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

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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

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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.

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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.

 

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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.

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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.

 

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William Hinton – China’s great reversal

William Hinton was born in Chicago in 1919. He first visited China in 1937 and then in 1945 returned as a staff member with the US Office of War Information. During an eight year period, he also worked as an English teacher at a university in Shanxi and as a tractor-technician for the United Nations. He and his wife lived mostly in the village of Long Bow.

His best known book, Fanshen, documents in detail, from an on-the-ground perspective, the revolutionary process, especially land reform, in the area, based on his experiences of it. As a Marxist, he opposed the ‘capitalist roaders’ in China’s Communist Party and in 1990 wrote his critique, The Great Reversal, which is available below on-line in full. He died in the US in 2004.

From the Preface:

“June 4, 1989, stands as a stark watershed in China’s modern history. The slaughter of unarmed civilians by units of the Peoples Liberation Army as they blasted their way to Tiananmen Square illuminated the “reform” era as nothing else could. It lit up, like a bolt of cosmic lightning, the reactionary essence of China’s current leading group.

“This essence was known to many in China and to some abroad long before the lightning struck in June 1989, but most members of the Western media and academic world were too mesmerized by China’s reform rhetoric and market progress to apprehend the reality of the events unfolding before their eyes. Since privatization matched their prejudices and a consumption boom confirmed its validity, they preferred not to look too closely at the underlying currents of economic dislocation, infrastructural decay, environmental degradation, social disintegration, cultural malaise, and rising class antagonisms that threatened to unravel the fabric of Chinese society.

“Mao Zedong was far more astute. More than twenty years ago during the Cultural Revolution, he exposed Deng Xiaoping, Yang Shangkun, and most of their “hard line” colleagues as capitalist roaders. He accurately predicted that if such persons ever came to power they would transform the Communist Party into a revisionist party and finally into a fascist party and then the whole of China would change color.

“The surprising thing is not how accurate Mao’s prediction turned out to be, but rather how quickly it materialized in history.

William Hinton, 1990

The Contents are:

Preface

Introduction: China’s Rural Reforms

A Small Town in China: Long Bow 1978

A Trip to Fengyang Country, 1983

Reform in Stride, Rural Change 1984

The Situation in the Grasslands, 1985

Reform Unravels: Rural Change 1986

Bypassed by Reform: Agricultural Mechanization 1986

Dazhai Revisited: 1987

Mao’s Rural Policies Revisited

Why not the Capitalist Road?

Tiananmen Massacre 1989

The book is available here.

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