A Marxist Response to the the US President’s Council of Economic Advisers’ Report “The Opportunity Cost of Socialism”

Prometheus-Gives-Mankind-Fire

From ‘Simply Marxism‘, excellent new site:

A Marxist Response to the CEA’s Report “The Opportunity Cost of Socialism”

David McMullen

Simply Marxism

June 2019

Summary

Introduction

Communist Famines

Universal Awfulness

The Need for Markets

Economic Calculation

The Green Problem

Venezuela

Economic Freedom

The Nordic Countries

Medicare for All

What could a socialist state do?

Not necessarily all free

Government Revenue

Healthcare under socialism

Summing Up

References

Summary

The Council of Economic Advisers to the President (CEA) in October 2018 issued a report called “The Opportunity Cost of Socialism”. It covers a diverse range of “socialisms”. In this reply I will only be defending socialism in the Marxist sense – a period of revolutionary transition during which capitalism is transformed into communism. I will not be defending “socialism” when it simply means government intervention under the present capitalist system.

The report starts with the “communist” regimes in the Soviet Union and Mao’s China, and zooms in on the famines during the collectivization of agriculture as prime examples of their failings. I suggest that when putting their inadequacies and disasters in perspective, one needs to keep in mind a bit of background. Two things strike me as being particularly important.

First thing, the transition from backwardness to modernity has been, and still is, generally a nasty business. The prime example is western Europe. When it emerged from the Middle Ages and started on the road to capitalism, it managed with the aid of ocean-going sailing ships to devastate every other society on the planet. While this was necessary in order to bring the rest of the world into modern history it was accompanied by a lot of awful behavior such as the slave trade, and the trashing of India and China in ways that brought death and misery to millions. At the same time, on the home front, we saw the expulsion of peasants from the land, and stage one of the Industrial Revolution with its expendable workforce.  

Second thing, a successful socialist revolution requires advanced capitalism to prepare the ground. Both the Soviet Union and Mao’s China had to deal with essentially pre-capitalist societies. They were ready for capitalism not for a transition to communism, and once the regimes were taken over by people who had lost interest in revolution, “socialism” had little trouble in becoming nothing more than a hollow shell.

At the end of the day, these countries did quite well compared with similarly backward countries in the capitalist sphere. Furthermore, the Soviet Union’s feverish industrialization during the 1930s gave it the means to defeat fascism in the 1940s, something from which we have all benefited.

Through its development of industry, capitalism prepares the ground for communism by eliminating the necessity of want and toil. Once we no longer need to compete for decent material conditions, our good side can start  to shine through. We can begin to think about doing without “market incentives” and doing work for its own sake and the desire to contribute while being happy with a shared prosperity. Economists argue that this would be all in vain because of the “calculation problem” while greens claim we are stuck with want and toil because of “limits to growth”. In this paper I respond to both of these views.

The report endorses the claim of the Venezuelan regime that it is socialist when it is clearly just a very corrupt kleptocracy. The involvement of the zombie regime in Cuba is fully in keeping with this assessment. The people are starving, and are inheriting rundown industrial capacity and lots of foreign debt.

Like all “free marketeers”, the CEA attempts to dissociate capitalism from the behavior of its own state. They fail to recognize that “government failure” is endogenous to the system and not some exogenous imposition on an otherwise pristine capitalism.

The report ends with a rather stern assessment of “Medicare for All”. It points to the problems of free government provision and the negative impact of having to raise so much more tax revenue to pay for it.

I make the point that a proletarian government could well make extensive use of user pays and that as health provision increasingly takes on a communist character, care that is both high quality and economical will require less and less material inducement.

As for the increasing need for revenue, a proletarian government would have a range of options that would eliminate or greatly reduce distortions, and would have low collection and compliance costs. With income secure and distribution far more equal, there would not be the present political problems in having a regressive income tax or in employing a poll tax. Then there is Henry George’s land value tax that capitalist countries have failed to make significant use of.

Introduction

The Council of Economic Advisers to the President (CEA) in October 2018 issued a report called “The Opportunity Cost of Socialism”. (CEA 2018.) The term “opportunity cost” is used by economists and simply means the benefit you forgo by doing one thing rather than the best alternative. If what you choose to do has greater benefit you are ahead. If not then you have made a mistake. It is an odd title but does sound more profound and eye-catching than “The Failure of Socialism.”

The report starts with the “communist” regimes in the Soviet Union and Mao’s China, and zooms in on their collectivization of agriculture as prime examples of their failing. We are then brought right up to the here and now and reminded of the disaster that is Venezuela’s “Socialism of the 21st Century”. This is followed by a discussion of the Economic Freedom of the World (EFW) Index which measures an economy’s freedom from government intervention (ie “socialist policies”) and its positive correlation with economic performance. Next we are shown how the U.S. has fared better than the “socialist” Nordic Countries. Last but not least we come to the U.S. itself where there is a looming threat of socialism in the form of free health care. Here the concern is the excess burden of taxation and the perverse effects of having a third-party payer.

In the CEA report, and in popular discourse generally, the term socialism is used for a grab bag of things. For Marxists it can only mean the period of revolutionary transition that begins with the old capitalist ruling class losing its property, power and influence and then proceeds with the proletariat transforming itself and society. At the core is joint or shared ownership of the means of production which enables the typical individual to thrive for the first time. As a Marxist, it is only in this sense of the word that I am interested in defending socialism. I will not be defending “socialism” that is simply government intervention under capitalism.

Karl Marx’s referred to this transition period on various occasions. The most well-known comes from Critique of the Gotha Program (1875):

“Between capitalist and communist society there lies the period of the revolutionary transformation of the one into the other.”

And as a young man, he had this to say in The German Ideology (1846):

“Both for the production on a mass scale of this communist consciousness, and for the success of the cause itself, the alteration of men on a mass scale is, necessary, an alteration which can only take place in a practical movement, a revolution; this revolution is necessary, therefore, not only because the ruling class cannot be overthrown in any other way, but also because the class overthrowing it can only in a revolution succeed in ridding itself of all the muck of ages and become fitted to found society anew.” (Part I, section D)

Socialism in this sense should not be seen as a social system in its own right. It is an unstable transition phase during which both regression and progression are possible. It is a period of struggle between conflicting forces. The more unfavorable the underlying conditions, the more chance of regression, and hence the rocky road travelled in the 20th century. The matters raised in the CEA report will be examined from this perspective.

Communist Famines

First in the line-up we have the “communist” regimes in the Soviet Union and Mao’s China. Famines during their early years come in for special scrutiny. The events are used to highlight the question of property rights and economic incentives given that they occurred at the times when the regimes were trying to collectivize peasant agriculture while increasing the food supplies available either for the increasing non-farm population or for exports in return for investment goods such as machinery.

I am unqualified to comment on the contributing factors or the extent of these famines. So I will confine myself to two key points that should be kept in mind before anything else when looking at these events. Firstly, the transition from a backward agricultural society to a modern industrial one has been and still is a nasty business no matter where you look. Secondly, any attempt to go from feudal backwardness to socialism while circumventing capitalism is bound to have its own serious problems. So let us look at these in turn.

Universal Awfulness

Historically, we should look to Western Europe for the worst case of this universally nasty business. Its emergence from the Middle Ages into the bright shiny day of capitalism was a thoroughly messy affair. Peasants were thrown off the land and made to work in factories where they did not need to survive for long because there was no shortage of fresh “hands” to replace them. The power loom that launched the industrial revolution saw the starvation of handloom weavers. This was just the home front. Elsewhere, it was even worse. While ocean going sailing ships and the creation of a world market were just what were needed to get the west on the road to capitalism, the effect on the rest of the world was total devastation. Of course, things had to be that way unless you think that Europe should have stayed in the Middle Ages. Marx saw the whole business as nasty but necessary. It brought the rest of the world into modern history. This meant that capitalism would eventually catch on there and create an international proletariat that would march together towards world communism.

Marx expresses this globalist point of view in The Communist Manifesto (1848) as follows:

The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.

Then in a letter to Frederick Engels of October 8 1858 he expresses the same sentiment:

The proper task of bourgeois society is the creation of the world market, at least in outline, and of the production based on that market. Since the world is round, the colonisation of California and Australia and the opening up of China and Japan would seem to have completed this process.

Here I will just look at some of the more prominent cases of European beastliness.

We have the African slave trade of course. Millions became slaves and millions died during capture and transportation. With that there was also the economic destruction. The young and fit were the target; and kidnapping or the avoidance of kidnapping was the primary activity of virtually an entire continent.  The subsequent colonial period was also somewhat less than benevolent. Forced labor, mutilation and murder in the Belgian Congo comes readily to mind. At the moment, Africans are still waiting for the benefits of being dragged into the modern world.

Then there was British rule in India where the most notable horrors were the famines.

British policy did much to contribute to the great famines during the dry years of 1876-79 and 1896-1902. Estimates range from 12 to 30 million deaths. (Davis 2007: 7) Most appalling was the fact that grain was exported to Britain while Indians starved. (Davis 2007: 299)  Also, the British created a range of realities that made the country vulnerable to famine. Land was converted from subsistence crops to export crops such as cotton and opium. There was the neglect of rural improvement such as irrigation both by the government and the local elites who were encouraged to be usurers rather than capitalists. (Davis 323ff.)

According to Davis (2007 p.346): “As far back as 1785, Edmund Burke had indicted the East India Company for allowing native irrigation to fall into decay, thereby ensuring higher famine mortality during droughts.” This was still the case a century later.

At the same time the appalling tax and debt burdens on the peasants meant the need for short-term income at the expense of longer-term fertility. And their usurious landlords opposed any improvement work that would reduce peasants’ dependence on them. (Davis 2007: 333)

As for famine relief, the railroad system ensured that grain moved speedily to where it would get the best price, which made things worse for the starving penniless. (Polanyi 2001 [1944]: 160.)

While still on India, we should not pass up the opportunity to mention the handloom weavers crushed by competition from the English power loom. In Capital, Marx quotes the Governor General reporting in the 1830s: “The misery hardly finds a parallel in the history of commerce. The bones of the cotton-weavers are bleaching the plains of India”. (Marx 1976 [1867]: 557)

Writing for the New York Daily News, Marx explained Britain’s dual role. In “The British Rule in India” (June 25, 1853) he wrote:

England, it is true, in causing a social revolution in Hindostan, was actuated only by the vilest interests, and was stupid in her manner of enforcing them. But that is not the question. The question is, can mankind fulfil its destiny without a fundamental revolution in the social state of Asia? If not, whatever may have been the crimes of England she was the unconscious tool of history in bringing about that revolution.

And in “The Future Results of British Rule in India” (July 22, 1853) he made much the same the same point:

England has to fulfill a double mission in India: one destructive, the other regenerating – the annihilation of old Asiatic society, and the laying of the material foundation of Western society in Asia.  

Looking back from the present point in time we can say that the British performed their dual role in a rather lopsided fashion. They were far more efficient at undermining the existing socio-economic system in ways that deepened the misery of the vast mass of people than they were in creating the conditions that would encourage the development of capitalism. As well as discouraging capitalism in agriculture they also discouraged any local industry that would compete with British imports. Capitalist development eventually caught on but even now there is still considerable backwardness with 50 percent of the population employed in agriculture.

When we come to China, we can blame the British once again for death and misery. It all started with the importation of Indian opium that destroyed the lives of multitudes and drained the country of silver. The Qing Dynasty was further weakened economically and politically by its defeat at the hands of the British in the First Opium War of 1841. This laid the ground for the Taiping Rebellion, a civil war from 1850 to 1864 that lead to many millions of deaths through plague, famine and the sword, together with long-term economic damage. The rebellion may have contributed to the necessary unravelling of Old China but was still a very nasty business.

The El Nino weather conditions that struck India in the late 19th century also struck China and caused deadly famines there as well. Prior to its degeneration, the Qing Dynasty had been quite adept at reducing famine and food insecurity. (Davis p. 367) In the 18th century they had budget surpluses, well stocked granaries and the ability to move large stocks of food across long distances. They also had flood control, extensive irrigation, and canal navigation.

When writing about Britain’s role in China, Marx took the same dual nature approach that he did with India. So that in The New York Daily News of June 14 1853 he wrote:

It is almost needless to observe that, in the same measure in which opium has obtained the sovereignty over the Chinese, the Emperor and his staff of pedantic mandarins have become dispossessed of their own sovereignty. It would seem as though history had first to make this whole people drunk before it could rouse them out of their hereditary stupidity. ….

All these dissolving agencies acting together on the finances, the morals, the industry, and political structure of China, received their full development under the English cannon in 1840, which broke down the authority of the Emperor, and forced the Celestial Empire into contact with the terrestrial world. Complete isolation was the prime condition of the preservation of Old China. That isolation having come to a violent end by the medium of England, dissolution must follow as surely as that of any mummy carefully preserved in a hermetically sealed coffin, whenever it is brought into contact with the open air.

In the 20th century, China got a second going-over. This time it was at the hands of the Japanese. Their emergence from feudal seclusion brought a toxic mix of industrial development and militarists who thought stealing resources would be better than buying them. In this case one cannot talk of a dual role. China was already well and truly “opened up”. This was better described as a disemboweling. Total Chinese deaths during the China-Japan War from 1937-1945 have been estimated at between 15 and 20 million. (Ho Ping-ti, 1959, p. 252)

After making a mess everywhere else, the European powers turned in on themselves and committed another major act of depravity, to wit, World War I from 1914 to 1918. This was a war of imperialist rivalries in which 15-19 million died and which some naively believed had been ruled out by the international nature of capitalism. Capitalists instead rallied to the flag, produced lots of guns and made lots of profits. Added to the war toll was the 1918 influenza pandemic made particularly deadly by war conditions. (Gladwell 1997: 55)  This saw the death of 50-100 million people worldwide.

One upshot of this awful affair was the 1917 Bolshevik Revolution in Russia. Increasing military defeats and the economic strains of the war were the final straw for the Czarist regime. And the Czar did not help matters by taking command of the armed forces and leaving his wife and Rasputin to run the government. The collapse of the regime was followed by a four year civil war in which the Reds defeated the Whites. The Whites were Russian nationalists with a penchant for massacring Jews. So the alternative to the Reds were not nice democrats; indeed, many exiled Whites subsequently joined fascist organizations.

The Need for Markets

The CEA report uses the failings in Soviet and Chinese agriculture to argue the  case for incentives and the need for private property and markets to prompt us to work and to produce the things we want. The Marxist view is that once we achieve an advanced level of economic development this is no longer the case because the possibility of eliminating want and toil changes the rules of the game. It is now possible to contemplate social ownership where the prime motivation is mutual regard and the satisfaction obtained from labor, with material reward being of diminishing importance.

The problem with Russia and China is that communists took over in countries that were still extremely backward. Their revolutions were very much historical accidents occurring before their due time. Under these conditions any movement down the communist road was bound to be very limited; and indeed in these cases the obstacles made it unsustainable. The same could be said about the rest of the “socialist camp” that emerged after World War II.[1] 

After dragging their countries out of extreme backwardness, the regimes in these countries lost interest in radical change and became quite reactionary. Socialism became equated with economic development plus the “communist” party in charge. The workers became ciphers rather than actors in their own right.

Notwithstanding this dead-end for the revolution, the efforts to overcome backwardness are nothing to be sneezed at. They fared better than comparable regions that remained under capitalist suzerainty. And in the case of the Soviet Union, feverish efforts in the 1930s meant that it was industrially prepared for the task of defeating fascism, an event best described as the greatest achievement of the 20th century. They are now relatively advanced capitalist societies in the “upper middle income” category, and comparable in terms of GNI per capita to countries such as Turkey, Mexico and Brazil that did not suffer “the scourge of communism”.

The modernizing efforts of the Mao years in China created the conditions the bourgeoisie needed once they took over after his death. Previously they had been confined to sabotaging socialism. Now they were in charge and had free rein to do it their way. They have really gone to town; and we also have India following up the rear. Both these mega-regions are undergoing considerable industrialization and have a shrinking peasantry and growing proletariat. From a Marxist perspective this augurs well for the future.

At the moment, only part of the world has achieved a level of development where the elimination of the necessity of want and toil is within reach. It comprises about 20 percent of the world’s population and primarily includes the United States, Europe and Japan. While some regions are not far out of reach, others still have quite a way to go. So, unfortunately a large section of the world’s population, mainly in Sub-Saharan Africa and South Asia, will take a few generations to get on top of their backwardness.

With increasing productivity under capitalism, a stage is reached where an equal share of the social product ceases to be shared poverty. Under less developed conditions, the prospect of shared hunger and distress impels those who are in a position to do so to exploit others through plunder, slavery, serfdom or the ownership of the means of production. However, as the average share begins to promise an increasing degree of prosperity, the imperative to fare better than others diminishes.

Mechanization and automation, under developed capitalism have done much to reduce the odious or toilsome nature of work. Pick and shovel work and carrying heavy loads are things of the past and much of the remaining menial and routine work in the manufacturing and service sectors will be automated in the next generation. The work we are left with will be primarily intellectual in nature and potentially interesting and challenging. It begins to be something one could imagine doing for its own sake.

We can expect improved ability to perform complex work in a future communist society as many of the conditions that cause stunted development are eliminated. These include lack of family support, peer pressure to underperform and an inadequate education system. Social ownership will end the isolation of education from production and other activities, so uniting learning and doing. Workers will help each other to learn. We will also benefit from an increasing understanding of human development and what causes learning difficulties.

Under these new conditions where we no longer need to compete for a decent material existence, it now becomes possible to base a society on mutual regard and social ownership of the means of production. We can discard the dog-eat-dog world of capitalism where sociopaths are often the biggest winners.

Mutual regard is enlightened self-interest. You only thrive when others thrive. You do the right thing by others because you know that an increasing majority are doing the same. You know you are contributing to a “pool” of well-being that everybody shares.

This will transform work. It will end what Marxists call alienation. We will do what we can to make the work of others productive and rewarding. These relations with our fellows are what make it possible for work to become something performed for its own sake rather than simply a necessary means to an income. At the same time, we are happy with your equal share knowing that others on the whole are doing their best.

The thriving of others is critical in all areas of life. You cannot thrive if those who impact on your life are disturbed, frustrated and poorly functioning.

Mutual regard will not just be a case of caring more. It will have to also mean being willing and able to confront bad behavior directed against ourselves or others. This will require us to cast off passive, submissive and weak-spirited habits engendered by our subordination under capitalism, and acquire a strength of character that gives us the confidence and moral courage to deal with bullies, schemers and people with a whole gamut of behavioral issues. We will not let the worst people set the tone. Top of the list are those who want to lord it over us and become a new ruling class.

Critical to the process is the emergence of a large and increasing number of people who see the revolutionary transformation of the conditions around them as an important mission in life.[2]

Economic Calculation

Most economists would argue that this is all in vain. They tell us that an economy based on social ownership has an inherent economic calculation problem: in the absence of market transactions between enterprises it could not have a properly functioning price system.[3]

While we do not know how economic decisions will be made in the future under communism, we can say that there is nothing about the non-market transfers of custody between economic units that would prevent decentralized decision-making based on prices.

We can also counter the claim that any price system under social ownership would be inferior to a market based one because it would not reflect the discovery process that emerges from competition between market participants. It is true that in the presence of uncertainty, there needs to be multiple participants trying out their own approaches to problems on the basis of their own opinions, guesses and hunches. Those that come up with the best and most highly valued products using the cheapest methods win out in this competitive contest. However, social ownership does not throw up any inherent obstacles to a diversity of approaches.

It would still be very common for an individual enterprise or facility to be just one of many producing the same good or close substitutes and each of them could be free to try out different production methods and product designs. Some will be new entrants who are either existing enterprises moving into a new area with synergies or starts ups established by enthusiasts with ideas the incumbents are not open to or capable of developing. This diversity could be greatly assisted by having a number of independent agencies (‘banks’) disbursing funds in any given industry on the basis of their own assessment of what are good investments. Indeed, diversity could be planned if there is not enough of it emerging of its own accord.

At the same time, it is possible to imagine enterprises being free to choose their suppliers on the basis of cost and quality and having to outbid other users of a resource or intermediate good.

Economists have also spilt much ink on the impossibility of effective central economic planning. However, their view now seem out of date. Quantities for highly disaggregated product codes can be fed into an input-output table in real time with modern computer networks, and numbers crunched using modern computers and appropriate algorithms.[4] 

Collective ownership could do a great job of producing what people want. This is despite the widely held view that it would require some central body to arbitrarily decide on final output.  Individuals could receive vouchers that they could spend on what they choose, with prices responding to changes in supply and demand. Consumer surveys could play a role. There could be democratic decisions on what collective goods to produce and the rate of investment, and these could be funded through taxation. And there would be nothing to stop the use of interest rates to guide investment decisions.

Initially people’s income will mainly be a wage that is a market price for their labor power but even when we get a fair way down the communist path, and income becomes pretty much separated from work performed, you could still have shadow prices for labor power where enterprises put in bids for the various kinds of workers they require.

Not only will an economy based on social ownership work fine. It will do a better job than capitalism. Capitalism may be streets ahead of stagnant pre-capitalist societies, however, the gap between what is possible and what capitalism delivers is wide and getting wider. It is an increasing fetter on the economy’s productive forces that social ownership can remove. The revolutionary transformation of the economy and society will take off the brakes by eliminating economic crises, by vastly increasing the science and innovation effort, and by unleashing the initiative and enthusiasm of workers that capitalism cannot tap.

The Green Problem

While the economists are telling us that eliminating the necessity of want and toil cannot be the basis for communism, the green movement is telling us that want and toil are unavoidable. They say there are limits to growth and we are already exceeding the planet’s carrying capacity. However, I would suggest that prosperity for all is not difficult to imagine with scientific and technological advances. Where land is a constraint, we can build higher into the sky and tunnel deeper into the ground. Precision farming, biotechnology and other innovations will provide far more food while using less land and water, an already established trend that is gathering pace in spite of opposition from greens. There will be limitless supplies of clean energy from a range of resources. We can already be sure that future generations of nuclear power technology would be able to rely on virtually inexhaustible fuel resources. Then there are future technologies we can presently only guess at. For example, biotechnology may open up new ways of harnessing the sun. The mineral resources we rely on are more than sufficient, even without considering future access to extraterrestrial resources and our ability to devise ways to substitute one resource for another. We will protect the biosphere with more advanced and better funded waste and conservation management. Indeed, in many respects we have seen capitalist countries get cleaner as they get richer.

Venezuela

The report provides Venezuela as a present-day example of a country with highly socialist policies. The regime calls itself ‘socialist’ and so do its supporters and opponents. However, it  is, of course, just an oppressive kleptocracy and hated by the vast majority. Like all kleptocracies it places as much of the economy as possible under state control in order to suck it dry. It is a country with 4,000 generals all on the take. Anyone who calls this ‘socialism’ is just being disingenuous, whether they are supporters or opponents of the regime.

Of course, the fact that the regime describes itself as socialist is no great surprise. You could not really have expected Chavez to call his regime “Kleptocracy of the 21st Century”. His socialist rhetoric fitted well with his anti-American demagoguery. Everyone who opposes the regime is an imperialist agent and any problem the regime was having was due to imperialist sabotage.

Kleptocracy was accompanied by the buying of votes from the poorest section of society. However, these bribes did not represent a redistribution away from the rich. Just like the billions stolen by the “boliburguesía”, these benefits were at the expense of future consumption. They were funded by oil revenue that should have gone into maintaining and increasing production capacity and by foreign loans. They have been eating their seed corn.

All Chavez did was create hopes that he then shattered. His education and healthcare schemes are now a burnt-out wreck. There was never any “from below”. Chavez dispensed the cash, and policies were his thought bubbles pronounced from on high.

There are Chavez fans who try to retrieve something by claiming that the present Maduro regime has strayed from Chavismo. In fact, it has simply taken it to the next level.

Then there is the regime’s sinister relationship with Cuba where it receives police state support in return for oil. Cuba has a zombie regime on which Marxism long ago past judgement. It is very much a Soviet clone on the lines of the old eastern Europe. Its socialism is state ownership with their “communist” party in charge. Society is not undergoing a socialist transformation and the best thing the government can do is assist the transition to a more normal bourgeois society by holding free elections, a bit like those that occurred in eastern Europe 30 years ago.

The fact that much of the “left” has some sympathy for the regimes in Caracas and Havana is one of a number of signs that it is part of the problem rather than the solution.

Economic Freedom

The report refers to studies that show a strong positive association between “economic freedom” and economic performance. The former is measured using the Economic Freedom of the World (EFW) Index which measures an economy’s freedom from government intervention (ie socialist policies). (Fraser Institute 2018)

 “The indicators are aggregated to five main categories, which are then given equal weight in the overall index. The first category is the size of the government in terms of spending, taxation, and the size of government-controlled enterprises. The second is the legal system and property rights in terms of the protection of persons having such rights. The third category is referred to as “sound money,” and measures policies related to inflation. The fourth is free international trade, which means that citizens are free to trade with other countries. The fifth is limited regulation, which addresses the freedom to exchange and trade domestically.” (CEA 2018: 24)

They are talking here about government intervention in a capitalist economy.  Of course, Marxists do not have a dog in this fight because they are not interested in tinkering with capitalism only eliminating it. But that being said, free market or “neoliberal” economics has an extensive literature critiquing such tinkering that is fairly sound and represents a real contribution to economic thought. However, it falls short by ignoring the fact that this government failure is a form of market failure. These problems are seen as some sort of exogenous imposition on what would otherwise be a pure pristine capitalism. In fact, they are very much endogenous to the system.

A lot of government interference in the free market serves the vested interests of the capitalists and workers in the favored industries, and the bureaucrats and politicians who make a career out of it. It enhances the value of their property rights – their capital or their job and career prospects – at the expense of society as whole. Vested interest is just another name for bourgeois private property which in turn is just another name for capitalism.

Welfare programs have become great opportunities for bureaucratic empire building, but historically the primary motivator was a desire to save capitalism from itself. There was a concern that if they did not introduce a range of social welfare reforms workers would be seduced by communism. It was an attempt by the system to inoculate itself from that dreaded infection.

The Nordic Countries

The report wants to disabuse American socialists and left liberals of their love affair with the Nordic countries.

They point out that the Nordic countries have abandoned many of their much admired “socialist policies” as measured by their much improved EPW Index. Besides, their higher levels of government spending do not look quite so socialist when you take into account that it is middle income earners rather than the rich who bare the tax burden.

We are also reminded that these countries are poorer economic performers with lower GDP per capita than the US. While not wanting to spend any time defending an “alternative” form of capitalism, it is difficult not to at least suggest that any comparison should also look at how people at the bottom of the heap fare.

The report also claims that the value of their free education is less than the US when measured by earning differential between graduates and non-graduates. They see this as an example of how free provision leads to lower quality. The logic is that there would be a tendency to underfund the institutions and students would be less concerned about the standard of their degree. Determining whether this is the case would require knowing a lot more about tertiary education in Nordic countries and other tuition-free countries. This is a task I am quite unwilling to take on. Furthermore, nothing hinges on it. Any problems of free provision in the Nordic or other capitalist countries tells you nothing about free provision in a society undergoing a proletarian revolutionary transition. And I must add there is nothing preventing such a society from having tuition fees.

Medicare for All

The CEA report criticizes proposals for a universal single payer health system supported by the likes of Bernie Sanders and usually dubbed “Medicare for All” (Sanders 2017).  Such a system would replace all existing private health insurance and would leave the patient with no out of pocket expenses, no copayments or deductibles. The report points to a range of problems with free government provision and to the negative impact of having to raise so much more tax revenue to pay for it.

They describe this as patients and bureaucrats spending other people’s money. Patients would have an incentive to overuse services such as doctor’s visits much like a prepaid all you can eat buffet. The healthier would crowd out the less healthy and there would be no incentive to seek out the cheapest options. At the same time bureaucrats will not have the incentive to economize or make the best purchases.

A government medical insurance monopoly as proposed would be less efficient than having many competing companies. In particular, the government healthcare bureaucracy has shown itself to be very poor at detecting fraud. Efforts to rein in government spending are bound to affect the health budget leading to waiting lists and quotas for particular treatments.

Then there is the fiscal burden of such a program. A free universal healthcare system would require a huge increase in income tax collection unless other government spending was cut drastically.[5] This is not just the same as taking in tax what people would otherwise have spent on their own healthcare because of the so-called excess burden or deadweight loss of taxes in excess of the revenues.

“Earning additional income requires sacrifices (a loss of free time, relocating to an area with better-paying jobs, training, taking an inconvenient schedule, etc.), and people evaluate whether the net income earned is enough to justify the sacrifices. Socialism’s high tax rates fundamentally tilt that trade-off in favor of less income.” (CEA page 12)

What could a socialist state do?

I will leave it to “socialists” of the Bernie Sanders variety to put the case for public provision of healthcare under the present capitalist system. My only concern is whether the CEA’s critique has any relevance for a society undergoing a proletarian revolution.

Not necessarily all free

While a proletarian state could have free provision of healthcare, there would be nothing to rule out significant levels of user pays.

You could have individuals paying for insurance that covers unlikely and unpredictable but high cost health events. There could be a single insurer or mutual insurance schemes owned by their members (friendly societies). At the same time, more routine or predictable health spending could be out of pocket, assisted by health saving and loan schemes. In the case of drugs, you may have patients paying the production cost while research costs are paid for out of taxation.

To the extent that people are financially secure and receiving an adequate wage, training allowance or pension we can move away from healthcare being part of the welfare system. Of course, special provisions will have to be made for people with unusually serious medical needs.

Government Revenue

What about government revenue under socialism? A proletarian state could, for the following reasons, have high levels of taxation without the present distortions.

To begin with income tax would not have to be progressive. Tax could be a constant percentage of income  or you could even have marginal rates that decline or even go to zero. To the extent that wage differences continue, they will be for good economic reasons that should not to be undone by progressive income taxation.

Scope for reducing marginal rates is limited at the moment where the tax system is seen as a means of redistribution in a world where there are some people on extremely low and insecure income and others on extremely high income such as capitalists with the dividends and senior executives pulling in economic rents.[6]

As communism takes root and work is primarily undertaken for its own sake and from a desire to contribute, the incentive effect of income tax would be reduced even further. Also, a proletarian state could make greater use of taxes that do not distort wages or prices and have far lower collection costs.

Firstly, there are poll or head taxes. These are an equal amount paid by everyone on a regular basis regardless of their income. These are unacceptable under capitalism where income for some people is low and insecure. Indeed, it caused riots when Margaret Thatcher tried to introduce one to cover the cost of local government. In the context of medical insurance, it is worth noting that premiums in a compulsory scheme would effectively be an hypothecated poll tax. Collection and compliance costs would be low because the individual simply has to provide their bank account details and authorize regular payments just like a utility bill.

The other non-distorting tax is one imposed on land values. People would pay a tax for the natural and built amenities around where they live. If all land is deemed to be publicly owned one could describe this as a land rent. (Whether people own their residence is a separate matter.) This tax is famously associated with the 19th century economist Henry George.

The tax would be set so as to “ration” a location to those who place the highest value on living there. At the same time, improving the amenity of an area would ensure a tax revenue stream to pay for it. This would include building hospitals and other health facilities.

Collection costs would be low because you cannot conceal or move land and there are well established methods for calculating the tax. The amount that can be collected from this tax will, however, be reduced by other taxes that people have to pay. Anything that reduces their effective income will reduce what they are willing to pay in land rent. Unsurprisingly land value taxes under capitalism are opposed by wealthy landowners.

Healthcare under socialism

Under a proletarian regime, healthcare, like all sectors of the economy, will undergo a stage by stage transformation. Larger capitalist enterprises would have to come fairly quickly under state control. Smaller businesses in many cases would remain under individual or “cooperative” ownership for somewhat longer.

As with all the other sectors of the revolutionary transitional economy, healthcare will display its greater efficiency and effectiveness as it takes on more communist characteristics. Contributing to the best outcomes will become the overriding motivation of medical workers. This will include overcoming all of the authoritarian nastiness found here as everywhere else. There will be no deferring to incompetent or corrupt superiors nor a passive “I just work here” attitude. Everyone will be a “whistle blower” if necessary, except they will be fixing the problems themselves.

Summing Up

By setting out the full range of confusion on the subject of socialism, the CEA report has provided a good opportunity to both explain and defend the Marxist view on the matter.

When Marxists use the term socialism, they mean the revolutionary transition period when capitalism is transformed into communism. Attempts at this transition to date have been defeated by unfavorable conditions and balance of forces, particularly those arising from economic and social backwardness. These defeats have been achieved by means of socialist regimes losing their revolutionary nature and being “socialist” only because the people running the show continued to call themselves communists.

Key to the success of proletarian revolution is full capitalist development. This will eliminate the necessity of want and toil that historically has set all against all. When it comes to “economic calculation” there is nothing that capitalism can do that socialism cannot do better.

A proletarian government would be in a better position to freely provide healthcare and other goods and services particularly as conditions become more communist. However, there is nothing about socialism that rules out extensive user pays.

Most of the CEA report is taken up with government intervention under capitalism. The report calls this socialism, as do a lot of people. However, this is not socialism by the reckoning of Marxists and its success or failure is not their concern.

References

Cottrell, W. Paul and Allin Cockshott 1993. Towards a New Socialism

http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/new_socialism.pdf

Council of Economic Advisers to the President (CEA). ”The Opportunity Cost of Socialism”, October 2018

https://www.whitehouse.gov/wp-content/uploads/2018/10/The-Opportunity-Costs-of-Socialism.pdf

Davis, Mike 2007. Late Victorian Holocausts: El Niño famines and the making of the Third World. Verso. London

Fraser Institute 2018. The Human Freedom Index 2018

https://www.fraserinstitute.org/studies/human-freedom-index-2018

Gladwell, M. (29 September 1997). “The Dead Zone”. New Yorker. (Cited in “Spanish Flu” Wikipedia.)

Ho Ping-ti. 1959. Studies on the Population of China, 1368–1953. Cambridge: Harvard University Press. (Cited in “World War II casualties” Wikipedia.)

Lavoie, Don 1985. Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, Cambridge University Press,

Marx, Karl 1853. “The British Rule in India” Marx-Engels Collected Works Volume 12

https://www.marxists.org/archive/marx/works/1853/06/25.htm

———.1853. “Revolution in China and Europe.” Collected Works of Marx and Engels, Volume 12.  Lawrence & Wishart. London.  pp. 93-100.

———.1858. “Marx to Engels 8 October 1858” Collected Works of Marx and Engels, Volume 40.  Lawrence & Wishart. London.  pp. 345-7

———.1859. “The Future Results of British Rule in India” Collected Works of Marx and Engels, Volume 12.  Lawrence & Wishart. London.  pp. 217-222.

———. 1875. Critique of the Gotha Programme. Online edition.

https://www.marxists.org/archive/marx/works/1875/gotha/.

———. 1976 [1867], Capital, volume 1 (Penguin).

Marx, Karl and Frederick Engels.1846. The German Ideology, Part 1, Section D

https://www.marxists.org/archive/marx/works/1845/german-ideology/ch01d.htm#d4

———. 1848. The Communist Manifesto. Online edition.

https://www.marxists.org/archive/marx/works/download/pdf/Manifesto.pdf.

McMullen, David (2019) “The Forgotten Message of Marxism”, Simply Marxism

www.simplymarxism.com

Polanyi, Karl (2001 [1944]).  The Great TransformationThe Political and Economic Origins of Our Time.

Beacon Press. Boston.

Sanders, B. 2017. “Options to Finance Medicare for All.”

https://www.sanders.senate.gov/download/options-to-finance-medicare-forall?

inline=file.


[1] The only industrialized exceptions were East Germany and the Czech part of Czechoslovakia. The regimes were the product of the Soviet Red Army rather than any homegrown proletarian revolution and had no independent existence.

[2] For more on the problem of proletarian revolution see the pages 11 – 14 of the booklet Some Forgotten Marxism which is available to download at www.simplymarxism.com

[3] Lavoie (1985) best sums up this argument. There is also plenty of material at mises.org.

[4] See Cottrell and Cockshott (1993).

[5] The CEA report, does not discuss the possibility of reducing the work incentive problem by the federal government introducing a value added tax (VAT) on goods and services. This is very common in other countries. On the other side of the ledger, they do not mention the incentive to free ride by working less when the government pays for what you would otherwise have to pay for. You have a reduced need for income.

[6] They are paid more than their “opportunity cost” which is what they would be paid if they did an ordinary paying job. Stockholders feel they have to bid for the “best” and also reward them in ways that encourage them to act in their interest.

Persecution of Marxist students in Beijing – where there is repression, there is resistance!

Where there is repression, there is resistance – Mao.

‘Qiu disappeared April 29.

‘State security agents seized him that day from Beijing’s outskirts, his classmates say. Qiu’s offense? He was the leader of the Marxist student association at the elite Peking University, a communist of conscience who defied the Communist Party of China.

‘Over the past eight months, China’s ruling party has gone to extraordinary lengths to shut down the small club of students at the country’s top university. Peking University’s young Marxists drew the government’s ire after they campaigned for workers’ rights and openly criticized social inequality and corruption in China.

‘That alone was provocative. In recent years, China’s leaders have been highly sensitive to rumblings of labor unrest as the sputtering economy lays bare the divides between rich and poor — fissures that were formed, and mostly overlooked, during decades of white-hot growth’.

* * * *

June 4th marks the 30th anniversary of the day on which troops entered Tiananmen Square and opened fire upon protestors. It was an outcome of the restoration of capitalism in China, the victory of the ‘capitalist roaders’ within the Communist Party that Mao had warned against and led struggle against.

The idea that things can turn into their opposite is a very challenging one, but it is true.

The violent repression at Tiananmen Square is proof that the Communist Party was no longer revolutionary, no longer socialist but a case of ‘capitalism without democracy’.

The Chinese parliament currently has about a hundred billionaires among its delegates, most are nominally ‘communists’. https://www.cnbc.com/2017/03/02/chinas-parliament-has-about-100-billionaires-according-to-data-from-the-hurun-report.html

Maoists and other pro-democracy dissidents are imprisoned and now ‘disappear’ at the hands of state authorities. https://monthlyreview.org/commentary/on-december-24-2004-maoists-in-china-get-three-year-prison-sentences-for-leafleting/

https://www.scmp.com/news/china/policies-politics/article/2125541/chinese-scholars-sign-open-letter-calling-release

https://www.washingtonpost.com/world/asia_pacific/if-i-disappear-chinese-students-make-farewell-messages-amid-crackdowns-over-labor-activism-/2019/05/25/6fc949c0-727d-11e9-9331-30bc5836f48e_story.html?fbclid=IwAR0SOnpzbmRBUyB6j3uYJ02PkAALeAyxGtqV03hzPrWuQVK6sb6eHMr8hmQ&utm_term=.4e004ccb1811

The people, however, understand revolutionary change and their own socialist revolution is within living memory.

Where there is repression, there is resistance.

* * * *

Photo of statue at York University, Canada, commemorating the resistance of students and workers in Tiananmen Square.

“From that moment on, we were beaten, and we knew we were”… Robert Smillie, quoted by Nye Bevan in Bevan’s memoir, ‘In place of fear’ (1952)

Aneurin (‘Nye’) Bevan (1897-1960) is best known for his achievement of bringing in the National Health Service (NHS) as Minister for Health in the United Kingdom’s Attlee Labour Government (1945-1951).

Bevan was an avowed socialist, though not a communist or Marxist. He saw the NHS as a socialist measure, of providing health services for everyone regardless of wealth and funded by everyone via the democratic state.

When I was growing up in Melbourne, his name – always ‘Nye Bevan’ – was often referred to reverentially by my working class father who had lived and worked in London after World War 2 and supported the Attlee Government that, to the great shock and surprise of most commentators, had defeated Churchill’s Conservatives. My dad told me more than once that, having put their lives on the line to fight fascism, ex-servicemen like him expected a much better world and social system after the War. They hadn’t fought to keep things the same.  (He demobbed in 1953, as the Royal Air Force, which he had joined in his native Malta in 1940, provided secure employment and opportunity for advancement). In Australia, when I was young, he would sometimes say: “Australia needs a Nye Bevan!” or “The Labor Party needs a leader like Bevan!”

Bevan was the real deal in the sense of being a working class man through and through. Born in a town in the southern coalfields of Wales, he went to work in a colliery at the age of thirteen. He hoped that socialism could be achieved through the ballot box, which made sense given that adult men had finally won the vote, without qualification, in the UK in 1918 when Bevan was twenty-one.

For women, the universal franchise came later – 1928 – and I love the way Bevan states early in his memoir, In place of fear (Simon & Schuster, New York ,1952) that he was elected to Britain’s first democratic parliament. The General Election of 1929 was the first based on universal adult suffrage.

* * * * *

I thought I’d revisit Bevan’s memoir after recently hearing John Hewson on ABC-TV. Hewson said that we might be heading for a big economic crisis. Hewson was leader of the Opposition in the early 1990s and had been an economics adviser to two Liberal Treasurers.

I’m not good at economics but I can see how ‘the big one’ might be coming. Of course, I’d heard this many times before, mostly from old communists. Every periodic crisis in the boom and bust cycle was seen as the beginning of the end of capitalism. But now, things do seem different, and everyday people feel it, as the rate of profit has steadily declined over the decades, with wages recently more or less stagnant, the standard of living in decline and government increasingly reliant on debt to fund services.

But I hadn’t heard it from a prominent conservative before.

What leapt out at me from Bevan’s memoir wasn’t the reassertion of socialism as a good thing, an extension of democracy into the social and economic realms, so much as the depressing reality that in the C21st the left in the advanced capitalist countries (ie, those requiring state funding to keep the system going) still faces the same dilemma as it did in 1919, when the UK seemed to be approaching a revolutionary moment. There was even unrest in the Army, and massive discontent and strike action – some of it violently suppressed – among the working class. The Russian revolution of 1917 had also put the fear of God into the British ruling class.

Bevan recalls (pp. 21-22) how the leader of the miners’ union, Robert Smillie, described to him a meeting at that time by the leaders of the ‘most formidable combination of industrial workers in the history of Great Britain’ – the miners, the transport workers and the railway workers  whose industrial action had brought the government of the day – headed by Liberal Lloyd George – to its knees.

Here is the full quote, and the lesson learned:

“Lloyd George sent for the Labour leaders, and they went, so Robert (Smillie) told me, ‘truculently determined they would not be talked over by the seductive and eloquent Welshman (Lloyd George, the Prime Minister)’. At this, Bob’s eyes twinkled in his grave, strong face. ‘He was quite frank with us from the outset’, Bob went on.

“He said to us: ‘Gentlemen, you have fashioned, in the Triple Alliance of the unions represented by you, a most powerful instrument. I feel bound to tell you that in our opinion we are at your mercy. The Army is disaffected and cannot be relied upon. Trouble has occurred already in a number of camps. We have just emerged from a great war and the people are eager for the reward of their sacrifices, and we are in no position to satisfy them. In these circumstances, if you carry out your threat and strike, then you will defeat us.

“‘But if you do so’, went on Mr Lloyd George, ‘have you weighed in the consequences? The strike will be in defiance of the Government of the country and by its very success will precipitate a constitutional crisis of the first importance. For, if a force arises in the State which is stronger than the State itself, then it must be ready to take on the functions of the State, or withdraw and accept the authority of the State.

“‘Gentlemen’, asked the Prime Minister quietly, ‘have you considered, and if you have, are you ready?

“‘From that moment on’, said Robert Smillie, ‘we were beaten and we knew we were'”.

 

 

 

 

 

 

 

 

Celebrating the Russian revolution: from the ox-drawn plough to nuclear power and Sputnik

 

Sputnik_670

I was six years of age when ‘Sputnik’ became the first artificial earth satellite. It was sent into orbit by the Soviet Union on 4 October 1957. I have a vague memory of my parents taking me into the street that night and, with curious neighbours, peering into the dark star-lit skies over West Brunswick, Melbourne. I’m fairly sure someone said they could see it, and maybe I saw it, or something, among the stars too.

I also recall my father, Loreto, remarking on how the success of Sputnik highlighted ‘the superiority of socialism’. Of course, I didn’t understand what that meant. What was socialism? And what was it meant to be superior to? He was a Labor voter, but very much to the left, and it wasn’t uncommon for Labor men and women to talk favourably about socialism in those days.

About a decade later, when I was 16, my dad and I would sometimes take the number 19 tram from Brunswick to the City on Saturday mornings and visit the International Bookshop in Excelsior House, 17 Elizabeth Street. An antiquated rickety old lift would take us up to the second floor where we’d be greeted by the Communist Party shopkeeper, Jack Morrison.

Sometimes a couple of dad’s young workmates from the factory where he worked would meet us there. We’d browse through copies of glossy propaganda magazines like ‘Soviet Pictorial’ and ‘China Pictorial’, marvelling at the photographic evidence of bumper harvests and advanced technology. I was a reader of science fiction and the images of gigantic tractors and huge pumpkins enthused and fascinated me.

By this stage of my life I had an understanding of socialism and identified with it in a gut kind of way. It was about progress, about eradication of poverty, about imagining a better future based on scientific discovery and technological innovation – and about the working class who produced society’s wealth taking control of the means of producing it.

At a time when censorship laws in Australia and the west were ridiculous, it was also about greater freedom. The International Bookshop flaunted censorship laws by stocking some of the books that had been banned by the government for political or sexual content. (D H Lawrence’s ‘Lady Chatterley’s Lover’ was in the latter category).

An example of political censorship was a ban on a pamphlet that exposed US war crimes in Vietnam. I forget its title now but remember obtaining copies from the Eureka Youth League in 1968 and distributing them, surreptitiously, at my high school. The pamphlet was banned under the Obscene Publications Act, from memory.

* * * *

My father had served in the Second World War, volunteering in 1940 for the Royal Air Force in his homeland, Malta, when the Italian Fascists started bombarding the main island of the Mediterranean archipelago. He remembered the priests opposing British imperialism from the pulpit in the lead up to the War and assuring their congregations that Malta’s future was best served by accepting Mussolini’s Italia Irredenta.

By any measure, British imperialism’s crimes at that time were far worse than those of Italian imperialism, but on the other hand, British bourgeois democracy was much preferable to Italian/German fascism.

During the War, my father served in Africa, the Middle East, Palestine, and France, before being stationed in London after the War.

The War changed his world, everyone’s world, and in mixing with other RAF men, his eyes were opened to new ways of seeing and thinking. He remembered Jewish and Scottish airmen telling him about Stalin, the Soviet Union (“where the workers ruled”) and communism. (Note, they are called ‘airmen’ but they served on the ground, in regiments, and never flew).

The troops knew that Stalin’s Red Army were routing the Nazis in Europe and my dad’s comrades told him the story about the early British appeasement of Hitler and the west’s refusal to heed Stalin’s calls for collective security against fascism as early as 1933.

After the War, in London, still in uniform, my father thrived in the cosmopolitan environment of one of the world’s biggest cities. Servicemen in uniform were given free tickets to the West End theatres and to lectures given by the likes of George Bernard Shaw and Hewlett Johnson, the ‘Red Dean of Canterbury’. My dad took advantage of such opportunities.

He started buying the ‘Daily Worker’ regularly, the organ of the Communist Party of Great Britain, and found that while there were strong pockets of anti-communism, in general Londoners were tolerant of it and there was sympathy for Stalin and the Red Army.

My dad told me about an occasion when he went to work at his job in the Air Ministry in London after the War, having purchased the Daily Worker that morning. Walking through the main office, one of the heads of the ministry – a ‘Lord’ no less – noticed him and asked, ‘What’s that paper you’re carrying?’ My dad saluted and replied, ‘Sir! It’s the Daily Worker, the newspaper of the Communist Party’. Lord-so-and-so responded: ‘Oh, I thought it was. May I borrow it after you’ve finished with it? I forgot to buy mine this morning’.

It’s easy to forget that communism was popular after the War and that the Cold War arose in part because of communism’s popularity in Europe, west and east. If it’s true that reactionaries tremble at the mere rustle of leaves, then you can imagine how they responded to elections in places like France and Italy where between a quarter and third of the people voted Communist.

* * * *

I want to celebrate the centenary of the Russian revolution because it was an attempt to build socialism after the old feudal order had been overthrown by the people, led by the communist Bolsheviks. That it was led by communists was a rather flukish situation. The overthrow of the feudal order required a bourgeois democratic revolution that would develop capitalism. As David McMullen says in Rescuing the Message of the Communist Manifesto:

‘There is a thoroughly entrenched view that the experience of revolutions during the 20th century shows that communism has failed. It is true. There was a failure. However, it was not of communism, but rather of an attempt to sustain a path towards it when its preconditions were absent. Russia in 1917 and virtually all the “communist” regimes established mid-century were essentially backward pre-capitalist societies. Most people were peasants rather than proletarians, and they were more interested in land for the tiller than social ownership. There was little modern industry and thinking was more medieval than modern. They had not passed through the capitalist stage, which is necessary for a successful communist revolution’.

The Russian revolution also shows how the old order never just gives in. Civil war followed the revolutionary overthrow of the ruling class, with the old order backed by military forces of more than a dozen foreign governments.

Then there came the rise of fascism in Europe and the active pro-fascist fifth columns in various countries, especially the Soviet Union. Hitler hated communism, which he called Judeo-Bolshevism. In the Soviet Union, the fifth columnists engaged in sabotage and collaboration – as they did in some western countries too. In the west, the fascist sympathisers promoted isolationism in foreign policy. It’s “over there”, not our problem, we’ll only make things worse, blah blah blah. Such is the mentality that thinks in terms of ethnic identity and nationality rather than humanity.

As if things couldn’t become more difficult, there came the Second World War which, initially, the Soviet Union tried to keep out of; though Stalin had sought collective security agreements with Britain and other powers in the early 1930s when Hitler’s Nazis took power. Britain declined and instead entered into the Anglo-German Naval Agreement in 1934. Poland agreed to a non-aggression pact with Hitler, rather than collective security to thwart him, also in 1934.

The Nazi German invasion of the Soviet Union, and Soviet resistance, resulted in 25 million mainly Russian deaths. The Soviet Union instigated the greatest military action in world history known as Operation Bagration, codename for the 1944 Soviet Belorussian Strategic Offensive Operation, which secured the defeat of the Nazis. Women were mobilised along with men and the Red Army’s women’s sniper force became legendary in the Soviet Union. Lyudmila Pavlichenko shot 309 Nazi soldiers as a Ukrainian Red Army Soviet sniper during the war. (Woody Guthrie wrote a song for her in 1942).

It was understood at that time that the Soviet Union, despite what it had been through – a revolution followed by a civil war caused by the military intervention of forces backed by a dozen foreign governments, the subversive activities and sabotage of a pro-fascist fifth column, and an invasion by the German Nazis and their Finnish and Romanian allies that killed 25 million Soviet citizens – had achieved plenty through its socialist system.

Industrialisation, massive dam construction and electrification of the countryside had lifted millions from the acute poverty experienced under Tsardom. Stalin wanted to create “a second America” in terms of industrial progress. For the first time, the socialist republics of the USSR developed their own motor, aircraft, tank, tractor, machine tool, electrical and chemical industries – with the assistance of European and American experts.

The dam built on the Dnieper River from 1927 was the biggest hydro-electric station in Europe and was consistent with Lenin’s slogan: ‘Communism is soviet power plus electrification’.

lenin electrification soviet

New cities were built, most notably Magnitogorsk, which was based on iron ore mining and steel production. Hundreds of experts were brought in as advisers, including Americans, as the city was to be based on US steel-cities, Gary (Indiana) and Pittsburgh (Pennsylvania).

Roads, railways, canals also helped move Russia and the Soviet Union further from the feudal era of the ox-drawn plough. The Volga-Don Canal and the White Sea-Baltic Sea Canal were achievements of a system in which need and progress motivate planning and production. And, in 1954, the Soviet Union became the first country in the world to harness nuclear power for peaceful use, with the operation of the APS-1 nuclear power plant at Obninsk, the ‘Science City’.

This material progress, the application of human ingenuity in the creative-destructive transformation of Nature through labour, is a key reason as to why so many working class people in the west were attracted to socialism.

If the unleashing of the productive forces in a backward economy like Russia in the early C20th could produce such results via social ownership, then what could be achieved under socialism in the advanced industrial west where progress was held back by concentrated private ownership of the means of production and the pursuit of maximum profit for those private owners as the goal of production?

Despite the restoration of capitalism in the Soviet Union in the 1950s and 1960s, these questions remain. They just need to be put back on the agenda of public discourse. Instead, we can expect the same old ritualistic denunciations based on the false premise that ‘the History is settled’.

Are property rights essential to prosperity and liberty? The ‘No’ case.

This is a presentation by socialist economist David McMullen at a Melbourne Argument debate at the Royal Oak Hotel, North Fitzroy, Melbourne, on February 8, 2017. His opponent was Ted Lapkin, a former adviser in the Abbott government.

Private Property Rights are Essential not only to Economic Prosperity but to Political Liberty – The No Case

February 12, 2017 via Different Wavelength

* * * *

When looking at economic prosperity and political liberty, the private property rights we are concerned about are the ownership rights of the capitalist class over the means of production or productive assets. We are not arguing about private property rights over items of consumption. So I acknowledge everyone’s right to their own toothbrush.

What I want to contend is that in the future we will get by very nicely without private ownership of the means of production. We will do this by creating a class free society where the means of production are socially rather than privately owned. This will free the economy of the many shackles placed on it by capitalism and at the same time create a society that requires the fullest political freedom for its proper functioning.This future system is generally referred to as communism.

OK why do I take this singularly unpopular position which everyone knows has been totally discredited? Well, I subscribe to the Marxist view that capitalism creates the conditions for this new more advanced system.In a nutshell, capitalism eliminates the need for the profit motive and hence the need for its own existence. It does this through the creation of modern industry and technology which open up the prospect of universal prosperity, and of robots and computers doing all the work that we really don’t want to do. Under these new conditions we can begin to imagine people working because they like what they are doing and they want to contribute, while at the same time being happy with an equal share of an increasing level of prosperity. In other words we can see social ownership having a totally different and better form of motivation than the profit motive that is associated with private ownership.

This means that what was previously impossible becomes possible.Past history already tells us that sharing poverty and laborious work is impossible. You cannot create equality under those conditions. It is a utopian dream. For example, as the Middle Ages illustrate it only requires a small band of thugs who would prefer to live off everybody else’s hard work and you end up with a very nasty class society. Also when assessing the experience of the Soviet Union, and the various regimes derived from it, it is important to keep in mind their backward economic conditions as a factor in determining how things turned out there.

Now, favorable economic conditions presently only exist in the rich countries where less than 20 per cent of the world’s people reside. What about the rest of the world? It looks like it is going to take a number of generations for them to develop. It is hard to be any more definite than that. However, I would suggest that the prospects are best if there is a healthy global economy and a willingness to provide well directed economic aid and also to offer diplomatic and military assistance to those resisting the forces of tyranny and corruption.

Anyway, why do I consider that social ownership will bring greater economic prosperity and progress? There are five reasons that strike me as being particularly important.

  1. Firstly capitalist firms cannot match the work performance that would be achieved where workers unprompted want to do the job to the best of their ability.Capitalist firms have to apply various rewards and penalties to get their employees to do their bidding. However, if a job is in any way complex it becomes difficult to correctly assess how well people are doing their job. And jobs are becoming increasingly complex so this is becoming more and more of a problem.
  2. Secondly once we get rid of private ownership and private debt we will also get rid of economic crises, stock market crashes, bank collapses and extended periods of depressions or recessions that lead to unemployment and reduced production.
  3. Thirdly we will get rid of the waste of human labor that Marx called pauperization where a large number of people are thrown on the scrap heap and survive on welfare. They are not equipped to develop work skills or they are psychologically maimed from living in this society.
  4. Fourthly, we will not have capitalism’s sluggishness in terms of what are arguably the main drivers of economic progress, namely,science, research and development, and technological innovation. There are a number of reasons for capitalism’s lack of vigor in this area. If I can beg your indulgence I will list six that I am aware of. Firstly, capitalists are not interested in major technological breakthroughs that will make their present investments less valuable or even obsolete. They just want incremental improvements that increase their value. Secondly, benefits from spending on R&D are long term but capitalists tend to have a short term perspective. Thirdly because of the public good nature of new knowledge, firms cannot capture all the benefits and so underspend on it. Fourthly, where intellectual property right laws are applied, access to knowledge is restricted. Fifthly, government funding for R&D is the first thing to go when there are government budget cuts. And also there is huge wastage as researchers game the funding system and personal prestige and career take precedence over outcomes. And sixthly, capitalism generates an anti-technology and anti-science attitude among the alienated masses. People see the modern industry created by capitalism as the problem rather than capitalism itself. We have people whose livelihood is threatened by new technologies. And there are the greenies who have a romantic view of the pre-industrial past.
  5. Now the last but by no means least on my list of capitalism’s economic problems that will be overcome under communism is what economists like to call government failure.Capitalism tolerates a lot of bureaucracy and regulation.Much of it is devoted to catering to the needs of vested interests in ways that harm the economy. Vested interest is just another term for private property. And as well as this there is of course empire building by career minded bureaucrats.

OK those are my arguments for why I think that private ownership of the means of production is a fetter on the economy. Now I want to address what I think are the two main arguments against what I’ve been saying. Firstly, we are told that social ownership would require excessive centralization and secondly that you can’t change human nature.

Economists argue that all this well-intentioned motivation would come to very little because an economy based on social ownership has an inherent economic calculation problem: in the absence of market transactions between enterprises it could not have a properly functioning price system. And as a consequence social ownership would require clumsy centralized resource allocation of the kind that existed in the Soviet Union. I am not going to speculate on how economic decisions will be made in the future under communism. However, we can say that there is nothing about the non-market transfers of custody over components from producer to user enterprises that would prevent them from making decentralized decisions based on prices. Furthermore, we could hardly do a worse job of allocating investment funds than do highly fluctuating interest rates and exchange rates produced by capitalist finance. Indeed, there are good reasons for thinking that economic decision-making would be far superior to that under capitalism. To begin with, because of the absence of ownership barriers, there would be far more scope for coordination, and less scope for secrecy and deception.

Human nature and mutual regard

Now what about human nature? A society based on social ownership requires far more than simply state ownership, although that is a prerequisite. There need to fundamental changes in people’s behavior and abilities.

The behavior change can be best summed up in the expression ‘mutual regard’.You do the right thing because you want to contribute and you know that your efforts are not futile because a large and increasing section of society is doing likewise. As well as being the basis of morality and what is considered honorable it is also enlightened self-interest. By everybody serving others we are all served. This altruism is not the self-denial that Ayn Rand made it out to be.

Many would doubt the ability of rank and file workers to do the complex kinds of work required in the future. However, I would suggest that people have greatly untapped potential. There are many ways that they are presently held back or find themselves unchallenged.

The kinds of changes we are talking about here will not happen overnight. There will have to be a transition period that will take a generation or more and is generally referred to as socialism. It will take time to totally eliminate private ownership, starting with the big fish, and it will take time to move completely away from the old capitalist work incentives. And it won’t be smooth sailing. Good behavior will only win out once the good majority gain the confidence and moral courage to stand up to those who behave badly. And there will be lots of old management types trying to run things in the old way and convincing workers that the new ways are futile. So it will be touch and go for a while and we may need more than one stab at it.

Now let’s look at political liberty

With the emergence of capitalism we have seen for the first time a degree of political liberty. We have constitutions limiting the power of government, we have elections, the separation of powers, habeas corpus. These would have been unimaginable in the Middle Ages or in any other pre-capitalist society.

The main problem however is that the capitalist system tends to abandon political liberty in times of crisis. Also a big test of political freedom is our freedom to confiscate the means of production from the capitalists and convert them into social property. In the face of a serious revolutionary movement one would expect to see states of emergency, unofficial death squads, and well-resourced propaganda campaigns spreading fascism and xenophobia.

Historical accidents

What conclusions should we draw about the lack of democracy in the so-called communist bloc countries? The Soviet Union etc? The first thing to note is that we dealing with an historical accident. By virtue of some rather specific or contingent circumstances,communists found themselves in charge in countries that with few exceptions were economically and socially backward, and totally unsuited to undertaking a communist revolution. Also, the regimes did not arise as a result of popular support for communism. In the revolutions in the Soviet Union and China the primary concern of the peasant masses was nothing more than land reform. In Eastern Europe the regimes were due to the arrival of the Soviet Red Army at the end of WWII rather than popular revolutions. So I think it is safe to say that these regimes would not have survived if they had been democratic.

However, it is important to keep in mind the alternative in most cases was right-wing tyranny rather than democracy. And of course these regimes eventually lost the minimal revolutionary content they may have originally had.So their authoritarian nature could no longer be blamed on communists. Instead we just had phonies like Vladimir Putin who pretended to be communists until the collapse of the Soviet Union and we presently have people like Xi Jinping in China who still pretend to be communists. The take-home message here is that the conditions were very different from what we would expect in the future when revolutionary regimes come to power in highly developed societies on the back of widespread support for their political program.

Freedom of speech

Now, the economist Milton Friedman famously argued that freedom of speech and the emergence of diverse political groups require the decentralization of resource ownership that only capitalism can deliver.He argued that under capitalism you have the possibility of finding a rich patron. Marx and Frederick Engels and the Bolsheviks received money from anonymous benefactors as well as from robbing banks. Under social ownership, however, resources would be centralized in the hands of the very authorities that you may want to criticize. However, I would argue that with everyone having very high disposable incomes and access to the Internet you would not have to rely on central authorities providing resources. Also I do not see any insurmountable obstacles to ensuring open access for various resources needed for a vibrant political life.

I do not want to paint too rosy a picture.A revolutionary government during its initial phase may have to declare a state of emergency if there is a rebellion by supporters of the old order. Their rebellion could take the form of civil war, terrorism and sabotage, and dealing with it will not be easy. At the same time, for success, we will need the freedom to criticize those in positions of authority when they display incompetence or lack of revolutionary politics. Bottom up supervision will be a critical part of the system. Indeed, a social system that relies on people taking the initiative without external prompting, could not function if people are not able to say what they think is wrong and what they think should be done about it.

Summing up

I will now make two points to briefly sum up.

Firstly, capitalism creates the very economic conditions required for a more advanced classless society that will be based on social ownership of the means of production.

Secondly, a primary task for the present period is ensuring economic and political progress in the more backward regions of the world. For this we need a liberal global economic order, well directed economic aid, and diplomatic and military support in fighting the battle for democracy. And critical to this is beating back the nationalist anti-globalist wind that is blowing at the moment.

 

Is capitalism the best system on offer?

“In place of the old bourgeois society, with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all” – Karl Marx

* * * *

This is the text of a talk given by David McMullen at the Monthly Argument on Wednesday October 19, at The Royal Oak Hotel, Fitzroy. David is the author of Bright Future.

Is capitalism the best system on offer?

As you are well aware we presently live under the capitalist system where the means of production are owned primarily by a small ruling class. Now is this system the best on offer? My answer to the question is no. However, the journey to the better alternative is going to be a tortuous process. This alternative is the very opposite of capitalism. It is a classless society where the means of production are socially owned, and it has usually been called communism.

Now how does this alternative claim to be better? It claims to be better than capitalism on the grounds that it would allow the individual to fully develop and thrive under conditions of mutual regard rather than the dog eat dog world of capitalism.

However, for such a society two things are required. These are (1) a very high level of economic development and (2) the successful completion of a rocky period of revolutionary transition during which we fundamentally transform ourselves and our relations with each other.

The first of these – a very high level of economic development – allows us to eliminate poverty and toil, and this is absolutely critical if we are going to dispense with the profit motive. This is because it opens up the possibility of people working because they like what they are doing and they want to contribute, while at the same time being happy with an equal share of an increasing prosperity. While it is possible to imagine people sharing prosperity and enjoyable work, it is not possible to imagine people sharing poverty and toil. The Middle Ages shows us that it only requires a small band of thugs who would prefer to have a lot more than everybody else and you have a very nasty class society. Also the experience of the Soviet Union, and the various regimes derived from it, shows what happens when you try and go beyond capitalism under backward economic conditions.

In the rich countries we have reached an economic level where it is possible to imagine everyone enjoying something approaching toil free prosperity. However, what about the rest of the world where most people live? What are the prospects there? The middle income countries such as China and India should start approaching fair levels of development in a generation or so if they maintain a reasonable growth rate. On the other hand the poorest countries where most people live will need to begin, and sustain, a growth takeoff similar to India and China in order to get to out of their present poverty later this century.

Many raise doubts about the possibility of achieving global economic prosperity. They either say that everyone having high and increasing living standards is impossible because of resource limits to growth or because capitalism’s disregard for the environment will lead to ecological collapse and a very bleak future.

The limits to growth view is based on a number of notions: (1) that minerals become too difficult to extract as we have to dig deeper or rely on lower grades of mineral ore. As a result capital becomes increasingly devoted to extraction and this leaves less and less for the rest of the economy. (2) Economic growth necessarily creates an increasing waste stream that the natural environment can no longer cope with. (3) Increasing food production will ultimately deplete the soil. I think there is ample evidence technological advances can solve those sort of problems. I dealt with this issue at length at the debate in June. It is available online as is this talk.

Now is capitalism going to completely trash the environment because of its shortsighted search for profits? I think we can expect quite a lot of trashing of forests and pollution of air and water as the poorer countries develop. However, countering that is the fact that newer technologies tend to be cleaner and as countries get richer there is increasing political pressure to reduce environmental damage and remedy past damage.

As for CO2 emissions. They are very unlikely to be brought down to the levels that people are talking about. We are pretending to do something while achieving very little. The Europeans have made a lot of noise but are reneging on all their promises. India and China are continuing to build coal power plants at a cracking pace. China is also building quite a few in other countries. Germany and Japan are building more coal power plants because of their stupid decision to get out of nuclear power.

There are two strategies for significantly reducing CO2. The first would involve a massive total switch to renewable and nuclear power in coming decades. However, because these technologies are far more expensive than fossil fuels it is not going to happen. Keep in mind that it would require massive subsidies to the less developed countries who have made it clear that they are not going to abandon much cheaper fossil fuels unless compensated. These countries are already consuming more than half the world’s energy and the percentage will soon be a lot higher.

The second strategy is to to implement a massive research and development program aimed at providing energy options that greatly close the cost gap with fossil fuels. This would be far cheaper than the first strategy. And it is a strategy that Bill Gates is promoting with only modest success. And it is the strategy I support.

For the moment I am noncommittal on the level of threat to the environment that is posed by capitalism’s failure to act on CO2 emissions. Views on the subject range from little impact to a runaway greenhouse effect that would put the human race in a very sticky position.

Now on that rather uncertain note, let’s move on to the second requirement if we are to achieve a classless, collectively owned society. As said at the beginning, we have to complete a very rocky period of revolutionary transition during which we fundamentally transform ourselves and our relations with each other.

While getting rid of the capitalists and installing a revolutionary government will be a protracted and tortuous business, it will not be enough. We also require an entire historical period of struggle to make the transition from a society based on profit to one based on mutual regard. This will have many ups and downs and may possibly include major defeats.

The central thing here is a struggle with a new bourgeoisie that is bound to emerge after the revolution because you can’t immediately eliminate the old division of labor. For some time society will still have a lot of hierarchy, and all levels of government including the very top will be full of phonies pretending to be revolutionaries and also revolutionaries who become corrupted by power. This new group proved irresistible in the Soviet Union and its derivative regimes. To counter this it will be critical to have a revolutionary mass movement that can push back against it.

There is also a struggle with people at all levels of society who are slow to adopt the behavior and thinking of mutual regard. This will require people to have the moral courage, self-confidence and social skills to stand up to problematic behavior. At the moment we tend to knuckle under or run away from a problem. The principle of mutual regard can be summed up as – I will go out of my way for others and others do likewise, and we all share in the better outcome that results. It is enlightened self-interest because our welfare depends on the welfare of others. And we mustn’t forget the direct satisfaction that we get from helping others and contributing to the general good.

I rather like this paragraph from the Communist Manifesto dealing with this subject:

In place of the old bourgeois society, with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all.

Finally, a very important point to make is that the less that capitalism has modernized societies the harder the task of transition will be. Pre-capitalist societies are really awful and people’s heads are full of even more crap than modern people. In these societies the average person is ignorant and uneducated. They are servile and accepting of the idea that some people are superior to others, and have a right to push everyone else around. There is no conception of democracy or individual liberty. The individual is tied down by obligations and loyalties to groups such as extended family, clan and tribe. And women are completely subordinate to men. It is virtually impossible to imagine creating a classless society on the basis of this kind of culture.

So to sum up.

Firstly, a society more advanced than capitalism requires a high level of economic development, what is sometimes called post-scarcity.
Secondly, this new society requires more than simply installing a revolutionary government and dispossessing the capitalists. There is an entire historical period when ordinary people will have to push back against the opponents of the revolution and thoroughly internalize the new morality of mutual regard.
And thirdly, on a more mundane note, there needs to be a massive increase in research and development spending in order to develop the new energy technologies that economic growth requires.

My dad Loreto York, Pastor Doug Nicholls and Brunswick’s Mayoral Ball 1973

Loreto York, 2006, with portrait of himself as Mayor in 1972 ack Barry York

Loreto (‘Larry’) York, 2006, with photo of himself as Mayor of Brunswick in 1972.

****

My father, Loreto, would have turned 98 today. Sadly, he died in 2009 – but lived a healthy life for 90 years (save for his months of decline).

Loreto with his mother in Malta c1936 001

Loreto Meilak with his mother, Loretta, in Malta, c1936. (My dad changed his name to York in 1947 while in London with the RAF).

He was born in Malta in 1918, joined the Royal Air Force there during the Second World War, and ended up in London with the RAF after the War, where he met and married my mother, a Londoner ‘born within the sound of Bow-Bell’ named Olive Turner.

I was born there in 1951 and was three when my parents migrated to Melbourne, Australia.

Loreto in RAF uniform and his son Barry c1954 at 15 Plympton Ave, Brondesbury, London jpeg

My dad in RAF uniform, with me, prior to being demobilized and migrating to Melbourne in 1954.

 

 

 

 

 

Apart from a brief stint as a mail sorter in the GPO, my father worked in factories all his working life in Melbourne. Radicalised by the experience of the anti-fascist war, especially by communist and socialist English and Scottish airmen he met while on service in the Middle East and Africa, he followed both the British Labour Party and the Communist Party while in uniform in London. (He was demobbed in 1953).

In Australia, he was shop steward in a couple of factories where he worked in the cosmetics industry and he eventually joined the Australian Labor Party. Back then, the ALP was the mainstream socialist party. (Hard to believe, I know).

A charismatic person who was self-taught (he had only four years of formal education in Malta) and who graduated with distinction from the ‘University of Poverty, War and Struggle’, he spoke several languages and this made him a huge asset to the Bruswick branch of the Labor Party.

As a family we had settled in Brunswick in 1954 and, after a couple of years in several different boarding houses, purchased our own place in Shamrock Street, West Brunswick, in 1956. I was there for nearly 30 years – my parents for about 40.

My father became active in local government politics in the 1960s and was elected to the Brunswick Council. Unlike the other Labor Councillors, he could speak Italian, Maltese, Arabic, some Greek and German and smatterings of other languages that were common in the significant migrant city.

In 1972, he became Mayor of the City of Brunswick – the first Maltese Mayor of an Australian city and the first ‘non-Anglo’ ‘non-Celtic’ Mayor of multicultural Brunswick. I should point out, too, that back then, being Mayor was not a paid position. There was a small allowance to cover costs but my dad had to continue working five days a week in the factory.

As he explains in the excerpt from a lengthy oral history interview I recorded with him in 1989/1990, he was involved in the Vietnam protest demonstrations and regarded himself as ‘progressive’. He felt strongly about Aboriginal issues and supported equal opportunity for all Australians. I have a childhood recollection of him exclaiming after watching a television documentary about Albert Namatjira: “They call this a democracy!” And: “How can there be poverty in a land with such vast natural resources?!”

In Melbourne back then, Pastor Doug Nicholls was the ‘face’ of Aboriginal Australia in the media. (That’s how I remember it, at any rate). He used to come to my school, Northcote High, and speak to us students at morning assemblies. He was quiet, understated, smartly dressed and very eloquent and persuasive. Above all, he was a man of enormous dignity, with no suggestion of victimhood.

The Brunswick Mayoral Ball of 1973

My parents admired him, as did most people, and when in 1973 my dad had to organise the traditional Mayoral Ball, he decided it would be a good opportunity to make a gesture in support of the Aboriginal cause and against racism. He arranged for a group of Indigenous dancers to perform – and he invited Pastor Doug to be special guest of honour, leading the official party into the hall.

As far as we knew at that time, no other Council had invited Aboriginal dancers to such a function. His decision to have Pastor Doug lead the official guests into the Brunswick Town Hall ballroom meant that he had to override the objections of the Town Clerk who, rightly, pointed out that it would breach Protocol (which stipulated that the order of entry into the ballroom by the official guests had to be led by the Governor (if attending), then Parliamentarians, then the RSL (of which my dad was a member), Councillors, etc.)

In the oral history excerpt, my dad is restrained in his description of how he insisted that Pastor Doug lead the official party. He told me at the time, and many times later, how he responded to the Town Clerk’s insistence that Protocol could not be broken, by saying: “I’m the f*&#ing Mayor and if I f*&#ing want Pastor Doug to lead the official f*&#ing party then it will f*&#ing happen!” (I’m told that the ‘f’ word was commonly used by members of the Royal Air Force during the War, and that is no doubt where he learned it). My dad had a theatrical side to his character, and relished re-enacting his response to the Town Clerk, even decades later when in his 80s. (His story-telling often took the form of highly animated re-enactment).

Dad's scrap album Pastor Doug Nicholls 1973 001

Pastor Doug Nicholls at the Brunswick Mayoral Ball in 1973 – newscuttings from my parents’ scrapbook.

 

My dad had a big impact on me in terms of awareness of the world, passionate opposition to injustice, interest in ideas, sympathies for socialism and communism and, above all, in terms of his spirit of irreverence and rebelliousness.

I hope you enjoy the oral history excerpt, commemorating, as it does, two of history’s good guys.

 

****

 

 

 

 

 

Transition from Capitalism (by Arthur Dent)

Guest post by Arthur Dent via Bill Kerr blogspot.

Any transition from capitalism in advanced capitalist countries as a result of another Great Depression would involve:

Inexperienced left governments required to urgently get the economy moving again and end mass unemployment because previous governments, whether claiming to be left or right, had been unable to do so.

Some level of rapid expropriation of privately owned wealth that was immobilized by the crisis now made available for socialized investment in new fixed capital construction projects to get the economy moving again and absorb unemployment.

The day after a change in government would be similar to the day before. The same social relations based on money, wage labor and capital, the same social institutions such as globalized large corporations, and national and local large, medium and small enterprises and bureaucratic government departments and agencies, and the same economic paralysis.

* * * *

This article is a placeholder for an introduction to a series of articles on various aspects of economic policy to be advocated before, and implemented during, the early stages of, a transition from capitalism in advanced capitalist countries under various different possible scenarios.

I am nowhere near ready to write any such articles, even as tentative drafts, so I cannot write an actual introduction.

Meanwhile one of the courses I am studying to become able to write such tentative drafts is a MOOC on “Public Private Partnerships” by the World Bank.

This requires as a final project for the policy and procedures track, publication of a “digital artefact” plus a description of the target audience in one hundred words.

I have published as my “digital artefact” the eight hundred word article on “Role of PPPs in Transition” [which will be published later – c21styork):

The key requirement is:
“Topic: Identify an infrastructure need that could be developed as a PPP. This could be a project that is in process of development, one on a country’s PPP project lists, or a need that has not been acted on. Think about the key facts or ideas you wish to convey by answering the following questions:
What is the infrastructure problem that the PPP is trying to solve?
What services are to be provided and are these services affordable?
What are the reasons that the private sector would want to participate?
How should these risks be allocated? Consider the country context in judging the risks and who should take them.”

I have identified as a “need that has not been acted on” the general paralysis of investment resulting in prolonged mass unemployment in another Great Depression worse than the 1930s following a financial crisis worse than 2008.

Such a worse financial crisis than 2008 does not seem to be entirely implausible since the last one seems to have been merely postponed rather than resolved by the extraordinary measures taken. Nor does another Great Depression worse than the 1930s seem entirely implausible following such a worse financial crisis.

The need is for all the infrastructure required to resume economic growth, not just traditional infrastructure like existing public utilities. The problem that has to be solved is that there are no profitable outlets for private investment in crisis conditions so investment must be socialized rather than left up to private investors.

This would require some form of state capitalism either as a transition back to “normal” private capitalism or as a transition away from capitalism.

The absence of any significant left in advanced capitalist countries, at least in the english speaking ones I am familiar with, makes any transition away from capitalism seem completely implausible. But then the continued absence of any significant left under the conditions of prolonged mass unemployment and economic paralysis seems even more implausible.

There are already important changes in the political climate of countries like Greece, Spain and Iceland that could become precursors of something much bigger. These countries are peripheral rather than central to the advanced capitalist world, but they are part of it and they are already facing serious economic and political crisis situations.

So I am writing for the target audience described at the end of this introduction, in the conceivable scenario described below.

The services to be provided are not traditional public utilities but the ending of prolonged mass unemployment through resumption of economic growth.

These services are affordable because prolonged mass unemployment is not affordable and both labor and capital are cheap in depression conditions. What is missing is profitability, not affordability.

The private sector would not particularly want to participate, but would not have better options available. Corporations would still want whatever contracts are available at the best returns they can competitively get for the benefit of their shareholders, whether or not some of their shares that used to belong to wealthy private individuals now belong to public institutions. Board members and senior managers who no longer wanted to participate because their incentives had been expropriated would be replaced by board members and managers willing to work for the owners, old and new, under the incentives currently being offered.

But the social system would not yet have been changed and risks and incentives would still have to be allocated in the context of an advanced capitalist country in crisis that is merely beginning a transition from capitalism, not one that has completed such a transition. So many of the same principles would have to still apply and new ones could only be understood and evolved over time.

Scenario

Any transition from capitalism in advanced capitalist countries as a result of another Great Depression would involve:

Inexperienced left governments required to urgently get the economy moving again and end mass unemployment because previous governments, whether claiming to be left or right, had been unable to do so.

Some level of rapid expropriation of privately owned wealth that was immobilized by the crisis now made available for socialized investment in new fixed capital construction projects to get the economy moving again and absorb unemployment.

The day after a change in government would be similar to the day before. The same social relations based on money, wage labor and capital, the same social institutions such as globalized large corporations, and national and local large, medium and small enterprises and bureaucratic government departments and agencies, and the same economic paralysis.

To simplify things I further assume a “simple” scenario with:

Expropriation narrowly targeted to take all and only the excess wealth of the top 1% of nationals.

This results in substantial investment funds becoming available to governments starting transition but most of the capital in each such country would still be held privately and by foreigners.

The most important capitalist countries such as the USA, China, Japan, and Germany would not be the first to start making the transition. But international financial and investment flows as well as trade continues.

Many top layers of management in most social institutions would be quite hostile to transition but there are enough supporters capable of supervising or replacing them.

Some of these assumptions may not look very plausible. But advocating measures based on such a “simple” case, would place the responsibility for different policies firmly with those who might prevent the policies discussed for this scenario by resorting to the breakup of international financial investment and trade flows, and civil and international wars.

Target Audience

I am studying economics, finance and other subjects to understand how capitalism works and become able to propose economic policies for transition from capitalism in advanced capitalist countries. Currently there is no significant left movement in such countries, but I am drafting tentative ideas for a wider future audience of prospective government policy makers expected when a financial crisis like 2008 eventually becomes another Great Depression like the 1930s. They are not concerned with some specific PPP project. I am conveying one possible policy option for managing partially socialized and partially still private investment projects using PPPs.

If the Dalai Lama is Marxist, then so was Leo X111.

jetsons

Last month at a university lecture in Kolkata, India, the Dalai Lama declared that, when it comes to “socio-economic theory”, he is a Marxist. His reasoning was as follows:

“In capitalist countries, there is an increasing gap between the rich and the poor. In Marxism, there is emphasis on equal distribution.”

The Dalai Lama joins a growing list of religious leaders, including Pope Francis, and other global celebrities, to declare an affinity with the notion of ‘equal distribution of wealth’, an idea that is widely (but wrongly) regarded as being Marxist. A leftist influenced by Marxism does not ask, “How can wealth be distributed more equitably?” but rather “Who produces the wealth in the first place?” And: “Why does socially produced wealth end up in the hands of the owners of the means of producing it (machines, factories, raw materials, etc) rather than in the hands of those without whom it could not have been generated?”

The positive side of the publicity is that Marxism is of international interest again, as a theory that helps to understand the dynamics of capitalism. This is happening  at a time when, in the advanced economies, capitalism isn’t delivering the promised goods any more and growing numbers of people are pissed off.

But, one must feel some sympathy for old Karl. His exasperation with those who adopted the brand without understanding the content led him to declare 150 years ago that “If anything is certain, it is that I myself am not a Marxist”. Marxism is not, and has never been, about the equal distribution of wealth.

‘To each according to his contribution’: Marx’s Critique of the Gotha Programme

In his Critique of the Gotha Programme, written as a letter in 1875 in response to the draft platform of the German Social Democratic Workers Party (SDAP), Marx pulled no punches when he described the idea of “fair distribution” being proposed by the SDAP as “obsolete verbal rubbish”, which ‘perverted a realistic outlook’.

He first tackles the proposal in the draft platform that “the proceeds of labor belong undiminished with equal right to all members of society” and asks: “’To all members of society’? To those who do not work as well? What remains then of the ‘undiminished’ proceeds of labor? Only to those members of society who work? What remains then of the ‘equal right’ of all members of society?”

Marx then dissects the notion of “proceeds of labor” in the sense of “a product of labor” with the co-operative proceeds “the total social product”.

“From this”, he points out, “must now be deducted: First, cover for replacement of the means of production used up. Second, additional portion for expansion of production. Third, reserve or insurance funds to provide against accidents, dislocations caused by natural calamities, etc. These deductions from the ‘undiminished’ proceeds of labor are an economic necessity, and their magnitude is to be determined according to available means and forces, and partly by computation of probabilities, but they are in no way calculable by equity”.

He continues: “There remains the other part of the total product, intended to serve as means of consumption. Before this is divided among the individuals, there has to be deducted again, from it: First, the general costs of administration not belonging to production. This part will, from the outset, be very considerably restricted in comparison with present-day society, and it diminishes in proportion as the new society develops. Second, that which is intended for the common satisfaction of needs, such as schools, health services, etc. From the outset, this part grows considerably in comparison with present-day society, and it grows in proportion as the new society develops. Third, funds for those unable to work, etc., in short, for what is included under so-called official poor relief today. Only now do we come to the ‘distribution’… to that part of the means of consumption which is divided among the individual producers of the co-operative society”.

As Marx notes, the “undiminished” proceeds of labor in the draft have now become converted into the “diminished” proceeds, “although what the producer is deprived of in his capacity as a private individual benefits him directly or indirectly in his capacity as a member of society”.

And what of the obvious and natural inequality among individual workers?  “… one man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right. Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only — for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal”.

The Critique of the Gotha Programme is one of my favourite works by Marx. In it, he is thinking practically about how the future society based on socialism – ‘To each according to his contribution’ – and then communism – ‘From each according to his ability, to each according to his needs’ – might develop. A most important point is that the new socialist society emerges from the old capitalist one and will still be marked by the culture and habits of the past. It will not be a wholly new system simply because the old social relations have been overthrown.

Accordingly, argues Marx, the individual producer in socialist society receives back from society – after the deductions have been made – “exactly what he gives to it”. He continues: “What he has given to it is his individual quantum of labor…The same amount of labor which he has given to society in one form, he receives back in another”. Marx’s view of how this could be done involved certificates rather than money.

And, “the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values… a given amount of labor in one form is exchanged for an equal amount of labor in another form. Hence, equal right here is still in principle – bourgeois right, although principle and practice are no longer at loggerheads, while the exchange of equivalents in commodity exchange exists only on the average and not in the individual case. In spite of this advance, this equal right is still constantly stigmatized by a bourgeois limitation. The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor.”

Progressive taxation as a distributive measure

It is true that in the Communist Manifesto, Marx advocated a system of “heavy progressive or graduated income” taxation, which is the way wealth is redistributed by governments, and argued about, in capitalist societies today. But progressive taxation has now been part and parcel of capitalism for more than a century. It would be absurd to regard the Prussian government of 1891, when modern progressive taxation was first introduced, as Marxist; even if Emperor Wilhelm 11 did regard himself as “king of the mob”.

Progressive taxation imposes a greater rate of tax on the wealthier income-earners. In Australia, people who earn less than $18,200 per year pay no income tax, those who earn between $18,200 and $180,000 pay (an average of) 20%, while those who earn over $180,000 pay at a rate of 45%. It can be a way of redistributing wealth downwards, as in the case of funding the Welfare State, or upwards through subsidies and ‘bail-outs’ to the capitalist class. Labor parties, or right-wing social democratic parties, are particularly good at the latter. In Australia, under the former Labor government led by Prime Minister Gillard, subsidies amounting to hundreds of millions of dollars were handed out to the big capitalists. In 2012 alone, nearly $90 million went to General Motors Holden.

Mind you, the US experience shows that ‘right-wing’ parties, like the Republicans, are also extremely good at it too. Witness Bush jr’s $700 billion bail-outs to failed financial-services capitalists over there. It doesn’t matter whether it’s Democrats or Republicans, or Labor or Coalition, they will do what it takes with workers’ money to keep zombie capitalism going. Naturally, people become disenchanted with a political party system of that kind and it becomes common to hear phrases such as “No matter who you vote for, you end up with a politician”.

It cannot be disputed that progressive taxation occurs under capitalism and does not in any way challenge the basic set of social relations defining it.

Rerum Novarum, distributism and fascism

By the measure of the notion of fair wealth distribution, the Rerum Novarum of Pope Leo X111, which was formulated in 1891 as a Catholic conservative response to the ills of capitalism and the ascendancy of secular democracy and the growing interest in socialism among the working classes, might also be regarded as ‘Marxist’. Rerum Novarum advocated ‘distributism’, a system in which means of production and property are distributed throughout society as in medieval times, as an alternative to both capitalism and socialism. It was, and is, a desire to return to the era of the guild, an economy centred on small land holdings and artisan production, and based on class collaboration (ie, the peasants/workers ‘accepting their place’ in return for being exploited more nicely).

In Australia, the best known advocate of this system was B.A. Santamaria. In his book, The earth, our Mother (1945), the basis of the new small-scale distributive society was to be the family unit living as close to possible to self-sufficiency on the land. As in medieval times, prior to industrial capitalism, this society would be protected from the ‘corrupting’ influences of big cities and secular materialism by the unifying ‘higher’ spiritual values of the Church. The cooperation of owners and producers would also be cemented through the promotion of nationalism, adherence to custom and tradition, and ethnic solidarity (the folk or volk).

Much of this has resonance today in E. F. Schumacher’s Small is beautiful (1973) and the Green movement. The higher spiritual value from the viewpoint of green ideology is Gaia, or the idea of harmony with, and subservience to, Nature.

Not surprisingly, in the twentieth century, Rerum Novarum and distributism influenced fascist movements, including Italy’s with its corporatist form of tyranny under Mussolini. That influence is also seen in the right-wing social democratic and Christian Democratic commitment to systems of arbitration between workers and owners of means of production. Australia currently has one avowedly ‘distributionist’ parliamentary political party: the Democratic Labour Party. Appropriately, its representative in the federal Senate is a practitioner of one of the medieval era’s ‘mechanical arts’: blacksmithing.

Given that the medieval feudal past cannot – (and should not!) – return, then the quest for more equitable distribution of wealth ends up being a defence of the status quo, capitalism. To socialists influenced by Marxism, capitalism was a revolutionary leap forward from feudalism, because feudalism limited the capacity of individuals to expand their horizons and to be freer. It trapped people in what Marx called “rural idiocy”. At best, from a Marxist perspective, the issue of wealth distribution – the gap ‘between rich and poor’, as the media likes to put it – is useful because it can raise the real question of production rather than distribution, of how value is produced and how it is appropriated. And, from there, why the appropriators need to be expropriated.

The revolutionary nature of capitalism in the nineteenth century

To Marx, capitalism was revolutionary in the way it overturned feudal claptrap and “at last” compelled people “to face with sober senses their real conditions of life and their relations with their kind”.

In the Communist Manifesto, he put it poetically:

“The bourgeoisie has disclosed how it came to pass that the brutal display of vigor in the Middle Ages, which reactionaries so much admire, found its fitting complement in the most slothful indolence. It has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former exoduses of nations and crusades.

“The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air… “

Industrial capitalism created material conditions that cannot be unmade but only taken further, and social relations that can be overturned and transformed into something new and better.

Marxists are all for progress with a big ‘P’. It’s about the future, not yearning for a ‘small is beautiful’ rural past.

Distribution of wealth and relations of production

Under capitalism, with private ownership of means of production, and production for private profit, distribution of social wealth flows from the relations of production. The resultant scale of inequality can be no other way. Increases in inequality between rich and poor or, more to the point, between the owning class and the working class is part of the system of exploitation of wage labour itself, through which value is created.

In Wage Labour and Capital, Marx points out how,

“…even the most favorable situation for the working class, namely, the most rapid growth of capital, however much it may improve the material life of the worker, does not abolish the antagonism between his interests and the interests of the capitalist. Profit and wages remain as before, in inverse proportion. If capital grows rapidly, wages may rise, but the profit of capital rises disproportionately faster. The material position of the worker has improved, but at the cost of his social position. The social chasm that separates him from the capitalist has widened…

“Growth of productive capital and rise of wages, are they really so indissolubly united as the bourgeois economists maintain? We must not believe their mere words. We dare not believe them even when they claim that the fatter capital is the more will its slave be pampered. The bourgeoisie is too much enlightened, it keeps its accounts much too carefully, to share the prejudices of the feudal lord, who makes an ostentatious display of the magnificence of his retinue.”

On this last point, I think Marx would reconsider his position were he alive today. The ostentatiousness of the big bourgeoisie is sometimes astonishing – be it in the USA, the Russian Federation or China.

Marx would also be amazed at the material progress that has taken place, especially for the working class, but any great thinker from the nineteenth century would be the same. Marx acknowledged that the material conditions for the workers were improving even in his time. The important point is that the social chasm widens. (There are, of course, plenty of other reasons why capitalism sucks and has outlived its usefulness).

Labour theory of value: Marx meets the Jetsons!

The Marxist labour theory of value (LTV) explains how exchange value is created by labour’s interaction with nature and how, in the capitalist mode of production, wage labour is exploited. Bourgeois economists hate the theory because it lay at the heart of Marx’s analysis of the need for revolution. Capitalism reaches a point where it is a fetter on production – as we have seen for some decades now. Workers as a class without borders have nothing to lose by overthrowing this system based on their exploitation. Some real productivity can then occur, free from the constraints of production geared to the pursuit of private profit. For starters, we’ll be able to mass produce and have our own flying-cars!

I wanted to find a good summary of the theory that wasn’t too scant, and found the following at a non-Marxist economics blog called ‘Unlearning Economics’:

“Marx’s theory goes as follows: under capitalism, the value of commodities is determined by the ‘socially necessary’ amount of labour required to produce them (‘variable capital’), plus the current necessary cost of the capital used up in production (‘constant capital’). Fixed capital, such as machines, adds value at the same rate it depreciates, while raw commodities are used up completely and so add all of their value. Labour is generally paid less than the value it adds, and therefore is the sole source of profit.

“Here’s a brief mathematical example: say an hour of labour adds £1 of value, and a certain type of chair requires 8 hours of labour (‘labour-time’), uses £2 worth of wood and depreciates a saw worth £10 by 1/10th (i.e. after the saw is used 10 times it will break). It follows that, according to the LTV, the value of this chair is:

“(1/10)*£10 + (8*£1) + £2 = £11

“The only way the capitalist can make a profit is to pay the labourer less than the value he creates (for the most part, Marx suggested wages were determined by a social subsistence level). So if the wage is, say, £0.50, the capitalist will have £4 worth of profit. Contrary to what many think, this does not imply that capital-intensive industries will have lower rates of profit, as the rate of profit will tend to equalise between industries, ‘sharing out’ the total surplus value produced in the economy.

“The qualifiers of “necessary” costs and “socially necessary” labour are also important. It’s logically possible that a madman could purchase a saw for £100 for some reason, or that a lazy labourer could take 10 hours to make the chair, but this would do nothing to alter the resultant value of the chair. Marx was concerned with general rules, not specific cases, which could obviously fluctuate wildly as they are based on human behaviour.

“The main implication of this theory is that, since capitalists tend to use labour saving technology to increase productivity, over time they use relatively more constant capital – which cannot be a source of surplus – and this drives down the rate of profit: the Tendency of the Rate of Profit to Fall (TRPF). Though the first capitalist who uses the technology will be able to sell at the market price, and thus gain, once the technology is widely adopted, the value of the commodity will decrease – a ‘fallacy of composition’. Again, this may not be true in particular industries at any one time, but it holds true across the economy as a whole. The result will be intermittent crises as capitalists face lower profits and try to increase them by pushing down wages, devaluing their constant capital, or through technological progress. Marx never predicted capitalism would collapse in on itself, though he did suggest that the working class would revolt as their wages were pushed down”.

Conclusion

A shared prosperity can only spring from common ownership of the means of production. It is not possible under capitalism. The system would grind to a halt. The capitalist would not invest and they would have no incentive to force alienated workers to keep their noses to the grind stone. The system of distribution cannot be separated from the system of ownership.

 

* * * *