There is no reformist way out of the crisis of capitalism Part

One
Friday, 09 December 2011
Written by Adam Booth

The present economic crisis has been described in various ways by mainstream
commentators. All manner of solutions have been posed, both by the bourgeois politicians
and economists, and by the reformist leaderships of the working class. What these
commentators and representatives cannot admit is that this crisis will not be solved by this or
that reform. Society is living through a crisis of capitalism and the choice facing mankind is
simple: socialism or barbarism.
At the onset of the credit crunch in 2007-08, we were told by various commentators that this was
simply a financial crisis a crisis of credit. With the bailing out of the banks and the conversion of
private debt into public debt, a series of sovereign defaults and bailouts began, first with the default
by Iceland, and then with the bailout of Greece, Portugal, and Ireland. As a result we are now told
that the crisis is a sovereign debt crisis and a crisis of the euro. The situation is described by some
bourgeois commentators with the aim of hiding the real nature of the crisis as being nothing
more than a crisis of confidence.
In turn, other bourgeois commentators now complain that the crisis is one of political leadership. As
a result, unreliable and weak representatives of the ruling class such as Berlusconi in Italy and
Papandreou in Greece have been cast aside and replaced with technocratic governments.
Meanwhile, governments that embrace programmes of austerity, such as the coalition government
in the UK, are held up as models by the bourgeoisie for the rest of the world, and are rewarded with
a triple-A credit rating as a result.
Accompanying these various descriptions of the crisis as a financial crisis, a crisis of credit, a
sovereign debt crisis, a crisis of the euro, a crisis of confidence, and a political crisis we see these
same commentators put forward an array of so-called solutions. In response to the financial crisis,
we are told that we simply need more regulation of the financial industry; to combat the crisis of
credit we must restore liquidity. To tackle the sovereign debt crises, the reformist leaders suggest
that we tax the rich, introduce a Tobin or Robin Hood tax, and stimulate growth.
Meanwhile, to solve the crisis of the euro, we are told either that insolvent countries must leave the
euro or that there must be a fiscal union to accompany the eurozone monetary union. Finally, the
bourgeois representatives suggest that confidence must be restored by cold, impassionate, ruthless
governments through reforms (i.e. austerity). Where democratically elected governments are
unable to do this adequately and reliably for the demands of the markets, then these governments
are simply replaced by unelected technocrats in the national interest (i.e. the interest of the money
lenders).
What all of these explanations and descriptions fail to admit, however, is that these various crises
the financial crisis, the sovereign debt crisis, the euro crisis, and the political crisis are not the
underlying problem, but are, in the final analysis, reflections of the real crisis facing society the
crisis of capitalism. In turn, these respective solutions to the various crises that are put forward
will solve nothing. These commentators and representatives are all attempting to find a solution
under capitalism, but no amount of tinkering with the system will overcome what is fundamentally
a crisis of capitalism.
Financial regulation
After the onset of the crisis in 2007-08, all eyes turned towards the bankers and the rest of the
financial sector across the world. The crisis was blamed on the greed of the bankers and the laissez-
faire attitude of the financial industry. If only our economies didnt rely on the financial sector so
much!; If only we had smaller, more regulated banks! These were the cries that were heard in the
wake of the sub-prime mortgage scandal, the collapse of Lehman Brothers, and the subsequent
credit crunch.
It may well be true that bankers are all inherently greedy people (some go so far as to call them all
psychopaths) and it is a fact that the financial sector holds an enormous sway over the economies of
many countries. One must ask, however: who allowed these bankers to take such outrageous risks
with the money of ordinary people? Who allowed the financial sector to grow to such large
proportions and dominate the economy without any oversight or regulation?
Firstly, it should be highlighted that the dominant role of finance capital in the economy is not new.
In Imperialism, the Highest Stage of Capitalism, written in 1915, Lenin described the growing role
of finance in the global economy, whilst Marx wrote about the importance of credit in Capital.
In Britain, the expansion of the financial sector qualitatively changed in the 1980s with the Big
Bang under the Thatcher government, when, in October 1986, the rules and regulations relating to
the London Stock Exchange and banking were relaxed. A similar process developed in the USA
under President Reagan. This expansion of the financial sector continued and was actively
encouraged under New Labour in Britain and Clinton and Bush in the USA, right up until the
crash of 2007-08.
The growth of the financial industry from the 1980s onwards was not a random event or chance
occurrence. Nor was it simply the result of neo-liberal ideology, as is often suggested. The
ideology of those in power is a reflection of the material interests of the ruling class, which in a time
of crisis cannot tolerate niceties for the masses such as welfare and public services. In such times,
the reformist leaders who have been nice and obedient to capital by keeping the labour movement
in check are cast aside, and a more openly confrontational government is demanded by the
bourgeoisie.
The growing role of finance from the 1980s onwards can be seen in two interlinked tendencies: on
the one hand, the massive expansion of credit; on the other hand, the increasing amounts of capital
invested, not into real production, but into speculative activity such as derivatives and other newly
invented financial products.
Both of these tendencies were an attempt to overcome the economic crisis of the 1970s. As the trade
unions were weakened and wages were pushed down in order to maintain and increase profits,
credit was used to artificially expand the market (i.e. effective demand), by lending families and
young people money through mortgages, loans, and credit cards. In the UK, for example, wages (as
a percentage of GDP) have decreased from 65% in 1973 to 53% today. Meanwhile, average
household debt in Britain has increased from a value of 45% of GDP in 1980 to 157% of GDP in
2005.
This cheap access to money was needed to overcome a crisis of overproduction, which arises from
the fact that, under capitalism, more value is produced by workers that is paid back in the form of
wages. As the Marxists have explained before (Britain: Fighting the Cuts), credit is therefore needed
to make up the difference and overcome this fundamental contradiction of capitalism, which arises
from the private ownership of the means of production.
The increasing amount of speculative activity, meanwhile, was an attempt to make money out of
money, instead of investing in real production, which would only have served to increase
productivity and thus increase the amount of excess capacity in the system and exacerbate the crisis
of overproduction.
The enormous expansion of credit was actively encouraged by politicians and their economic
advisors across the world, not only through financial deregulation, but also by encouraging people
to borrow greater and greater amounts of money. In Britain and the USA, for example, families
were encouraged to buy homes (through sub-prime mortgages and the cheap selling off of council
homes) the value of which families could then borrow against whilst student grants were
replaced by student loans and increasing amounts of student debt (which now stands at around $1
trillion in the USA more than credit card debt! [Student loans: The indebted ones].
These attempts to overcome the crisis of the 1970s have, of course, only exacerbated and delayed
the crisis, increasing the magnitude of the underlying contradictions, and leading to an even more
severe crisis now.
When one blames the current crisis on greedy, risk-taking bankers and the overreliance on finance,
one must, therefore, first ask: why has this situation come about and who has allowed for this to
happen? To complain that bankers are greedy says nothing new. All capitalists are greedy, because
the system that drives them capitalism is a system based on an unquenchable thirst for profits;
the greed of the bankers and financiers is only a more obvious, open, and naked form of this desire
for profits at the expense of all else.
Given that politicians and governments were implicit in this whole process, it quickly becomes
clear that we cannot simply appeal to these same governments to handcuff the bankers on our
behalf. This highlights that the problem is not just a question of economics, but a political question
also of who runs the economy and of how the wealth in society is controlled and distributed.
Since the beginning of the crisis, the call from many has been for more regulation of the financial
industry, for the separation of commercial and investment banking, and for a breakup of the big
banks. All of these demands have been put forward with the intention of protecting ordinary savers
from the gambling of financiers, and to prevent a repeat of the need for the state (and hence
taxpayers) to save the banks.
Evidence suggests, however, that such regulatory measures would make little (if any) difference.
Take, for example, the separation of commercial and investment banking. Firstly, one can see
examples of purely commercial banks, such as Northern Rock in the UK, which still needed to be
bailed out (in fact Northern Rock was the first of the banks to be recently bailed out in Britain).
Secondly, it should be noted that the separation of commercial and investment banking is not a new
idea, but was in fact implemented in the USA with the Glass-Steagall act in 1933 in an attempt to
curb speculative activity (dj-vu?). Importantly, this act was removed by the Clinton
administration in 1999 as part of the general deregulation of the financial industry.
This example shows the limits and redundancy of trying to regulate the financial sector (or indeed
any part of the capitalist system). Any regulations that are put in place to save the economy are
only ever rules on paper under capitalism, which can simply be removed, re-written, or torn apart at
the whim of the ruling class. The only way that such rules and regulations can be guaranteed is if
they are enacted by a workers government under the control of the labour movement. And if
society was able to go that far, why not carry on going and expropriate the capitalists altogether by
nationalising the banks and the other commanding heights of the economy?
The same can be said in relation to all rights and reforms that are won by the working class. Of
course Marxists support any genuine reform, right, or regulation that benefits ordinary people
indeed revolutionaries are often leading figures in movements that fight for such demands but we
must also point out the temporary nature of such reforms, which, under capitalism, will simply be
taken away when the economy goes into crisis and capitalists seek to restore their profits. The
recent removal of democratically elected governments in Italy and Greece under pressure from the
market is another prime example of this.
There are also those who seek to regulate the banks by breaking them up into smaller entities, the
idea being that a series of smaller banks will be less likely to cause a global financial crisis if one of
them goes bankrupt. The people who make such suggestions are like the Utopian Socialists that
Marx and Engels describe in the Communist Manifesto:
"This form of Socialism aspires either to restoring the old means of production and of
exchange, and with them the old property relations, and the old society, or to cramping
the modern means of production and of exchange within the framework of the old
property relations that have been, and were bound to be, exploded by those means. In
either case, it is both reactionary and Utopian.

These Utopians desire, in effect, to roll back the wheel of history and go back to a time of small
producers. But the concentration of capital is an historical fact, as observed long ago by Marx and
Engels in the Communist Manifesto. It is now also a recognised scientific fact, as documented in an
academic paper highlighted by the New Scientist, which reports that approximately 40% of the
wealth in the world economic network is controlled by 147 companies the vast majority of which
are banks and financial institutions.
It is clear that the financial industry has an enormous amount of power and that huge banks
dominate and control the global economy. The solution, however, is not to break up these giant
entities into smaller pieces or to try and regulate these monolithic financial institutions. Instead, the
solution is to seize these companies which are privately owned and which operate as part of an
anarchic worldwide economic system and to put them under democratic workers control within a
rationally planned economy.
The fact is that the crisis of capitalism cannot be overcome through rules and regulations, but can
only be solved by the transformation of society by the living forces of workers and youth taking
economic and political power from the capitalist class and welding this power in the interests of
society as a whole.

Taxing the rich

Alongside the call for greater financial regulation, the other most common demand from the
reformist camp is to tax the rich. It is unsurprising that this demand has found an echo amongst
such a wide layer of society, especially when the growing disparity of wealth is so flagrantly
flaunted by the rich. In Britain, the richest 1000 people increased their wealth by 30% in the last
year to an astonishing total of 336 billion, despite the crisis. Meanwhile, the executives of Britain's
100 biggest companies enjoyed an average pay rise of 49% over the past year.
Figures for the tremendous amounts of tax that is avoided and evaded by the rich are commonly
cited; for example, the tax collectors union in the UK, PCS, estimates that over 120bn is avoided,
evaded, and uncollected every year. With a budget deficit of around 150bn in the UK, it would
seem that cuts and austerity arent quite so necessary after all.
Whats more, certain members of this wealthy elite realising that there is a limit to how much you
can get workers to pay when so much wealth is concentrated in the hands of so few are even
demanding that they be taxed more, with figures such as Warren Buffett, the famous American
investor, and Luca di Montezemolo, the chairman of Ferrari in Italy, amongst those who have
recently asked their respective political leaders to increase the rate of taxation on the rich.
But, like the issue of financial regulation described above, two questions must be asked: how have
the rich been allowed to avoid and evade paying their taxes up until now? And who will tax the rich
and make them pay their fair share?
Again, governments have been all too eager to lower (personal and corporate) tax rates for the
wealthiest over the past 30 years in a race to the bottom in order to entice the rich to live (and
invest) in their country instead of another. For example, in 1974, the UK Labour government
introduced an 83% tax rate on the highest earners. By 1988, the Thatcher government had reduced
this to 40%, whilst the current 50% rate on top earners (introduced by the previous Labour
government) is considered temporary by the current Tory-Liberal coalition government. Meanwhile,
over the same period, the main rate of corporation tax in the UK was reduced from 52% to 30%.
Indeed, the vast majority of the capitalist class is not quite as keen as Mr Buffett on being taxed
more, since such a tax increase would bite into profits. In general, even the slightest whisper by
governments regarding the possibility of raising tax rates for the rich is met with cries of
indignation by the capitalists and their mouthpieces in the media, who complain that such taxes will
discourage investment and thus stifle economic growth. In effect, these people are holding a gun to
the heads of governments, threatening them with a strike of capital.
Meanwhile, the bourgeois politicians and media raise a hue and a cry about anyone who mentions
the possibilities of taxing the rich. In the USA, President Obama has been called a socialist by the
Republicans and the right-wing media, who accuse of him of trying to start a class war. But as
Warren Buffett commented: there is class warfare, all right, but its my class, the rich class, thats
making war, and were winning.
In the USA, the question of taxes on the rich has also become a pivotal issue for the Republican
presidential nomination campaign, with candidates stumbling over each other to promise lower and
lower tax rates with accompanying catchy titles, as The Economist reports:
Mr Santorum, for example, wants manufacturing firms to pay no corporate tax at all
(one of his three zeroes). Ron Paul, a libertarian candidate, wants to do away with
federal income tax altogether. Mr Cain denounces the current tax code as the twenty-
first-century version of slavery. There is a consensus among all the candidates that the
federal corporate tax rate of 35%, the highest in the rich world, must be slashed. Most
candidates would like to put an end to taxes on capital gains and dividends as well.

The Democrats have acted no better, with Obama allowing himself to be held to ransom by the
Republicans in negotiations over how to reduce the deficit; the Republicans refuse to budge on their
demand for no tax increases, and the Democrats capitulate.
Of course certain concessions can be squeezed from the capitalist class, but only if the fire of
revolution is held to their backsides as a warning of what they could potentially lose. But, similarly
to the question of regulation and reform, any attempt to tax the rich and make them pay more can
only be made permanent if it has the full force of the labour movement behind it, as we have
explained elsewhere. And again, if a mass movement of workers and youth is able to achieve such a
permanent reform, why not go the whole way and seize the wealth of the rich by nationalising the
banks and the other major monopolies?
The reformist leaders sweat and writhe at such a suggestion, creating hysteria and warning that the
capitalists must not be provoked, but must be sweet-talked into parting with their money. Such
people imagine that you can tame a tiger by slowly removing its claws one-by-one. In any case, if
ever there was a case of provocation, it is the massive austerity programmes being demanded by the
bourgeoisie, which have unsurprisingly elicited tremendous responses from workers and youth.
Even more audacious is the sight of these same members of the bourgeoisie sipping on champagne
as the masses protest beneath them (see this video from around 53 seconds in). This is the real
provocation!
In addition, it is one thing to talk about getting taxes from the rich in a time of boom when there is
more to go around for everyone; it is another thing to try and tax the rich in a time of crisis. Of
course, such issues are of little concern to the reformist leaders, who scorn the Marxists for their
idealism, whilst assuring the masses of their pragmatism. But it is the reformists who are the
real idealists, with their utopian suggestions to tax the rich, and it is this same pragmatism that
leads the reformists to carry out cuts on behalf of the capitalists once they are in power. This is the
nature of reformism in a time of crisis; it turns into its opposite, leaving reformists with nothing but
counter-reforms to offer.
This idealism of the reformist leaders is also clearly put on display by their alternative to cuts in
the form of stimulating growth. But, as we have explained elsewhere (Marx vs. Keynes), the idea
that the economy can be jolted into activity at the click of a button or that capitalists can be
encouraged to invest at the whim of governments is utopianism in the extreme. Rather than
governments taking such a long-winded, roundabout route to funding public spending i.e.
encouraging capitalists to invest and then pleading with them to hand over some of their profits
why not just expropriate the capital of the 1%, put it under public control, and invest the wealth in
society for the needs of society?