Thursday, August 16, 2012

Is Marx now right? (2) Len Arthur

Discussion piece (2) is Marx now right? – Len Arthur

In the first part last week questions were raised about the extent to which the economic ideas of Keynes could remain central to the development of Labour policy on the economy. It was suggested that Ed Miliband is right to start to point to the structural weakness of the UK economy but then went on to suggest that they may actually be more fundamental than he has so far been prepared to accept. It was suggested that the Libor scandal was not an aberration but, on the contrary, revealed that fixing and possible criminality, is directly related to economic power being out of control and concentrated in rich, self interested hands.

Recently in the New Statesman Will Hutton reviews three books by leading radical Keynesians, including one joint authored by Larry Elliott who was referred to last week. Will shares the criticisms of the weaknesses of Keynes for the current situation but goes on to support Skidelsky in the call for a new social morality as a way of achieving for “Britain, the US and Europe need a better capitalism informed by a persuasive moral outlook that trumps that of the right”. He refers to the need for more equality but avoids the structural issues of power and control. Jonathan Portes also writing in the same recent issue of the New Statesman still argues the Keynesian case that GDP as measured per head will continue to grow if underused capacity was brought into operation and directly supports the cake argument by ignoring class and how GDP is increasingly unequally distributed, rendering the beneficial effects of a per head growth questionable. Despite the crisis the relevance of Marx is far from self evident.

So, does Marx have anything to say to us in considering Labour Policy?

There are two economic and social narratives dealing with the structural causes and possible answers that seem increasingly to take proper account of our historical situation; and if the Labour Party is going to develop effective policy in this we need to make it take them seriously. The first relates to the renewal of analysis based upon class – see Left Futures recently and the need to challenge the adverse effect of inequality, both in terms of people and the economy. The second relates to the renewal of analysis based upon Marx and the problems of an economy based on production for profit when the rate of profit tends to fall.

Class and social inequality is being put back on the agenda by the neo-liberal attempts to save capitalism by forcing the working class to pay through ‘austerity’. As Lenin once argued, capitalism will survive so long as the working class can be forced to pay the cost. Recent research and publications have also been reflecting on these attacks and there has been somewhat of a rapprochement between left Keynesians and Marxists. Richard Wilkinson and Kate Pickett produced a ground breaking book four years ago called the Spirit Level  , which demonstrated on a range of criteria how societies that were more equal were generally also more healthy and had a higher level of well being. More recently, economists such as Stewart Lansley in his book The Cost of Inequality  , have explored how inequality not only is an issue for social justice and health but is also directly linked to the economic crisis, reducing effective demand and handing over trillions to the worlds rich who have then failed to invest. More recently Joseph Stiglitz has supported a similar analysis in his recently published book The Price of Inequality. In some respects these arguments overlap with those put forward by David Harvey and Richard Wolff who use Marx’ analysis to demonstrate how profits have been preserved over the last 30 years by driving down the returns to labour, then linking the results to borrowing and the financial crisis. Wolff is particular good at making this connection.

For the Labour Party these arguments offer an opportunity to re-engage with class and the issues of inequality as well as laying the basis of a longer term economic strategy. The working class is under the cosh to save the bankers and profit levels. Our slice of the cake is shrinking as opposed to growing. Not only has the proportion of national income going to wages and salaries fallen from its peak of 65% in the mid 1970s to around 45% in 2006 but the richer you are the greater the increases over the same period, the bottom 10% experiencing an increase of 22% as opposed to 200% for top 10%. So the share for lower paid workers has dropped faster barely maintaining real spending power. These trends have continued together with the loss of other benefits for those in work, such as pensions and family credit. For the increasing number out of work not only are benefits being reduced but they are experiencing a form of state harassment and terrorism, egged on by right wing papers such as the Mail and Sun. As Stewart Lansley argues addressing such inequality will provide a rise in real consumer incomes – still around two thirds of GDP - underpinning a long term recovery and a sustained Keynes type boost to the demand side of the economy. There is an opportunity for a double win if the Party wishes to be bold enough to argue the case.

And yet is this sufficient? The second economic and social narrative dealing with structural causes of the crisis is the tendency of the rate of profit to fall - here and here - under capitalist production which, as Larry Elliott suggests, is much more closely associated with Marx. Chris Harman in his last book Zombie Capitalism sets out the detailed case for why there is this tendency in capitalism and how it affects the global system we now live under. In relation to the current financial crisis Harman argues that capitalist economies have become dominated by the role of finance over the last 25 years – what he calls ‘financialisation’ – resulting from a falling rate of profit in commodity production and a growing rate of return in dealing in finance and associated derivatives. In essence capitalism, particularly in the West, has started to withdraw from producing goods and services and have moved instead to just financial transactions – such as creating deals and shifting ever larger sums of money around – as this had become relatively more profitable. In the end no economy can be sustained without the production of use value and the financial crisis is the consequence.

Michael Roberts is another economist who has used the rate of profit analysis to explain the crisis in very accessibly written blogs and other writings. Here is one which covers the same issues as in this blog, here are is a more technical but still accessible one that also doubles as a review of another economist Andrew Kliman who has just published a book on the importance of the same subject. The debate with Marxists such as David Harvey mentioned above are covered here. Another useful review of Kliman’s book and the debate covered in this blog is also available here.

The key conclusion is that increasing demand of itself will not necessarily result in growth unless it also has the effect of raising the rate of profit and this can only be raised at the expense of the working class so will have the knock on contradictory effect of restraining demand and creating unemployment. If production of financial value alone remains more profitable that is where the money will go: hence banks stuff their coffers and companies go on investment strike. Capitalism in order to maintain or increase the rate of profit will resort to every trick both in and out of the book including criminal behaviour as well documented by Maurice Punch in his book Dirty Business, and by Naomi Klein in her book The Shock Doctrine referred to in the blog and email of last week. I’ve also explored how it relates to other activities such as the marketisation of the public sector and the growth of international monopolies in one of my blogs on ZNet.

The conclusion that Michael Roberts and the other writers come to in relation to policy and action, is that the state has to play a greater role in the economy, as the market and profit based capitalist system is increasingly unable to create and allocate production and investment without great cost to society. At the very minimum the banking and investment system should be under public democratic control, together with the provision of goods and services serving basic needs where income streams and output are reasonably predictable such as, health, education, housing, social and other services and basic utilities. If the rate of profit arguments are convincing then they have a very radical implication for Labour Party policy.

It is clear that such a radical challenge to neo-liberalism, the operation and role of the market and the current system of ownership and control, would raise issues of how would it be possible to win the power and legitimacy, to undertake such a transformation. Naomi Klein clearly spells out the frightening extent that state power has been used to impose the domination of private corporations globally and finds it difficult herself to suggest how such power can be effectively challenged. However it is clear that the bankruptcy of the system that has been imposed on us has been exposed in the current economic crisis and those that legitimise, benefit and run the system are currently running out of workable options, other than to self destructively continue to attack the working class.

This state of affairs could mean that the balance of forces moves in our direction if we can get our act together. It may not seem this way as the task seems huge and our ability to resist and challenge limited but this can change quickly as we have seen in Greece. But even in our daily circumstances there is a ‘frontier of control’ that we can engage with and in our various small ways have a much large impact. Other organisations such as the European Left are rising to the challenge and we should think of ways of doing so ourselves: of course, power and the balance of forces is the subject of the next blog.


  1. Another informative useful writer and author on capitalism is Hillel Ticktin. For those who don't know, Ticktin is editor of the Critique Journal - Well worth reading if you want to try and get to grips with the present economic crisis.

    I have also heard him speak a number of times on Marxism and capaitalist decline.

  2. Peter Rowlands wrote on Fb: Congratulations to Len for his interesting articles and all the links supplied, some of which I have read, including the ten economists on the crisis in less than 1000 words. Like other comrades I have tried to reacquaint myself with some Marxist economics, including Harvey's Enigma of Capital. He makes the important point that rather than looking for one underlying explanation, about which there has been much disagreement, ( Falling rate of profit, overproduction)each can be seen as aspects of the crisis. Having said that I am inclined to see underconsumption as crucial, exacerbated by the futile programme of cuts here and in Europe. It is in this area that Marx and Keynes meet, as Harvey also points out. Left Keynsian policies such as those advocated by the TUC, Compass's Plan B and by Mark Drakeford in Wales will not establish socialism - indeed Keynes sought to make capitalism work - but will regulate the economy and re-establish a form of social democracy which is a necessary, but not sufficient condition for further moves towards a form of socialism.That is why the right hate Keynesian policies, because they fear where they may lead, and they are right. That's why we should support them.