Russia, India and Argentina. But Germany, the UK, France, Italy, and Brazil are not far behind. Sometimes this protectionism has been disguised as ?sanctions? such as against Russia. As a result, the growth of world trade has declined. Likewise, the internal cohesion of regional trading blocs, particularly the EU, have come under heavy pressure.

Meanwhile, China?s growth has continued throughout the crisis. But then, China has an economy dominated by a planned state-owned sector enabling it to surpass Germany as the biggest international trader, to supercede the USA in manufacturing, and finally to become the world?s largest economy (measured in PPP terms). In doing so, China has become the USA?s main rival. To counter this threat, the USA has attempted to create trans-Pacific and trans-Atlantic trading blocks. A parallel process has developed in the military field with the USA?s ?pivot to Asia? shifting its military priority from the Middle East to East Asia. Most likely the USA will not succeed in these strategies. For example, it tried to block its allies from joining the new Chinese-led Asian Infrastructure Investment Bank, but failed. Money talks and the Chinese have more to spread around.

China?s continued development might counter-act the tendency towards disintegration of the world economy and slow growth. However, the price could be high. The USA is unlikely to cede it place at the top without a struggle. Most likely, under pressure from the outside, China will turn inward. World trade is no longer going to be one of the main drivers of capitalist growth. Both globally and regionally the tendency is towards more conflicts and further disintegration.

A Programme of Austerity

Austerity is THE CAPITALISTS knee-jerk reaction to economic problems. It is the one thing they can agree upon at all times. It does not matter what nationality they are or what branch they work in or how big their companies are, they can unite on making worker?s pay and conditions worse and reducing the public sector in order to increase profits.

When austerity began in the 1980?s, there were some significant initial struggles against it, like the British miners? strike. However, the leadership of the labour movement was not prepared to fight. The capitalists won by a walk-over. The autonomy of the state declined as revolving doors opened between ?serving? in government and working in business. Things even went so far in Britain that accountants serving big business were brought in to draft government tax laws. Capitalists got the deregulation and privatisations they wished. An unprecedented redistribution of income and wealth occurred from the poor to the rich.

None of this solved the problem of low investment. On the contrary, it exasperated it. There was no point in making risky investments if profits could be increased by pressing down on and squeezing the workforce. Inefficiency, that is low labour productivity, was encouraged by this situation and accumulated in the system. This has cursed those countries, the USA, the UK and Germany, that were most successful at keeping down worker?s wages during the decades leading up to the crisis of 2008. In other words, it did not deal with the central problem facing capitalism – investment.

That is not to say that in some circumstances, austerity cannot work to get investment and growth going. Higher profits in the production of goods and services are a necessary precondition for getting capitalists to invest there. But they are not sufficient. Investments will only take place if speculative, alternative avenues of profit-making are closed, and markets are increasing due to further integration of the world economy. The growth generated by such investment could also lead to rapidly increased living standards. However, it is not likely to happen any time soon under capitalism. In this epoch everything is pointing in the opposite direction. Under these circumstances, austerity only makes things worse.

Keynesian Reflation

DUE TO THE FAILURE OF AUSTERITY, IT IS EASY TO REACH FOR ITS OPPOSITE. Some economists and radical people in the labour movement have drawn the conclusion that the crisis was caused by a lack of demand due to reduction of worker?s wages. This does not correspond to the facts. During the years of rapid growth and wage increases of the Golden Years, personal consumption remained about the same percentage of GDP. Since then, personal consumption rose from around 63 per cent of GDP in the early 1980?s to 71 per cent in 2008. Yet the economy stagnated. Workers were getting a harder deal at work, but finance capital was willing to make up for it by lending money. This introduced greater instability into the system, but it more than kept demand going. Lack of demand is not the explanation for stagnation. Lack of investment in real production is.

Unless international trade gets going and speculation is blocked, a substantial increase in investment is not going to happen regardless of what happens to wages. Capitalism is in an epoch in which it lurches from crisis to crisis, probably including a long and deep depression to rival or surpass the ones of the 1930?s and 1870?s. This is the ?new normal? that the ruling class has led society into…

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