Capitalism is losing its Barings?

by Pearl

To lose z75 pounds on the horses is unfortunate. To lose z750 
million poundsis  slightly different. When Nick Leeson lost 750 million 
on the  Tokyo futures market in February, it should have raised more 
than eyebrows or smiles from anarchists. It should have raised 
questions.

Barings "misfortunes" have highlighted the issue of economic 
power and the fundamental changes in the nature of capitalism 
which we have all had the unpleasant pleasure of experiencing 
since the 1970's. These changes have important implications for 
us, our activities and our lives and so must be understood.

As should be obvious to any anarchist, capitalist companies and 
corporations, by their economic power, control political power, 
namely the state and in particular Parliament and the executive 
(i.e. the government). Political power is often powerless in the 
face of opposition from economic power.

As Noam Chomsky notes, "In capitalist democracy, the interests 
that must be satisfied are those of capitalists; otherwise, there 
is no investment, no production, no work, no resources to be 
devoted, however marginally, to the needs of the general 
population" (Turning the Tide, Pluto, 1985, page 233).

Faced with a government aiming to implement "radical" policies 
(ie anything that will get up the noses of capital) and "deliver 
for the needs of working class people" capital would use its 
economic power to stop or undermine these reforms. How? Simply by 
moving capital to more profitable countries. Its this economic 
power that the recent changes within capitalism has increased.

The tendency within capital is for it to become increasingly 
global in its operations. Transnational Companies are, perhaps, 
the most well known representatives of this process. 
Globalisation became noticeable in the early 1970's, partly as a 
response to popular revolt (the "crisis in democracy" to use the 
elites term) and partly as the natural evolution of the system. 
As would be imagined, the political reactions to this process 
took similar forms in different countries as the underlying 
economic causes were similar.

The U.S. eliminated many capital controls, the controls having 
been, as John Eatwell the Cambridge economist put it, "challenged 
as 'inefficient' and 'against the national interest' and 
'unmarketlike' - and the infrastructure of speculation was 
rapidly expanded" meaning that "opportunities for profit 
proliferated" by allowing capital formally invested in high 
labour cost industries in the U.S.A. to move to states with lower 
costs (John Eatwell, "The Global Money Trap", American 
Prospects, Winter 1993). In Britain, "Heath... had relaxed many 
of the controls on the banks in the U.K." (Robin Ramsay, page 2). 
Both countries floated their currencies (Nixon first, closely 
followed by Heath). This meant the end of the Bretton Wood 
system.

The end, in other words, of the post-war economic system.

The long term effect of this has been the reversal of the ratio 
between foreign exchange transactions of a speculative nature and 
those for the finance of trade and long term investment. In 1971, 
the former was about 10%, the latter about 90%. By 1993, 
speculative transactions stood at 90% of the total. (Eatwell, op 
cit)

In Britain, the immediate effect was that between December 1971 
and December 1974, the total assets of British Banks rose by z48 
339 million, or 131%. "'Printing money' with a vengeance"(Robin 
Ramsay, page 2). This resulted in inflation reaching 20% just 
before Heath left power.[1]

The reasons for this have been indicated above, but the 
subjective factor, namely popular revolt, without doubt 
accelerated the evolution to globalisation (as it had the 
evolution to "national" capitalism, or the post war Keysianism 
consensus of limited state intervention [2]). The major problem 
of the post-war consensus was that "with the full employment 
policy [this system implied]... it commits the state to 
bolstering the power of labour. While it helps increase total 
demand, its fatal characteristic from the business point of view 
is that it keeps the reserve army of the unemployed low, thereby 
protecting wage levels and strengthening labour's bargaining 
power" [Herman, page 93].

This resulted in a extended period of capitalist expansion, in 
which both productivity and wages could increase hand in hand. 
Unfortunately for capitalism it is in periods of "boom" that the 
working class is at its strongest. This is the key to 
understanding the traditional "business cycle" of capitalism. If 
an industry or country experiences high unemployment workers will 
put up with longer hours, worse conditions and new technology in 
order to remain in work [see "The New Slavery", Scotland on 
Sunday, 9/1/95, for example]. This allows capital to extract a 
higher level of profit from those workers, which, in turn signals 
other capitalists to invest in that area. As investment 
increases, unemployment falls so workers are in a better position 
and so resist capital's agenda, even going so far as to propose 
their own (see, for example, the calls for workers control in 
that late 60's and early 70's). As workers power increases, 
profit rates decrease and capital moves, seeking more profitable 
pastures, causing unemployment. And so the cycle continues.

Hence, after the extended period of boom caused by Keysianism, 
working class struggle had invoked a capitalist crisis as the 
rate of profit fell.[3] Inflation, as indicated above, was the 
first response to this crisis as it "reduced the real wages of 
workers... [which] directly benefits employers... [as] prices 
rise faster than wages, income that would have gone to workers 
goes to business instead" [Brecher and Costello, page 120].  
Working class revolt accelerated the process of globalisation and  
inflation produced the correct climate for the "deregulation" era 
of Thatcher and Reagan to be on the agenda.

This era was marked by a move away from the "nanny state" (for 
the working class at least, not for the ruling class) to "free" 
markets as part of a "neoliberal revolution". The new consensus 
not only represented a policy change away from the defunct social 
democratic one, it also represented a structural change 
corresponding to the globalisation of capitalism. A process which 
has benefited capitalism immensely, increasing its size, power 
and mobility.

The figures speak for themselves.

>From 1986 to 1990, foreign exchange transactions rose from under 
$300 billion to $700 billion daily and are expected to exceed 
$1.3 trillion in 1994. The World Bank estimates that the total 
resources of international financial institutions at about $14 
trillion. To put some kind of perspective on these figures, the 
Balse based Bank for International Settlement estimated that the 
aggregate daily turnover in the foreign exchange markets at 
nearly $900 billion in April 1992, equal to 13 times the Gross 
Domestic Product of the OECD group of countries on an annualized 
basis [Financial Times, 23/9/93]. Closer to home, some $200-300 
billion a day flows through London's foreign exchange markets. 
This the equivalent of the UK's annual Gross National Product in 
two or three days.[4]

The tele-communications revolution aided this "globalisation" of 
capital as the "revolution in technology and production is 
fuelling and being fuelled by globalisation... it means national 
boundaries and habits are becoming less relevant to business 
decisions as investment flows and production facilities move in 
quest of the highest possible returns or market share" according 
to the Financial Times [Financial Times, 23/9/94].

"A level of poverty is sound monetarist policy"
(John Pilger)

No wonder this Financial Times special supplement on the I.M.F. 
stated that "Wise governments realise that the only intelligent 
response to the challenge of globalisation is to make their 
economies more acceptable". More acceptable to business, not the 
population.[5] This has seen, and will increasingly see, what 
could be called a free market in states, with capital moving to 
states which offer the best deals to investors and transnational 
companies, such as tax breaks, union busting, no pollution 
controls and so forth. The "globalisation" of capital aids this 
process immensely by increasing the mobility of capital and 
allowing it to play one work force against another.

For example, General Motors plans to close two dozen plants in 
the United States and Canada but it has become the largest  
employer in Mexico. Why? Because an "economic miracle" as driven  
wages down. Labour's share of personal income in Mexico has 
"declined from 36 percent in the mid-1970's to 23 percent by 
1992". Elsewhere, General Motors opened a $690 million assembly 
plant in the former East Germany. Why? Because there workers are 
willing to "work longer hours than their pampered colleagues in 
western Germany" (as the Financial Times put it) at 40% of the 
wage and with few benefits. [Noam Chomsky, World Orders, Old and 
New, page 160]

According to Business Week (February 15, 1993), Europe must 
"hammer away at high wages and corporate taxes, shorter working 
hours, labour immobility, and luxurious social programmes". This 
is exactly the sort of thing contained in any leftist programme 
you care to mention (for example, see Issue 6 of "Liberation" and 
its "draft statement for a shorter working week"). Exactly the 
sort of thing capital does not require. Exactly the sort of thing 
that the globalisation of capital helps put an end to.

The globalisation of capitalism has already adversely affected 
whole populations, but the next stage of global free trade (as 
represented by GATT) will make things far worse. Global free 
trade, as the economist Sir James Goldsmith notes, will "shatter 
the way in which value-added is shared between capital and 
labour" ("value-added" being the "increase of value obtained when 
you convert raw materials into a manufactured product") as it 
will result in a "massive increase in supply [which] will reduce 
the value of labour". This also mean that management power will 
increase for when organised labour ask for concessions "the 
answer will be: If you put too much pressure on us, we will move 
offshore where we can get much cheaper labour, which does not 
seek [improvements such as] job protection, long holidays...".

All of which, needless to say, will result in bigger and better 
profits for the few as we, the real "wealth creators", get a 
reduced slice of the value we create. As wealth pours up from the 
working class to the ruling class, the drops from the rich will 
"increase" (as 10% of 200 is more than 15% of 100). This is the 
real meaning of the "trickle down" theory so loved by the Tories.

Free Market, Centralised State

Implied in and paralleling this rise of global capital, we see 
the emergence of what have been called "superblocks", such as the 
EU and NAFTA, needed to create "more efficient" regional markets. 
This regionalisation of markets requires increased political 
centralisation and further limitations in the power of ordinary 
people. Taking the EC, for example, we find that the "mechanism 
for decision-making between EC states leaves power in the hands 
of officials (from Interior ministries, police, immigration, 
customs and security services) through a myriad of working 
groups. Senior officials.... play a critical role in  ensuring 
agreements between the different state officials. The EC  Summit 
meetings, comprising the 12 Prime Ministers, simply rubber-stamp 
the conclusions agreed by the Interior and Justice Ministers. It 
is only then, in this inter-governmental process, that 
parliaments and people are informed (and them only with the 
barest details)" [Tony Bunyon, Statewatching the New Europe, 
1994, page 39]

However, such centralisation does make it easier for some to 
influence the political process. Namely, big business. For 
example, the European Round Table (ERT) [6] makes much use of the 
EC. As two researchers on this body note, the ERT "is adept at 
lobbying... so that many ERT proposals and "visions" are 
mysteriously regurgitated in Commission summit documents". Of 
particular interest here is that the ERT "claims that the labour 
market should be more "flexible", arguing for more flexible 
hours, seasonal contracts, job sharing and part time work. In 
December 1993, seven years after the ERT made its suggestions 
[and after most states had agreed to the Maastricht Treaty and 
its "social chapter"], the European Commission published a white 
paper... [proposing] making labour markets in Europe more 
flexible" (Doherty and Hoedeman, "Knights of the Road", New 
Statesman, 4/11/94, page 27)

What the state giveth, the state can taketh away. The Tories may 
soon not have had to bother about the social chapter of the 
Maastricht Treaty after all.

But surely a "radical" government could resist the forces that be 
and introduce reforms? Well, firstly, there is a difference 
between the state and government. The state is the permanent 
collection of institutions that have entrenched power structures 
and interests. The government is made up of various politicians. 
It's the institutions that have power in the state due to their 
permanence, not the representatives who come and go. We cannot 
expect a different group of politicians to react in different 
ways to the same institutional influences and interests. Its no 
coincidence that the Australian Labour Party and the Spanish 
Socialist Party introduced "Thatcherite" policies at the same 
time as the "Iron Lady" introduced them here.[7] The New Zealand 
Labour government is a case in point, where "within a few months 
of re-election [in 1984], finance minister Roger Douglas set out 
a programme of economic 'reforms' that made Thatcher and Reagan 
look like wimps.... almost everything was privatised and the 
consequences explained away in marketspeak. Division of wealth 
that had been unknown in New Zealand suddenly appeared, along 
with unemployment, poverty and crime" [John Pilger, "Breaking 
the one party state", New Statesman, 16/12/94]

Electoral attempts at change are limited. In order for a 
parliament to "deliver" reforms that benefited working class 
people capital would have to be controlled. This would have one 
of two effects. Either capital would disinvest, so forcing the 
government to back down in the face of economic collapse. Or the  
government in question would control capital leaving the country  
and so would soon be isolated from new investment and its 
currency would become worthless. Either way, the economy would be 
severely damaged and the promised "reforms" would be dead 
letters. In addition, this economic failure would soon result in 
popular revolt which in turn would lead to a more authoritarian 
state as "democracy" was protected from the people.

Far fetched? No, not really. In January, 1974, the FT Index for 
the London Stock Exchange stood at 500 points. In February, the 
Miner's went on strike, forcing Heath to hold (and lose) a 
general election. The new Labour government (which included many 
left-wingers in its cabinet) talked about nationalising the banks 
and much heavy industry. In August, 74, Tony Benn announced Plans 
to nationalise the ship building industry. By December, the FT 
index had fallen to 150 points. By 1976 the Treasury was spending 
$100 million a day buying back of its own money to support the 
pound [The Times, 10/6/76].

"The further decline in the value of the pound has occurred 
despite the high level of interest rates... dealers said that 
selling pressure against the pound was not heavy or persistent, 
but there was an almost total lack of interest amongst buyers. 
The drop in the pound is extremely surprising in view of the 
unanimous opinion of bankers, politicians and officials that the 
currency is undervalued" [The Times, 27/5/76]

The Labour government faced with the power of international 
capital ended up having to receive a temporary "bailing out" by 
the I.M.F. who imposed a package of cuts and controls which 
translated to Labour saying "We'll do anything you say", in the 
words of one economist [Peter Donaldson, A Question of 
Economics, Penguin Books, 1985, page 89]. We all are aware of 
the social costs of these policies. And lets not forget that they 
"cut expenditure by twice the amount the I.M.F. were promised" 
[Donaldson, op cit].

Capital will not invest in a country which does not meet its 
approval. In 1977, the Bank of England failed to get the Labour 
government to abolish its exchange controls. Between 1979 and 
1982 the Tories abolished them and ended restrictions on lending 
for banks and building societies. The result was obvious, "the 
result of the abolition of exchange controls was visible almost 
immediately : capital hitherto invested in the U.K. began going 
abroad. In the Guardian of 21 September, 1981, Victor Keegan 
noted that 'Figures published last week by the Bank of England 
show that pension funds are now investing 25% of their money 
abroad (compared with almost nothing a few years ago) and their 
has been no investment at all (net) by unit trusts in the UK 
since exchange controls were abolished'" (Ramsay, page 3)

Why? What so bad about the U.K.? Simply, the working class were 
too militant, the trade unions were not "shackled by law and 
subdued" (as The Economist, February 27, 1993, recently put it)  
and the welfare state would be lived on. The partial gains from  
previous struggles still existed and so created "inflexibility" 
in the labour market.

This happened 20 years ago, when globalisation was in its early 
stages. Think of the power of capital now, with access to 
electronic mail, the internet, artificial intelligence and multi-
media.

So, governments are constrained by the agenda of big business, 
multi-nationals and banks. But they are also constrained by the 
state itself. This is clear from the experiences of the last 
Labour government. Tony Benn has often written of the battles he 
fought (and lost) against the civil service and the state 
apparatus when he held ministerial office and of the 
disinformation fed to him by his "advisors" in Whitehall.

As Clive Ponting (an ex-civil servant himself) indicates "the 
function of a political system in any country... is to regulate, 
but not to alter radically, the existing economic structure and 
its linked power relationships. The great illusion of politics is 
that politicians have the ability to make whatever changes they 
like..."[quoted in Alternatives, no.5, page 19].

Back to the Future?

As can be seen from the last Labour government, Bill Clinton, New 
Zealand or Tony Blair, the "lessor" evil is still an evil. They 
cannot challenge, nevermind change, the fundamentals of the 
system (assuming, for the moment, that is what they actually want 
to do). The task for anarchists is to create a real alternative 
so that we have more options than picking between "evils", so 
that we can create our own alternatives, by our own efforts and 
which reflect our ideas of right and wrong.

That means, in part, recovering the rich tradition of socialist 
ideas buried after the "success" of the Russian Revolution. The 
ideas of libertarian, as opposed to state, socialism. These ideas 
take many names, anarchism, anarchosyndicalism, guild socialism, 
antiparliamentarian communism to name just a few, but they all 
share the common ideas of working class direct action, 
solidarity, self-help, self-reliance and self-liberation.

To meet the globalisation of capitalism, we need to forge 
international links between countries. Existing organisations, 
such as the anarchosyndicalist IWA and IWW, while not perfect, 
have their role to play and should be supported. As capital is 
"dead labour", part of the surplus value extracted from our 
labour by the bosses, its clear that by organising with our 
fellow workers across the globe we can strike fundamental blows 
to the system and its logic. We have a common interest to do so.

We cannot, however, limit ourselves to workplace organisation, 
essential as that is. We need to work within our communities as  
well, as we face the evils associated with capitalism in all  
aspects of our lives. We need to act locally. Unless we do that 
any international organisation or activity is hollow. The global 
solidarity of our class is the flower that grows from the soil of 
our local self-activity and direct action.

This self-activity will need to build links with like-mined 
people, in our communities and in our workplaces (via Industrial 
Networks, as suggested by the Solidarity Federation, for 
example). Confederations of communal and workplace assemblies, 
local solidarity centres, cooperatives and credit unions are 
essential in order to generate a strong backbone of self-managed 
alternatives which can support and win the class struggle.

In other words, we have to build the new world in the shell of 
the old. But beyond all this, we need a vision of the future and 
ideas on how to get there. We need political content to our 
activity in order to rise above the reality of capitalism and not 
sink into reformism. Political ideas which spring from, learn 
from and develop with working class struggle and self-activity. 
Therefore we need a strong and effective anarchist organisation 
to help spread the idea we can change things by our own actions 
and that will encourage the spirit of revolt. That such an 
organisation must transcend national boundaries goes without 
saying, but like the society we aim for it must be based on local 
autonomy and free federation. The Scottish Federation of 
Anarchists hope to be part of such a global confederation.

It has never been the case that capitalism is becoming a more 
socialistic system by its growth. Its steady increase in size 
means that popular control of its institutions has become 
impossible. They have to broken up, with power decentralised 
back to where it belongs, to local communities and workplaces 
united in a free confederation.

"Without big banks socialism would be impossible" claimed Lenin. 
Like with so many other things, he was wrong. To make the 
economic institutions of capitalism "even bigger" runs against 
making them "even more [sic] democratic", for obvious reasons 
[Collected Works, Vol. 26, page 110]. Luckily the Bolshevik myth 
is less strong than it used to be in left wing circles, as is the 
related idea that nationalisation equals socialism. [8] The 
ideals of socialism may yet be saved from the statist hole it has 
dug itself into.

The inherent tendency towards centralisation within capitalism 
runs against tendencies to socialism. As Alexander Berkman said 
over 60 years ago, and what the Barings farce highlights clearly 
today, the "role of industrial decentralisation in the revolution 
is unfortunately too little appreciated... in a system of 
centralisation the administration of industry becomes constantly 
merged in fewer hands, producing a powerful bureaucracy of 
industrial overlords. It would be the sheerest irony if the 
revolution were to aim at such a result. It would mean the  
creation of a new master class" (ABC of Anarchism, page 79-80).
 
References and Further Reading

Jeremy Brecher and Tim Costello, Common Sense for hard times, 
Black Rose Books, 2nd Ed, 1979.

Noam Chomsky, World Orders, Old and New, Pluto, 1994.

Takis Fotopoulos, "The Nation-State and the Market", Society and 
Nature, Vol. 2, No.2, pages 37 to 80.

Edward Herman, Beyond Hypocrisy, South End Press, 1992.

Robin Ramsay, "Thatcher, North Sea Oil and the hegemony of the 
City", Lobster 27, pages 2 to 9.

Vernon Richards (Editor), Neither Nationalisation nor 
Privatisation - Selections from Freedom 1945-1950, Freedom 
Press, 1989.

Notes

1. This fact is often ignored in the histories of the period, 
which are rewritten to imply that Labour Governments and workers 
struggle cause inflation. As two US writers have indicated from 
the 1970's, facts are often "obscured by a barrage of propaganda 
designed to persuade the public that rising wages are the cause 
of rising prices.... The truth is quite the opposite. Every 
general increase in labour costs in recent years has followed, 
rather than preceded, an increase in consumer prices. Wage 
increases have been the result of workers' efforts to catch up 
after their incomes had already been eroded by inflation.... The 
attempt to blame inflation on worker's wage increases is hardly 
more than a justification for those who want to increase profits 
by decreasing real wages." (Jeremy Brecher and Tim Costello, page 
120).

2. The nationalisation of roughly 20% of economy (the most 
unprofitable sections of it as well) in 1945 was the direct 
result of ruling class fear. As Quintin Hogg, a Tory M.P. at the 
time, said, "If you don't give the people social reforms they are 
going to give you social revolution". Memories of the near 
revolutions across Europe after the first war were obviously in 
many minds, on both sides. Not that nationalisation was 
particularly feared as "socialism". As anarchists at the time 
noted "the real opinions of capitalists can be seen from Stock 
Exchange conditions and statements of industrialists than the 
Tory Front bench... [and from these we] see that the owning class 
is not at all displeased with the record and tendency of the 
Labour Party" (Richards, page 9).

3. Actual post-tax real wages and productivity in advanced 
capitalist countries increased at about the same rate from 1960 
to 1968 (4%) but between 1968 to 1973, the former increased by an  
average of 4.5% compared to a productivity rise of 3.4%. As a  
result, the share of profits in business output fell by about 15% 
in that period. See Fotopoulos, page 63.

4. This should make any Scottish Nationalist wonder how 
"independent" Scotland would be in face of such financial power. 
And for them to ask the questions, independence for who? For 
what? If independence for ordinary Scots, then how can this be 
achieved within a capitalist system, dominated by business, 
politicians and bosses?

5. Such an "acceptable" business climate was created in Britain, 
where "market forces have deprived workers of rights in the name 
of competition" (Scotland on Sunday, 9/1/95) and the number of 
people with less than half the average income rose from 9% of the 
population in 1979 to 25% in 1993. The share of national wealth 
held by the poorer half of the population has fallen from one 
third to one quarter. However, as would be expected, the number 
of millionaires has increased as has the welfare state for the 
rich, with our tax money being used to enrich the few via 
military Keysianism, privatisation and funding for Research and 
Development. Like any religion, the market is marked by the 
hypocrisy of those at the top and the sacrifices required from 
those at the bottom.

6. The ERT is "an elite lobby group of... chairmen or chief 
executives of large multi-nationals based mainly in the EU... 
[with] 11 of the 20 largest European companies [with] combined 
sales [in 1991]... exceeding $500 billion... approximately 60 per 
cent of EU industrial production". (Doherty and Hoedeman, page 
27).

7. Not that she was that "Iron" when it came to the real sources 
of power in society, namely capital. Robin Ramsay has done us all 
a great favour in documenting how "the first big interest group 
Mrs Thatcher took on was the City - and she lost" (Robin Ramsay, 
page 4)

8. At the height of Labour's nationalisations, anarchists were 
pointing out its anti-socialist nature. Nationalisation was 
"really consolidating the old individual capitalist class into a 
new and efficient class of managers to run... state capitalism" 
by "installing the really creative industrialists in dictatorial 
managerial positions" (Richards, page 10).
 



