Not the Galway Tent, but the Capitalist System

The Citizen: Issue 2
September/October 2009

Author: Eoin Ó Murchú

The global economic crisis has suddenly transformed Ireland from a land of prosperity and complacency to one of recession and fear. The various political parties, representing for the most part different elements of the wealth-owning classes, vie with each other in apportioning blame, but stand shoulder to shoulder in solidarity against any fundamental examination of the system that has brought this about. That system is, of course, capitalism. This is a system where economic activity is regulated by the market and where the established wisdom has demanded freedom of the market from ‘self-interested interference’.

The British prime minister Margaret Thatcher famously expressed this underlying sentiment when she propounded that you ‘cannot buck the market’. But, she missed the point that she herself favoured political intervention, not to equalise the effects of the market but to ‘free’ the market from control.

Indeed, the capitalism that she espoused, and which was part of the Milton Friedman blueprint also upheld by US President Ronald Reagan, was one that expressly condemned any interference with the market and insisted that any regulation should be with the ‘lightest of touch’.

Irish commentators tend to see Thatcherism in terms of the political revolution that she achieved – the neutering of the trade union movement and the emasculation of the political arm of the working-class movement in her country: a process that culminated in the Tory Labourite Blair and New Labour. The point, however, is her commitment to the underlying economic structure of unfettered capitalism. Her political revolution had economic purposes.

The defeat of the international system of socialism, with the collapse of the Soviet Union, seemed to endorse the inevitability of the Thatcherite economic vision, even if a more human political face might be put by others on the same system.

But, light regulation and non-interference with the market have not produced a constantly self-reforming system: it has led to collapse, to bankruptcy, to the impoverishment of millions in the developed world, and to an intensification of the extreme exploitation of people in the underdeveloped world.

Not that you would notice this if you relied on Irish economic commentators for your information. If we were to take seriously the academic drawl of the Morgan Kellys, Colm McCarthys and Jim Powers, the crisis is the inevitable outcrop of the Galway Tent – that temple of crony capitalism that linked the Father (Fianna Fáil), the Son (property developers), and the Holy Ghost (financial speculators) into an unholy Trinity of greed and corruption.

Greed and corruption there certainly were. But, what is called crony capitalism was only the particular form in which modern capitalism performed in Ireland.

The crisis is not primarily a crisis of the property bubble (whatever that means), and this point is shown by the fact that the whole global economic system is in crisis. It is also worth noting that the countries that have been least, or last, affected by this crisis, such as Canada, have been countries in which state regulation was not relaxed, in which the banks were strictly controlled, and whose own banking systems, therefore, were not directly compromised.

Why, then, do our commentators spout out from their privileged ivory towers with such venom against the property speculators? It’s because they are peddling the illusion that this is not a crisis of capitalism but a crisis of Fianna Fáil, and that other versions of capitalism – such as Fine Gael’s straitlaced ‘everybody-knows-their-place’ capitalism, with the public service honed down to a barely tolerated minimum – can be our salvation.

So, it’s not capitalism they criticise, but crony capitalism: with the assumption that a different purer version of the same thing would have avoided the crisis and could provide the solution.

But, this debate is a diversion. If Fianna Fáil has its Galway Tent, then Fine Gael has its devotees in the highest ranks of Allied Irish Banks: names like Peter Sutherland and Dermot Gleeson spring to mind.

The sad reality is that just as our industrial development has been increasingly dependent on foreign-led investment in recent years, so it is the crisis of foreign-led economics that is fundamental to what we are now experiencing.

The peculiarity of the crisis here is found in the huge gap between income and expenditure. And look closely at the arguments of the Kellys and McCarthys: it is expenditure that must be curtailed and the public service that must be stripped to make up the shortfall created by capitalism’s greed.

A further obfuscation in the debate here is that alternatives that reach outside the confines of capitalism are inconceivable to the main participants. The government’s distaste for nationalising the banks is an ideological hang-up. Surely, a nation dependent on foreign capital, as we have become, is bound by the rules laid down by foreign capital; and how could a nationalised banking sector in Ireland attract foreign capital deposits, they plaintively question.

In an Irish Times article in April, the political commentator Vincent Browne made the telling point that the people who make the decisions in all the main parties cannot think outside the box: the parameters of acceptable solutions have been laid down as those of the capitalist system.

There is an ideological underpinning for this. Back in 1989, when the socialist world tottered and fell – riven, indeed, by internal corruption and stagnant greed – the American political economist Francis Fukuyama declared the ‘End of History’. The collapse of socialism, he argued, meant the end of competition between ideologies and the eternal triumph of liberal democracy.

This liberal democracy could encompass variations on the economic theme, but its fundamentals were clear: there was now no alternative to capitalism.

Fukuyama, himself, now apparently admits that his thesis is too easy of caricature and that liberal democracy – as he calls capitalism – cannot ignore the complexity of society’s needs. What could Thatcher, who famously declared that there was no such thing as society, make of this.

There is now a revival of what I call ‘Salvationist’ theories, such as those of Karl Polanyi. ICTU General Secretary David Begg is among those who see the outline of a solution here. Back in the 1940s, Polanyi hailed the New Deal in America. While others saw this deal as the road to perdition, Polanyi saw it as bringing in a new element to capitalism, a human element.

Giving priority to exchange relations, he argued, left no room for social relations. His argument was that economic integration must be balanced by redistribution and reciprocity. In other words, the social aspects and the needs for equality must restrain the unfettered drive of commodity exchange.

But, there’s the rub. Commodity exchange is what the capitalist system is all about. Or, to put it in terms that Fianna Fáil can understand, the rising tide lifts all boats. Unfortunately, through poor maintenance, some of the boats have holes in them, and the rising tide leaves thousands drowning.

What then is capitalism? Can it be reformed? Can the working people find a way out of the crisis that does not require them to fundamentally challenge the existing order? Marxists have always argued that the forms of economic organisation determine the nature of the forms of social and political interaction. In other words, it’s the economic base that gives rise to the social and political superstructure.

Marxists have also recognised that capitalism did not just emerge as an intellectual choice – nor was it the inevitable end purpose of human existence (i gcead do Fukuyama). Rather, it emerged through the refinement of human production.

At a primitive level, humans combine to provide themselves with food and shelter. Without combination, no individual human could survive. Gradually, however, technological innovation allowed surpluses to be produced and individuals to concentrate on different areas of production, exchanging goods with each other for mutual benefit.

Production for use gave way to production for exchange.

And, in the development of production for exchange, the political superstructure changed also. Tribal society gave way to one in which money dominated: the community (in Greek, demos) took over from the kin group (in Greek, phratry). The different roles played by different individuals in relation to production and exchange produced class conflict, which, as the Communist Manifesto said, was the history of all hitherto existing society.

Slave-owning patrician society gave way to feudalism, and that, in turn, was challenged by capitalism when the technological capacity of the owners of capital placed industrial production above landowning in economic significance.

This change was brought about by a primitive accumulation of capital for investment. It led to more complex forms of monetary relationships and an acceleration of the innovative drive of the new economic system.

Bank capital began to merge with industrial capital, and a new form of monopolised capital emerged. Globally this is the determinant form of capitalism. It is not only in Ireland that property developers socialise with bankers or that the directors of oil exploration companies sit on the boards of international financial giants.

But, herein lie the contradictions of modern capitalism. The market is not free because the power of the giant corporations is so big that they act with gravitational pull on all economic operations that touch upon their sphere. Distribution is not fair, as evidenced not only by the huge discrepancies in wealth within industrialised societies, but also the even more extreme differences between the industrialised and non-industrialised worlds.

Marx noted that the key to all of this lay in control of the distribution of wealth. Value, he argued, came from labour. A fallen log had only limited value; but that log transformed by labour into a table and chairs had immensely more. However, those who carried out labour did not own the products of their labour. The capitalists bought their labour power and realised the profit – the surplus above the costs of production – for themselves.

The productivity of labour meant that there was a natural value for all products. Adam Smith, now deified by the extreme right, argued that fluctuations in price (equivalent to an artificial inflation of market value over natural value) would be regulated by the market, which would suck in more products to such high prices, leading in turn to a return to natural value prices. Only monopoly, he argued, could distort that.

The second point is that there is a drive to reduce the costs of production so that individual capitalists can take advantage of the increased gap for their own profit. This leads to continual innovation, product development, and, of course, the need for credit to expand production and the consumption of new goods.

But the drive intensifies the contradiction. And the capitalist is forced to find more and more ways to reduce the costs of production to remain ahead of the posse. Wages are cut, or the costs of living – the price of housing, rents, etc. – are increased within society and between societies.

In Anti-Duhring, Friedrich Engels explained the result:

Trade comes to a standstill; the markets are glutted; the products pile up, unsaleable; ready money disappears; credit vanishes, the factories are idle; the working masses go short.

As this sequence of crisis upon crisis intensifies, the solution lies in two directions. An intensified exploitation of third countries can help to alleviate the sharpness of the domestic crisis; and, in the worst-case scenario, brutal terrorism by the state can force workers to acquiesce.

Lenin identified the first as imperialism: the expansion of capitalism on a global scale, with a deep exploitation of what we now call the Third World. Bukharin recognised the second as the New Leviathan, fascism.

Contrast this with how the ideologues of capitalism see themselves. The website Capitalism.org answers the question ‘What is Capitalism?’ as follows:

Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned. Under capitalism, the state is separated from economics (production and trade), just like the state is separated from religion. Capitalism is the system of laissez faire. It is the system of political freedom (emphasis added).

Other websites add the piquant argument that capitalism is about freedom, including the ‘freedom to work for an employer’!

The point is that interference with the freedom of the market is tolerable only as an exceptional measure. But, it is that lack of interference, the lightest of regulatory touches, that is now recognised as the major factor behind the present crisis.

Capitalism, then, has two aspects. Economically, it is the system whereby the private ownership of capital determines the distribution of the product of labour, which, despite the ideological waffle, is and always has been a communal and co-operative event. Economically, those who produce the wealth through their labour are dependent on those who own the capital. The building worker is in thrall to the speculator and developer and to the bankers with whom the latter socialise and interact.

Politically, capitalism uses political parties to maintain the hegemony of that system and to corral those who produce wealth through labour into a choice between different advocates of the same system.

Can this stranglehold be broken? The collapse of the Soviet Union and the defeat of socialism have left that ideology discredited, but what other alternative is there to the rule of greed and corruption?

A reform or replacement of capitalism will not come about by winning an intellectual debate in the halls of Academe. The working people need a party of their own, dedicated to the needs and aspirations of their class alone, working to build among working people a sense of their otherness and their potential power.

Manifestly, this will be no overnight development. What do we do in the meantime? If unfair distribution and arbitrary decision-making potentially damaging to the interests of the majority of society are the hall marks of the capitalist system, different forms of capitalism are no answer. Replacing one set of nouveaux riches cronies with a new set of inherited-wealth associates leaves the rest of us stuck in the ranks of the anciens pauvres.

But, if this crisis is a global one (it is), and if small economies like that of Ireland are at the mercy of the battering winds of international readjustment, how can we proceed?

We may remember from our youth the sterile arguments about Socialism in One Country with which Trotskyites denounced Stalinists and vice versa. But, whatever about the possibility of building socialism in a huge country like Russia, surely socialism cannot be built in a small country like Ireland on its own without exposing ourselves to a massive economic assault that would drive down our living standards to intolerable levels? The crisis is global, and the answer must be global: but a democratic global response, not one led by international financiers and businessmen.

What are we to do then? Stand on the sidelines, waving red flags and shouting obscure slogans at the people in power? Wait for the millennium to dawn in other lands and the lead to be taken by other peoples? And how are they to do it anyway? Should we just acquiesce in the triumph of a system that causes so much impoverishment and pain? Or, should we begin the process of reining in capitalism, making advances where we can and conceding ground where we have no choice, seeking allies and solidarity abroad but doing at home what is in our power to do?

Central to this is the issue of regulation. Ideologically, there is no better time for a definite regulatory framework to govern all aspects of economic activity and ensure that crises like the present one cannot be inflicted again. But, it has to be understood that such a framework will reduce the power and the profits of private capitalists. If the aim is merely to buy time for them to stabilise themselves, it will be useless.

It is in this context that the issue of bank nationalisation needs to be discussed. First of all, let’s be clear about the context. While a socialist society is inconceivable without the nationalisation of the banking and financial systems, the corollary is not necessarily true: bank nationalisation does not ensure a socialist economy. The question always remains: what class rules the state?

The debate that has occurred here seems obscurely irrelevant. Alan Ahearne, financial advisor to the Government and professor of economics at NUI Galway, argues that a nationalised banking sector would find it harder to get international funds. The anti-socialist solidarity of international financiers should not be underestimated, and Ahearne’s arguments deserve serious consideration.

But, his opponents in the debate, the Gang of Twenty ‘leading academic economists’, put forward no arguments for a nationalised banking sector. They want a temporary nationalisation. ‘Once cleaned up, recapitalised, reorganised with new managerial structures … the banks should be [returned] to private ownership’, say the professors of economics in our leading universities.

For all the radical posturing, there is no difference in principle between these two options. Both see the future of banking as one of private enterprise.

Ahearne’s argument assumes, however, that the returns that could be guaranteed by a nationalised banking sector would not be enough to attract foreign capital, essentially because of ideological hang-ups. Ahearne may be right, but he advances no arguments to support his thesis: he just assumes he is right.

The real point about nationalising the banks is two-fold. First of all, it is to get the banks sufficiently capitalised to undertake their primary role, the provision of credit for productive activity. Secondly, it is to ensure, in a more stringently regulated environment, that priority in investment decisions is given to the social needs of the community rather than the bankers’ desire for profit.

The need to attract foreign, as well as domestic, capital remains, but the returns offered should be those that the market requires. If Ahearne’s ideological thesis does prove stronger than a guaranteed return on investment, then, perhaps, the strategy might have to be reconsidered. But to rule it out a prioiri is an ideological not an economic decision.

And, certainly, the limited, tentative, temporary nationalisation proposed by the Gang of Twenty is a laughable line in the sand.

What needs to be asserted here is the democratic right of the people that the economy should be subservient to their needs. That means concerted international action to prevent the race to the bottom in terms of wages and conditions and the marrying of economic decision-making into a context of constant and consistent democratic inputs.

The rerun of the Lisbon Treaty referendum will be an important test of the strength of those who urge a democratic way forward that puts the interests of the majority of working people in first place, as against dependence on the big business and financial interests and their political institutions, which got us into this mess in the first place.

Standing out from the maw of international big business will not be easy; but, the alternative is to surrender to the greed that caused this crisis and will repeat it in other circumstances unless we play our part in striking out for something new.

Eoin Ó Murchú is an established political commentator who has written extensively on issues of modern political and economic theory.

Copyright © The Citizen and the contributors, 2009