More Cuts coming North and South!

Yesterday saw the publication of both the British Government's 2009 Pre-Budget Report and the 2010 Budget by the Dublin Government. Both represented attempts by their respective states to respond to the rising economic challenges presenting themselves.

The policies announced in both capitals were quite different in approach and this reflected the point in the representative electoral cycle in both states. In Britain, the New Labour government is desperate to avoid a devastating loss in the forthcoming election in May next year and sought to position itself politically vis-a-vis the main opposition Conservative Party. As such, the budget was largely opportunist attacking public sector workers and threatening massive cutbacks across public expenditure on one hand but balancing that with fairly punitive extensions of taxation to well paid workers in Banking Institutions.

The budget announced by the Irish Minister for Finance was in a qualitatively different position. Ireland's inability to control both the quantity and value of its currency has necessitated an immediate response to the economic crisis. The Dublin Government has decided that the only solution is to attack public expenditure in an attempt to reduce working class pay.

These attacks reflect the historic weakness of the labour movement in both countries and the ideological collapse of the parties of the left since the fall of the Soviet Union in 1991. Reversing this course of cuts will require a reinvigoration of socialist consciousness and the development of effective structures of class struggle not just in Britain and Ireland but in Europe. The tasks facing revolutionary socialists are manifestly daunting but the critical factor is never the skills and experience of activists but their ideological clarity and favourable objective conditions. Revolutionaries can be confident that the onslaught on worker's conditions heralded by these budgets will radicalise society as hard-won social provisions are rolled-back in the interests of private capital.

The British Budget Reviewed

The main elements of the British Government's Pre-Budget Report included:

• Public Sector borrowing ballooning to £178bn for the current tax year with a further £176 bn borrowing forecast as necessary the next. The net result is that debt to GDP ratio is estimated to rise to 56% by 2013/14 before coming down thereafter
• A one-year 50% pay-roll tax on bonus payments to all financial institution staff ahead of the introduction of a 50% higher tax rate in 2011/12
• A 0.5% increase in Employers National Insurance Contribution payments for all workers earning more than £20,000 a year from April 2011
• The pay freeze on higher paid public servants for 2010/11 to be extended to a generalised 1% inflation ceiling for all public sector workers for the two years after that
• Ring-fencing of funding for Health, Schools and Policing with the bulk of public expenditure cuts (amounting to at least 10% of total current expenditure over the three years from 2011) concentrated on all other provision
• The standard rate of VAT to rise to 17.5% from its one-off reduction to 15% this year.
• A Freeze on all tax allowances and the closure of a few tax loopholes
• A 2.5% increase in the standard pension, 1.5% increases to children's benefit and higher disability allowances.

The budget was based on highly questionable growth forecasts assuming growth rates averaging at 3.5% a year for 2011/12 and 2012/13 while inflation is recognised as likely to rise to 3% in 2010 before falling back to 1.5% by the end of that year. Moreover, his figures assume bad debt associated with the collapse of the banks to fall to only £10 billion from a previous estimate of £50 billion.

The British Chancellor clearly has eyes fixed on the next election and included some relatively low-cost commitments e.g. increases to pensions and children's benefit as these will reinforce support in traditional Labour heartlands. The move against the London bonus culture has caused greatest reaction and plays on the populist opposition to bankers but risks potentially threatening the City of London's status as a leading financial centre.

Quite why the Chancellor is willing to potentially sacrifice the 'holy of holies' for the wider British economy is hard to discern. It may be that he has calculated that Labour have no hope of winning the next election and so this will not threaten the British cash cow. The move will certainly mobilise the traditional vote but could well be another sign that Labour has given up the battle for middle England. On the other hand the announcement tonight that France will introduce a similar provision and that German bankers are already attempt to pre-empt a similar announcement in Berlin may reflect a wider trend in terms of global approaches to the banking sector at this time.

All the same the measures put a gloss on the situation ahead of an election which Labour would be happy coming out of losing but able to contest the next one in 2015. All the tough decisions are put off until after the election, none of the major cuts beyond a further £5 billion in 'efficiency gains' are identified. It is, in short, an attempt to avoid the realities of austerity that are around the corner.

Dublin - No Avoiding the Pain

The Budget issued by Brian Lenihan was remarkable for its unerring determination to push the bulk of the cost of the recession onto working people. There is no doubt a sense of fear among some in the political commentariat and establishment in Dublin; so much so indeed that radio station Newstalk FM issued a pro-government pre-budgetary editorial justifying the forthcoming cuts ahead of time.

The main items of note included:

• Slashing Public Sector pay by 5%, 7.5% and 10% on a sliding scale
• The introduction of a 'carbon tax' of €1000 per tonne of carbon produced applied to car and home fuel
  
• €760 million of cuts to benefits specifically jobseekers allowance rates, children's benefit and maternity benefit
• An increase in family income supplement
• The introduction of new charges and restrictions in medical expenses (including an introductory charge for medical card holders)
  
• Cuts in student grants and allowances
  
• Reduction of VAT to 21%
• A one-off levy of €200,000 on all Irish nationals earning more than €1 million a year in income
• A new car scrappage scheme of €1,500 on cars of over ten years old
• Reduction in excise rates on beer, spirits and wine to offset loss in revenue through cross-border shopping

The only stimulative proposals were a measly €100 million for renewable energy systems and €50 million for an agricultural programme.

The neo-liberal bias of the Irish government has been exposed in this deeply reactionary and conservative budget.

The overall aim is coherent with a long-term economic development strategy predicated on export-oriented growth - as such, the opportunist criticisms from all opposition parties in Leinster House rings hollow.

The Dublin government have to implement these cuts unless they are move outside the current capitalist paradigm. The cost of borrowing is becoming excessive, increasing taxation drastically on businesses and the super rich will result in catastrophic job losses at a time when the Irish economy is already reeling.

Like the British Government, Dublin faces the challenges of a fiscal regime running on empty. But unlike London, the Irish Government does not have the power to vary interest rates, engage in monetary expansion (i.e. printing money) or engage in predatory devaluation. Brian Lenihan was clear in his commitment to retain the 12.5% corporation tax rate and to leave income tax rates where they are - this was to reassure the market.

So it had to be that they found the cuts through reducing public sector provision, slashing public sector wages and social welfare benefits. But that is not all the story.

Race to the Bottom Economics

The reality is that both Britain and Ireland are now caught in the crosshairs of a global phenomenon which has afflicted many nations for quite some time. The globalisation of investment has resulted in a significant downward pressure on wages. In the past, Western Governments have reacted to this by cutting loose on unsustainable employment and restructuring their economies by moving up the 'value-added chain'.

The problem for this strategy is that as fast as they climb up the ladder it is sinking into the sands below faster. London's dependency on financial services was a mechanism to channel third world wealth back into a largely unproductive economy propping up a standard of living unsustainable without a productive base. Ireland's growth model was to tap US FDI into Europe becoming an off-shore entry point to the European and British markets.

Unfortunately, in both cases, the strategies proved unsustainable. Britain's over-dependence on financial services exposed it to massive levels of default in the context of the global credit crisis the steps taken to prevent a more fatal reoccurence of this threat is likely to prove excessive to footloose bankers and London's status as a world financial centre looks increasingly under threat.

As has been analysed on this site repeatedly, Ireland's strategy came unstuck a few years ago but the state managed to inflate beyond the natural limits through the free availability of low interest credit through the euro and a construction bubble.

In both cases, the governments are keen to reinvigorate their productive bases. Britain's late turn to green energy and high technology sectors is a necessary consequence of the realisation that London's lustre is rapidly losing its brilliance. In both cases, but that of Ireland most pressingly, there is a need to reduce the cost of labour in order to compete with business overseas.

The collapse of the private sector has reduced wage levels considerably but insufficiently. Workers are inspired by tales carried by the pliant media to accept 'voluntary' days off or days without pay.

These recent moves however are to break the back of the public sector to reduce their standard of living and thereby effect more far-reaching reductions across the wider workforce. This is the true meaning of yesterday's Irish budget and in Britain the Tories are clearly relishing their future role in re-enacting Thatcher's victory over labour with a new generation of union leaders.

A Rotten Leadership - Trade Unions and Social Democracy in a state of decay

In ordinary times it might be expected that with such cuts generalised throughout society the left would pose a potentially deadly threat to such an agenda. However today finds the Trade Union and traditional left-wing parties in a state of absolute ideological collapse. They have become conditioned to the ideological priorities of the ruling caste and many have been bought off through positions traditionally recognised by revolutionaries as the 'Aristocracy of Labour'.

The behaviour of ICTU leadership who marched their members up the top of the hill only to march them back down on the back of a one-day strike has been educational for any who retain any illusions in their capacity to act as champions of working people. Yet their public spurning by the Dublin Government and the massive pressure building up within the ranks of the trade union membership will force their hands to take up a more aggressive course in the coming months. It is to be hoped that this failure may occasion grassroots organisers and convenors closer to their membership to join with socialists in the ranks in an assault on those coseted at the top of the trade union bureaucracy. The unions need to become organisations of struggle once more.

An Ideologically Vacuous Social Democracy

Whereas trade union leaderships sharing the corporatist ideology of the political mainstream is not a new thing, the complete absence of even a socially significant revolutionary or even socialist opposition is relatively new to modern politics. In Ireland the only consistent socialists are to be found in the small yet ideologically robust Socialist Party, the vocal yet ill-defined People Before Profit and the largely marginalised and anachronistic Communist Party. The same situation obtains in Britain albeit with a greater number of militants in some of the leading trade unions.

In such a situation taken alongside the defeat suffered by socialists following the collapse of socialism in the Soviet Union (both before and after its political collapse) would suggest that the case for a realistic socialist opposition challenging the right-wing agenda of cuts looks bleak.

However, history does not stay standing. Francis Fukayama's End of History may have been proclaimed almost twenty years ago but looks undeniably anachronistic today. The cutbacks will force working people to revisit their adherence to ruling class ideology. Their experience of struggling against the coming cutbacks and the whole political class behind them - whether that's in Britain, the Republic or Northern Ireland - will teach them of their own power and authority. The experience of defeats and victories in struggle will reinvigorate an awakening of the spirit of democratic and socialist ideals.

Socialists today must be more resolute than ever, more steadfast in upholding the lessons which were so hard-won and earned by former generations. Not for nothing has the entire political class, including his alleged descendents in Sinn Féin and Labour, dispatched Connolly of all revolutionary content. Socialists in Ireland must be resolute, determined and strain every nerve in attempting to build a mass working class opposition in these times. Every battle lost today will make it harder tomorrow, every victory will bring closer the day of liberation from the yoke of capital.
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Sinn Féin’s Response to the Economic Crisis – A Naive Social Reformism

Sinn Féin recently published its pre-budget submission with some fanfare yesterday. This exercise being the latest attempt by the party’s representatives in Leinster House to appear as a government-in-waiting. In the past, these submissions have been marked by a curious mixture of timidity in relation to offending the market alongside proposals which are so outlandish as to undermine their own credibility – yesterday’s offering was no different.

The current crisis offered the opportunity for the party to re-establish itself as a socialist opposition. Prior to this it had moved back from openly backing the bank bailout after exposure by the equally cynical opportunism of Labour and the loss of some of its few remaining socialists from its ranks. Yet, it is with some disappointment that Socialism or Barbarism has to report this exercise represents nothing but another missed opportunity to present the case for the socialist economic alternative. Worse still, it is grounded on poor economics and will merely reinforce perceptions that the party does not understand the first thing about the subject.

Yet social reformists from labour and within the party have welcomed the announcement prefiguring as they see it a neo-Keynesian alternative to the current Government’s course. This article seeks to dissect the approach, why it is wrong and what is the real socialist alternative a party associated with Connolly should seek to present.

Fianna Fáil and Irish Business

Few would doubt that Fianna Fáil has long been the party of Irish business. From its first beginnings the party was associated with big business and the small farmer. Its early policies were based on a classical import-substitution strategy behind a protectionist trade policy. When these failed, due in large part to the inadequacy of domestic capital, the party eventually suffered an ideological collapse and agreed to pursue an export-oriented growth strategy predicated on open markets and a higher rate of industrialisation. In its early era the party could count on the support of radical bourgeois nationalists whereas in its later departure it could count on the support of the few but influential group of pro-soviet socialists in the Worker’s Party who saw in the country’s industrialisation a speeding of the day of a fully developed proletariat and consequent revolution. At all times, this agenda was amenable to elements of the labour movement’s leadership as the agenda was always to create employment as a means to create growth.

This history should come as no surprise to any student of developmental economics as these were the two strategies adopted by virtually every dependent and neo-colonial society outside the ambit of the socialist system. Ireland was an underdeveloped ex-colony which the national bourgeoisie was seeking to develop so it was only natural that they would pursue these paths. What is perhaps less common is that the same party managed to pursue both at various stages – a fact finding its origins in the exceptional nature of Irish politics. It is essential that any analysis of today’s situation recognises that this is the beginning point for economic strategies in Ireland.

Unlike many other third world economies, Ireland’s adoption of neo-liberalist export-led growth worked as large amounts of FDI were attracted into the country due to a variety of causes not least of which being the predatory low rate of corporation tax.

The history of this approach is of interest. The problem with simply introducing a low corporation tax rate and trying to retain decent social welfare was that it created a pressure on fiscal receipts and so the country placed the burden of taxation onto the workers through higher income taxes. Late in the 1970s this approach collapsed under a tidal wave of anti-tax protests. The burden of taxation was reduced through large scale privatisations and austerity measures and a considerable proportion was transferred to relatively higher rates of indirect forms of tax such as VAT and stamp duty.

The logic of the fiscal environment which underpinned the Celtic Tiger era was growth predicated on low corporation tax levels, low labour costs maintained by low rates of taxation with relatively high rates of indirect taxation. The consequence was low levels of public expenditure and two-tier public services. With the growth of the property bubble, the rates of pay increased beyond the point at which the model worked (largely due to a newly integrated global labour market) and to make matters worse other countries adopted similar predatory corporation tax levels. The model didn’t work any more but the expansion continued for a few years stimulated by positive feed-back loops and a massive expansion in credit.

So now it has all come down and Sinn Fein is advocating a return to a high tax social democratic model unaware that the economic capital base, although significantly expanded, is insufficient to allow the adaption of such an approach. As a matter of fact, the collapse has severely damaged the capital base that the country did build up over the period of the Celtic Tiger and most businesses are suffering from a rapid deleveraging which will not simply re-inflate in the long-term let alone the immediate future. There is no room for manoeuvre.

A Better Form of Capitalism

The first question Sinn Féin and other social reformists should ask themselves is why is it if an alternative exists, an easy option, that does not involve massive structural change to the Irish economy (change necessitating the overthrow of capital itself) why wouldn’t Fianna Fáil pursue it now? Do you think them stupid? Do you think they want to destroy their political base when an easier alternative exists?

They are not stupid and they are not unnecessarily suicidal. The reason Fianna Fáil does not pursue the neo-Keynesian alternative is that it is a pipedream and anybody bar an economic illiterate knows that. The history of the party demonstrates that it has no ideological aversion to that policy and indeed anyone knows that they have few ideological hang-ups of any kind.

Of course the leadership of Sinn Féin themselves know this too. This is not an exercise in putting forward a credible alternative policy but just playing the game like Labour did when it opposed the Bailout outflanking Sinn Féin in the process; it is a piece of political opportunism. Unfortunately, this realisation has not dawned on activists on the left who are allowed to delude themselves that Sinn Féin would somehow implement this policy if they were in government refusing to look at how the same leadership continue their years old policy of rapidly expanding privatisation through PFI/PPPs and call for lower corporation taxes north of the border in order to stimulate FDI-led growth.

The reality is that Fianna Fáil would dearly love to pursue a course which reinvigorates the Irish economy and creates growth. That they of all parties could secure widespread agreement from domestic business to pay more tax if it would work – but it would not. The model is built on export-led growth and this is dominated by multi-national investors such as Dell who have already pulled out with such devastating regional consequences.

If the state could borrow its way out of the recession, then Fianna Fáil would surely adopt this approach as they did back in the 1930s but it is no more reasonable today than it was in the 1950s when that policy collapsed.

Critique of Sinn Féin’s Alternative

The failure to grasp the context for an Irish economic development strategy marks the paper and results in a huge layer of poorly formulated policies. The party hides behind comparisons of public spending to GDP and debt to GDP being lower than European equivalents. But surely they know that GDP is the most inappropriate denominator in a country where the economy is built around foreign direct investment. Instead on measures based on GNP (which allow for repatriated profits) Irish expenditure and debt are outliers. What’s worse is the figure of debt to GDP excludes the value of the Bank Bailout which the party supported.

The party finally appears to have absorbed at least part of the essence of the Keynesian argument but has misunderstood another part. A Keynesian stimulus is based upon borrowing not taxation. Taxation merely results from a recycling of value within the economy. There is no stimulus associated with what is proposed – in fact due to excess of taxation over spending – it is in fact deflationary. The party again has exposed its embarrassing lack of economics to the public. It is only because they are not taken seriously that this has not been more widely exposed.

The party argues that taxing the rich and spending the money on consumption is stimulative. This used to be a Keynesian mainstay but in today's Irish economy the case for it would appear marginal in the extreme given the scale of leveraging in the banking system. The party spokesperson clearly does not realise that money in banks does not simply sit there doing nothing but is used to leverage investment amounting to maybe 25 or 30 times its value. Given the dominance of the domestic construction market in the credit books of the Irish banks it is highly likely that taxing the rich actually reduces overall consumption many times more than what results from paying money to poorer consumers. This is even more likely if you add in the leakage associated with consumption in the modern import-dependent Irish economy in comparison to the very high economic multiplier associated with the construction industry.

A Capital Tax - A Revolutionary Demand?

The proposal of raising a 1% tax on all non-residential and non-agricultural property is perhaps the most radical but naive of all the recommendations. In the hands of a revolutionary working-class movement such a demand should be supported every step of the way but unfortunately Sinn Féin present it largely without understanding its implications. If and when they realise just what it would cause the leadership would run away from it faster than they ditched raising corporation taxes ahead of the last election.

At a time when businesses are struggling to maintain cash-flow (let alone achieve break-even) the application of this tax would probably break the economy. Investment would dry up and operations would close as businessmen calculate that they were losing money on already tight margins. Unemployment would shoot up and capital would fly out of the economy by every means at its disposal. And that’s before the ECB started to raise interest rates as the core EU economies begin to lift a measure which would further increase the impact of this move. It is unlikely that Sinn Fein representatives realise just how radical a 1% property tax would be. For the sakes of comparison perhaps they shoud look at the uproar and threats that have compelled the whole array of EU governments to beat a hasty retreat over proposals to introduce a 0.1% tax on financial transfers. How much worse would the reaction to a 1% wealth tax in a small country like Ireland be?

Let's look at it another way. Businesses operate to make profits above the rate of interest. If they don't make such profits it's better to save the money and get interest paid direct. That's how the market decides to allocate investment. More profitable sectors get greater investment at the expense of less profitable ones. More investment lowers operating costs and increases competition resulting in more production and lower prices. Eventually, the average profit rate lowers with the entry of more suppliers and more supply into the market. It's the essence of the market. To apply a 1% capital tax would make investing in the Irish economy profoundly less attractive to the global market. It would raise the break-even point for businesses to the rate of interest plus one percent. One percent on the margin is a lot at the best of times let alone the worst of times. That's why a 0.1% Tobin tax is so important. It's deployment is not primarily fiscal (the revenue raised will be large but pale into significance alongside its impact on how the economy operates) but economic. It would reshape business around the world. So a 1% property tax would also reshape Irish business but not in the way that Sinn Féin 'economists' might anticipate.

Perhaps revolutionaries in the party would celebrate such a radical turn but the reality is that there’s no way the party would ever implement this measure. It would be sufficient to collapse the capitalist economy in Ireland at this time. It's likely that they just don't know what they're after proposing.

From a revolutionary perspective the party would be better to join the Socialist Party in arguing for a set of immediate, transitional demands setting out actions on behalf of the working class than to make such a proposal which would probably result in more damage than simply nationalising the commanding heights of the economy.

The arguments presented that capital is not mobile and is inflexible stand against economic realities of the last 20 years. The reality is that capital is very mobile that transportation costs are historically low in comparison to the costs of production. Indeed, in the current climate there is less reason than ever for companies to be attached to investments when they are operating at such low capacities (and consequently obtaining significant productivity increases with marginal growth).

Effective Taxation, Spending and Borrowing

Sinn Féin reiterates its focus on eliminating tax breaks again in an attempt to present a populist policy yet forgets about the issue of salary levels in the public service. The reality is that closing tax loopholes is very difficult to do, would have significant unforeseen implications for the wider economy, would result in capital flight and would likely raise very little additional revenue (in terms of what’s required).

Some of the measures proposed are sensible such as hitting the Pension Reserve Fund although it is unclear why the party didn’t go all the way with this. Again, however, it is not clear that taking money from this reserve would actually result in a net stimulus depending where that money is invested at present.

The party's position is more solid when it comes to spending with its suggestions for a useful job retention proposal and the recommendation of harmonising VAT on an all-Ireland basis both of which are good suggestions (and would likely cost a lot less than they anticipate due to unforeseen savings elsewhere in the economy). It is perhaps indicative that the party does not seek to address the differential in the minimum wage and social welfare payments either side of the border as this would likely expose the realities of its stance on these matters in the north. Arguments about the need to maintain the gap between the minimum wage and social welfare fail to understand that it is likely that both are to be reduced proportionately in the onslaught on workers.

In a step forwards from its earlier position and the naive positions of other reformist economists, it recognises that the cost of borrowing will increase due to the interests of international lenders. But this concession undermines the ethos of a package which is meant to act as a stimulus to the economy since funding has to be sought from taxation itself which produces a potentially greater deflation in the economy. It is precisely for this reason that more consistent and better economists from the Keynesian tradition have not conceded that the cost of borrowing must necessarily increase.

The Socialist Alternative and the historic conflict with Reformism

Sinn Féin are desperately trying to find an alternative to today’s free-market capitalism; a fairer capitalism but one which does not involve any radical social change. They are doing so with the same degree of naivety as they approach the question of Irish reunification where they are neither capable of engaging Protestants effectively nor presenting an economic answer to the unavoidable questions presented by the economics of Irish unity.

But they are not alone. Lefts within Labour wish to present the possibility of a better, kinder capitalism – one that does not necessitate a revolutionary overthrow of the state such as suggested by such figures as Marx, Lenin, Connolly and Guevara. We are told continuously that their politics has become dated by history and instead of their revolutionary socialism we must ditch it to join with the followers of Bernstein, Kautsky, MacDonald, Jaures, O'Brien, Ebert and in today's world Tony Blair in seeking a third-way of accommodation with capital. It is, of course, beyond these people who wish to ignore history that the very same arguments were raised by the opponents of Lenin, Luxemburg and Connolly in their lifetimes by reformists in their day. Socialism has always been out of date. It might interest readers to note that the very earliest democrats were assailed by the same means before the necessity for democracy was accepted by all and sundry. The likes of Bismarck and the British argued against the simplicity of the French model which did not take into account the historic particularities of their era.

The reality is that there are no easy answers within capitalism in today’s globalised economy no more than there have ever been. The market dictates the terms of social provision in each country forcing countries to compete in a race to the bottom. This crisis is about achieving a new balance between the net consumer economies in the west and the net producers of the east. Ireland has been caught in the middle of that 'correction' with an export-oriented economy built on FDI unable to compete with new market entrants.

Socialism or Barbarism! - the choice for a new generation

There is no solution to this conundrum within the system of capitalist production. Indeed, due to the operation of the law of value there is no solution outside of it for one country – no more than there was when de Valera gave up on the import-substitution approach. Socialism must be international and it must be based on a democratic conquest of power. It is only by taking control of production and distribution outside the control of the market that a humane solution to this economic impasse, the crisis of the third world and the environmental catastrophes facing humanity is to be found.

Many have given up on this alternative but it is more necessary than ever to consciously reiterate the demands of past generations of socialists. There is no better form of capitalism. You cannot make a cake without cracking the egg.

In the absence of that alternative Ireland’s eventual rebound will be built upon mass emigration of surplus labour, a reduction in the living conditions of Irish workers to a level where domestic capitalists can compete in the global market and widespread privatisation. It doesn’t matter whose in government or whether they call themselves revolutionaries, socialists or communists for that matter, the economics of austerity will be the agenda and those parties in government will find themselves forced to enact those policies by the forces of the global marketplace.

Only by extracting ourselves from this system can we address the problems associated with the global race-to-the-bottom and environmental catastrophe associated with globalised capitalist production. The revolutionary path today is to set out and popularise a series of transitional demands on which workers can begin the task of transforming society.

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20 Years of Collapse

With the bourgeois media reliving the now distant glories of 1989 in a patent attempt to undermine any popular sense of an alternative, Socialism or Barbarism has decided to afford a platform to one of the most profound contributors to modern thought, the well-known marxist critical theorist Slavoj Zizek. This is an article written by him on the wider significance of the end of communism.

20 Years of Collapse
By SLAVOJ ZIZEK

TODAY is the 20th anniversary of the fall of the Berlin Wall.
During this time of reflection, it is common to emphasize the
miraculous nature of the events that began that day: a dream
seemed to come true, the Communist regimes collapsed like a house
of cards, and the world suddenly changed in ways that had been
inconceivable only a few months earlier. Who in Poland could ever
have imagined free elections with Lech Walesa as president?

However, when the sublime mist of the velvet revolutions was
dispelled by the new democratic-capitalist reality, people reacted
with an unavoidable disappointment that manifested itself, in
turn, as nostalgia for the “good old” Communist times; as
rightist, nationalist populism; and as renewed, belated
anti-Communist paranoia.

The first two reactions are easy to comprehend. The same rightists
who decades ago were shouting, “Better dead than red!” are now
often heard mumbling, “Better red than eating hamburgers.” But the
Communist nostalgia should not be taken too seriously: far from
expressing an actual wish to return to the gray Socialist reality,
it is more a form of mourning, of gently getting rid of the past.
As for the rise of the rightist populism, it is not an Eastern
European specialty, but a common feature of all countries caught
in the vortex of globalization.

Much more interesting is the recent resurgence of anti-Communism
from Hungary to Slovenia. During the autumn of 2006, large
protests against the ruling Socialist Party paralyzed Hungary for
weeks. Protesters linked the country’s economic crisis to its rule
by successors of the Communist party. They denied the very
legitimacy of the government, although it came to power through
democratic elections. When the police went in to restore civil
order, comparisons were drawn with the Soviet Army crushing the
1956 anti-Communist rebellion.

This new anti-Communist scare even goes after symbols. In June
2008, Lithuania passed a law prohibiting the public display of
Communist images like the hammer and sickle, as well as the
playing of the Soviet anthem. In April 2009, the Polish government
proposed expanding a ban on totalitarian propaganda to include
Communist books, clothing and other items: one could even be
arrested for wearing a Che Guevara T-shirt.

No wonder that, in Slovenia, the main reproach of the populist
right to the left is that it is the “force of continuity” with the
old Communist regime. In such a suffocating atmosphere, new
problems and challenges are reduced to the repetition of old
struggles, up to the absurd claim (which sometimes arises in
Poland and in Slovenia) that the advocacy of gay rights and legal
abortion is part of a dark Communist plot to demoralize the nation.

Where does this resurrection of anti-Communism draw its strength
from? Why were the old ghosts resuscitated in nations where many
young people don’t even remember the Communist times? The new
anti-Communism provides a simple answer to the question: “If
capitalism is really so much better than Socialism, why are our
lives still miserable?”

It is because, many believe, we are not really in capitalism: we
do not yet have true democracy but only its deceiving mask, the
same dark forces still pull the threads of power, a narrow sect of
former Communists disguised as new owners and managers — nothing’s
really changed, so we need another purge, the revolution has to be
repeated.

What these belated anti-Communists fail to realize is that the
image they provide of their society comes uncannily close to the
most abused traditional leftist image of capitalism: a society in
which formal democracy merely conceals the reign of a wealthy
minority. In other words, the newly born anti-Communists don’t get
that what they are denouncing as perverted pseudo-capitalism
simply is capitalism.

One can also argue that, when the Communist regimes collapsed, the
disillusioned former Communists were effectively better suited to
run the new capitalist economy than the populist dissidents. While
the heroes of the anti-Communist protests continued to dwell in
their dreams of a new society of justice, honesty and solidarity,
the former Communists were able to ruthlessly accommodate
themselves to the new capitalist rules and the new cruel world of
market efficiency, inclusive of all the new and old dirty tricks
and corruption.

A further twist is added by those countries in which Communists
allowed the explosion of capitalism, while retaining political
power: they seem to be more capitalist than the Western liberal
capitalists themselves. In a crazy double reversal, capitalism won
over Communism, but the price paid for this victory is that
Communists are now beating capitalism in its own terrain.

This is why today’s China is so unsettling: capitalism has always
seemed inextricably linked to democracy, and faced with the
explosion of capitalism in the People’s Republic, many analysts
still assume that political democracy will inevitably assert itself.

But what if this strain of authoritarian capitalism proves itself
to be more efficient, more profitable, than our liberal
capitalism? What if democracy is no longer the necessary and
natural accompaniment of economic development, but its impediment?

If this is the case, then perhaps the disappointment at capitalism
in the post-Communist countries should not be dismissed as a
simple sign of the “immature” expectations of the people who
didn’t possess a realistic image of capitalism.

When people protested Communist regimes in Eastern Europe, the
large majority of them did not ask for capitalism. They wanted the
freedom to live their lives outside state control, to come
together and talk as they pleased; they wanted a life of
simplicity and sincerity, liberated from the primitive ideological
indoctrination and the prevailing cynical hypocrisy.

As many commentators observed, the ideals that led the protesters
were to a large extent taken from the ruling Socialist ideology
itself — people aspired to something that can most appropriately
be designated as “Socialism with a human face.” Perhaps this
attitude deserves a second chance.

This brings to mind the life and death of Victor Kravchenko, the
Soviet engineer who, in 1944, defected during a trade mission to
Washington and then wrote a best-selling memoir, “I Chose
Freedom.” His first-person report on the horrors of Stalinism
included a detailed account of the mass hunger in early-1930s
Ukraine, where Kravchenko — then still a true believer in the
system — helped enforce collectivization.

What most people know about Kravchenko ends in 1949. That year, he
sued Les Lettres Françaises for libel after the French Communist
weekly claimed that he was a drunk and a wife-beater and his
memoir was the propaganda work of American spies. In the Paris
courtroom, Soviet generals and Russian peasants took the witness
stand to debate the truth of Kravchenko’s writings, and the trial
grew from a personal suit to a spectacular indictment of the whole
Stalinist system.

But immediately after his victory in the case, when Kravchenko was
still being hailed all around the world as a cold war hero, he had
the courage to speak out passionately against Joseph McCarthy’s
witch hunts. “I believe profoundly,” he wrote, “that in the
struggle against Communists and their organizations ... we cannot
and should not resort to the methods and forms employed by the
Communists.” His warning to Americans: to fight Stalinism in such
a way was to court the danger of starting to resemble their opponent.

Kravchenko also became more and more obsessed with the
inequalities of the Western world, and wrote a sequel to “I Chose
Freedom” that was titled, significantly, “I Chose Justice.” He
devoted himself to finding less exploitative forms of
collectivization and wound up in Bolivia, where he squandered all
his money trying to organize poor farmers. Crushed by this
failure, he withdrew into private life and shot himself in 1966 at
his home in New York.

How did we come to this? Deceived by 20th-century Communism and
disillusioned with 21st-century capitalism, we can only hope for
new Kravchenkos — and that they come to happier ends. On the
search for justice, they will have to start from scratch. They
will have to invent their own ideologies. They will be denounced
as dangerous utopians, but they alone will have awakened from the
utopian dream that holds the rest of us under its sway.

Slavoj Zizek, the international director of the Birkbeck Institute
for the Humanities in London, is the author, most recently, of
“First as Tragedy, Then as Farce.”

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The Economic Shock Doctrine for Northern Ireland

Citizens across the Republic have been inundated by a deluge of announcements of pay cuts, job losses, tax increases, public sector cutbacks and widespread threats of privatisation. In its attempts to provide a pretext for this assault on its electorate, the Government have raised the spectre of even greater threats on the horizon such as a threatened IMF intervention recently discussed by Mary Harney. It remains to be seen whether the McCarthy report was another such threat or whether it presented a wide array of measures which may eventually be implemented.

Recently, the government have highlighted the unsustainability of borrowing as a proportion of overall spending with figures as varied as repaying borrowing amounting to €2 in every €3 in income tax if the current deficit was to continue. Of course these threats are full of spin.

Firstly, borrowing at the downturn of the industrial cycle as a proportion of total income appears significantly worse at this point because the costs of increased benefits and social expenditure peak precisely when revenues are lowest from lower consumption and corporate tax receipts. A second sleight of hand is involved in extending these ratios forwards indefinitely beyond the current crisis and then projecting them as a fraction of a much reduced income tax stream.

It should be noticed in any case, that it is the neo-liberalist path chosen by the Republic that has resulted in it being identified by the IMF as the worst affected developed economy anywhere in the world. The extent of its current borrowings demonstrates the exposure resulting from a dependence of government receipts on a bubble in the housing sector and the disproportionate size of the speculative financial services sector in the relatively small Irish economy.

From South to North

There is no one in the Republic who has not already felt the sting of job losses, wages cuts or public sector cutbacks associated with the downturn. In working-class areas, anger is palpitable at the fact that, yet again, they will have to carry the can of paying for the inevitable and cyclic collapse at the end of the capitalist industrial cycle. No one is under any illusions but that things will get worse and that the only way to combat this assault is to get active, to get organised and put the pressure on the Government.

Not so the north, where there is a largely a 'phony' recession. While many in border areas have lost their jobs from the collapse of the construction sector in the Republic and property developers are feeling the heat, the bulk of the population in this economy (which is hugely reliant on the public sector) have largely been unscathed. In some border areas, the boom in retail sales have actually generated employment for younger workers. Indeed the deflation in consumer goods and interest rates may have actually resulted in medium income families feeling relatively well off despite seeing the negative impact elsewhere.

So far so good, but things are not looking rosy in the next few years. Despite the recent announcements of a measly 400 US stock exchange jobs (built on the distribution of surplus value largely super-exploited from third world producers) and a pathetic 100 run-of-the-mill low-wage call centre type jobs in Derry the wider economy has already experienced a rise in unemployment of 2.2% since the beginning of the recession. It would appear, however, that the local political parties are completely unaware of the scale of the challenges that are gathering like a perfect storm.

Sammy Wilson's unilateral announcement of a need to fill a £370 million funding gap pointed towards a harsh reality facing him but looks more like providing political cover for the decision to introduce water rates which might provide for £260 million towards that.

Socialism or Barbarism want to take this opportunity to expose the devious lie at the heart of this suggestion. Sammy Wilson is pleading that these decisions have been forced by the recent downturn in the British economy whereas the truth is that the issue of water rates has hung over politicians in the North like a sword of damacles since they all agreed not to introduce them ahead of the last Assembly election.

As evidence of his astounding lack of economic understanding, his suggestion that he might partially meet the shortfall by cutting £150 million out of the capital expenditure budget would only further exacerbate the downturn's impact on the construction sector causing further contraction across the economy through a negative multiplier impact. Such a move would also be incredibly short-sighted as it would miss the opportunity offered to the public sector to award infrastructural contracts at a relatively low-cost period.

The real tsunami approaches

Sammy is finding it difficult just making ends meet within his existing budget but this was set long before the current downturn due to the unchanging Barnett formula and the 3-year budgeting system adopted in the Comprehensive Spending Review. But the real problems are just starting for him and his fellow Ministers.

One sign of their scale is the growing number of reports coming out of think-tanks making quite outlandish suggestions to enable the UK to meet its funding gap (the British had a particular dependence on a bloated Financial Services sector which now has collapsed leaving them in terrible difficulty). Yesterday, the CBI proposed €120 billion extra spending cuts and the privatisation of every aspect of government up to and including a significant proportion of the defence 'services'.

When asked how far government should be privatised, the CEO of Interserve was quoted by the Financial Times as saying:

"You don't want private armies, no, but...if you look at the American model of military logistics support it is, you know, contractualised virtually up to the finger on the trigger."

Clearly, a massive privatisation tsunami is heading its way to all the local politicians irrespective of any paper commitment to socialism they may retain.

Will NI's local politicians push up the retirement age?

Today, the National Institute for Economic and Social Research recommended four measures to deal with the UK shortfall. The first was to raise the pension age to 70 and getting rid of income support for those aged over 60. Other suggestions were to freeze public sector pay for five years, cut 120,000 public sector jobs a year for the next five years, increase the basic income tax rate by 7% and applying VAT to everything barring food and children's clothing. The NIESR noted that taking even two of these latter steps in tandem would be insufficient to meet the shortfall!

Now some may attribute these comments to a British equivalent of the pretext setting statements provided by the Irish Government listed above but that would be to miss a very significant difference. These statements are not by a government or its civil service who are setting up 'straw men' to provide cover for harsh but smaller cutbacks, rather these are the statements of a conservative party on the brink of power. These statements are to gear the people up for what is coming and to secure a mandate to face down opposition on the other side of an election.

The Tory shadow chancellor of the Exchequer George Osborne has already publicly faced up to being the most unpopular man in Britain in six months time. All this is setting the stage for a scale of cutback that have not been experienced since the first half of the 1920s when the Geddes report led to cutbacks of up to 25% across the public sector.

If anything the scale of the cuts being identified by the Conservative party are considerable below those identified as necessary by right-wing economic think-tanks. The conservatives have conceded the need to raise the retirement age to 66 but have not envisaged anything more severe. Instead of the £120 billion of cuts recommended by the CBI, the Conservatives are considering £7 billion. Obviously, these figures will inflate if, and when, the Conservatives finally 'get sight' of how serious the economic crisis is that is facing them (no doubt immediately after a successful general election).

In any case, the impact of these cuts on the Northern Ireland 'economy' if that is what you can call it will be apocalytic. It is known that in addition to the direct employment in the public sector the economic impact of public spending percolates through the economy supporting many more jobs in the local service sector. In total it is estimated around 70% of all jobs in the north depend on public sector expenditure either directly or indirectly.

As such, a widespread collapse in public sector spending such as is being planned in Westminster will have a dramatic adverse impact on the Northern Ireland economy. The conservative party have already begun to sell this as a positive thing (bringing balance to an unsustainable economy) and this has been echoed by the First Minister himself. Parallel to that funding for the community and voluntary sector has already began to dry up and the size of the subvention for the agricultural sector is likely to collapse on the back of any global trade deal.

All of this means more privatisation, more closures, more cutbacks and much more deprivation. Of course there will be difficulty in getting local politicians to agree just where the axe falls first and the experience of decisions such as the agreement on the safeguarding of the rates cap (at the expense of lower-income families), the decision to adopt a planning policy poorly attuned to the needs of rural communities and the protection of funding for private sector profits through Invest NI is not encouraging. We can be sure that the axe will continue to fall disproportionately on working class communities, irrespective of their communal identity.

Turning a blind eye to these realities is already becoming ever more difficult for those on the left it will become impossible as these cutbacks and neo-liberalist shock therapy 'house-trains' the local politicians. The only way to counter these cuts is to organise working class resistance to these neoliberal policies across communal lines and against a Stormont Executive built on sectarian pillars.

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The Decline of Militant Irish Republicanism

Ideologies are not issued self-developed and completed into the aether of the idea rather they are generated by the development of specific historic processes in the real world. Ideas are not primary but secondary reflections back into reality through the mediation of the mind. Material reality is primary in the evolution of thought just as it is primary in the wider process of the evolution of the species.

It was primarily this supercession of the German Ideology which underpinned Marxism as a Critique of Philosophy. For Marxists, like Hegelians, the Kantian duality of mind and reality is bridged through Praxis or activity on the part of the knower but for Marxists this activity itself is conditioned by reality.

For Marxists, therefore, the Republican ideals which flowered in France and England in the late 18th Centuries only developed and found wider social resonance because society was not only sufficiently developed to generate them but that it was sufficiently developed to give them a social force. The ideals of equality, fraternity and liberty were the idealistic outworkings of the demand of the rising business class to overturn the power of the traditional aristocratic ruling class and the domination of the church.

If there is a crisis in Irish Republicanism then it reflects changing material realities. This post seeks to identify the causes of this historic decline.

The first thing to note is that there is an undeniable decline. The largest militant republican movement, Sinn Féin, has largely ditched what has been understood as traditional republican values. They participate and work in a system based on the principle of consent (i.e. consent of a majority in the north-eastern six counties), they act as Ministers in a partitionist parliament owing its sovereignty to the British crown and they promote support for a police service which enforces British laws in Ireland. All this when British troops continue to be based in the north.

Now many Republicans will say that this is a strategic compromise akin to De Valera taking the oath to the British King only to establish the Republic and that it may be to them. But De Valera's actions were considered treacherous by traditional comtemporary Republicans just as they are by today's equivalents. Moreover, De Valera wasn't long from swearing that oath to the point of hanging IRA men during the emergency.

Today's Sinn Féin operates in a similar system and with a similar strategy to the SDLP of the past. Gone is its radical socialism instead it has a soft social reformism, which if it has meaning at all in its contact with reality, is largely ineffectual and mostly symbolic.

But there are others within Republicanism who have not gone so far. Traditionally the second biggest group would have been the Irish Republican Socialist Party which has groups in some towns in the North and a scattering of activists in Dublin and other cities in the Republic. The recent announcement that the INLA was to disband and engage with General de Chastelain's decommissioning body was unexpected but reflected their analysis that the war was over. The argument justifying this decision to go further than their old cessation is the need to engage in wider left-wing politics through groups such as the People Before Profit Alliance.

This should be seen for what it is: further evidence of the historic decline of militant republicanism.

Traditional Militant Republicanism

The main groups remaining outside this trend are the inappropriately named 'dissident' republicans. These groups really should be termed traditional republicans given their consistency with republican ideological beliefs going back to the 1910s and 1920s. They believe in the achievement of Irish unity through force of arms and reject any form of participation in governmental structures predicated on partition or the principle of consent.

These groups are enjoying something of a renaissance of late. Their attacks on crown-forces and bomb attacks are growing in regularity and they are clearly gaining a hearing with some in grassroots republican communities. The causes of this must be sought in the chronic failure of the mainstream 'republican' political agenda as evidenced by the one-sided government in Stormont and the collapse of a cross-border economy enormously reliant on the construction sector.

In the absence of a strong socialist alternative, traditional republican militants are successfully projecting themselves as the real alternative to Stormont and they are finding it somewhat easier to recruit young nationalists.

The problem for these groups is that they are largely a reaction to the political development that has occurred in the last 20 years in Northern Ireland; the times have changed. Today, for the first time in the history of the northern state, most Nationalists recognise its legitimacy and accept the principle of consent. While many Republicans may have viewed this ideological rubicon as a realpolitick concession to devour the northern state from the inside-out, the reality is that the wider population have now normatized the concept. This will not be easily undone.

There is, thus, a huge barrier standing in the way of the traditional republican militants. They cannot succeed and it is clear that most of them realise this fact but view their resistance as an existentialist refusal to the system. Yet this is always an inadequate justification for revolutionary action. Che did not go to Bolivia considering his actions to have no hope - he believed he would succeed but realised the risk. Connolly went out in 1916 hoping for the best but conscious that it was madness given the odds of defeating the British. Indeed, the secret history of militant republicanism has often been just how close to victory risings were if they only realised at the time the weakness of the British. But there are no such hopes for traditional republican militant struggle.

The Changing Material Conditions

Irish Republicanism was initially a bourgeois nationalist movement; hence, Griffith's attachment to the concept of a monarchy and an Irish empire. The situation in Ireland was complicated by the colonial nature of its relation to Britain. Nationalism, which in the imperialist centres of mainland Europe demonstrated its reactionary nature in the revolutions of 1848, remained objectively progressive in Ireland a situation reinforced by the politically-engineered Great Hunger of 1847/48.

With the coming of the new Free State in 1923, Irish nationalism faced a number of challenges. Not least was the growing demands of the new, progressive, socialist working-class politics developed by the likes of Connolly and Larkin and finding military expression in the ICA. But equally, it was presented with the realities of partial liberation. The Civil War confirmed the dominance of the conservative trend within Irish nationalism south of the border yet north of the border the situation remained complex.

The Irish Catholics living north of the border were oppressed alongside working-class Protestants - both groups were largely denied the vote. Nationalism reflected the legitimate demands of Irish Catholics (in particular its middle-class who felt themselves particularly disadvantaged) but it risked alienating a Protestant working-class who were enticed to support unionism through such hegemonic structures as the Orange Order and the panoply of advantageous arrangements established under the 'Protestant state for a Protestant people'. The Belfast Rates Relief Strike of 1932 held out the opportunity for unity of action for the first time and it is highly instructive how it was put down by the selective targetting of Catholic strikers for murder by the forces of the state.

The growth in a youthful generation educated on the back of the 1948 Education Reform, generated the civil rights campaigns which had the potential to bridge the gap between nationally oppressed Catholics and economically exploited Protestants. But it was not to be - the reaction of the state rekindled militant republicanism - and broke down the ability to develop a more powerful cross-community resistance.

Structural reforms to take off the worst edges of discrimination were implemented in the period of direct rule and the general standard of living rose as the north was more fully integrated into the global economy as an appendage to imperial Britain. The rise of the Celtic Tiger in the historic bargain to big business offered by the Dublin Government(of low taxes in return for employment) resulted in a reduction in the poverty of the Republic and a further consequential erosion in support for militant republicanism.

In these conditions and against the backdrop of a falling level of support for the faltering military campaign of the IRA, the leadership had to look for a way out. They chose a negotiated process which they felt held out the prospect of victory down the road. That this has not transpired or likely to transpire may seem obvious to the casual observer today but it clearly was sufficiently obscure at early stages to hold the entire Republican movement together through the bulk of the process itself.

Having got to this stage, the material conditions for the success of militant republicanism no longer exist. However, the growth in unemployment and the perception that discrimination continues in the north through more subtle means than before there is a potential for the tradition to attract young recruits. But with no viable strategy it is hard to see where it can go.

From this viewpoint, the move by the IRSM to dismantle its military operation is sensible. They perceive the need to move forwards. They realise that holding a military structure or weaponry will only prejudice that opportunity and warp their own internal democracy. Their voice will be of importance to the left-wing across Ireland although it is imperative for them to resolve their own position in relation to northern Protestants.

The Need for the Left to Engage with Protestants

The greatest failure of Republicanism has been its inability to effectively engage and transcend the divisions 'carefully fostered' with northern Protestants. The revolutionary opportunity heralded by the cross-sectional 1798 Rebellion was never realised in the period after it. Again and again, when individual Republicans have engaged with Protestants they have ditched their own nationalism, Sinn Féin the Worker's Party being the classic example of this trajectory. Republicans should consider just why it is that some of the most capable republicans, some of its most consistent socialists, have moved away from Nationalism after an engagement with Protestants as Unionists as opposed to simply Protestants as other.

Irish nationalism may unify northern Catholic communities against the British but this is insufficient to achieve Irish unity in a context where the principle of consent is embedded in the constitutional standing of the north. The lack of viability of any military strategy to overthrow that constitutional situation should make any traditional Republican militant reconsider what they're about. However, we need at this point to reiterate our opinion that working with unionists as parties at governmental level is even less likely to achieve Irish unity as it ends up reinforcing unionist hegemony in their own communities.

The conclusions from this analysis are that the tradition of Irish Republicanism has often collapsed to the tradition of Irish Nationalism and that Republicans have failed to find common ground with Protestants as a result of their prioritisation of nationalism over socialism.

The risks of Nationalism

Irish Nationalism is often simply collapsed to anti-imperialism in a broad approach akin to that adapted in colonial revolutions elsewhere in the world but the situation in no two contexts is exactly the same. Ireland unlike most colonial states is partitioned and Ireland has a large non-national minority consisting a majority in one of those states. It cannot simply be concluded, therefore, that the same strategic orientation is correct in all cases. That is to fetishise such a strategic orientation. Whilst anti-imperialism is always justified, nationalism is not.

In the concrete case of Ireland, we have to ask how is it advancing anti-imperialism best by retaining nationalism if all that does in reality is to further reinforce the union?

Furthermore, anti-imperialism is meaningful precisely because it is a necessary condition for the self-emancipation of the working class or socialism. As Connolly said merely raising the Green flag is a worthless achievement in and of itself.

Yet, in reifying nationalism (and thereby cementing the union), we are undercutting its logical justification from a Socialist Republican perspective.

The only possible arguments that can be presented to this is that unity cannot be achieved through socialism alone or is required as its pre-requisite. The first argument is a preposition and must be tested. Socialism or Barbarism argues that it is precisely this preposition that must be tested through struggle. It is akin to arguing against socialism on the basis that socialism is not possible. Such specious telelogical arguments are insufficient to justify a course of 'do nothing' particularly when their proponents are often 'doing something' which is demonstrably setting back the cause of socialism.

The second argument is more substantial but we believe that it is precisely this understanding, that national self-determination is a condition for the full realisation of socialism which gives content to the national liberation struggle (if it deserves to have a content at all). So in fact, it is only through actively pursuing socialist demands which fail to be delivered by a London-government that unity can ever gain traction in unionist communities. To the extent that such unity is necessary, that is the extent to which that unity is progressive.

The historic failure of the Republican tradition to engage northern Protestants has been its Achille's heel for 200 years. Nationalism acts as a barrier to unification and acts of traditional republican militancy will only further undermine the ideological validity of republicanism not just with Protestants but with a growing section of northern Catholics. Socialism or Barbarism calls for revolutionary socialists to work together to develop a new vehicle capable of challenging the neo-liberal consensus and finally resolving the nationalist-socialist dialectic.

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Sinn Féin Keep Left - An oxymoron?

The Sinn Fein Keep Left site has promoted internal discussion within that party for the promotion of the goal of a socialist republican vision.

The site has repeatedly posed the need for Republicans to become involved in campaigns and protests against the onslaught on working class communities in the Republic of Ireland. That is to be welcomed. However, its socialist-consciousness seems to dissolve when its attention crosses the border and it is faced with the realities of anti-working class measures largely promoted by Sinn F€in ministers in the Northern Executive.

The website would appear studiously ignorant of recent reports coming out demonstrating that there is a likely step-change in privatisation coming through the northern institutions. The scale of these amounting to a full £10 billion in expenditure over the next ten years will see the party’s northern leadership further bound to neo-liberalist policies in the future as the Westminster subsidy to run the north is largely consumed by repayments to private sector interests. So not only are these PFI/PPP contracts enforcing privatisation in public services today, with impacts on working conditions and ‘efficiency-savings’ on public services, but they will enforce any future Executive (with or without Martin McGuinness as First Minister) to a course of further privatisation and cutbacks.

Sinn Féin's Right-Wing Economics

While making much of the right-wing policies adopted by the Dublin Government, the website ignores the current austerity measures enforced by the party’s minister for Education who continued the work of her predecessor in relation to term-time workers and part-time teachers. She has failed to implement a programme dealing with the demands of childcare workers in playgroups who have campaigned for years for equality of treatment for their role and currently often receive wages just above minimum wage for work in every regard the same as primary school teachers. Then there is the ongoing cycle of rural schools being closed under a 'don't tell, don't see' policy which simply forces weaker schools to collapse under financial pressure. At the same time, the party negotiators agreed the terms of the current Review of Public Administration which will allow local authorities to privatise waste collection services no doubt with a view to future ‘efficiency gains’ associated with private sector cut-backs down the tracks.

The site has failed to discuss the implications of the cutbacks which are already being enforced each year as part of the 3% 'efficiency gain' programme across all Departments let alone consider how Sinn Féin ministers will implement future cuts of approximately 3 times this order (at least) in the face of working-class resistance. There is no discussion of the proposals to enforce a Water Rates bill which will impact working families already pushed to the wall by the loss of jobs. Where will Sinn Fein Keep Left stand when socialists and workers are jailed for their pledge to withhold payment of this unfair, neoliberal tax or simply their inability to meet payments?

A Revolutionary Socialist Approach

It is all very well for youthful radicals to go along with revolutionary politics in the abstract, to enjoy the frisson of excitement that comes from street-action and protest but another thing to see clearly where to take that activity to create real change. It is fine and dandy for political opportunists to capitalise on the immediate, short-term electoral benefits of being seen to support local communities when it comes to saving their hospital or school but to ignore when your own Minister is the one who decides to close down a Hospital or School north of the border. But it is not acceptable for mature socialist revolutionaries to do these things. It is particularly questionable for so-called Socialist Republicans to segment their minds to ignore the elements of their own party policy when it comes to reality north of the border but to play-act as if they are radical revolutionaries south of the border.

This website has exhaustively analysed the source of Sinn Féin's predicament. We have exposed the difficulty with any political strategy being predicated on the idea that 'Labour must wait'. As such, the party has retreated to a repetition of Fianna Fáil’s ‘strategy’ albeit with the added bonus of getting to implement right-wing politics north of the border. Where the latter took a generation to dump their commitment to socialism, it would appear that the former has already managed to jettison it everywhere except in a few redoubts in the minds of some Dublin-based activist's minds.

Revolutionaries cannot proceed from a lack of clarity. If you seek a socialist Ireland, then you must seek to advance that in today’s realities. With the acceptance of consent, the path to revolutionary unification through force of arms has been closed. So it must be achieved via consent. Does anyone believe that Protestants will buy into Irish unity when all that is offered is a vision of an extended 26 Counties? The leadership line appears to be that through working with parties like the DUP and UUP that they will somehow convince them that unity is necessary. The reality is the opposite, through the power-sharing institutions and the enactment of their preferred right-wing social and economic agenda, the domination of the DUP and UUP within their own communities has been reinforced. Indeed, the apparent ability of these parties to dictate the Government's agenda at will has further reinforced their own credibility in their heartlands.

If anything Sinn Féin working the institutions of Stormont has meant that the reality is that it is attitudes of nationalist communities which have suffered a collapse – a fact reflected by the haemorrhage of republican activists from Sinn Féin and the poor turnout in support of that party in the last elections. Nationalist heads are down and they will remain down irrespective of whether Policing and Justice powers are devolved (itself a goal of no great importance) to an Alliance Minister. The unilateral announcement by Sammy Wilson that he is concluding against the Bain Report proposals to decentralise civil service jobs west of the Bann is only further confirmation that the benefits from power-sharing are all one-sided. It is okay for Martin McGuinness to support the DUP in securing adequate money to ensure the payment of PSNI wages but when it comes to moving jobs out of Belfast the collaborative spirit suddenly disappears.

The Historic Defeat of Republicanism

Socialism or Barbarism considers that Sinn Féin finds itself trapped. It has been lured into working institutions which can not, and will not, deliver its goals. The opportunities to deliver any change are effectively stymied by the mutual veto the DUP negotiated. They remain bound to the demand for the repatriation of Policing and Justice powers even though it is entirely unclear how an NIO-managed Alliance party will change in any significant sense the current NIO management of the Police and Justice systems. Meanwhile, the Unionist parties would appear to be more deeply ensconced as hegemonic within their own communities and the possibility of Sinn Féin reaching out to working class Protestants is completely undermined by their adoption of right-wing economics.

The party’s goal of unity seemed to be predicated on the logic of the all-Ireland economy, yet now that dream lies in tatters. The economy south of the border lies broken and at risk of complete implosion and the concept that Irish unity is economically attractive looks like a continuing bad joke at least for the medium-term.

Republicans are looking to NAMA as an example of how the south is embedded in the northern economy but it is precisely this that demonstrates how weak and retrograde that connection is. The bailout of Irish property developers (which Sinn Féin supported) certainly enforced the greatest wave of neo-liberal cutbacks in the south but exposed the nature of their dealings north of the border. So much so that the First and Deputy First Ministers have gone cap-in-hand begging for the sell-off of this property to be geared towards the interests of northern property holders.

As pointed out on the website, North-South trade has indeed peaked with huge transfers of wealth going from Irish consumers north of the border before it is transferred to the multi-national share holders. The benefits have been to the British Exchequer which has derived a considerable fiscal bonus from its northern holdings. Presenting this as a gain exposes the narrow mindsets of republican ‘economists’ who don’t see that this has been instrumental in destroying the economic fabric of communities throughout the northern half of the Republic and benefited northern workers with a handful of minimum-wage shelf-stocking jobs.

The readers of Sinn Féin Keep Left should be no doubt that working class people will organise themselves to fight against the cut-backs enforced on the fiat of the Westminster government and administered by local ministers. The question for Sinn Fein Keep Left activists is which side of the barricades will they find themselves when social resistance crosses the sectarian lines and stands united against all the mainstream parties? If there are any in Sinn Féin who read Connolly and are capable of thinking about his politics then you must ask yourselves where do you stand and where would he stand. We at Socialism or Barbarism know where we will be - it will be the same side either side of the border. A great change is coming, we call on all socialist republicans to work for it to be a socialist change!

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Guest Article by former Sinn Féin Councillor

Domhnall Ó Cobhthaigh was a Sinn Féin councillor in Fermanagh for two years before resigning his membership of the party to join the Socialist Party.

Before this he had held posts in various central positions within the party - in particular, he was central to the party's All-Ireland Department, a member of its Unionist Outreach Department and one of the party's representatives at the Bill of Rights Forum (all of which were of central importance to the party's strategy for unification). He was one of the most forthright supporters of engagement in institutional struggle including the Policing Oversight mechanisms.

His background is as an economist. In 2005, he co-authored a draft economics policy for the party which was rejected following internal discussions as being too left-wing. Previous to that he had been an economics adviser to the party in the first Assembly. He admits to having played a analytical and strategic role in a range of areas in the St Andrew's negotiations and the period prior to its conclusion.

Socialism or Barbarism! considers the defection of Domhnall to the Socialist Party as representing a decisive indicator of the ideological collapse that has occured within Sinn Féin. As someone who was known throughout the party as a key ideologist in promoting and advocating for the peace strategy his loss is highly significant. Domhnall was one of the few who felt able to reconcile his marxist convictions with an engagement in institutions and presented this in a consistent way highlighting the need to 'use power to build power' for revolutionary change. We consider that he has now lost faith in the viability of that project is of huge significance.

As such, we consider this brief article written by him where he presents the reasons for his leaving as being of relevance to revolutionaries throughout Ireland.

Why I left Sinn Féin to join the Socialist Party

For twelve years I was a committed member of Sinn Féin. Like other members of the party I shared a total commitment and even loyalty to the concept of a ‘thirty-two county democratic socialist republic’. It was something I would have sacrificed everything for but the realities of daily struggle were often very different from this vision of socialism in one small island. Like many other republicans I opposed sectarianism and racism but worked on a day to day basis within a party largely limited by communitarian politics.

Over time, the contradictions seemed to grow more antagonistic. When our socialist commitments met the hard realities of political power, it always seemed to be the status quo that won out. The party seemed to prioritise ‘not scaring the horses’ as many leadership figures would say when people like me questioned political decisions. Everything seemed amenable to sacrifice if they could get a stable working relationship with the DUP in the new institutions. This they held in some lofty analysis was critical in getting to a united Ireland. In the end, it boiled down to the fact that the socialist part of the vision could be sacrificed as necessary to enable the nationalist agenda to be fulfilled; a return to de Valera’s strategy that ‘labour must wait’.

One year ago I finally decided to leave the party and give up my council seat following the Ard Comhairle endorsing the Dublin government’s bank bailout but was unsure of where to go with my politics and I encountered huge internal pressure to stay involved. One of the things you hear a lot is that people who leave ‘go nowhere’ as there is ‘nowhere to go’. The underlying message is that There Is No Alternative, a not unrelated party political parallel to Thatcher’s TINA.

So I stayed on but decided to experiment with political engagement outside the party. I went along to the People Before Profit Alliance meeting ahead of the last election, started up a few blogs, remade contacts with the Irish Socialist Network and headed down to the Corrib for some first hand action alongside the local community. While it was sometimes exciting, I was left with a sense of being directionless. What was needed was what Lenin wrote of one hundred years ago in ‘what is to be done’: a disciplined democratic centralist organisation which was absolutely committed to revolutionary politics.

At that stage looking back it seems it was natural that I was heading to the Socialist Party. Indeed, what had kept me away so long was concern about their take on the national question and Cuba. I was surprised to hear that they viewed the fundamental problem as having being caused by British imperialism but half way agreed when I heard of their criticisms of the IRA’s military campaign. I had always felt that it could never have succeeded and I understood implicitly how it had undermined the possibility of a cross-community socialist movement. It was the realisation that this latter movement that constituted the only force that would resolve our problems that made my mind up. Joe Higgin’s documentary on Che Guevara convinced me that the party’s position on Cuba was not sectarian but consistently revolutionary nor was it grounded in the abysmal theory of state capitalism.

Nationalism had never been my motivation; I had been a socialist before I joined Sinn Féin and I would be one when I left. I had believed that we could bring people to socialism through their commitment to Irish Republicanism, that socialism represented the ‘ultimate’ in republican democracy. My disillusionment with Sinn Féin was primarily caused by the realisation that the party’s nationalism was getting in the way of its socialism; in effect, the verification in concrete political terms of Trotsky’s theory of permanent revolution. It was not a huge step for me to join the Socialist Party.

I realise that building a Socialist party will not be easy. People have their naive prejudices about socialism and socialists. But the tide has definitely turned. The collapse of neo-liberalist economics is manifest today, soon I believe the neo-Keynesians will be exposed and those who are not content to give up on macro-economics altogether will once again have to wrestle with the Marxist economics which best explains the current dynamics.

The era of austerity heralded by decisions to bailout the financial capitalists and their institutions will also radicalise people. Whole layers of society are just beginning to experience a traumatic reversal in their living conditions. A generation of youth is at risk of permanent exclusion from the labour force. In such circumstances we can make great strides forward.

I am deeply thankful to the Socialist Party for accepting me as a member. I am totally committed to socialism and look forward working alongside others in building up a revolutionary movement capable of delivering the goods. My one regret is that I didn’t decide to join the socialist party a lot earlier.

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Bailout Rip-off - Exposed by the Market!

Unlike the capitalist media, financial markets do not lie. They can’t afford to. Share prices reflect the prognostications of traders after having considered all the available information. So while our politicians may lie, the market tells the truth.
It is no different with the terms of the NAMA bailout which Socialism or Barbarism has covered in some detail over the past months. While the politicians tell the people that this is a good deal for them, the share prices of Bank of Ireland and Allied Irish Banks jumped at the news of the paltry discount employed to calculate the price taxpayers were going to pay for bad loans.

The financial cataclysm that has hit the Republic of Ireland has impacted all property prices adversely. Future returns look increasingly unlikely to cover the highly inflated asset prices on which many loans were calculated. The first thing to notice is that the ‘distressed loans’ bought off the banks by the Irish state represented the worst element of the loan books of the main banks. The fact that Anglo-Irish Bank (which is already nationalised) was hugely over-represented in this bailout reflects the rapacious nature of its growth strategy.

So when they tell us that a discount of 60% on peak bubble prices is a fair proportion for the taxpayer and reflects the likely contraction value across the market, they neglect to point out that this price is being paid for assets in the worst classes of ‘distress’.

The second thing to note is, that as we identified ahead of many other commentators, that the reality is that the Government may yet have to step in to cover the costs of the shortfall or the ‘haircut’ as it has become known. In the case of Anglo-Irish Bank there is no doubt about this as it is effectively nationalised already but there remains a significant risk that Bank of Ireland and AIB could have been forced into Nationalisation if the prices paid for loans reflected their true market prices.

Market Prices

It is in relation to these that the biggest misrepresentation has been conducted. The total value of loans bought by the Government was initially priced at €90 billion before the crash. Now, they tell us, the market price of these is €54 billion (although the valuation of these would appear somewhat opaque to the external observer). The problem is that this market price, if it is a market price, will price in the likelihood of a future recovery. The reality is that vacant commercial property sold today would only attract very little interest – it has potentially no current worth as there is no conceivable return in the short-term. The prices that investors may be willing to pay is not based on its current worth but on the likelihood of an improvement in the economy providing a income stream justifying that valuation.

In other words, the current market price – as is the case with all market prices – is not simply based on current earnings but a calculation of future earnings. It prices in a future upturn.

Basing the cost to the taxpayer of buying these distressed assets as being above the current ‘market price’ therefore is a nonsense. Current market prices – if neo-liberal economics is to mean anything – are the correct price to pay. There is no justification for providing a €7 billion top-up to the value of property on the grounds that the current market price may rise in the future.

If prices rise in the future it will reflect their price rising above their economic value. In other words, the Government is pricing in the likelihood of a future bubble in the property market.

Now few fools among us might conceive that this would be appropriate. Ireland is a long-term crisis and it is unlikely in the extreme that in the next ten years we are likely to reverse out of this depression and experience a property boom.
Evidence, if evidence were needed that the valuation of the assets prices in future worth is the fact that if the property underpinning these loans was put on the market today it would pick up only a fraction of the €54 billion the state has valued it at.

What should have happened?

The Government has decided to cover the gambling debts of the property developers and the shareholders and its seemingly limitless largesse is funded through the contributions of working-class people. Not only that the cutbacks to wider state expenditure that will be forced in order to pay for this bailout will force a deeper contraction across the Irish economy than would have otherwise happened.
While all the opposition parties have played highly opportunist politics in making great shows of their opposition to the NAMA bailout, the fact remains that this opposition is not grounded on the principle of a socialist alternative but on the grounds that the price paid was too great.

All the parties, therefore, recognise the necessity of the bailout – a necessity grounded in an ideological prostration to neo-liberalism. They believe that the cost of letting the banks collapse to the Irish economy would have been catastrophic and this threat was overwhelming enough to compel any reasonable opposition to accept the bailout but to perhaps demur at the harshness of the terms.

The problem with this is that this approach to the economic crisis is based in Thatcherite economics: the economics that there is no alternative.

Firstly, the bailout didn’t achieve what its proponents claim for it. The main argument of its supporters was that if the banks collapsed the Irish economy would shut down as lending stopped and people couldn’t get money to pay for goods and services. However, the bailout has been marked by its failure to stimulate credit flows across the wider economy – banks have simply sucked up the money given to date to improve their leverage ratios and to expand profit-making activities.

The reality is that it would have been very easy for the state to set up alternative financial management structures. The banks once collapsed could be taken into public ownership and rationalised to form a new publicly-owned bank oriented to consumer banking and perhaps with an investment wing to stimulate investment in cooperatives and small businesses.

Through taking on the banks once they had collapsed the government would have avoided the costs associated with their bailout and with their ongoing recapitalisation. Deposits of €100,000 or less could have been guaranteed while those with more would have obtained only a fraction of that above that figure. The small man could have been protected.

At the same time, the state would have obtained a colossal portfolio of property with which it could stimulate the growth and development of a more sustainable, productive and balanced economy. The problem of housing shortage could have been addressed with little additional investment.

There would have been a shock through the Irish economy – not so much from the impact of the bank failures but from the shock that the Irish Government were serious about a socialist economy. But it would have been little worse than that we’re already facing. Money wasted in bailing the banks out could have been invested in a large-scale development of renewable energy along the west coast, in supporting the development of Ireland’s agricultural potential in an era of food-scarcity or in developing gas fields along the Corrib.

That this alternative appeared impossible to any of the parties in Leinster House reflects on their ideological pre-disposition to the market and the fact that none of them are committed to anything close to an economics that can meet the needs of Irish people.

Irrespective of their ideological leanings, revolutionaries should work alongside other parties to protest this bailout. It is important to publicly gather to keep the pressure on this Government and build an awareness that it is a rip-off.

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Is the recession over?

The media is highlighting the greenshoots breaking through the ashes after the wildfire of financial contagion has now largely passed - yet, is it true that things are looking up or are journalists simply looking for a good news story to break the duck?

It is always difficult to correctly anticipate the future behaviour of market economies to any great degree of certitude and, in particular, with any confidence of timing. However, it didn't take a macro-economist to have realised that the boom in the Irish housing industry would eventually collapse under its own contradictions. That most mainstream media pundits were exposed as simply cheerleaders of the expansion was due to a variety of factors, not least the experience of unexpectedly prolonged growth at that stage but most importantly self-interest. Economic advisers to financial services companies never talk down a bubble; it is in their self-interest to urge the public to continue buying so that they get their bonus as the bubble continues. To some extent this perpetuates the bubble beyond its natural limits.

But the difficult question is when and how it was going to deflate; with a hard or a soft landing. Just where the overextended market would break was unknown. That it would happen in the USA was not a given but reflected the uncontrolled nature of that economy and the heightened contradictions in a society of extreme polarisation which wanted to sell property to some of its poorest citizens. But it could have been that the inability to repay credit would have broken down first in Estonia, or Ireland for that matter, and subsequently spread like a financial contagion to the core economies.

The complexity of the market and its inherent opacity - the polar opposite of the efficient and rational market hypothesis - is the cause of these difficulties in analysis. Few knew exactly how much bad credit there was out there and the exact tipping point at which some unfortunate multinational corporation would be exposed without adequate cover.

So we can anticipate downturns but not with any great exactitude.

In a similar manner, it is difficult to anticipate the recovery. It would appear from German, French and Japanese statistics that all three of these economies have exited the recession and are now in the depression of the economic cycle (in the classical economic sense of the term denoting that period until GDP returns to its pre-collapse peak - terminology which has been changed by modern economists for obvious political reasons). The reality is that while meagre growth has returned to these countries they have experienced a fall in GDP that they have yet to make up. Consequently, unemployment remains higher that it was in all developed economies and in most continues to rise.

Yet, there are signs that markets, businesses and consumers are more positive in the consumption-driven economies of the US and the UK. Is this a sign that they are pulling out?

Firstly, as we analysed in the previous post there are inherent limitations to economic analysis which seeks to rationalise events and trends primarily through mass-psychological explanations. There is an innate fickleness to public opinion and it can be shifted considerably by media stories. Furthermore, the market does not follow confidence but the expectation of mass confidence - a not inconsequential insight. At the same time, increased confidence might result in higher consumption and investment and might considerably shorten the depressionary period. So what's happening?

Hard economic data is difficult to come by and even this needs to be interrogated robustly. Few people are suggesting that the UK and USA are experiencing growth right now but that data would certainly suggest that the rate of the fall in GDP has certainly slowed dramatically.

The Property Market Rebound

The headline figures in the press which are being read as indicating a rebound are property price indices which are indicating growth in both economies. This data would be of significant importance given the interrelationship between the financial world and the construction sector. Much of the bad debt is held against property and if the market was to increase dramatically this would result in a significant erosion in exposure to bad debt.

The problem with the property price increases is that they are occuring at a time where the amount of property going to market is considerably lower than it was. Very few homeowners are selling right now as prices are just too low - why sell now rather than wait for prices to rebound fully? It is a buyers market but the reality is that with the massive extension in credit arising from central banks, there's currently a lot more credit out there - not for lending but for investing in undervalued property - and it is chasing very few properties. In this context property prices can only go up. The likelihood is that as more property begins to come to market the upswing will gradually slow down and may even reverse.

However in the meantime, the property price rises may well be instrumental in improving wider consumer and business confidence and will lower perceived losses associated with the public sector bailout of the banking sector.

The Inventory Cycle

Key to understanding medium-term market dynamics is the inventory cycle. While the expansion in the credit market has distorted its former simplicity of operation, it is still of huge consequence to analysing the turning points of the industrial cycle. The peak of the cycle occurs at maximal extension in inventory terms. So, when the economy takes a nose dive orders to suppliers collapse rapidly and this is how the contraction in the high street works its way throughout production. One of the defining characteristics of all busts is that it ends up hitting manufacturers of productive machinery most as other manufacturers decide to cut back on capital purchases in a poorer economic climate. This is why the German, French and Japanese economies which were not exposed to the financial crisis to the same extent felt the pain of the current contraction.

What happens in practice is that all sectors of the economy start to run down their inventories to cut expenditure at a time of short operating capital. At some point usually a few months into the recession, this inventory runs out and placing orders cannot be avoided. It would appear that this is precisely the point at which we are currently. Orders to manufacturers rise first on the back of inventory replenishing (evidenced by the expansion in the 'productive' economies of Germany, France and Japan and the reduction in the collapse in exports from China).

It is entirely likely that this might be a short-term bounce associated with the inventory cycle which may give way once again to contraction. This is particularly a risk as consumption in these 'net producer' economies is not a driver in global growth and in the 'net consumer' economies consumption remains low despite massive state pump-priming.

Back to Economic Fundamentals

The stimulus packages both the US and UK governments have pushed through their financial sectors have had limited impact. The banks simply absorbed the extra money to recapitalise and would appear to be using the money to make some immediate profits to try and rebalance their state of near (or actual) insolvency. This is evidenced by the high rates of profit-making that the more solvent banks are enjoying at present.

Even if GDP recovers half a percent, it has to be remembered that figures occurs in the context of the most substantial monetary injection ever and against a massive public sector investment stimulus. These will not continue indefinitely but if public consumption and investment are abstracted the private economy has clearly continued to contract.

Furthermore, if rising high street consumption patterns are abstracted from UK consumption statistics, remaining consumption has suffered another significant contraction.

The issuance of large monetary stimuli by Governments will inevitably increase public borrowing rates and will cause long-term inflation. Both US and UK governments now admit that their current expansionary economic policies will have to be curtailed in the next few years and agree that budget deficits will be cut substantially. Due to the negative economic impact of tax increases on growth, the reality is that this will mean a significant contraction in public sector consumption following the end of, and even alongside, the stimulus package.

Global Implications

Despite these negative medium-term observations, we will, undoubtedly, see some form of recovery at some stage. Afterall, the financial crisis appears to have been avoided by the nationalisation of the debt of corporate finance and the bailout of the superwealthy. Consequently, the contraction that has occured in the US economy may halt as the stimulus passes through their real economy. However, due to inevitable and continuing deleveraging within the financial services sector growth it is likely that growth will be sluggish even before taking account of a future contraction in public consumption. And that's assuming no other sector of the credit market causes fundamental collapse in the financial services sector and no government defaults on sovereign debt (far from certain at this point).

On the basis of this analysis, there is a significant likelihood of a W-shaped recession in the US.

While the US remains mired in an extensive economic depression (as defined above) with GDP only slowly recovering, China and India will continue their onwards expansion based on internal investment and consumption. This, in turn, will benefit their key trading partners and the suppliers of raw materials across the world but be inadequate to raise the US economy. The rising demand in developing countries will further increase input prices and result in commodity-cost inflationary pressures across the global economy, these will subsequently further aggravate the sluggish growth in developed economies. It is hard to avoid concluding that we will see a return of 'stagflation' in future years.

Impact on Britain's Economy

The British situation would appear far worse than the US. Financial Services are Britain's primary economic sector and with the gradual diminution of North Sea Oil as a resource, Britain's economy looks highly exposed to the worsening global business climate. In comparison, the USA's large internal market, variety of high technology sectors of competitive advantage and its immense natural resource base will always provide a basis for the return of growth in the long-term.

In effect, the British economy is built around the super-exploitation of the third world; surplus value expropriated is distributed via London (the world's centre for financial services). This was the major achievement of the Thatcherite revolution in the 1980s, the price of which was wider deindustrialisation through long-term higher interest rates. The social cost of this process was considered necessary as the returns from financial services are much greater than that from production alone and furthermore the British government had realised that they couldn't hope to compete in the latter for very long.

The problem is that in producing all this wealth, the Financial Services sector processes huge trade volumes and runs massive risks. Given the commitment of all the mainstream parties to propping up the financial markets, the exposure to the underlying British economy, as in the case of Iceland, is many multiples total British GDP. These banks, while too big to fall, are also too big to bailout. This is the reason we are having a debate around curtailing the financial services sector that is ongoing with the Lord Turner, chief of the city's regulator (the Financial Services Authority), raising the prospect of the Tobin Tax.

The Tobin Tax - A Reformist Bogeyman

The Tobin Tax was named after James Tobin, a pro-free trade, neo-Keynesian, US economist. As might be anticipated from its origins, the tax is not meant to be revolutionary but has the potential to have massive implications for financial capitalism.

The suggestion is that a mere 0.1% tax is imposed on all financial services transactions. Whereas once this suggestion was only supported by the liberal-left and radical reformists, a cause of some regret to Mr Tobin, it is now becoming an issue which might get raised by some governments at the coming G20 meeting.

The tax, although apparently innocuous, would hover like a sword of Damacles over the global financial services sector. Within the market, a large proportion of trades are based on repeatedly making very small gains on a short-term basis. The repetition of such trades at large volumes results in significant yields. Applying a 0.1% tax on all transactions would simply wipe out whole sectors of market trading and make uneconomic all but the longer-term transactions.

The reason the market is squeeling in anticipation of this tax is that for the first time it is viewed as a real possibility. With the centralisation of trading in large-scale computerised systems which have resulted in significant efficiency gains (and profits) to traders, applying the tax would be technically easy. Moreover, avoiding it would be very difficult as it would mean the foregoing of those trading efficiency-related profits (again small but financially of huge significance).

The British Government is raising this through the proxy of the FSA as they are concerned that they would not be able to cover another similar financial collapse in the future and, it would appear, they realise that the super-profits accruing through the sector will not be returning very quickly in any case. In the context of longer-term deleveraging, lower rates of financial profit-making and increased regulatory burdens all contributing to reduced medium-term profitability, the cost of this measure might not be unbearable and the risks of not taking this action would appear huge in comparison.

So, there is now little to lose. If Britain were to move, only the US would need to agree to ensure the adoption of the tax globally which usefully could address some of the budgetary deficits arising from the recent collapse. It is unlikely in the extreme that the proceeds from the tax would be committed to third world development as its radical proponents have demanded in the past; instead, expect it to be absorbed by an increasingly desperate British Treasury.

Promoting Tobin Tax as a Transitional Demand

The Tobin Tax is not a revolutionary tax. It would leave unscathed the fundamental contradiction between social production and private ownership of the means of production. It would not fundamentally challenge the market only restrict its operation. As such it is a reformist demand but one with significant implications.

The restriction of the free play of financial capitalism would appear to be key demand in the transformation of Britain's economy away from a parasitic, financial basis to a productive, industrial basis.

Revolutionaries must be able to deploy reformist demands in order to advance towards revolutionary goals. As such, the demand for the implementation of the Tobin Tax represents a concrete expression of a politics grounded in today's realities. The tax would not resolve the contradictions of the capitalist system but would make a substantial improvement to the medium-term prospects of working people. Insofar as it would restrict the ability of financiers to gamble at public expense it would appear a useful demand in raising awareness of the negative impact of capitalism.

Socialism or Barbarism calls for the immediate implementation of the Tobin tax with profits ring-fenced to development in the third world! Nothing short of the overthrow of the private ownership of the means of production will provide the basis for fundamental change to the current inequality but it will help revolutionaries raise awareness of the negative implications of the market and provide the basis for a future full-scale expropriation of all capitalists!

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On the materialist analysis of the economic crisis

As regular readers may be aware, Socialism or Barbarism! attempts to provide a rigorous marxist economic analysis. This is in contradistinction to the sort of 'surface-only' analysis propounded relentlessly by main media sources and also to the oversimplified analysis coming from centre-left proponents of tax and spend Keynesian style responses to the current downturn.

While the socialist left has provided a consistent criticism of the right-wing laissez-faire economics which dominates all the mainstream parties, it has exhibited a tendency to simplistically fall back on the 'tendency of the rate of profit to fall' without fully appreciating its limitations (and thereby its full authority). While it would appear to be undoubtedly the case that the rate of profit does tend to fall over the very long-term there are other elements which are critical to economic analysis and which play a far more immediate role in determining the contingent elements of the onset of crises.

One problem for the left is that it tends to identify every downturn in the standard (10 year) economic cycle as the final collapse of capitalism due to the rate of profit falling to levels not much above the interest rate. The long-standing existing marxist analysis of the ten-year industrial cycle which was adopted by such luminaries as Schumpeter need to be retained as core to the arsenal of marxists everywhere - although even these are incapable of explaining longer dynamical changes to economic up and downswings. In this regard the long-cycle theory originating from the social revolutionary Kondratiev, the semi-cycles of Ernest Mandel or the gold-based long cycles promoted by critique of crisis theory would appear to deny the role of contingent (exogenic) factors underlying periods of depressionary or inflationary bias in the economy. Interestingly, both Trotsky and the marxist left-Keynesian economist Sweezy argued for contingent rather than exogenously determined period cycles.

Socialism or Barbarism! do not wish to engage fully in this debate as it quite clearly an issue that would require substantive research and time. Our priority is to promote the concrete analysis of concrete circumstance in Ireland today with the aim of promoting an agenda of revolution. The question is, therefore, whether the current downturn will last and what the implications of that will be for organising.

Some will answer that it is all but impossible to determine with any assurity anything about the market economy going forward; that in the last instance trends reflect the psychological dispositions of the 'kings of the universe' who assume such critical importance in the capitalist market. Yet, such a retreat to mass psychology would undermine the monist principle of marxism - that it is the means of production which are of final decisive importance in the determination of superstructural outcomes, i.e. history and society. Morover, the belief in the psychological independence of traders and the like stands in bold contrast to the materialist conception of reality. In this, the human mind is part of and reflects (albeit imperfectly) external reality rather than reality being shaped by the mind. Ideas spring from material conditions and are given historical effect in accordance to their relation to the forces of history rather than the idealist conception that ideas exist in the aether only to change history in their own nature.

While mass psychology has a clear role to play in the market (and it is the anticipation of mass psychological responses to data which is critical to effective short-term trading) it is clear that those making decisions influencing price levels are only reflecting fundamental realities. That is: recessions are not caused by mass psychological responses but by market fundamentals. Yet again in highlighting the 'animal spirits' of the market as the cause of recessions, the academic (right-wing) economists are constructing a surface-only mode of analysis avoiding the central reality of the production process in the capitalist mode.

Another Crisis of Overproduction?

Yet can we simply put the current recession, entering depression, into the category of a standard crisis of overproduction. It is clear that there is a central problem of overproduction on a global scale. The collapse in exports in China and Germany attest to a classic crisis of overproduction but also provide evidence of the fundamentally changed nature of this crisis over previous ones. The US and other similar (consumptive) economies were not impacted by a crisis of production but a crisis of finance. The East largely escaped the crisis of finance but were sunk by the collapse in export demand for the means of production.

This reflects the way in which the global economy grew incredibly imbalanced through a massively inflating deficit-fired consumptive boom in the USA, the UK as well as Eastern Europe. This was facilitated by the perpetual willingness of the Chinese (and Japanese to a lesser extent) to continue to purchase the debt issued by the western economies. In the case of the Republic of Ireland, our expansionary boom was financed by historically low interest rates set by the ECB - effectively, Irish consumers borrowed at low interest rates from the common European pool of credit.

Never before in world economic history has any government allowed itself to be so extended in debt terms as is the USA today and, incredibly, never before has another country allowed itself to be exposed to credit liabilities as has China. These are contingent outcomes arising from the economic growth strategies pursued by both countries but are clearly unsustainable in the medium term.

In a very real sense, this financial arrangement has facilitated the overextension of the standard industrial cycle to a point where its downturn is now far exacerbated over that which might have been associated with the standard ten-year cycle.

If the standard Keynesian loose monetary response to recession is effective in staving off minor recessions it achieves such success at the price of pushing off the crisis for another day. Lowering the interest rate and printing money may stimulate growth but the fundamental contradictions inherent in overproduction will merely come to the fore at a new (lower interest rate) equilibrium.

Furthermore, loose monetary policy buys the way out of crises within the financial services sector at the risk of future inflation. That this situation has not arisen in the context of the USA effectively printing dollars by the trillion reflects two things - first the retrenchment within the financial services sector which is absorbing dollars to recapitalise and to reduce exposure to excessive leverage but secondly to the willingness of the Chinese to buy dollar-denominated debt. This latter factor looks increasingly shaky as they scour the third world for raw materials to buy. This money alongside the dollar-financed credit release within mainland China will result in a gradual but substantial release of dollars across the global economy potentially lowering the relative value of the dollar across a whole basket of currencies.

Over time, it is clear the dollar will be devalued on the global market - whether that happens gradually or in a sudden slump is unclear and may depend on whether the US manages to escape the 'perfect storm' on the horizon - i.e. a debt repayment crisis as it finds itself increasingly unable to repay debt without simply printing dollars and creating hyperinflation.

Capitalism: finding its own balance

It is an inherent strength of capitalism that it will find its own balance over time. The most obvious problem for those of us without capital is that this point of equilibrium is often only achieved when our standards of living are further depressed or where the long-term externalised costs to the environment may even challenges the possibility of life on this planet.

The lowering of western living standards is the natural outcome of the crisis. The dollar must fall so that the relative cost-base of the West and the East narrows. It is only through this mechanism can a new economic equilibrium point be found where the fundamental advantage experienced by post-industrial western economies over newly industrialised third world economies will find balance. The net result will be a narrowing of the gap between the living conditions and standards of the western working class with the working class in places like China. Just as water will always find its own level, so too does the capitalist economy tend to level for the living standards of workers everywhere. The relative imbalance in the 'productive forces' means that there will remain a significant gap but that this gap cannot remain as great as it is today. Over time, the tendency for capitalism will be to reduce the gap.

The logic of this analysis is that while the recession in the west may well be largely over the depressionary period (i.e. that until growth returns to pre-recessionary levels) will be extensive. Anotherwords, even if we avoid a W-shaped dual recession the growth on the other side will be sluggish. At the same time, Chinese and Indian growth can, all other things being equal, expect to dramatically advance. The net result of this will be rising international costs for raw materials and oil. The consequences will be for a tendency for imported inflation (even beyond that accruing from currency inflation) at a time when government's will be encouraging workers to keep tightening their belts further. By these means will living standards for western workers come down over time.

In the next post, Socialism or Barbarism will review the reports that suggest that the British economy is beginning to pull out of the recession in parallel to the economies of Japan, Germany and France (China never went into recession). These reports are of particular significance to the politics of Northern Ireland but the economics of Britain will also significantly influence those of the Republic.

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