By Fiona Edwards
“Many people ask what a Green New Deal entails. We are calling for a wartime-level, just, economic mobilisation plan to get to 100% renewable energy ASAP.”
AOC tweet, 2 January 2019
Alexandria Ocasio-Cortez (AOC) is proposing that the United States become a global leader in the battle to stop climate change by undertaking a rapid and thoroughgoing economic transformation to drastically reduce US greenhouse gas emissions in the next 10 years. The plan being put forward by AOC calls for the US to launch a massive programme of state investment to bring about a ‘Green New Deal’ and the necessary transformation of the economy away from a reliance on fossil fuels to 100% renewables. It is an approach that directly challenges US President Donald Trump who is currently leading the US in precisely the opposite direction. Under his Presidency the exploitation of unconventional fossil fuels has massively expanded which is causing US carbon emissions to rise at a time when they should be rapidly falling.
As AOC’s resolution to Congress points out, the US has “historically been responsible for a disproportionate amount of greenhouse gas emissions” and continues to contribute enormously to the problem of climate change. The US has a moral responsibility to play a leadership role in resolving the international climate crisis, a crisis that poses an existential threat to human civilisation and which the US has played a major role in creating. In addition to being a responsibility, leading a global effort to decarbonise the world economy does also present the US with a “historic opportunity” to break out of “a 4-decade trend of economic stagnation, deindustrialisation and anti-labour policies” to create millions of good, high wage jobs and “provide unprecedented levels of prosperity and economic security for all people of the United States.”
The scale of the planetary emergency the world is facing was underlined by the International Panel on Climate Change (IPCC) ‘Special Report’ of October 2018 which outlined the disastrous impact a 2 degrees Celsius rise in global temperatures would cause: widespread increase in famines, cities and entire countries submerged in water, deadly heatwaves, forest fires, floods and hurricanes. Global temperatures have already risen by approximately 1 degree Celsius since pre-industrial levels and on the current trends the world is on track for 3.3 degrees Celsius of warming by the end of the 21st century. Humanity is currently losing the battle to stop catastrophic climate change. Urgent and massive action is needed to limit global warming to a ‘safer’ 1.5 degrees Celsius rise and major strides forward are needed within the next decade.
In light of this reality AOC’s assertion that the ‘Green New Deal’ is “going to be the Great Society, the moonshot, the civil rights movement of our generation” is not over-blown rhetoric but entirely, as she has put herself, “the scale of the ambition that this movement is going to require.”
In the FAQs section of her draft ‘Green New Deal’ published at the end of 2018 AOC made clear the scale of the investment required to bring about a massive transformation to decarbonise the US economy, citing that “at least $1 trillion” would be needed. She is also made clear about the fact that the state will need to play a “big role” in driving and making such investments.
On how to raise the funds required, her draft proposal stated:
“Many will say, “Massive government investment! How in the world can we pay for this?” The answer is: in the same ways that we paid for the 2008 bank bailout and extended quantitative easing programs, the same ways we paid for World War 2 and many other wars. The Federal Reserve can extend credit to power these projects and investments, new public banks can be created (as in WW2) to extend credit and a combination of various taxation tools (including taxes on carbon and other emissions and progressive wealth taxes) can be employed. In addition to traditional debt tools, there is also a space for the government to take an equity role in projects, as several government-affiliated institutions already do.”
AOC’s widely publicised proposal to increase tax on the super-rich to help fund the ‘Green New Deal’, by raising the top marginal tax rate to 70% for those that make above $10million, has been very well received by the US public.
Some have dismissed AOC’s ‘Green New Deal’ as unrealistic. On the contrary, the ambition of the ‘Green New Deal’ – to make a rapid transition to 100% renewable energy and abandon fossil fuels – is entirely consistent with the what the IPCC says is necessary. The world’s carbon emissions must collectively start decreasing now and half from current levels by 2030 and this can only be achieved through the rapid phasing out of fossil fuels which must be replaced by an enormous expansion of renewable energy. And as Dean Baker points out, China is delivering its own Green New Deal right now through enormous, on-going state investment in renewables and electric cars.
It is Donald Trump’s approach that is completely unrealistic and out of step with what the international scientific consensus states is required. The US is now the number one producer of oil and gas in the world as a result of the “fracking revolution” which has seen production of unconventional fossil fuels soar. It’s a trend that the International Energy Agency is anticipating will deepen, with expectations that the US will be responsible for 75% of global oil growth and 40% of global gas growth over the next 6 years. The result of Trump’s policies on climate change has been to increase US carbon emissions, which rose by 3.4% in 2018.
Trump and the fossil fuel industry argue that aggressive exploitation of fossil fuels is necessary for economic development and that green policies are damaging to prosperity.
In reality massive state investment for a ‘Green New Deal’ could get the US economy out of its stagnation and provides a route to improving living standards as well as tackling climate change. As AOC put it in a public event on the climate change in December 2018:
“The idea that we are going to somehow lose economic activity… As a matter of fact it’s not just possible that we will create jobs and economic activity by transitioning to renewable energy but it’s inevitable that we are going to create jobs. It is inevitable that we are going to create industry and it’s inevitable that we can use the transition to 100% renewable energy as the vehicle to truly deliver and establish economic, social and racial justice in the US. That is our proposal.”
AOC’s ‘Green New Deal’ proposal is exactly the ambitious approach needed to save the planet and achieve a decent standard of living for all and it is the type of approach that Jeremy Corbyn and the Labour Party front bench are also pursuing in Britain.
By Tom O’Leary
The importance of Britain being in a Customs Union with the EU is highlighted by the recent exchange of letters between Jeremy Corbyn and Theresa May. Jeremy Corbyn has focused on blocking a ‘No Deal’ outcome, which would be extremely negative for jobs and living standards. He has also set out his support for being in a customs union with the EU. Theresa May continues to threaten No Deal and rejects being in a permanent customs union, it being one of her key red lines.
Although there is much else in the exchange of letters which is also important to note, the principal issue examined here will be the one that Jeremy Corbyn raises, which is the vital necessity of being in a Customs Union with the EU.
Corbyn’s letter demands significant changes to the Political Declaration (which offers an outline of the future relationship with the EU) and insists that these changes need to include, “A permanent and comprehensive UK-wide customs union. This would include alignment with the union customs code, a common external tariff and an agreement on commercial policy that includes a UK say on future EU trade deals. We believe that a customs union is necessary to deliver the frictionless trade that our businesses, workers and consumers need, and is the only viable way to ensure there is no hard border on the island of Ireland. As you are aware, a customs union is supported by most businesses and trade unions.”
The full text of Corbyn’s letter is here. May’s letter rejects this, and falsely claims that the Political Declaration continues the same benefits as the customs union. This is blatantly untrue, as the Political Declaration says only that those same benefits are desired, without any mechanism to achieve that. May’s letter is here.
The nature of the EU
There is no useful purpose, either for serious analysis or promoting the interests of the working class, to suggest that the European Union is anything other than a capitalist club. It is not, as Will Hutton and other propagandists claim a repository of Enlightenment values. First these so called ‘Enlightenment values’ were used to create the greatest colonial Empires the world has ever seen. In the famous words of Gandhi when asked what he thought of Western civilization he replied ‘it would be a good idea’. Today it remains a sickeningly bad joke in light of the EU’s treatment of refugees fleeing across the Mediterranean, its treatment of Greece, the imposition of austerity across the Eurozone and much more besides. The false claims as to the EU Enlightenment project also acts increasingly as a cover for an intensification of vile Islamophobia, antisemitism and other forms of racism within Europe.
The purpose of the EU is to enhance and develop the interests of capital, most powerfully German capital, across the continent of Europe. But this development is multi-faceted in the way that the development of capitalism is in general. So, a new factory will usually entail increased labour exploitation and environmental degradation. Yet socialists do not stand against the construction of the new factory and do welcome the jobs, but instead argue for the best possible pay and conditions for all the workers in it, for environmental protections, other safeguards, and so on. Where and when it is possible, socialists are in favour of the factory passing into the hands of the workers.
The nature of a customs union
All goods and services operate in a market, irrespective of whether the producers or consumers understand that as such. For the most advanced manufactured goods in particular that market is increasingly internationalised, even globalised.
The internationalisation occurs at three different levels.
· First, there is the production of inputs for final production, which is everything from basic raw materials to the most sophisticated machinery, equipment or software.
· Secondly, there is the production of finished goods themselves which can take place at a number of different locations internationally.
· Thirdly, there is the market for the goods themselves, where the size of the market is decisive for the efficiency of the production and the Investment that is required.
The production of many services is less easily internationalised for many reasons, including language barriers and lack of labour mobility, although some services such as finance, travel etc are highly internationalised and increasingly legal and accounting services are also heading in the same direction. Many others, such as entertainment services, some aspects of design and publishing are developing in the same way.
The alternative to the customs union
Because the British economy already participates in the Customs Union with the EU and the Single Market, refusal to have any Customs Union with the EU amounts to a protectionist measure, a reduction in this economy’s openness to international trade. The Brexiteer fantasy that barriers to trade with the EU economy can be compensated by trade deals with other countries is mathematically unlikely as the EU constitutes approximately half all trade in goods. But it also ignores that fact that over 60 trade deals with third countries will in fact be ripped up by no longer being a Member of the EU. Trade deals with those countries, most especially the US, but also Japan, South Korea and other countries will have to be renegotiated from a relatively weaker position.
The increasingly internationalised production of manufactured goods has also become a hot topic in the United States because of Trump’s trade wars and protectionism. But Trump’s protectionism in favour of the autos sector has foundered precisely because so much of the content of US-marque cars that are finished in the US is from Canada, Mexico and other countries.
However, these ‘American-made’ cars are actually globally-produced. The 2017 Ford Focus, for example, is built in the United States, but only gets 40% of its parts from the U.S. and Canada, according to Federal data. At the other extreme, only 5% of the parts for 2017 BMW 7 Series Sedan were made in the US. The rest was made in Germany. For some time, the leading automakers in the ‘motor city’ of Detroit have been Japanese, outstripping the production of US marques.
At most, Trump’s protectionist measures (which have been underpinned by huge tax breaks for companies and the rich) have only deferred the further internationalisation of production. Yet the IMF has noted that they could knock $430 billion off global output.
Trump once tweeted that trade wars are easy to win for a country which runs sizeable trade deficits:
Of course, if there was one big set of factories in the US producing cars and another set in Canada and Mexico, then his protectionism might possibly have the impact he desires. Instead, his policy simply interrupts the efficient socialisation of production, in favour of a failed attempt to re-organise it on a national basis. By far the most important effect of his policy is to raise the cost of production in the US, which raises prices to US consumers more and therefore increases the competitive threat to US jobs in cars and associated industries.
A key impediment to the development of these fundamental trends is the existence of tariff and non-tariff barriers (which include product standards, local content rules, and other factors which are all subject to inspection regimes). A customs union operates to remove the tariff barriers between two different economies.
Unfortunately, there are romantic notions in left circles in Britain and Europe that would wish away the concrete issues raised by the existence of multinational or even global supply chains. It is unrealistic to believe workers’ control or ‘Lucas plan’ ideas in relation to current, complex manufacturing supply chains that dominate aerospace, cars, pharmaceuticals and other sectors can ignore these realities. As described in a previous article, aerospace and other advanced producers rely on a vast flow of inputs as part of the production process. It would require a vast, entirely unfeasible level of investment to recreate those on national territory, and for a national market that is simply too small to support even the current level of output.
Outside a Customs Union
It is clear that simply to attempt to retain key producers after Brexit, a large increase in public expenditure on subsidies would be required – as this government has already done with Nissan. Even though Ministers attempted to keep the deal with Nissan secret, it was later revealed that is was a subsidy of £80 million. Crucially, with the threat of No Deal still not removed, that subsidy was not enough to get Nissan to meet its commitment to producing new models at its Sunderland plant. As Jeremy Corbyn put it replying to Theresa May in Parliament on 12 February: ‘The Prime Minister has just told members of this House to hold their nerve. Tell that to Nissan workers in Sunderland and the thousands more worried about their job security”.
In the event of No Deal, which means having no Customs Union with the EU, the scale of the compensation needed to offset new tariffs on cars is equivalent to the carmakers’ wage bill. This is untenable over the medium-term as it would be cheaper for government to pay the workers directly. Outside a Custom’s Union with the EU similar these problems would be multiplied in numerous industries.
In general, without the reactionary political interventions from the likes of Trump and the Hard Brexiteers, the underlying economic trends are for greater trans-continental and even global production. A leading Italian transport services provider last year announced the first ever regular roll-on, roll-off route between North America and the Mediterranean. It will be used primarily to connect Turkish to European car production, and then connect the latter to Canada, the US and Mexico. These are the fundamental economic trends the protectionists like Trump and the Hard Brexiteers are attempting to fight.
Marxism explains these fundamental economic trends. Despite being frequently asserted, it is not the case that Marx begins his analysis of capitalism with analysing only capitalist production. This is for the very good reason that production is not unique to capitalism. It exists in all more primitive societies, feudalism and slavery, and will of course exist under socialism. Production is a given in every form of society.
Marx actually begins ‘Capital’ with what is unique to capitalism, the transformation of commodities into their universal equivalent of money, thus enabling ‘generalised commodity production’. This is decisive in this context if it is recalled that Marx demonstrated that commodities first appear through trade, through exchange.
So, in concluding Chapter One of Volume 1 of Capital Marx writes,
‘As a general rule, articles of utility become commodities, only because they are products of the labour of private individuals or groups of individuals who carry on their work independently of each other. The sum total of the labour of all these private individuals forms the aggregate labour of society. Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer’s labour does not show itself except in the act of exchange. In other words, the labour of the individual asserts itself as a part of the labour of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers. To the latter, therefore, the relations connecting the labour of one individual with that of the rest appear, not as direct social relations between individuals at work, but as what they really are, material relations between persons and social relations between things. It is only by being exchanged that the products of labour acquire, as values, one uniform social status, distinct from their varied forms of existence as objects of utility’.
Exchange, of which international trade is one large scale form, is central to the production of commodities. Goods only become commodities through that exchange. Not only is it impossible in the modern era to maintain efficient production on a national basis in an economy of Britain’s scale, it is also impossible to produce efficiently without international exchange. Incidentally, it will be even less possible in an advanced socialist society.
Socialists, and a government pursuing progressive socialist policies, have no interest in the political structures of the EU – which are designed to be as little democratic as possible. But they, and the working class of this country, do have an interest in ensuring access to the markets of the EU. That can be gained either through remaining in the EU, for purely economic and not political reasons, or via a custom’s union and ‘close alignment with the single market’.
As Jeremy Corbyn put it in Parliament on 12 February: ‘In order to stop the UK falling into the backstop you need a permanent customs union and a strong single market deal. That is key to maintaining an open border on the island of Ireland. That is key to protecting jobs, industry and living standards in this country.
‘The Prime Minister says there is no need to negotiate a customs union as her deal provides for the benefits of being in one. I’m afraid… that is simply not the case.
‘The deal the Prime Minister negotiated means there will be barriers to trade in goods and there will not be frictionless trade. Putting manufacturers across the country at a huge disadvantage.’
This is why May’s threat of No Deal and refusing a customs union is a deeply damaging policy, and why Jeremy Corbyn is entirely right to insist on a customs union with the EU.
By Tom O’Leary
Labour, led by Jeremy Corbyn, has thrown itself full scale into the struggle to block a No Deal Brexit. The latest step in this was the correct decision not only to put forward Labour’s own proposals but to whip Labour MPs in favour of Yvette Cooper’s Parliamentary amendment – which would have lifted the 29 March deadline to give a period of time for Parliament to change the law to block a No Deal Brexit. Even although this was defeated, because a small number of Labour MPs opposed Corbyn and instead supported the government, it was entirely correct for Jeremy Corbyn and Labour to have continued the fight against No Deal – and this will have been overwhelmingly supported by Labour voters, Labour members, and supporters of Jeremy Corbyn. For reasons analysed in this article the willingness of the Tories to consider a No Deal Brexit is an attempt to carry out a policy which will constitute an extremely severe attack on the working class and ordinary population.
This fight against a No Deal Brexit is a key part of the current struggle to prevent a severe and enduring attack on living standards. It involves much more serious and damaging issues than short term disruption from No Deal. To understand a No Deal outcome would clearly be a terrible option, involving major loss of jobs and attacks on living standards, it is worth examining it in detail and from a fundamental aspect. This shows why the struggle to block a No Deal Brexit is not merely tactically correct but flows from fundamental features of Marxism.
No Deal fundamentals
The small minority of economists who advocate a Hard Brexit or No Deal have recently begun to address the question from a fundamental viewpoint. This is largely in response to the risks that some major international manufacturers may be forced to leave Britain if No Deal is enacted. Other companies have already begun to halt, close, or relocate operations. These include among others, Jaguar Land Rover, Honda, AirBus and of course Dyson, despite its founder being a prominent supporter of Brexit.
Unfortunately, the response of the Brexit-supporting economists to the clash between their plans and the reality of fundamental economics is to seek to abolish the latter. So, prominent Brexiteer economist Roger Bootle was reported as saying he was: “Fed up with businesses talking about their supply chains as if preserving their businesses were the most important thing in the Brexit negotiations.”
Similarly, Julian Jessop Brexiteer and formerly chief economist for the right-wing Institute for Economic Affairs tweeted, “Perhaps we should sometimes question whether it makes sense to prioritise the preservation of complex business models that rely (in the case of Honda’s Swindon plant) on 350 lorries delivering 2m components every single day, with just one hour’s worth of parts kept on site…?”
But this model exists independently of Brexit and even of this country. Neither is it a ‘capitalist plot’ – in the sense of an arbitrary subjective decision by capitalists. It simply reflects the current development of modern complex production along lines analysed and foreseen by Marx long ago – the increasing division/socialisation of labour which has necessarily now assumed a globalised form. The Brexiteers cannot abolish the model, any more than the law of gravity can be repealed, their plans can only achieve Britain’s removal from it – with serious damage to production and therefore jobs and living standards.
This model, of highly complex, integrated supply chains where components arrive just-in-time and where value is added at a series of specialist locations, is simply the modern expression of the most fundamental economic forces analysed in ideas which were first set out with the founding of economics as a science and which were further and most fundamentally developed by Marx.
Division/socialisation of labour
In the opening chapter of The Wealth of Nations, Adam Smith begins, “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”
The division of labour encapsulates the process by which an entire complex chain of goods is created through a series of tasks performed separately and distinctly before they become the final finished product. The material expression of those tasks are the inputs of intermediate goods – Honda’s two million parts a day and the supply chains that so antagonise the Brexit-supporting economists.
In Adam Smith’s famous example, no single individual could or can possibly produce even the simplest product of his day, a pin, without the inputs of a huge number of other industries. The production process, from raw materials, to intermediate goods is just too complex.
Furthermore, this division of labour long ago passed over national boundaries. Smith himself pointed out that it was as easy then to transport coal from Newcastle to Amsterdam as it was to London (both were done by sea, which was then a far more efficient mode of transport than road).
In the course of economic development, which has of course been overwhelmingly capitalist development, the division of labour, or what Marx calls more scientifically the ‘socialisation of production’, becomes ever more international, rendering purely national large scale production increasingly obsolete and impractical.
So, in the Communist Manifesto Marx and Engels write, “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrowmindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.”
The prime example used by Marx and Engels of this development at the time when the Communist Manifesto was written was England. Part of the genius of Marx and Engels was to foresee trends almost uniquely apparent in England at that time, and understand how they expressed the development of the world economy. This was at a time when England’s openness to trade was equivalent to just 13% to 15% of GDP, when currently the most advanced economies have an openness to trade far in excess of that. According to the World Bank world trade as a proportion of world GDP was 56.2% in 2016. The world economy is gripped by the ‘cosmopolitan character to production and consumption in every country’ foreseen by Marx and Engels 170 years ago.
The idea that a socialist economy would not aim to make the maximum possible use of the international division/socialisation of Labour therefore has nothing to do with Marx’s analysis but was introduced from Stalin onwards in the USSR. The consequent cutting off of the USSR from participation in the international division of labour was one of the primary reasons for the problems of the Soviet Union’s economy and the final collapse of the USSR. In contrast China’s ‘reform and opening up’ policies, which oriented China to attempt to use to the maximum participation in the international division of labour, were a return to Marx’s analysis, and produced the most rapid growth of a major economy in human history. It is crucial for defence of working-class living standards that the left follows the analysis of Marx and not that of the former USSR.
The effects of No Deal
This cosmopolitanism in production and consumption, which today is sometimes called globalisation, takes different precise forms in each country. As much as it irritates Brexiteers, the truth is approximately half of all trade in goods to and from Britain is with the EU. The international division of labour that Britain’s economy participates in is primarily with the EU. The US is only a distant second, approximately one-sixth the size in relative importance in trade in goods to the EU.
With a No Deal Brexit there would be two hammer blows that would severely damage that participation, which is expressed as ‘supply chains’, which are another name for the complex process of creating inputs. The first is the imposition of tariff barriers, which would necessarily occur to any production outside the EU’s customs union. The second are non-tariff barriers, which are largely a function of being outside the Single Market, which has a single, unified regulatory regime including for input goods.
It is conceivable the effect of increased costs from tariffs could be off-set by lowering costs elsewhere. Some might argue that subsidies to industry in the form of state aid might be worthwhile, even though the World Trade Organisation also has prohibitions on certain types of state aid, as the EU does. If state subsidies of 10% per cent were required to off-set EU tariffs, the resulting cost of £27.5 billion would be in excess of the planned budget for increased public investment for an incoming Labour government.
Otherwise, the more likely off-setting factor for new tariffs would be a sharp attack on wages. In short state subsidies to offset a no deal Brexit would cost the entire amount by which Labour intends to increase public investment.
A comparison to Turkey
But it is the non-tariff barriers which could prove even more damaging. Here the practical example of a country at a less developed stage of economic development, and therefore less integrated into modern division of labour, is useful in illustrating the fundamental issues involved – Turkey. Turkey is in a customs union with the EU since the beginning of 1996. The Turkish economy has developed strongly since that time.
The effect of Customs Union membership has been to give greater access of Turkish goods to the EU Single Market (except agricultural goods), and vice versa because tariff barriers are removed. Over time, it has helped to develop the growth of an important car production sector, including for export to the EU. This is the by-product of the Customs Union.
But it is not a member of the Single Market. So, non-tariff barriers remain. It is therefore extremely difficult for Turkish car production to become properly integrated into the continent-wide car production of the EU. Instead, production is mostly focused on stand-alone models, niche production or ultra-cheap models.
Under a No Deal settlement the entire car industry in Britain would be outside both the Single Market and the Customs Union. Under WTO rules, which would apply in case of a No Deal Brexit, a 10% tariff on car exports would apply – making production in Britain uncompetitive in the EU market. A similar process would apply to all production which is highly integrated with European output. It is no accident that that it is AirBus, car makers, advanced manufacturers and pharmaceuticals companies who are most vocal in their opposition to a No Deal outcome.
It is sometimes argued that the EU would block a fully socialist economic policy. This is true. Britain would be forced out of the EU if it attempted to replace capitalism with socialism. The gains from the introduction of socialism in Britain would be so great that they would more than offset the disadvantages of being forced out of the customs/single market of the EU.
But while Jeremy Corbyn’s policies are highly progressive, and would significantly take working people and the mass of the population forward, they do not propose to replace capitalism with socialism. Nor should they – neither the objective nor the subjective conditions to bring capitalism to an end and introduce socialism in Britain exist. What Jeremy Corbyn proposes are a series of highly progressive reforms which are in the interests of the population both in Britain and internationally – and that is exactly what should be proposed at present.
Attempting to implement such progressive changes by a Jeremy Corbyn led government might be blocked by the EU – but this is not at all certain and will be determined by the relation of forces at the time. But if implementing such progressive changes is blocked by the EU then the population will understand why Britain may be forced out of the EU. The same would apply to any country or countries who moved ahead of this country and were themselves replacing capitalism with socialism.
But what is wrong, is against the interests of the working class, and therefore will not be supported by the population, is voluntarily to give up the advantages that flow from participation in the EU’s division of labour – therefore cutting off Britain from the most advantageous participation in EU markets and supply chains.
No benefit from No Deal
The Brexiteers, including the pro-Brexit economists, provide no concrete analysis that can withstand any scrutiny. Instead, they fall back on general expressions of optimism, or complete red herrings.
Crucially, there is the assertion that No Deal or something close to it ‘will allow us to trade with the rest of the world’. On the contrary, this economy already trades with the rest of the world. No Deal will put major barriers in the way of the current trade with the EU, with nothing realistic that could compensate for that – other countries are naturally much more interested in trade with the far larger economy of the EU than with the comparatively small economy of Britain.
Once again, this is because of fundamental economics. There are three decisive factors that No Deal puts at risk:
· The most competitive access to the current inputs for production of goods and services
· The integration of British production into EU-wide production
· Access to markets
The weight of each of these can be illustrated with reference to one of the most integrated industrial sectors, Britain’s participation in Airbus. Other advanced sectors of production show the same characteristics. Some months ago, when Airbus executives previously highlighted the risks to their business from No Deal, one Tory MEP raged that, “we can build our own Airbus”.
This foolish bluster highlights the level of ignorance about the economy fostered by the Tories. Whether the ignorance is wilful is difficult to say.
For this country to create ‘its own Airbus’, would be an enormous, potentially crippling, and in reality a totally unrealistic undertaking. The market capitalisation of Airbus has fluctuated between €75 billion and €100 billion in recent months. Its great rival, Boeing is currently valued at over $200 billion, having recently been as high as $360 billion.
But this is only an indicator of the type of initial outlays required to create a new Airbus-type company in this country. As shown above, an industrial giant like Airbus requires an enormously complex supply chain. The chart below is from Airbus and highlights this point in relation to just one of its models, the A350.
According to the company, the components made in various countries themselves rely on a supply chain which includes operations all across Europe and beyond, with 4,000 companies and over 100,000 jobs in this country. To overcome the imposition of both tariff and non-tariff barriers arising from No Deal, an entire supply chain would need to be replicated in this country.
This position is not at all unique to Airbus. In the course of the public debates about the effects of No Deal it was revealed that Jaguar Land Rover uses 25 million components a day in producing 3,000 cars, and that 40% per cent of these come from the EU. Investment in the motor industry already feel by 50% last year, due to the situation created by the threat of Brexit, which will translate into thousands of lost jobs over the medium/long term.
The illusion of the Tory MEP is that all of this would be a massive boost to manufacturing jobs in this country and the wider economy. The fantasy is that Britain, maybe with even bigger cuts to wages and much reduced protections for workers, could compete by replicating these enormous industries on a national scale. Unfortunately, he is not alone in this illusion.
Production is the first factor. But this is integrated, complex production, not just the finished goods but also all the inputs required for those finished products. There is the cost of establishing an AirBus-type company based in this country, say the equivalent of €100 billion. There would also need to be the creation of a supply in support of that. As Airbus estimates the workforce in the current supply chain for AirBus components in this country is about 7 times greater than the direct workforce employed here, that may indicate the scope of the additional investment needed. And all of these would need a workforce trained in highly specialist manufacturing skills, and an infrastructure, of roads, rail, energy and water services to supply them.
But production is not the only factor. As Marx and Engels wrote, the development of international production was accompanied by the growth of, “….industries whose products are consumed, not only at home, but in every quarter of the globe”. A ‘British Airbus’ would require a market.
As the production from all investment is limited by the scope of the market, and the demand for aircraft is a global market, no country of Britain’s size could hope to establish a new large-scale aircraft sector solely or even primarily on a national terrain. British Airbus would therefore have to compete directly with the two dominant global producers, Boeing and Airbus.
British Airbus would in effect need to make huge investments simply to establish itself as a third competitor to two global rivals who are already engaged in an existential struggle with each other. It would need to be more competitive and efficient than either of these two to win customers, requiring much higher rates of investment. And it would have to attempt prise open new markets in the face of fierce resistance from the US and EU authorities, who already have one of the most bitter and long-running disputes lodged at the World Trade Organisation. The whole project would be a fool’s errand.
The reality is that the advanced manufacturing that does take place in this country is integrated with the world economy, and primarily the EU economy. What is actually required is for large-scale investment to fortify and develop those sectors, one part of which is their deepening integration into the world economy, primarily the EU economy. This is a policy that Labour’s economic policy encourages, and which the Tories resolutely oppose.
By blocking effective participation in the most advanced sectors of production thousands and thousands of jobs would be lost directly, the entire economy would be held back and therefore living standards would rise more slowly than possible – at best. Due to this economic setback the pound would almost certainly devalue significantly, creating inflation and a reduction in living standards. In order to attempt to make British capitalism competitive in the new unfavourable circumstances employers would launch an all out attack on workers living standards and rights – the ‘hard Brexiters’ have already made clear their ideal is a low social protection economy of the US type.
It is important to note that there is a set of circumstances under which the above economic factors take second place. If an incoming radical or socialist government were taking measures that were so contrary to the other European governments, they might well take steps to cut off that government from both EU institutions and the European market. But that is the traditional punishment that anti-socialist governments and institutions mete out, the US increasingly so. But it is a punishment. It should not be a policy aim.
Under those circumstances, the long-term political, social and economic benefits that a socialist government could deliver would far outweigh these serious economic difficulties. But that is not the situation currently, and is not likely to be in the foreseeable future.
Crashing out with No Deal in this period in reality means the only viable alternative is a trade agreement with Trump and his successors. No-one who thinks about it seriously can actually believe that that outcome would be more favourable to the socialist project. Whether for the reason of defence of the immediate living standards of the population and working class, or for reasons of fundamental Marxist theory, or both, there should be 100% opposition to a No Deal Brexit – and Jeremy Corbyn correctly led total opposition to it.
Finally, if a No Deal Brexit is totally against the interests of the working class, for the reasons outlined by Marxism, what positions are in line with those interests? These have nothing whatever to do with nonsense claims by people from the Labour right, such as Will Hutton. that the EU is progressive representing ‘Enlightenment values’. In fact the ‘Enlightenment values’ were accompanied by the creation of the greatest colonial empires the world has ever seen, oppressing the majority of humanity, dividing the world between them, and culminating in the historic catastrophe of World War I. The EU is a cabal of European imperialists who, compelled to construct a unified European economic structure because modern production has outgrown the European state, set out about creating it in the most undemocratic form possible – with as little power as possible to the European parliament and transnational power concentrated in the non-elected European Commission. The best historical analogy is Bismarck’s Germany – the Germany capitalists, forced economically to create a unified German state, deliberately also created it in the most undemocratic form possible.
There is nothing progressive politically about the EU and therefore socialists should be completely indifferent to whether Britain is part of the political structures of the EU. What is in the interests of the working class in the present situation however, for reasons outlined in this article, is to be able to participate in the economic space of the EU if possible. This could be secured by two mechanisms:
· Labour’s goal in its ‘six tests on Brexit of securing: ‘the “exact same benefits” as we currently have as members of the Single Market and Customs Union’.
· Membership of the EU.
Therefore, the bloc of Remainers and supporters of a ‘soft Brexit’, which is the position of the huge majority of Labour voters, Labour Party members, and Jeremy Corbyn’s supporters, have a position which fully corresponds to the interests of the working class and the population – which is exactly why it is the majority position among them. It is also a position precisely in line with Marxism.
Transform: Issue #5 | November 2018 | A Journal of the Radical Left
– includes articles by regular SEB contributors John Ross and Tom O’Leary + many more
Ten years on from the near-collapse of the global financial system in 2008, there is little sign of capitalist recovery and renewal. The consequences of the austerity policies pursued by so many governments are now playing out: from the destruction of the social and economic gains made by working people over many decades, to the rise of the far right, the crisis of social democracy and the ‘weaponisation’ of racism and Islamophobia.
Right-wing forces, given succour by an increasingly belligerent Trump White House, have often emerged stronger from the crisis, but left and progressive forces have also challenged for power, posing political and economic alternatives. Unfolding political developments and new mobilisations in Britain and elsewhere demonstrate that the right is being fought and can be defeated.
Transform #5 looks at the continuing economic crisis, with articles on the Lehman crash of 2008 and how we can tackle the power of big finance; Corbyn’s economic policy in the context of the attacks that lie ahead; economic lessons from the left governments in Latin America; and how we can learn from the struggles against neo-liberal globalisation. We also take a look at the big global strategic issues: the implications of Trump’s trashing of the Iran nuclear deal, how the differing approaches of Trump and Xi Jinping are playing out, and an assessment of NATO at 70. The political impact of film propaganda is considered through a case study of Nazi cinema, the latest issue of Socialist Register is reviewed, and we pay tribute to the late, great Samir Amin.
IMF data shows the exact opposite of Trump’s claims that US growth will accelerate under his presidency
The latest IMF analysis of the world economy
Summary of US long term growth
The long slowdown of the US economy
Projections for US per capita GDP growth
US medium term growth
Trump and business cycle
The US business cycle
Conclusions for US tactics in its trade aggression
Conclusions for China
By John Ross
This US propaganda claim of ‘strong growth’ is in fact the reverse of the facts.
But establishing these facts is critical for judgement of the situation in the trade dispute with the US. .
The entirely false economic claims of Trump
US Post-War Business Cycles
Growth under Trump – the US method of measurement
Real US year on year growth
The state of the US business cycle
The above article was published first in English by New Cold War.
.947ZAusterity isn’t over. It will resume, but it has been suspended for one yearBy Tom O’Leary
The claim for the latest Tory Budget is that ‘austerity is coming to an end’, and has been dutifully echoed by the Tory press and the BBC.
In reality austerity policies will continue long into the future, extending the longest recorded fall in living standards in this country. The exception is the calendar year 2019, where both Government Consumption and Investment will rise as a one-off, before planned cuts in future years.
The Table shows there is an increase on both Government Consumption and Government Investment in 2019. They are both much higher, relatively speaking than in the two preceding years 2017 and 2018. It is also important to note that the growth rate of both these sector of Government outlays fall away again in subsequent years. Both of these were also revised substantially higher solely for 2019, compared to the March 2018 Spending Review, whereas other years have almost all been revised lower compared to March.
The OBR Table also reveals a deep and abiding pessimism about economic prospects. By 2023 this business cycle will be very mature, as the last recession ended in mid-2009. Yet even without a renewed downturn real GDP growth is officially projected to average no more than 1.5% annually over the entire period. Chancellor Hammond explicitly states that the trend growth rate for the economy has been lowered by the financial crisis. On official forecasts, sluggish growth is the new normal.
The driving force of the economy is Investment, and with it the increasing participation in the division of labour through foreign trade. This is not the OBR’s framework, which remains stuck in a neoliberal/Treasury paradigm that Consumption drives growth. Even so, the OBR’s forecasts are noteworthy for expecting no increase in net trade, and the worst ever growth rate of fixed Investment over such a prolonged period.
Without better growth than is forecast, it is extremely difficult for living standards to rise.
Crucially, the OBR expects corporate profits to slow even further from 3.5% growth recorded in the first half of 2018. It projects that the slowdown will continue with just 2.8% profits’ growth in 2019 and only matching the average real GDP growth rate for the economy in further years.
It also notes that business Investment has risen by just 1.9% in the two years since the EU referendum and fell outright in the first half of this year. If the OBR is even close in its assumptions about profits, it is difficult to see where any rebound in business Investment will come from.
In fact, with weak growth from both business Investment and the Government, the OBR’s entire forecast even of very weak growth rest on a renewed increase in household indebtedness. The Chart below is Chart 3.23 taken from the OBR’s Economic and Fiscal Outlook to accompany the Budget.
By Tom O’Leary
The overwhelming majority of this rise has been in the same two categories, Professional and Professional and technical occupations. Together over the last 17 years the number of people in these two occupational categories has increased by 4.2 million workers. This represents most of the net change in jobs over the last 17 years. The Professional category alone has almost doubled over 17 years.
Other important changes have also taken place, aside from these skills-based changes. Table 1 sets out some of the key changes in the composition and terms of employment over the same period. Rounding means some categories will not sum to the total.
The conscious and persistent efforts to widen the casualisation of the workforce have registered some victories over the period. Despite this it is important to note that the biggest single change in the workforce has been in the growth of full-time workers, representing more than two-thirds of the total increase.
They are not ‘Managing Directors’, senior bank executives, or managers of NHS Trusts and so on. These are in the first ONS category of Managers, Directors and Senior officials, and their number has sharply declined over the period, as shown above. Instead, they are teachers, doctors, nurses, accountants, finance and ICT professionals.
The five biggest categories of professional jobs all range between approximately 1 million and 1.5 million workers. In descending order, business and statistics (eg, accounting/auditing), teaching, health, ICT and sales jobs account for 6.57 million workers. This is of a total of 11.19 million workers in these Professional categories.
Clearly, there are different trends at work. The growth of the already outsized British finance sector has continued, registering little impact of the financial crisis. In addition, the tightening or at least greater complexity of the regulatory and accounting regime governing British firms continues to generate jobs, although the performance of British firms or their regulation has not noticeably improved. But firms are also increasing their capacity in certain limited areas, such as IT and in sales. At the same time, certain key (mainly public sector) jobs continue to grow in health, teaching and social welfare (including social work and housing).
Politics and workers
The current categories were re-designated in 2010 to reflect changing skills (nursing saw a big rise in required skill levels) but the current types of classifications were introduced in 1990. Other versions go back much further.
These categories are over 50 years old and are tool of advertising analysis used by publishers and advertisers in the National Readership Survey, solely in Britain. These are completely non-Marxist, that is non-scientific categories. It is arguable that there may have been some alignment between these categories and social classes when the NRS was formulated, but now they lead only to utter confusion.
The categories C2DE include both lesser-skilled workers, as well as those at the margin of the workforce and pensioners. It should come as no surprise to any observer of British politics that, unfortunately, pensioners overwhelmingly do not vote Labour. They are also the single biggest category, with over 12.5 million pensioners in the UK.
Similarly, it is widely arguedthat the Leave vote was a workers’ vote on the same spurious basis, and that the Remain vote was concentrated among the liberal, metropolitan elite. Northern Ireland and Scotland are not normally included in such categories, and they both voted Remain by some margin. So too did most of the cities including London, Leeds, Glasgow, Edinburgh, Bristol, Manchester, Cardiff and Belfast, Leicester and Newcastle. In general, workers live in cities and predominate there.
Class categories are actually based on social relationship to the means of production. Owners of the means of production are the capitalist class. Those who own virtually nothing except their own labour which they are obliged to sell are proletarians. Others form intermediary layers. The last several decades have in part actually been characterised by the proletarianisation of many professions, including teachers and doctors and other medics, as well as the numerical growth of those professions.
Likewise, a Labour victory depends on appealing to that combination of the workers and all the oppressed. These must first be correctly identified, taking account important changes and building support by championing the interests of the workers and the oppressed in their totality.
By Tom O’Leary
Portugal is finally on the brink of ending the slump that began with the Great Recession at the start of 2008. But the economy remains far from a full recovery and important challenges lie ahead for the Left-supported government.
In the 1stquarter of 2018 the level of Portuguese GDP rose once more and is now just 0.75% below its level of the 1st quarter of 2008, which was immediately followed by recession. At some point this year the economy will finally surpass its pre-recession peak level. The low-point of the recession was reached in 4th quarter of 2012.
From the pre-recession peak in early 2008 to the low-point of activity and the end of 2012 the economy contracted by 9.6%, one of the sharpest falls in the whole of Europe (although less than half the depth of the Greek catastrophe). Since the end of 2012 the economy has been expanding.
The content of the crisis was twofold. Consumption fell by €15.1 billion, taking both government and private Consumption together. Investment fell by the even greater amount of €16 billion, even though Investment was a far smaller proportion of GDP. In percentage terms Consumption (private and government combined) fell by 9.7% in the slump, in line with economy as a whole. Investment fell by a far greater amount in percentage terms, down 36.25%.
As with other countries, the main driving force of the Portuguese crisis was therefore the slump in Investment. Chart 1 below shows the change in real GDP and its components during the slump. Net exports rose over the period, partly off-setting the sharp falls on other GDP components. But this was overwhelmingly due to a slump in import demand, not a surge in exports.
The impositions of the Troika have had a devastating effect on the Portuguese economy. The ‘bailout’ was not for Portuguese workers and the poor. It was a bailout of the creditors of the Portuguese government, who included both Portuguese and international banks, as well as investment and hedge funds, and other vultures. Vicious austerity was the price the Portuguese population was made to pay. They were also burdened with the debts of the creditors.
It is important to register the actual timeline and causality of the crisis. The Portuguese government did not apply for Troika a bailout until April 2011. The government had already imposed austerity measures of its own under the pressure of European Central Bank, the ratings’ agencies and others. Before the bailout of creditors the economy had already contracted by 3.1% and Investment had fallen by 20%. This was a crisis initiated by Portuguese and international big business, and a government acting in their interests. The Troika formalised and deepened that process.
Turning to the recovery, as Chart 2 below shows, that expansion has clearly accelerated since the beginning of 2016. This coincides with the new government in office, the Socialist minority government supported by the Left Bloc, the Communists and the Greens.
The acceleration under the Socialists is clear from the evidence. In the first 3 years since the economy began to expand once more, from 2013 to 2015 GDP rose by just 4.2%. But the signifcant acceleration in growth from 2016 onwards means the economy has expanded by 5.3% in little over two years.
The sharp change of policy under the new government is associated with the acceleration of growth. The Socialists, and the other parties supporting it in forming a government, stopped imposing new austerity measures. This alone has been enough to prompt an economic recovery.
To be clear, it is not increased government spending which has caused a recovery. The government has not increased its own Consumption at all. According to OECD data the annual level of government Consumption was €34.256 billion in the 4thquarter 2015, the last of the outgoing government. It was barely changed at €34.494 billion in the 1st quarter of 2018. The idea that increased government ‘stimulus spending’ has prompted Portugal’s recovery is not factually correct.
Instead, the government stopped imposing new austerity measures. This allowed a rise in private Consumption, and an increase in Investment, which is shown in Chart 3 below. Investment remains very far from recovery. But it has been on an accelerating trend. In the 3 years after 2012 when the economy began to expand once more, Investment rose by 9.0%. In little more than two years of the Socialist minority government investment has increased by 14.6%.
The decisive factor in continuing to ensure sustained growth will be to extend and improve this upturn in Investment.
As already shown, the fall in Investment was the decisive element in provoking the recession. The major fall in living standards came later, imposed by the Troika. In order to maintain recovery, raise living standards and undo the impact of the crisis, the further expansion of Investment is required.
Before the crisis, Investment comprised over 22% of GDP. It is now just 16% of GDP. If that Investment share of GDP is not restored or improved, it will be difficult to sustain the same pre-crisis levels of growth in living standards. General government Investment (Gross Fixed Capital Formation) has only just begun to turn up. Chart 4 below shows the Nominal level of general government Investment.
Given the time leads for Investment (in transport, infrastructure, affordable housing, ports and so on) the new government can only be responsible for the level of public Investment in 2017. This showed a modest upturn.
The private sector cannot be relied on to maintain increased Investment. The Government must significantly increase its own Investment to maintain recovery over the medium-term, and to underpin rising living standards.
The IMF has called on the government to increase lending to small and medium-sized enterprises (SMEs). This is entirely the wrong prescription. SMEs will never deliver the large-scale Investment the economy requires, or direct towards the areas required, in housing, infrastructure, transport, new technologies and so on. Instead, the government should invest on its own account to achieve the increase in the productive capacity of the economy that is required.
How precisely that is achieved would require detailed knowledge greater than the current author’s. But the following options would come under consideration:
*Borrowing for investment – a public sector budget surplus is now expected and Eurozone government interest rates are extremely low
*Pressing for increased investment from the European Investment Bank and other supranational bodies
* Using remaining state-owned companies to increase their own investment
*Encouraging productive (not speculative) Investment in the real economy through Foreign Direct Investment.