Capital & Class. - 1985 - Issue 26 issue 26

r Kate Rubin and George Frisvold Reagan's new economic agenda : the militaryand the market

s MU Ca

This article reviews us economic performance since the re-election of Ronald Reagan . The main focus is on the role of the state in promoting and responding to structural change in the economy . The article summarises recent changes in fiscal policy, trade and debt, banking and the stock market . The discussion highlights the consequences of the economic programme implemented during Reagan's first term, from 1980 to 1984, and the contradictions and pitfalls of the policies he hopes to promulgate in the second . RONALD REAGAN campaigned against `big government' in both his bids for the presidency . His Inauguration Day speech in January 1981 articulated a philosophy 5 of federal spending that would govern the presidency for the next eight years : `Government is not the solution to our problem . . . Government is the problem .' Such a statement seems at odds with actual events . President Reagan stands at

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6 the helm of the biggest, baddest government that this country has ever seen . The federal debt more than doubled during the President's first term in office . Last year's federal spending accounted for almost one-quarter of gross national product . Reagan's campaign against big government aimed not to reduce the size of the state, but to change its priorities . Defence spending grew from 23 to 27% of the federal budget by 1984 . The share of domestic non-military expenditures declined dramatically from 68% when Reagan took office, to 60% at the end of his first term . Reagan's first-term budget cuts targeted the poor . Millions of Americans lost food stamps, welfare payments, disability benefits, federal medical insurance, subsidised school lunches, and low-interest college loans . The poverty rate rose from 13% in 1980 to more than 15% in 1983, an increase of 6 million people . The unemployment rate in 1982 stood at 10 .7%, the highest since the Great Depression . Farm income plummetted to its lowest level since the 1930s . Reagan's second-term budget continues the project of dismantling the welfare state, opting for complete elimination of various domestic programmes along with drastic cuts in others . The administration favours this approach to acrossthe-board reductions . The latter approach, according to Budget Director David Stockman, implies that all programmes are created equal . Not so for this administration . They make their priorities clear . The proposed budget released last February contains a $102 .3 billion hike in military spending and cuts in non-military domestic programmes of $182 .7 billion over the next three years . Military spending increases account for 85% of the growth in federal spending for fiscal years 1986-

88 . Domestic programme cuts represent 87% of spending reductions . The main items slated for spending reductions are farm subsidies, small business assistance, and state and local economic development programmes . Many of the proposed cuts face uncertain prospects for congressional approval . Congressional representatives facing reelection in 1986 may be reluctant to vote for reductions in federal support to farmers and small businesses in their districts . Proposed changes in us farm policy represent the most dramatic reversal . The Administration had no choice but to develop a new farm policy . Its macroeconomic policies devastated the farm sector, resulting in the largest federal farm programme outlays in history . Price supports, credit subsidies, and purchase and storage of commodity surpluses cost the federal budget between $10 and $18 billion each year during Reagan's first presidential term . Farm foreclosures are the highest since the Great Depression, despite enormous federal expenditures in agriculture . The Reagan Administration now proposes to let the free market resolve what federal spending could not. Administration proposals reduce price support levels below average market prices and set an absolute limit on total payments per farm . The President also plans to eliminate dairy price supports and the sugar import levy . Federal guarantees to private lenders for part of the value of farm loans would replace direct federal lending at subsidised rates . The Administration faces an uphill battle in Congress on agricultural policy . The farm lobby is in an uproar over the President's proposals, and carries considerable influence with key congressional leaders from both parties . Reagan will accomplish some reform in farm policy,

us Economy but surely not enough to reduce programme expenditures by the proposed $6 billion over the next three years . While Reagan faces major opposition to various domestic programme cuts, he will likely have his way on the military budget . Even if the President succeeds in gaining congressional approval for all of the proposed spending cuts, he will need an economic miracle to redcuce the federal deficit without cuts in military spending . But even more unlikely is the political miracle required for the legislature to accomplish more than a piecemeal reduction in the defence budget . Reagan plans to increase military spending in real terms by 3% per year . Defence is the largest single item in Reagan's budget for fiscal year 1986, consuming 29% of the $973 billion in projected federal outlays . Massive military spending is the Reagan Administration's answer to industrial policy . The real success of military spending lies not in creating employment, but rather in generating profits . Earnings statements of the top ten defence contractors record an average 35% after-tax return on equity for 1984 . The average return for all manufacturing industries was a mere 12 .8% by comparison . As defence contractors increase their economic strength they also expand their political power . The political contributions of the largest 20 defence contractors doubled between the last two presidential elections to $3 .6 billion by 1984 . Those contractors registering the largest growth in contributions received corresponding increases in contracts from the Pentagon . Rockwell International, builder of the B-1 bomber, more than quadrupled its political contributions from 1980 to 1984 . They received an eightfold increase in military contracts over the same period . Boeing became the largest political donor with a

350% hike in contributions and gained an 7 additional $3 .2 billion in defence contracts in return . Despite Reagan's favouritism for defence, his budget promises to accord benefits to all through a $50 billion reduction in the federal deficit by the end of his first term in office . But Administration projections assume an extremely optimistic economic horizon when calculating this figure . Specifically, they require uninterrupted GNP growth averaging 4% per year, interest rates of less than 6%, inflation below 4%, and lower unemployment to boot . The Congressional Budget Office, the economic research bureau of the Congress, offers a more realistic estimate . They project a federal deficit of more than $400 billion by 1990 (compared to $195 billion in 1983) should a recession occur sometime within the next few years . An economic downturn seems likely, given recent economic indicators of slow growth and persistent unemployment . The resulting deficit would credit Ronald Reagan with quadrupling the federal debt during his two terms in office . The ideological campaign against big government succeeded in transforming the role of the state from welfare and warfare to warfare alone . Hypocrisy and nuclear danger aside, the campaign's success seems guaranteed as long as the President does not raise taxes .

Taxes FUNDAMENTAL reform of the federal tax code is a cornerstone of Reagan's secondterm economic programme . The Reagan Tax Plan proposes the biggest changes in the tax system since World War II . Revamping the tax system could do for the Republican Party what Social Security accomplished for the Democrats . Polls report that a majority of Americans

Capital & Class 8 consider the present tax system unfair . Recent polls indicate widespread support for the President's simplification plan . Tax policy was also a major feature of the President's economic programme during his first term in office . The so-called supply-side tax cuts enacted in 1981 targetted wealthy Americans and heavy manufacturing . These cuts granted reductions in personal taxes in direct proportion to income, transferring the largest benefits to high-income groups . Investment tax credits and accelerated depreciation slashed the tax bills of companies with high plant and equipment costs . The Laffer Curve gave theoretical impetus to the supply-side tax cuts . Arthur Laffer postulated that reduced marginal tax rates spur individuals to work harder, generating higher income, savings, and investment . The astounding result suggested is an increase in tax revenues precipitated by tax reductions . History proved the Laffer Curve worthy of its name . Administration economists projected a $30 billion increase in federal tax receipts by 1983 . Instead, they got $18 billion less in taxes and a $195 billion deficit . Wealthy individuals did expand their share of total tax payments because their incomes rose and their ranks swelled in number . But this resulted not from harder work, but from speculative gains and greater income inequality . Reagan's supply-side tax programme turned out to be a classic case of one hand washing the other . The business tax cuts launched a boom in the stock market and real estate, producing larger gains for wealthy investors . Meanwhile, the recession eroded the incomes of poor and working-class Americans, thereby reducing their share of federal tax payments relative to high income groups .

Reagan's new tax plan is in part a reaction to the failure of the supply-side programme to reduce the deficit or revitalise basic industry . More fundamentally, the new plan signals the end of an era in which federal tax policy served as a mechanism to promote economic and social goals . The President aims to replace the tax system with the market as the preferred instrument of industrial policy . The new plan submitted to Congress `levels the field', according to presidential metaphor . It eliminates many loopholes in exchange for reduced rates overall in both business and personal tax assessment . Administration officials refer to the plan as tax simplification rather than reform, and contend that it is not a tax increase in disguise . Proposed changes in corporate taxes are by far the most dramatic . They promise a major redistribution of the tax burden within the corporate sector, if approved by Congress . The split in the business community has potential beneficiaries and victims locked in a pitched battle on Capitol Hill . The Reagan plan eliminates numerous tax provisions that currently favour heavy manufacturing ('smokestack') industries . Virtually the entire system of capital cost recovery hits the scrap heap, including many of the supply-side provisions passed in 1981 . Industries with large investments in plant and equipment that now pay little, no, or even negative taxes will pay substantially higher taxes under the new Reagan plan . Corporations with high wage bills and large inventory investment stand to benefit considerably from the proposed reduction in corporate tax rates overall . The Reagan plan would reduce the maximum rate assessed on corporate income from 46% to 30% . High technology, service, consumer goods, and publishing corporations, many

us Economy

of whom paid effective rates of up to 40% last year are the largest potential beneficiaries . The indirect benefits may also be significant as lower tax rates for high technology and service industries improve their competitiveness and profitability relative to other sectors . Critics in the smokestack industries argue that the Reagan plan is not as neutral as implied by his levelling metaphors . They argue that the international playing field stages an uphill battle for basic industry . Smokestack industry officials advocate continued preferential tax treatment to boost capital investment . So far their appeals to the White House have received little support . Legislative officials lay the odds for congressional approval of the Reagan tax plan at 50 :50 . The Democratic Party hopes to steal the president's thunder on tax reform, though many of their proposals exhibit a striking resemblance to the Reagan plan . Meanwhile, the short-run potential for tax simplification to provoke a recession is very great . Businesses will surely cut back on investment until they have a clear picture of the effects of Reagan's plan . Reagan's tax plan represents a major reversal both of the postwar trend and, more significantly, of the policies in effect during his first term of office . The transition from a regime providing large tax gifts to wealthy individuals and to smokestack industries to the new plan is in part a response to the devastating failure of the supply-side cuts . Reagan's 1981 tax bill did not revitalise basic industry or expand the federal tax base . Instead it contributed to the ballooning federal deficit . A more fundamental change in policy underlies the new tax plan . It unleashes market forces to accomplish what state subsidies for capital investment did not

achieve . Reagan's big government now aims to relinquish fiscal support for all but the defence industry . The only protection remaining for basic industry is trade policy, an area in which administration policy is a dismal failure . Trade PRESIDENT REAGAN'S macroeconomic policies helped create the largest trade deficit in history . Imports outpaced exports by more than $107 billion last year, marking an increase of almost $80 billion during Reagan's first term in office . The

current account deficit now stands at approximately $120 billion, making the

us one of the largest debtor nations . The high value of the dollar has American consumers on an international buying spree . The us imported $328 billion in foreign goods last year . Imports continue to increase with the total in March alone at almost $30 billion . The overvalued dollar combines with economic slowdown in OECD countries and austerity in developing nations to make us exports unaffordable to foreign customers . The American farm sector is especially hard-hit by the strong dollar and low commodity prices . Agricultural exports declined almost 22% during Reagan's first term as President . The farm sector maintains a trade surplus, but is no longer able to rescue the overall merchandise trade balance as it had done in previous years . The President blames the trade policies of other countries for the poor performance of us exports . Japan and the EC Common Agricultural Policy are the main targets of Reagan's attacks . But the effect of foreign trade barriers is generally exaggerated . They account for less than 25% of the us trade deficit with Japan, say some experts . Ronald Reagan continues to preach the gospel of free trade . But the preacher of

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10 comparative advantage is a practitioner of protection . The share of us manufacturing protected by non-tariff barriers grew from 20 to 30% from 1980 . The Reagan Administration also re-negotiated voluntary import quotas for steel and automobiles . Reagan's import controls accomplished little to revitalise steel and auto production in the us . Administration polices do not protect industry per se . Instead they protect capital within industries . The extension of steel import quotas facilitates the restructuring of capital within the industry . State policy effectively subsidises capital's tactical retreat from the sector as a whole . Some firms shift resources into , mini-mills' producing specialty steel products using far less workers . Others move capital out of the industry altogether in favour of more profitable economic endeavours . The end result of protection in the steel industry is security for profits rather than for jobs . Reagan's protectionist policies facilitate a similar process in the auto industry but with far greater success . Voluntary import restraints may not forestall the internationalisation of the us automobile industry . But they do guarantee that the process will not exclude the Big Three us auto makers . General Motors, Ford, and Chrysler are all partners in joint ventures with various foreign producers . u s auto makers recently ordered a record number of cars from Japanese firms in agreements that basically involve us firms as distributors . The Big Three have also relocated much of their production to developing countries . Meanwhile, major Japanese and European car makers plan to expand small car production in the us . Short of closing the border, selective protection cannot improve the us trade posture as long as the dollar remains overvalued . The internationalisation of the us

economy makes the dollar an important policy instrument . But the pressure on the dollar to achieve a number of different policy goals forces difficult choices on the Reagan administration . Devaluation is likely to cause more problems for a Republican President than it would solve . Cheap imports are a key component of Reagan's anti-inflation policy, especially in the energy and food sectors . High interest rates supporting the dollar also attract large foreign capital inflows . Foreign investment in the us economy rose significantly in recent months, most of it in Government securities that help finance the federal deficit . Devaluation of the dollar would also reduce the value of outstanding foreign debt held by major us banks . The threat to the us banking sector posed by foreign debt may well be a major reason for the Administration's reluctance to devalue . Foreign debt banks rest precariously on mounting foreign debt . Total Third World debt is now more than $800 billion according to IMF estimates . u s banks own a substantial portion of the total . Outstanding loans due to the nine largest US banks now exceed their total capital holdings . Several large us banks are in deep trouble as a result . Bank America Corporation, the second largest us bank, recently wrote of a number of oustanding foreign loans and is re-negotiating terms on several others . The corporation reports that it will earn zero profits in the second quarter of 1985 . Crocker National, another major Latin American leader, lost over $216 million in the last quarter of 1984 . The bank recently agreed to a purchase of its $22 billion in assets by Marine Midland in hopes of bolstering its stock value . The stakes are high for both creditors THE FORTUNES OF US

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and debtors . Default on one of the larger Latin debts owed by Mexico or Brazil could bankrupt a major us bank . But the penalties of default are even more severe for a developing nation, including the seizure of overseas assets and disruption of trade . us banks made several concessions in recent negotiations with Latin clients, including reduced interest rates and a rescheduling of payments that amounts to `rolling over' a large portion of the debt . The Federal Reserve Board often plays a major role in these negotiations . Poor economic forecasts for developing countries have American bankers in search of more credit-worthy customers . Recently, us banks scrambled to extend credit to the German Democratic Republic . Four of the top ten us banks expressed eagerness to lend to the Soviet Union . However, the Reagan Administration's cold war attitude may restrain us private lending to these countries . The effects of deregulation of us banks pose an even greater threat to the us financial system than the foreign debt crisis . During Reagan's first term, deregulation unleashed market forces in the financial sector . The recent spate of bank failures and panics suggests they may well undermine its viability . Domestic deregulation of us banks DEREGULATION SPARKED intense competition within the financial sector . New banking laws eliminated ceilings on interest rates payable to depositors, and removed restrictions on the operation of thrift institutions, allowing them to perform most of the functions of commercial banks . Now banks can compete with each other more freely by offering higher returns and a wider variety of services . However, they must almost compete with thrift institutions .

Increased competition did not bring 11 recovery within the us finance industry . Instead, it triggered a record number of bank failures . The business media often portray even the most dramatic failures as isolated cases of poor management and generally overlook the poor performance of the banking sector as a whole . The fifty largest us banks suffered a decline of almost 12% in average net income . Average return on equity fell by 24% . Eight of the largest twenty banks registered negative operating income last year . And the picture would likely look worse without new federal regulations allowing banks to combine profits earned from government securities sales with those generated by more traditional banking operations . Expanded sales of these securities contribute a significant proportion of bank profits . A striking case is Chase Manhattan's income report for 1984 . Including securities sales, Chase Manhattan's income grew by 15% in 1984 ; excluding them, their income actually dropped 5 .4% . The most dramatic example of instability in the us banking system is the neartotal collapse of the country's 12th largest bank, Continental Illinois (CI), last May . Defaults by several large ci borrowers led wary institutional depositors to withdraw their deposits, starting a `corporate' bank run . Large corporations and other banks with multimillion dollar accounts who comprise the bank's main depositors, were especially vulnerable because of the Federal Deposit Insurance Coporation (FDIC) policy of insuring deposits only up to $100,000 . Consequently, only $4 billion of the bank's $28 .6 billion in deposits was insured . In March of this year, the Home State Bank of Ohio collapsed after losing a substantial amount of money from the failure of EsM Government Securities Inc ., a

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12 securities brokerage firm . The bank closed all 33 of its branches . The state of Ohio then closed 69 thrifts in efforts to stem a more widespread panic . Similar failures of privately insured thrifts recently occurred in the states of California and Maryland . Two trends characterise the response to this crisis . First is the rise of mergers and takeovers that increase the concentration of finance capital within the banking industry . Mergers are the industry's primary means of preventing widespread bank failures . In fact, those us banks posting the best growth performance in assets and deposits have done so through mergers . The second trend involves a movement toward the re-regulation of finance capital . The banking industry relies increasingly on federal and state agencies to avert and contain bank failures . Government agencies, in particular the FDIC and the Federal Reserve Board, participate directly in helping to finance takeovers of failing financial institutions . For example, the Ohio state government in conjunction with the FDIC actively sought outside buyers to take over Home State . The Maryland legislature recently granted emergency powers to close banks and limit withdrawals to $1,000 per month . In some cases, the Federal Reserve elected to back the full value of deposits to prevent runs . The FDIC also determines which thrift institutions quality for federal insurance . Those that do not qualify are ripe for takeovers supervised by the FDIC . This agency also scrutinises the structure of outstanding bank loans . Recently the FDIC closed six banks in one day after government officials determined that they held too many outstanding farm debts . The Federal Savings and Loan Insurance Corporation (FSLIC) faces similar problems which are not confined to a few institutions . Currently 438 thrift institu-

tions have negative net worth . By FSLIC's own estimation, 10% of all thrifts in the country may fail within the next year . FSLIC policies demonstrate a response similar to actions taken by the FDIC . It negotiated mergers for thrifts which lost large sums of money on real estate and government securities speculation . However, the agency itself is now in trouble with only $5 .9 billion in its reserves to insure almost $1 trillion worth of deposits . Banks have their own response to the current crisis . They monitor each other and their borrowers more carefully now than ever before . They seek to protect themselves from bad investment and loan decisions, and also from fraudulent dealings by depositors and borrowers . E F Hutton, for example, one of the largest brokerage houses in the country, recently pleaded guilty to charges of defrauding a number of small banks . Hutton devised a scheme to write itself a series of bad cheques that amounted to interest-free loans for the firm . Another example is a suit by Bank of America shareholders against the management for negligence after the bank lost millions in a mortgage fraud . Banks may also use their control over credit as a means of altering the management policies of their borrowers . In a credit squeeze experienced by Eastern Airlines, lenders conditioned their approval of new loans on the successful negotiation of tougher labour agreements with employee unions . Such demands are reminiscent of the treatment developing countries receive from international lending agencies . The institutional response of banks and federal agencies to deregulation illustrates a contradictory aspect of Reagan's programme to reassert market forces in an advanced capitalist economy . Increased competition did not boost profitability for many banks . Instead it promoted instabil-

us Economy ity, leading bankers and investors to promulgate their own regulatory mechanisms to reduce the risks of anarchic speculation . A similar process characterises the restructuring of productive capital . The current wave of corporate mergers has business leaders in search of institutional relief from corporate raiders . Increased competition for corporate assets on the stock market poses a serious threat to financial stability . Mounting corporate debt and rampant stock market speculation incite business experts and policy leaders to make frequent analogies to the Crash of 1929 . Mergers THE CURRENT WAVE of mergers is the

second to hit American business in the eighties . Corporate takeover battles dominate the daily business news . A given day on the stock exchange might see half a dozen deals on the trading block for corporations worth a billion dollars or more . The merger wave reflects a variety of economic trends . The Administration's macroeconomic policy plays an important role . High interest rates maintain relatively low stock prices by drawing investment towards money markets and away from equity . An undervalued stock market provides favourable conditions for corporate takeovers . Deregulation directly influences structural change in several industries . These include airlines, rail transport, communications, and banking . The administration's laissez-faire approach to anti-trust regulations removes many legal obstacles to greater concentration . Foreign competition also provides a major impetus to the restructuring of capital in basic industry . Structural

change proceeds through a combination of diversifications into more profitable enterprises and divestiture of assets in failing industries . This process characterises recent developments in the automobile, energy, and steel industries . The current wave of mergers exhibits a number of special characteristics . Most interesting is the dialectical nature of the restructuring process . The restructuring of capital in the us economy is by no means a uniform process of concentration and centralisation . Accompanying the rash of corporate takeovers is an equally large number of divestitures . Corporations sell assets of less profitable subsidiaries to streamline their operations or they divest very successful enterprises to raise cash and reduce debt . Most mergers occur between corporations similar in size . In general they do not fit the classic pattern of big business gobbling up smaller concerns . Instead the opposite result is now quite likely, where relatively small corporations mount takeover bids against large conglomerates . Finally, diversification marks the general trend in today's mergers . Many recent acquisitions involve corporate expansion into other industries . Corporations may expand into related industries as in cases of vertical integration, or they may diversify into more profitable enterprises unrelated to the buyer's primary sphere of production . Recent weeks provide numerous examples of these trends . The classic case of vertical integration is the friendly merger of the nation's largest private hospital management firm with the top hospital supplier in a deal costing almost $5 billion . The auto industry also seeks to boost efficiency through acquisition . Both Ford and General Motors recently purchased minority holdings in high technology

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companies to promote the use of robotics rating . New issues of junk bonds rose to and other innovations in car production . over $14 .3 billion last year . DrexelExpansion into aerospace by GM and Burnham, the investment banking comChrysler follows the same pattern . GM'S pany responsible for developing junk acquisition of Hughes Aerospace breaks bonds, controls over 70% of the market . the record for the third time in as many Junk bonds are high-yield baskets of weeks as the largest merger in history out- securities used to finance hostile leveraged side of the oil industry . It also expands buyouts . They constitute claims on the GM's holdings in the defence industry, an target of a merger bid, shifting the burden arena made highly profitable by Adminis- of raising cash from the buyer to the tration policy . corporation being bought . Junk bonds are The series of mergers within the com- sold to a small group of investors (usually munications industry also marks a new fewer than 50) who commit themselves to trend towards diversification . Acquisi- deliver cash once a merger is consummated . tions made in past weeks extend crossJunk bonds transform the corporate ownership of different types of media . raider into a formidable paper tiger . They This is a relatively recent phenomenon permit an investor with limited cash spurred by deregulation . reserves and assets to amass substantial Other merger activity involves diversi- economic strength without the aid of bank fication into unrelated industries . The financing . Perhaps more important is the much-publicised hostile takeover attempts fact that junk bonds make it possible for by so-called corporate raiders often fit this corporate raiders to reap speculative gains pattern . Another example is General on the stock market even if the takeover Motors' acquisition of several mortgage attempt fails to win stockholder approval . Junk bonds can compromise the viabanking companies, making the numberone auto maker the number-two mortgage bility of a newly-merged conglomerate . They saddle the company with a heavy company in the nation . burden of debt, which may require the Recent takeover bids in airlines, consumer products, and aerospace involve company to make substantial divestitures expansion rather than diversification . The to raise cash . The merger craze also diverts Allied-Signal merger, worth just under $5 corporate resources from productive actbillion, forms one of the world's largest ivity into defensive manoeuvres . Target aerospace companies . Reynolds Tobacco corporations pursue a variety of tactics to Co ., already a large owner in the food ward off raiders . These include efforts to business, recently purchased Nabisco buy off corporate raiders by paying `greenmail' and pursuing a `white knight' Foods for over $5 billion . Another series of takeover attempts for a friendly merger . Many corporations deserves a category of its own . These are also erecting bureaucratic obstacles to merger bids involve a small group of takeover bids by changing corporate by`corporate raiders' whose new-found laws . Such defence tactics can be very costly . economic power is much feared in the established corporate community . Their Phillips Petroleum accumulated a $7 .3 success stems from the development of a billion debt this year from fighting a sequence of takeover attempts by two of new form of finance capital . The new debt the top corporate raiders . Phillips recently securities are called junk bonds because announced plans to sell many of its operathey do not carry an investment-grade

us Economy

tions in oil, chemicals, and communications in hopes of reducing its debt burden . Critics of corporate raiding contend that short term speculation is the only motivation for these merger tactics . Indeed this appears to be the only appeal of junk bonds at present . So far, few takeover bids financed by junk bonds have actually prevailed at stockholder meetings . Business and congressional leaders are very concerned that junk bonds may threaten the stability of the stock market . They note that the effect of junk bonds is similar to buying on the margin, the nowillegal practice credited for the stock market crash of 1929 . The similarity arises because junk bonds are mere paper commitments . Businesses also warn that a recession could result in widespread defaults on junk bonds . An economic recession would strike hardest at highly leveraged companies whose debt could become a `collapsing pyramid', in the words of one takeover specialist . Congress may consider legislation to curtail the growth of the junk bond market . Federal Reserve Board chairman Paul Volcker advocates a prohibition on junk bond investments by savings and loans . Thrift institutions hold approximately $4 billion in junk bonds, according to federal estimates . The unrestrained exercise of market forces amidst the mounting debt of both countries and corporations undermines the stability of financial markets . But reregulation by the federal government and self-regulation by businesses and bankers may produce an adequate collective response that forestalls a major crisis . Measures taken so far in response to particular situations succeeded, though clearly more comprehensive policies are required .

Conclusion economic programme is a mix of extreme laissez-faire policies in regulation and unabashed Keynesianism in government spending for defence . Both aim to reorient the us economy towards high-growth sectors, most of them involved in military production : electronics, aerospace, services and communications . Indeed the President seems to have abandoned pretensions to revitalise basic industry . The administration continues to resist widespread application of trade protection . Those policies already in effect merely facilitate internationalisation and divestiture in industries such as steel and automobiles . Reagan's tax simplification plan launches a frontal assault on tax advantages for `smokestack' industries . Monetary policy is an integral component of the broader economic programme . The dollar boosts domestic consumption while controlling inflation through the provision of cheap imports . High interest rates dampen stock prices, facilitating the transfer of firm assets on the stock market . This eases the path for basic industry to diversify towards more profitable enterprises such as high technology, defence and services . Low stock prices also encourage speculation without a real basis . Junk bonds finance this empty speculative activity by allowing corporate raiders whose assets and cash reserves are otherwise inadequate to lunge at some of the nation's largest businesses . The debt pyramid created by highly leveraged buyouts imposes a heavy burden on the corporate sector . The integration of productive and finance capital circuits transforms the stock market into the arbiter of industrial organisation . While this ensures the financing of structural change in productive capital it also makes the real side of the economy more vulnerable to speculaTHE REAGAN

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16 tive booms and busts . The reassertion of the market as the instrument of industrial policy unleashes the forces of anarchy as well as those of accumulation . Workers and their communities are the first victims . But the unrestrained exercise of market forces in a sophisticated economy characterised by sectoral and international interdependence may well turn against itself . This enhances the prospects for recession, and more fundamentally it may threaten market stability . Financial markets are the critical link . Many argue that the global debt pyramid poses the greatest threat to the banking system . The high dollar is instrumental in this regard . It encourages exports by developing countries to the us, but it also increases the value of foreign debts taken in dollars (as most are) . So far it seems unlikely that either Brazil or Mexico will export their way out of debt servitude. Default by any one of the large Latin American borrowers has the capacity to precipitate a banking crisis in the us . But the penalties for the defaulter and the willingness of American banks and government agencies to forestall such an event at all costs makes this possibility seem remote . Foreign debt will continue to drain profits and spur further •concentration in the banking industry . The debt burden of the faltering agricultural sector exerts similar pressures . The failures of many thrift institutions (savings and loans) and rural banks may cause local banking crises . But federal agencies will continue to intervene to prevent the spread of financial panic by orchestrating the buyout of failed institutions . The greater threat to financial stability lives in Manhattan, on Wall Street . The debt-financed stock market boom has the capacity to transform a recession into crisis . Sluggish economic performance in

the last two quarters suggests a downturn may be already in progress . Real GNP increased by less than 1% in annual terms in the first quarter of this year . Last year's real GNP growth was 6 .8% . Reagan's tax simplification scheme now in debate on Capitol Hill increases the short term possibility for recession . This potential is even greater if the plan is enacted as business restricts spending and output in a climate of extreme uncertainty . The decline of the dollar in response to fears about the strength of the us economy (fuelled by recent indicators of poor performance) could induce massive capital flight by foreign investors whose holdings are mainly in short-term government securities . The cash requirements of highly leveraged firms could produce widespread divestitures in the wake of a recession . An extensive sale of firm assets could wreak havoc on the stock market as the corporate debt pyramid threatens to collapse . This scenario ignores one basic fact : the surprising tenacity of American capitalism . The profound restructuring of productive and finance capital surely heightens the volatility of the business cycle . But it does not imply crisis by necessity . Severe economic hardship may prompt the re-regulation of the us economy in the most vulnerable sectors, sparking new debate about the merits of state economic intervention . A certainty is that Reagan's quest for galactic political hegemony through star wars and global economic dominance led by the dollar will redraft the economic and political landscape . The political forces capable of mounting a progressive alternative to the militarisation and deindustrialisation of the us economy have yet to write themselves clearly into the picture .

Adelman

Recent events in South Africa Adelman looks at recent events in South Africa and at the seemingly intractable nature of the problems for the state, unable to restore stability either through repression or reform . He concludes that at the present time the state is on the defensive, and that the battle for South Africa will be increasingly bloody . ago, John Saul and Stephen Gelb published a book entitled The Crisis in South Africa .' Adopting Gramsci's notion of `organic crisis' as their theoretical point of departure, they argued that the `reformist' programme of P W Botha's government was nothing other than the most sophisticated response yet to the deepening of the crisis . More recently, Gelb, in collaboration with Duncan Innes, 17 has argued that the `South African economy is not simply undergoing a shortterm decline .' 2 Liberal commentator Herman Giliomee concurs, writing in the now defunct Rand Daily Mail that `the South African rollercoaster of hope and FOUR YEARS

Ca C&C 26/SLIMMER 05--B

Capital & Class 18 despair has plunged the country into its deepest gloom since 1976 . The problems all look intractable . The government seems unable to restore stability either through massive repression or thoroughgoing reform . Black resistance appears to be hardening every day . Foreign investors are getting jittery . . .' And, he continues, `we must accept that the downturn of the economy is not cyclical but structural', that the South African crisis is organic . 3 Recent events in South Africa would appear to vindicate the views of these writers, for the evidence increasingly points to crises of both accumulation and reproduction which, in a dialectical relation with the developing political crisis, reveal the extent of the organic crisis at this particular historical conjuncture . Many liberal commentators have contended that apartheid and capitalism are incompatible in that the political constraints imposed in pursuance of the former have undermined the logic and market forces of the latter . In response, Marxist analyses have shown how capitalist development in South Africa has, in fact, been greatly facilitated by the repressive system of apartheid, pointing in particular to the rapid economic growth which occurred in the 1960s .° However, before examining recent events in the country in greater detail, it is necessary to place them in their historical context so that we are better able to comprehend the dimensions of the crisis . The historical context IN 1973, a series of strikes over wage demands broke out in Durban, on South Africa's east coast . Involving more than 100,000 black workers, the spontaneity and effectiveness of the strike wave stunned both the government and employers . Having lived in the complacency generated by rapid economic growth and

labour quiescence during the previous 15 years, they were unaware of growing black anger, unprepared for its manifestation, and unsure how to respond . During the 1960s, the South African economy grew at a rate matched only by Japan, and this factor, along with the relative absence of organised resistance in the workplace and the townships, kept latent the many contradictions of racial capitalism . In the wake of the state of emergency declared after the Sharpeville Massacre in 1960, foreign capital had been attracted back to South Africa as the government demonstrated its control through the relentless repression of any forms of organised resistance . The African national Congress, ANC, which had by this time begun an armed struggle for liberation, was outlawed along with the South African Communist Party and The Pan-Africanist Congress ; the South African Congress of Trade Unions, SACTU, was forced into exile . In one blow, the state had removed those organisations which had been responsible for virtually all forms of organised resistance to apartheid . With the aid of increased foreign investment and technology transfer, the economy moved, during the 1960s, from being a relatively industrialised peripheral economy to the position of a subimperialist power in the stage of monopoly capitalism . Investment became more capital intensive, and industry discovered a concomitant need for a skilled and stable labour force - needs difficult of attainment under apartheid because of the vastly inferior education blacks were being given and the inherent instability of a largely migrant labour force in which any attempt at unionisation incurred massive repression . Black workers were, however, gaining little from the increase in GNP, which accelerated after the steep rise in the price of gold following the suspension of dollar

South Africa

convertibility in 1971 . In 1973, 80% of workers employed by British and South African companies in the Durban area were receiving wages below the Poverty Datum Line, the minimum subsistence level . Then, in 1976, a more political dimension was added to the crisis facing the state and capital when black anger erupted in the student uprising centred on Soweto . It was during the first half of the 1970s that mass political protest began to re-emerge, particularly with the rise of the Black Consciousness movement under the leadership of such as Steve Biko . Successful wars of liberation were completed in Mozambique and Angola, providing black South Africans with an important psychological boost . The number of workers involved in industrial disputes exceeded 30,000 annually after totalling no more than 10,000 during the entire decade of the sixties . And in the aftermath of Soweto, the exodus of youth to neighbouring states gave a fillip to the war of liberation being waged by the military wing of the ANC . `The state response was two-fold . Firstly, it resorted to massive repression shootings, arrests, bannings, detentions, political trials and deaths in detention . Secondly, it initiated a long-term strategy to disorganise and subjugate the communities producing such action; to remove as far as possible the impulse to such resistance . This strategy consisted of a selective relaxation of certain of the institutions of apartheid in the attempt to channel community action into directions less threatening to the status quo, on the one hand ; on the other was the tightening of the institutions of Grand Apartheid, especially influx control .' 5 Less constrained than the government by the political and ideological straitjacket of Afrikaner Nationalism, and removed

from the tensions which were erupting 19 within Afrikanerdom, capital began to agitate for reform . One of the dilemmas facing management after the strike wave was the fact that even when they were forced to negotiate with the emergent unions, the relative lack of organisation amongst workers, allied to a healthy fear of repression on the part of workers, made such negotiations difficult if not impossible . Certainly repression - to which management continued to resort when perceiving itself to be under threat - was inadequate in the long term, with more sophisticated capitalists realising that increased productivity and the development of the potentially large internal market would not be possible if workers were in a state of continual unrest . The answer was a rationalised industrial relations system, but this implied changes far beyond the workplace alone, and certainly far beyond anything envisaged in terms of apartheid . If workers were but temporary sojourners in the urban ares, with no rights to own land, if the townships themselves were not electrified or provided with any other services, and if black wages were below the subsistence level, then economies of scale were impossible and the economy would soon be facing a crisis of accumulation . Finally, South Africa's integration into the world economy would be affected by its dependence on foreign investment, which accounts for one-fifth of all investment in the country . If the high levels of investment were to be sustained, the concomitant high dividends would have to be protected, and labour and political unrest would have to be dealt with . The contradictions facing the state were somewhat different . Any changes to the theology of apartheid would have to be pushed through in the teeth of a white electorate indoctrinated for generations

Capital & Class 20 against precisely the reforms which were by now acknowledged to be essential to the maintenance of white hegemony . Moreover, those in control of the government and the state were Afrikaners to whom the inevitable splitting of the nation on class lines was anathema, and to whom the protection of the interests of rural and petty bourgeois Afrikaners was at least as important as the reforms being urged upon it by capital . Caught between mounting popular resistance on the one hand and the awareness of an ultra-rightwing resistance on the other, Prime Minister Vorster's government appeared to be paralysed . Before reform could take place, the class war within Afrikanerdom would have to be resolved, for the reforms being mooted were those aimed at benefitting the Afrikaner bourgeoisie while posing the most immediate threat to rural and petty bourgeois voters . After losing the Anglo-Boer War at the turn of the century, Afrikaners had regrouped under the aegis of the secret Broederbond (Brotherhood), which was formed in the early 1930s . Consisting of the cream of Afrikanerdom, this organisation evolved what virtually amounted to an Afrikaner class project . Denied access to real economic power, and politically vanquished, Afrikaners joined the National Party, the police, the army and the civil service in numbers great enough to gain widespread political influence, thereby laying the ground for the accession to political power in 1948 . From that point onwards, with apartheid now official state policy, the nascent Afrikaner bourgeoisie's realisation of economic parity with the descendants of British colonialism began to take place through the deployment of state resources in the interests of this grouping, and the final part of the class project was now underway . By the early 1970s, a strong and sophisticated

Afrikaner bourgeoisie had emerged, with needs and interests almost identical to those of the historically dominant 'English' capitalists against whom these Afrikaners were measuring their economic success . Having ridden to political and economic power on the policies of apartheid, this class fraction nonetheless began to realise that the contradictions involved in its rise to power would now have to be confronted . Apartheid, in its idealised conception of a white-dominated country in which blacks would be present in the urban areas only so far as they were required as workers, had obviously failed, as the continual increase of `illegal' workseekers in the cities testified . An Afrikaner government, on the other hand, was faced with the political reality of having much of its support amongst rural and petty bourgeois Afrikaners, the former standing to lose greatly if its supply of labour was cut off due to changes in influx control policy, the latter standing to lose most immediately if blacks were allowed a measure of upward mobility in the labour market . Added to this was the fact that the most obvious way of rationalising much of the control needed by the apartheid economy, as well as the development of an internal market and a stable buffer middle class with a vested interest in stability and continued foreign investment, could best be served by the emergence of a non-white middle class . It has been argued that, despite manifestations of differences on the ideological level, the state and capital had enjoyed an harmonious relationship under apartheid ; certainly the issues of major conflict between the two were minimal from 1948 through to the early 1970s . It is at this point, however, that a divergence may be discernible between the two, with the state having to ensure the retention of its electoral base in the teeth of capital's demands for a more

South Africa thoroughgoing reform of the system than could be permitted . The overt form which this struggle within Afrikanerdom took was the socalled Information Scandal of 1978, gleefully exposed by the liberal capitalist English press (with great help, so it is rumoured, from within the government itself) . Instances of government corruption were exposed which led to the resignation of Vorster and his heir apparent, Connie Mulder, the minister directly associated with the corruption . P W Botha assumed power at the head of a government and party in conflict . Indeed, by 1982 the long-awaited split in Afrikanerdom occurred with the formation of the Conservative Party by breakaway National Party MPs with constituencies mainly in the farming strongholds of the northern Transvaal and the Orange Free State . Botha's was a mandate for reform, but it was at best a highly circumscribed and diluted mandate . His major problem was how to make much-needed reforms while controlling the pace and extent of that contradictory process . In 1979, the report of the Wiehahn Commission into labour legislation provided the basis for the first major reformist initiative . Reform and control IN 1973, the Bantu Labour Relations Amendment Act had been passed in a deliberate attempt to forestall the rebirth and growth of the union movement . The `works' and `liaison' committees provided for in terms of the Act as the forums for negotiations between management and racially divided unions were immediately denounced as shams by the emergent black unions ; nonetheless, the many committees which were in fact formed gave many black workers their first real taste of organised collective bargaining .

Then, hard on the heels of the uprising 21 centred on Soweto in 1976, the Wiehahn Commission had been appointed in 1977, as part of the state's attempt to confront directly the growing threat of the organised trade union movement operating largely outside of state control . The stated mandate of the Commission was to rationalise the exploitation of black labour through the extension of legislative control over unregistered independent black unions, parly in the hope of stabilising the labour force, and partly because of the danger facing the state of failing to control this rapidly burgeoning force . The Commission stated that its aim was the `promotion of industrial peace' within a `free market economy', and it confronted the fact that unregistered unions appeared to enjoy greater freedom from legislative prohibitions than those which were registered and which were, almost without exception, prepared to acquiesce in the prevailing racist and exploitative labour relations system . 6 The Commission expressed the fear that the option of continuing to repress independent black trade unionism would simply drive the movement underground and make it both harder to control and a potentially greater threat . Registered and unregistered unions were to be brought under state discipline and control, the closed shop would be abolished, prohibitions on political activities on the part of the unions would be strengthened, and section 77 of the Industrial Conciliation Act, which provided for the reservation of certain jobs for certain racial groups would be repealed . In Haysom's words, `There has been some debate on the advantages, disadvantages and the actual impact of registering in terms of the Act . But there was general agreement about the intended purpose of the legislative intervention and the context in which it was introduced .

Capital & Class

22 The Wiehahn labour `reforms' were a product of the inability of the existing industrial relations framework to deal with industrial conflict, and in particular the growth of black trade unions operating outside of the official structures . The reforms were introduced at a time when there was disinvestment pressure and mounting overseas criticism of South Africa's racist and dual industrial relations legislation . It occurred in a context in which changes in the structure of industry and its labour requirements allowed for or needed a more settled and skilled labourforce . Furthermore, the reforms were conceived and executed during a period of mounting political resistance to racial oppression .'' Recent legislative amendments and the publication of a recent set of recommendations by the National Manpower Commission indicate that the state is intent upon tightening control over the unions even further . Official recognition of unions involved a policy decision which flew in the face of 60 years of government thinking, and may be said to have initiated the so-called period of reform which provides the context for recent events in South Africa . While management initially responded favourably to the reforms, as witnessed by a sharp increase in the number of recognition agreements entered into, it was not so pleased with another manifestation of the increase in worker organisation and confidence, the leap in the number of strikes, some of them bitter and protracted . The dramatic rise in worker organisation and power is illustrated by the fact that between 1969 and 1984 combined union membership climbed from less than 14,000 to more than 1 .5 million . Reforms in the sphere of labour relations were contradictory for both sides . Within the union movement a vigorous debate arose over the implications of

organising within a system manifestly designed to bring the unions under state control and discipline . For the state and capital, forced to recognise the reality of working-class struggle, the contradictions of Wiehahn lay in the fact that while reform became essential in order to maintain exploitation and accumulation in a rationalised manner, such reforms were initiated in a situation of crisis and hence from a position of relative weakness . Thus the pace and ramifications of such reform could not be completely controlled or predicted . For example, one of the most significant outcomes of the legislative alterations was the fact that, despite specific prohibitions on political activity by the unions, workers were able to organise legally and non-racially in a form denied them for decades . In the absence of any other meaningful legal form of political expression for the black majority, the increasingly sophisticated and assertive union movement soon began to flex its muscles on issues relevant to workers beyond the confines of the mines or factories - a process accompanied by ongoing debates within the unions themselves over the extent to which they are able to involve themselves in broader political questions without sacrificing their hard-won organisation in the face of state repression . Significantly, this upsurge in workingclass organisation and strength in the 1980s has coincided with the worst recession in South Africa since the 1930s . South Africa essentially is a oneproduct economy, that commodity being gold, which yields more than half of South Africa's exports by value . The price of gold has fallen more than $200 in the past two years . Inflation is expected to top 18% in the next few months, and even the most optimistic forecasts do not envisage a growth rate of more than 2% for 1985 . A growth rate of at least 5% is required to

South Africa prevent unemployment exceeding its current unofficial estimate of 20% . Along with unemployment, the high rate of inflation has political implications, and the 30% fall in the value of the national currency against the dollar has had severe inflationary effects, as has a recent 40% hike in the price of petrol, made necessary by the oil embargo . Lastly, interest rates are in excess of 20%, and the government is confronting an enormous balance of payments deficit by reducing spending in virtually every area apart from defence and by cutting wages in the civil service, further alienating the Afrikaner petty bourgeoisie, already restive over the reform programme . Farmers, another important constituency, have reacted angrily to a freeze in the price of maize, made necessary by rising resistance in the townships to increases in the cost of basic foods . Recent events On 3 September 1984, a new constitution became law in South Africa . It provides for a tricameral parliament, with racially separate houses for coloureds, Indians and whites - the latter having an automatic majority. P W Botha became the country's first Executive President, responsible only indirectly to parliament . The former Defence Minister, having reorganised the state machinery to give an unprecedented role to the military and the police since his accession to power in 1978, had completed his `silent coup' . Africans are completely excluded from the new dispensation, the government having decided that they must exercise their political aspirations in the labour reservoirs known as bantustans . They would, however, be granted a modicum of control of their townships at the local or municipal level . The central motivation behind consti-

tutional reform is the realisation by both the government and capital that the narrow base of capitalism must be expanded . It was hoped that the basis of a black buffer middle class with a vested interest in stability might be generated through the co-optation of certain petty bourgeois elements in the coloured and Indian communities, making them shareholders in apartheid, partners in their own oppression . The youth of these communities, having been given a taste of the fruits of apartheid, could then be conscripted to defend the system in the townships, Angola, Namibia and the rest of the subcontinent . It was to fight the implementation and effects of the new constitution that the United Democratic Front, UDF, had been formed as a multi-class and non-racial alliance of more than 600 worker, community, womens and student organisations . Having attained a 66% majority in the white referendum on whether to adopt the new constitution, the government heeded the calls of those coloured and Indian leaders who feared a massive rejection of the new dispensation should referenda be held in their communities, and organised elections to be held at the end of August last year . The UDF and every major trade union campaigned for a boycott of the elections, and the results reflected the widespread resistance to what was regarded as the fraudulent attempt to portray South Africa as a democracy : the percentage poll in the coloured election was 18%, in the Indian election just 16% . After P W Botha's tour of European capitals in 1984 and the fanfare with which the new constitution was heralded, the western media appeared eager to laud reform and to welcome South Africa back into the world community . Foremost in her support for the regime was Margaret Thatcher . The violent repression of resist-

23

Capital & Class 24 ance in the Transvaal townships focussed media attention more sharply upon South Africa as the realisation dawned that neoapartheid could logically be no solution to the problems of apartheid - one cannot fight fire with fire . Within weeks, however, repression in South Africa attracted world attention to a greater extent than at any time since 1976 . First, the occupation of the British consulate in Durban by six members of the Natal Indian Congress and the UDF hit the headlines . The six sought refuge in the consulate after the police had attempted to redetain them in the teeth of a Supreme Court decision to the effect that their previous detention had been illegal even in terms of South Africa's security legislation . Upon leaving the consulate, the six were charged with high treason .

sanctions . The formal adoption of the new constitutional dispensation, the pearl at the centre of the government's reform programme, was overshadowed by sustained violent unrest in the townships of the Vaal Triangle in the country's industrial heartland . The name of Sharpeville came once again to the fore, foreshadowing even darker events in the resistance which has been continuous during the past nine months . With both the government and capital hoping to convince foreign investors of the viability of a constitution which gave petty bourgeois non-whites a severely circumscribed form of parliamentary representation for the first time in three decades, the implications of the exclusion of the black majority were being witnessed in the Vaal Triangle .

In October, Bishop Desmond Tutu was awarded the Nobel Peace Prize . The Bishop met with Reagan and attacked his policy of `constructive engagement' just as many prominent Americans were courting arrest outside the South African embassy and consulates in the us . Spurred by Jesse Jackson's presidential campaign, black Americans, students and the Democratic Party has at last found an issue on which to bash Reagan . The disinvestment campaign in the us, having had scattered successes during the past two years, now became one legitimated by middle-class support . Senator Edward Kennedy's controversial visit to South Africa in

The ostensible cause of the unrest in the townships, the most widespread since 1976, was a large rent increase . However, as the liberal Johannesburg Star reported, `there are clear pointers that what seemed like revolt at a single-figure rent rise was actually outrage over a number of political and economic issues .' Initially, the demonstrations appeared to be `over an added financial burden that many found unreasonable or unbearable . . . but more general political antagonism was equally clearly shown by the immense anger directed at community councillors . The

January gained much international media attention and provided more grist for the disinvestment mill . Conservative Republicans added their voices of condemnation, and their support for several legislative measures now in the Congress . Under Reagan, sanctions are extremely unlikely, but the fears of the apartheid regime are manifested by the vast amounts being spent on countering the spectre of

small percentage poll in the elections which put these men into office suggests that the whole system of local government has long been by residents . At mass meetings which preceded the stayaway [from work] call, the talk was of rents - rents that people found more and more difficult to pay as General Sales Tax increased, basic foods became more expensive and transport fare rose ."' The police response to black anger was predictable : teargas, rubber bullets and shotguns . In the first

South Africa wave of repression at least 31 blacks were killed . Fuelled by the nationwide resistance to a constitution from which they were excluded, and exacerbated by the effects of the recession, black anger erupted and spread across the country . According to official figures, 68 people were killed and 916 injured in battles between black civilians and the army and police between August and March ; unofficial estimates put the number of deaths during the first three months of 1985 alone at 100, and at more than 175 for 1984 as the centre of the unrest shifted from the Vaal Triangle to the Eastern Cape . 9 On 21 March, the 25th anniversary of the Sharpeville Massacre in which 69 blacks were killed by police while protesting against the pass laws in 1960, at least 19 mourners in a funeral procession were killed at Langa in the Eastern Cape - as in 1960, many were shot in the back . The government immediately appointed a commission of inquiry as the worldwide outcry threatened to lead to even greater international pressure for sanctions and disinvestment . Similar action was taken after the death in detention of a trade union leader and a student activist in April, reflecting the growing concern at international efforts to isolate the regime, and the regime's continuing attempts to portray itself as reformist and democratic .

sion is, as we have already seen, one of the 25 basic contradictions facing both the state and capital, and it is likely to intensify rather than diminish . The government has toyed with the idea of banning the UDF, which it has accused of being merely a front for the ANC and the SA Communist Party, but has so far not done so as it tries vainly to jettison the image of a state which simply silences those voices which it does not like . Instead, an apparently more sophisticated tactic is being adopted, that of charging the leaders of the UDF and trade unions with high treason . Currently, 30 people, including virtually the whole UDF leadership, face such charges ; in 1984 there were five such trials leading to thirteen convictions . From the perspective of the state, the effectiveness of such trials lies in removing whole layers of leadership for long periods (it is expected that the current trials will last as long as two years, and those leaders not charged can be called as state witnesses subject to a minimum sentence of 5 years for refusing to testify against their comrades) while protesting

to the world that what is being done is in the best democratic traditions of the West . As Geoffrey Bindman put it, `It is surely not going too far to say that the imminent treason trials are an elaborate sham . They are an attempt to dress up in the guise of In an attempt to court western public fairness and justice a crude and brutal opinion, the government depicts all forms exercise of arbitrary power ." O Indeed, if of resistance to apartheid as being any further evidence were required as to communist-inspired ; at the same time, it the impact of so-called reform, one need has sought to alter the forms of repression look no further than the the recent conin an attempt to portray itself as adhering viction of a black worker in the Pretoria to the rule of law . In fact, the level of regional court for writing pro-ANC slogans repression during the past year may safely on the walls of the compound in which he be said to be greater than at any time in worked . He received a 12-month susSouth Africa's history . Indeed, repression pended sentence ." will undoubtedly increase even further as reform spawns more and more contradic- Regime under pressure tions . The duality of reform and repres- Yet while the government tries to present

Capital & Class

26 itself as a paragon of moderation, the facts tell a very different story . The reformrepression dichotomy epitomises the contradictions : the government offers to release Nelson Mandela and others from prison as long as they reject violence as a solution, while in the same breath Botha orders the detention of UDF leaders, who have publicly rejected violence, on treason charges ; it offers leasehold rights to urban workers while rigorously enforcing the pass laws, and promises to halt the denationalisation of blacks while continuing the homeland policy ; and it promises an end to forced removals while extending the number of those forcibly removed to the homelands beyond the 3,372,900 who have already become victims . According to the government itself, in the seven months between September 1984 and March 1985, R28 million damage was caused to buildings, R12 million damage to vehicles, 10,000 people were arrested in connection with the unrest, 216 blacks and 1 white were killed and 736 blacks and 15 whites injured (unofficial figures for deaths and injuries are far higher), and 4 policemen had died with 181 being injured . 12 In addition, more than 120 black councillors have been attacked, and more than 150 have been forced to resign and rejoin the people's struggle . The number of killings has increased greatly ; in addition to the police, the army is now regularly deployed in the townships, accentuating the impression of civil war ; meetings and funerals (which, in the absence of other legal forms of protest, have become larger and more overtly political than ever) have been banned ; and the number of people detained without trial continues to rise - more persons were detained without trial in 1984 than in any previous year ; and deaths in detention have continued to occur with depressing regularity .

Since 1980, black students have been in almost continuous revolt against apartheid education, with as many as 400,000 students boycotting classes at the same time . The number of strikes in 1984 climbed to 469, involving 181,942 workers, in contrast to the 336 strikes involving 64,469 workers the previous year, and this in a situation in which there is massive unemployment, the unions are organising in a recession, and 85% of black workers still remain to be unionised . Indeed, the extent of union growth can be measured by the fact that it is only in South Africa that the union movement has grown during the world recession . After the highly successful two-day stayaway from work in the Transvaal in November, this tactic has been used with varying degrees of success on subsequent occasions in different parts of the country . Professor Eddie Webster called the stayaway the most successful in 35 years precisely because the unions had lent it their support under pressure because of the increasing polarisation of the society . 13 Amongst the demands which prompted the stayaway were that all community councillors resign, that the police and army be withdrawn from the townships, the halting of rent and bus fare increases, the release of all detainees and political prisoners, the reinstatement of dismissed workers, and the withdrawal of unfair taxation . It was as a result of their support for the action that the 6,500 workers were summarily dismissed and `deported' to the homelands by the state-owned SASOL plant which converts coal into petrol . Similarly, when black miners went on strike at an Anglo-American mine in April, the strategy of this ostensibly liberal multinational was to dismiss and deport 14,500 workers and to call in the police . Mass dismissals followed by selec-

South Africa

tive rehiring is a tactic often used by management to remove effective union leaders . In retaliation, Anglo-American's offices in downtown Johannesburg were bombed by the military wing of the ANC . The threat posed by the National Union of Mineworkers is particularly great as any disruption of the production of the many minerals with which South Africa is endowed - and gold in particular - will have acute economic ramifications in a very short time . After years of implacable resistance, the Chamber of Mines and the state were forced to recognise the National Union of Mineworkers as representative in the industry . In September, on the eve of the first legal strike by black gold miners, the police were called in . Seven miners were killed and at least 69 wounded . More than 10,000 miners were dismissed . In March this year, 42,000 miners at Anglo-American's Vaal Reefs mining complex - the largest in the world - downed tools in the largest wildcat strike in South Africa's history . As the government's reform programme unfolds at a pace which generates deep-seated fears amongst whites, it is derided as being too little, too late by most blacks for whom any changes within the parameters of apartheid are a contradiction in terms . The recent decision to repeal the Immorality and Mixed Marriages Acts was greeted with scorn by Patrick Lekota of the UDF, who noted that the reason for the change was to appease world opinion and that these pieces of legislation had been chosen because they were peripheral to the system . Yet the contradictions facing the state are epitomised by this decision in that this crack in the edifice of apartheid means that other changes will have to be made to the Group Areas Act and the Urban Areas Act if couples of different races are to be able to live together .

Similarly, the government is establish- 27 ing a negotiating forum in which it is hoped that blacks will participate to discuss their constitutional future . Homeland leaders may participate, but all progressive black leaders have stated that discussions can only begin once apartheid is dismantled and the principle of one person-one vote in a unitary state is accepted . The armed struggle has been escalating to the point at which the costs are becoming great enough to force blackmailed accords onto neighbouring states and still the war intensifies, winning new adherents with every twist in the spiral of repression . Today, with violent resistance endemic rather than isolated in time and space as in the past, the country is facing the reality of civil war . More than 50,000 mourners attended the funeral of the Federation of South African Trade Unions leader Andries Raditsela in May, after FOSATU had called for a one-day nationwide strike . What is significant is that the unions, after a period in which some have displayed a reticence about confronting overtly political questions, are now responding to rank-and-file pressure and taking the struggle beyond the factory gates . On the morning of the funeral, three state buildings in the adjacent white town of Brakpan were bombed . The level of politicisation, and the socialist content of the struggle are, it is safe to say, higher than they ever have been in South Africa . A recent survey noted that it is `clear that worker perception of the free enterprise system and of its benefits to them individually is decidedly dim and that most would see a socialist economic system as a better option than the status quo .' 14 The Observer recently reported that the battles between residents and police at the Crossroads squatter camp in February



Capital & Class 28 `took place against a background of escal- have probably done more to de-emphasise ating racial unrest which has spread to race and highlight class as the main axis of many parts of South Africa and seems to exploitation than much of the work of have become endemic in some areas . progressive organisations . The scale and level of resistance has There were violent clashes between police and residents in more than a dozen black been greater than anything witnessed since townships last week . A number were in 1976, prompting the recently unbanned small country towns where for generations and newly-elected head of the South the black communities, isolated from the African Council of Churches, Dr Beyers political consciousness of the cities, have Naude, to describe the prevailing situ"known their place" and been subservi- ation as one of civil war . Dr Naude cited, ent . In one, near the little wine-producing in support for his view, the ongoing clashes town of Paarl, 40 miles from Cape Town, between police and civilians, the continued black residents threatened with removal use of the army to quell resistance in the to the same place as the Crossroads com- townships, the breakdown of government munity held an all-night meeting at which authority in the townships, and acts of they decided that any government vehicle terrorism between black and black and which entered their township should be black and white .' 6 If South Africa is not in fact in a state of incipient or low level civil "demolished" .'' 5 Having decided that blacks must exer- war, then there can be no doubt that what cise their poliitcal aspirations in the home- now prevails is a state of permanent civil lands, the government must now recognise disobedience, in which acts of resistance the ruins of the local government system against the state and those who are seen to which it has offered as a sop to township collaborate with it are commonplace and residents . Black local councillors have increasingly violent . The ANC has called resigned in droves, some for positive upon the oppressed majority to make the reasons, most due to the fact that township residents have decided to resort to violence where necessary . Several councillors and black policemen have been killed in recent months . The wider implication is that attempts at creating a black buffer middle class with access to capital and influence and a vested interest in stability through which much control can be filtered now lies in ruins as well . And, significantly, a white man was nearly burned to death in the white town of Uitenhage after the killings on the anniversary of Sharpeville - an incident of

country ungovernable, as have leaders within the country such as Cedric Kekane of the Saulsville/Atteridgeville Youth Organisation : `We must make ourselves ungovernable . We must be difficult to control . We must render the instruments of oppression difficult to work . We must escalate all forms of resistance .'" As a result of the reforms so far initiated, a significant realignment of forces is occurring within the white body politic, with the National Party perceived to be a party of genuine reform by many Englishspeaking liberals hitherto opposed to it .

racial violence relatively unheard of in the On the fascist right, however, are parapast . As ever, communist agitators are military groupings which are beginning to blamed for the unrest yet, ironically for flex their muscles - in May 2,000 members such a paranoically anti-communist of the Afrikaner Resistance Movement regime, the institutions of apartheid such marched through the centre of Pretoria in as the bantustans and the local councils protest against the policies of a govern-

South Africa

ment which is now seen as representing big business at the expense of the rest of the Afrikaner nation . Such demonstrations are virtually unknown in the history of apartheid . Yet the history of white politics in South Africa reveals that any party operating from the centre has eventually faded into oblivion in the face of the basic conflict between those whites who will fight to the death to preserve their supremacy in the face of the tide of black liberation . It is likely that the next few years will see further realignments within parliament, possibly involving the emergence of multi-racial parties . Certainly President Botha is now openly courting the support of English liberals as his traditional base disappears . The proportion of reactionary Afrikaners in the ranks of the police, army and civil service is not accurately known, but there is more than a hint of the undermining of reformist policies at the lower echelons of these institutions - indeed, it appears at times as if the government is not fully in control . There is, for example, little doubt that elements of the army have directly undertaken adventures in neighbouring states (particularly Mozambique) which appear to run counter to government policy and further undermine the Nkomati Accord which Mozambique was forced to sign after a combination of military and economic blackmail . Moreover, it is not inconceivable that the neo-fascist forces on the extreme right (in South Africa such terms are obviously relative) might attempt a coup if the Botha regime is perceived to be making too many concessions to the black majority . More interesting perhaps, is the impression of a schism between the state and elements of capital after years in which criticism of the government's handling of the economy had been virtually non-existent . For capital, support for the

reformist regime has not prevented open 29 criticism of the government's handling of the economy. In March, organised business, in the form of six groupings which together employ more than 80% of workers in the industrial, commercial and mining sectors of the economy, noted the myriad recent statements of intent by the government, including the extension of freehold rights to blacks, the resolution of the citizenship issue, the suspension of the forced relocation of people, de-emphasis of negative influx control measures, recognition of the permanence of urban blacks and increased involvement of blacks in decision-making bodies : `the signatory organisations welcome and fully endorse these significant statements of intent . . . Nevertheless, it is vitally important that visible expression is given to these intentions ."" For capital, it appears, the implementation of neoapartheid is far too slow ; for the government, scared of losing its narrowing political base, it is all going too fast ; and for the oppressed majority, the central issue, that of majority rule in a unitary state, has not even begun to be addressed . The government is now being urged to negotiate with the ANC by sections of the Afrikaner intelligentsia as the unrest escalates and it becomes obvious that South Africa's campaign of destabilisation in the sub-continent has failed to halt the escalating guerrilla war . In a recent poll conducted by a Johannesburg newspaper to ascertain the level of support of various black leaders, the ANC received 56% of the vote despite the fact that it has been outlawed for 25 years and its leaders are either in prison or in exile .' 9 Predictably, Nelson Mandela topped the poll, and it is certain that there will be no solution to the problems of the country without the ANC . The UDF continues to echo the ANC's call for a national convention, but the prospects of



Capital & Class 30 a negotiated solution, slim at best, are Notes 1 . John S . Saul and Stephen Gelb, The Crisis in diminishing daily . Recent events in South Africa give the South Africa: Class Defense, Class Revolution (Monthly Review Press, New York, 1981) . impression of a regime in crisis, not really 2 . Stephen Gelb and Duncan Innes, `Economic capable of conceptualising a way out of the Crisis in South Africa - Monetarism's Double morass in which it finds itself as the Bind', in Work in Progress Number 36, Southcontradictions of racial capitalism become ern African Research Service, Johannesburg, 1985, p . 31 . more manifest . Indeed, such is the nature 3 . Rand Daily Mail, Johannesburg, 16 April of reform that every concession forced 1985 . from the state and capital in the struggle 4 . See, for example, on the liberal side, H . creates the space and opportunity for Blumer, `Industrialisation and Race Relations', further organisation and the articulation in G . Hunter (ed .), Industrialisation and Rac of further demands . The contradictions Relations (London, 1965) and R . Horwitz, The almost appear to be self-generating . In the Political Economy of South Africa (London, political sphere the crisis is characterised 1967) . On the Marxist side, see as examples, H . by the growing inability of the regime to Wolpe, `Capitalism and Cheap Labour Power in South Africa: From Segregation to Apartheid' exercise its authority on the black major- in Economy and Society, vol . 1, no . 4, 1972 and ity . In the economic sphere the delayed M . Legassick, `South Africa : Capital Accumueffects of the world recession are com- lation and Violence', in Economy and Society, pounded by the structural contradictions vol . 3, no. 3, 1974 . which characterise the organic crisis . This 5 . Jean de la Harpe and Andrew Manson, `The is not to argue that South Africa is on the UDF and the Development of Resistance in Africa Perspective no . 23 verge of revolution, for the forms of South Africa', in (Johannesburg, 19830, p . 58 . organisation necessary to overthrow the 6 . Report of the Commission of Inquiry into state are still some way short of realisation Labour Legislation, Government Printer, and there are many contradictions which Pretoria, 1979, paras . 1 .19 .1-5 . the forces of liberation have to overcome . 7 . Nicholas Haysom, `The Industrial Court : As a result of the crisis which has engulfed Institutionalising Industrial Conflict' in South (Southern African Research the regime during the past nine months, African Review Two Service, Ravan Press, Johannesburg, 1984) important sections of the ruling class such p . 108 . as monopoly capital are openly question- 8 . The Star, Johannesburg, 6 September 1984 . ing the wisdom of perpetuating apartheid . 9 . The Star, Johannesburg, 30 March 1985 . Within the National Party itself there are 10 . The Guardian, London, 25 March 1985 . those who appear to doubt whether the 11 . Rand Daily Mail, Johannesburg, 16 April government has any coherent strategy for 1985 . 12 . The Star, Johannesburg, 30 April 1985 . the future . The crisis is exacerbated by the 13 . Rand Daily Mail, Johannesburg, 30 April growing disinvestment movement, partic- 1985 . ularly in the United States . There is little 14 . Financial Mail, Johannesburg, 22 March doubt that the state is on the defensive and 1985 . that the initiative in struggle may well 15 . The Observer, London, 24 February 1985 . have passed to the forces of liberation . As 16 . The Star (International Airmail Edition), a consequence, it can be expected that the Johannesburg, 8 April 1985 . . ANC Weekly News Briefing, vol . 8, no . 32, regime will resort increasingly to repres- 17 sion as its every reform appears in contra- African National Congress of South Africa, London . dictory fashion to strengthen resistance . 18 . Rand Daily Mail, Johannesburg, 14 March The battle for South Africa is likely to be 1985 . 19 . City Press, Johannesburg, 9 March 1985 . increasingly bloody .

John Harrison and Bob Morgan

Hattersley's economics • THIS PIECE is about tensions within Labour's economic policies . Part one outlines Shadow Chancellor Roy Hattersley's views . Part two looks at official Party policy, to assess whether Roy is swimming with or against the tide . Part three offers some critical comments . The aim is to stimulate comrades' interest in Labour's forthcoming conference discussion . The debate may prove a watershed .

The key source for this section is a six-inch deep stack of speeches and interviews . The material is organised around two themes . One is job creation, including easing constraints on employment . The other is industrial modernisation .' Where space permits, we let Roy speak for himself.

Roy's policies

Jobs

Jobs are where it's at . `The overwhelming priority is a reduction in unemployment . That would be the principal priority of a Labour government this year, next year or the year after .' (10 .5 .85) Jobs will come from increased state investment : ` . . . reflation means that money has to be directed specifically into the areas where job creation is the most probable outcome of spend-

31

Capital & Class 32

ing money . That means basically public sector capital works . That is the only way to do it .' (10 .5 .85) But prospects are limited . `Whether "full employment" is still the Keynesian concept, with no more than frictional unemployment, I am not sure . I certainly don't see full employment meaning everyone who wants to work from 16 to 65, for 35 hours a week . . . equally we've got to be frank and say we are not going to bring it about in the lifetime of a single Labour government .' (10 .5 .85) Hattersley won't be drawn on numbers . `When the election comes, it will be our democratic duty to reinforce our promise of reduced unemployment with a specific target .' But, for the moment, we must make do with `an unqualified promise that the next Labour government will make substantial and sustained reductions in unemployment' . Unfortunately `substantial' is a pretty flimsy concept . Roy's recipe for the last budget - boosting spending by £3bn, twice Lawson's figure but only three-fifths of Heath's - was hardly encouraging . This reticence has two sources . One is a belief that Labour's 1983 pledge to cut dole queues by two million over five years was a mistake . `After the last election I said that the people of Britain looked at our economic policy, admired our compassion but doubted our capacity .' (18 .1 .85) Hattersley's response to the fear that Labour might be branded as the party of profligacy has been to butcher aspirations to cover his right flank . He now fosters the image of a new realism in Party economic thinking . `The belief that we can turn principle into practice has (since) been encouraged by the advocacy of plans which even our most hysterical of opponents cannot describe as impractical extravagance .' (18 .1 .85) The other argument for caution is the fact that `putting Britain back to work will be a great deal more difficult in 1988 . . . because of . . . a malign inheritance which we cannot quantify today .' (14 .10 .84) What we can do, however, is to identify the key constraints on job creation and devise policies to minimise them . Roy cites two as crunch : the threats of inflation and of a sterling collapse . 2 Reflation would threaten prices in three ways . Bottlenecks could lead to shortages, prompting speculative hoarding and profiteering . Hattersley would deal with this by selective price controls . `I favour the reconstruction of price controls . . . but not blanket [controls] . . . The sort of selective price policy . . . which prevented unreasonable price increases - increases that were the product of a company's monopolistic power in the economy - and which prevented exploitation, I want to see again .' (10 .5 .85) Job creation could also lead to wage pressure . Here Roy

Hattersley's economics

favours a voluntary incomes policy, along social contract lines . `There is only one way in which we can secure economic expansion without inflation . That is to negotiate with the trade unions an agreement about the highest level of money incomes which can be sustained in any year without increasing either prices or unemployment . It is absurd that free collective bargaining - a system which gives most to the strongest - should be regarded as a test and tenet of socialism .' (Sept 83) Or, in a more ruminative mood, `I see the need for an agreement with the trade unions on pay, but then I see the need for an agreement with the trade unions on everything . . .' (10 .5 .85) Finally, expansion might push up import prices by pulling down sterling . Hattersley would protect the current account by a combination of Buy British state purchasing policies and selective, temporary, import controls . `Action on imports is certainly a second best solution'- second to an internationally co-ordinated expansion - and `an essentially temporary expedient' (14 .10 .84) Nevertheless `in certain sectors there have to be limited and temporary import controls to allow industry breathing space . The technique of operating import controls to make them effective is one thing which we are looking into in great detail now .' (10 .5 .85) On capital account, old-style exchange controls are ruled out . `We cannot reintroduce exchange control of the types which were operated in this country between 1947 and 1979 . . . Reintroducing the system . . . is literally impossible .' (13 .1 .85) Hattersley's alternative has two components . One is talking up sterling . `Very much of the flight from confidence in previous Labour Governments has been not because antagonists abroad did not agree with what we did, it was because they feared that we didn't know what the hell we were doing . Next time we are going to say to them "We don't expect you to like it but we do expect you to realise that the numbers add up and that we are deserving of confidence in terms of our competence" .' (10 .5 .85) Fortunately, he does not intend to rely solely on jawboning . `The Labour Party is committed to a re-introduction of exchange control .' (13 .1 .85) This will take the form of `a scheme intended to achieve the repatriation of a substantial amount of the portfolio investment which has left this country since the abandonment of exchange control, and to deter further outflows .' (13 .1 .85) This ingenious proposal - reportedly the brainchild of a sympathetic merchant banker - works by tightening the criteria for tax breaks . Institutions (pension and assurance funds, investment and unit trusts, charities) and individuals will lose existing fiscal privileges unless they reduce the foreign component of their asset mix to a stipulated proportion3 5 per cent, roughly the 1979 C&C 26/SUMMER 85--C

33

Capital & Class 34

average, has been suggested . `Institutions will, in fact, be given the right to elect the tax regime under which they wish to operate . Those which elect to observe the criteria will enjoy the fiscal privileges which they presently possess . The net effect of the scheme - indeed, the reason why it will secure the repatriation of British capital - is that the tax privileges enjoyed by institutions which invest in Britain will raise the

net return on their portfolios above that received from foreign investment.' (13 . 1 .85) More accurately, their net returns will fall by less if they opt to sell foreign holdings . 4 Hattersley expects inflows of around £20bn and that this will more than offset deterioration on current account . Sterling will appreciate - good for inflation, bad for exports . Modernisation Roy is an emphatic moderniser . `Anything designed to slow down the march of technology - including the Prime Minister's promise to "end the tax bias in favour of machinery" - will only make Britain less competitive in the long run as compared with countries which have welcomed and encouraged progress . . . Wage cuts designed to make manual labour more competitive against machinery are just a modern form of Luddism.' (14 .10 .84) Welcome shades of Marx . More specifically, `it is the Government's duty to create the conditions in which the competitiveness of British industry can be improved .' (16 .5 .85) Investment is the key . The main constraint - at least the main easable constraint-is finance . `The problem, [the banks] say, rests with the borrower not the lender, the real rate of return on manufacturing industry is too low to finance the necessary investment . That judgement is half right . But only half right . . . The only certain way [to improve investment] is to alter the ratio between the cost of new capital and the return on investment . I do not minimise the importance of increasing the return . But in the short run, that solution will not be achieved sufficiently to overcome the timidity of the British entrepreneur . I therefore choose a reduction in investment cost .' (16 .5 .85) The vehicle for cheap money is to be a National Investment Bank (NIB) . This new institution - built on the foundations of a newly-nationalised Investors in Industry (3i) -'will be the centrepiece of Labour's economic and industrial policy at the next election' . (16 .5 .85) `The initial financing of the bank will come from repatriated portfolio investments held overseas .' 5 (16 .5 .85) Institutions wishing to retain tax privileges will be required to `invest a

Hattersley's economics proportion of total funds - roughly equivalent to average repatriation and future retention - in the NIB .' (13 .1 .85) `The holding of funds with the NIB . . . will attract a guaranteed rate of return in line with market returns .' (16 .5 .85) 6 Since the bank will offer subsidised loans, many of its operations will be loss-making . Parliament will fix a maximum operating deficit annually in the public expenditure estimate . This will constitute `the principle though not the exclusive scheme of government assistance to Industry' . (16 .5 .85) The deficit will be the only direct charge on the exchequer . Otherwise, the government will adopt a hands-off approach . The NIB will be a quango, not a government department . 7 `The NIB will be precluded in its statute from making loans to firms that are not potentially commercially viable . . . the NIB will not exist to subsidise jobs .' (16 .5 .85) 6 `The bank will be expected to give sympathetic consideration to [cases where] the balance sheets of the firms concerned are insufficiently strong to raise an adequate level of debt finance from conventional sources, whilst their past track records discourage subscribers of new equity . Nevertheless, each firm offers the prospect . . . of viability over the longer term' . (16 .5 .85) The NIB will give `priority to small and medium sized enterprises on the grounds that finance is generally available for large companies .' (16 .5 .85) Applications from multi-nationals will be considered only if they can show that the project could not attract funding elsewhere, and will receive low priority . Recipients of NIB money will be required to come up with a project plan, agreed between management, workers and the bank, covering the duration of the loan . 9 Periodic progress appraisals must also be presented . The central role of the NIB in promoting investment will be supported by four other policies . Two, about which Hattersley has said little beyond the fact that they are labour policy, are extra R&D spending and tougher anti-monopoly powers . A third is encouragement to workers to press for high investment . `Profits must be used for productive purposes . . . divided restraint is not an adequate solution . For it does little except postpone the distribution of profits and does nothing to ensure their re-investment . . . The balance between retained earnings and dividends, the way retained earnings are allocated between different investment projects and the distribution of dividends between shareholders and employees are all areas in which we must extend collective bargaining .' (14 .10 .84) Hattersley has also expressed a keen interest in Swedish-style, workercontrolled investment funds . `In my speech to the Conference of Socialist Economists last

35

Capital & Class 36

year [actually, the SERI I quoted the example of the Swedish investment banks where, in order to convince trade unions that high profits would not be distributed into dividends, but would be used to invest in job-creating industries, they have a profit levy . This is invested in the regional investment banks which are controlled by trade unions . This means, in the short term, that trade unions feel more involved in that whole swathe of decisions that that in the long term more and more of industry is owned by the investment banks which are an extension of public ownership .' (June 85) Finally, he intends to re-jig the mixed economy to bring about `a substantial extension of social ownership' . (23 .9 .84) One object of such an exercise is `to improve the efficiency of British industry by creating the opportunities for and availability of the new investment which private institutional sources have failed to provide' (23 .9 .84) . . . But `I do not propose an extension of nationalisation' . (23 .9 .84) `I don't believe that the economy I want to see, let alone the society I want to see, can be created without their being an extension of social ownership . But I don't believe that it has to be the old-style public utility, a corporation state monopoly, run from London . We've got to have more local authority public enterprise, far more co-operatives, much more autonomous social ownership out in the country, not run from Hobart House .' (10 .5 .85) Elsewhere, he has linked nationalised industries with multi-nationals, he spoke of `the tyranny and inefficiency of either massive state ownership or the domination of unaccountable private monopolies' . (16 .10 .84) The centrepieces of Roy's approach, then, are `realistic' reflation, backed up by a voluntary incomes policy and a new tax regime to encourage institutions to repatriate funds, the funds will be channelled into a National Investment Bank which will provide subsidised loans for investment . But this approach, as we argue below, shows some marked changes from that adopted by Labour in its 1983 manifesto .

Maverick or mainstreamer?

Hattersley must have been pleased with his reception at last year's Labour Party Conference . His sponsorship of new forms of social ownership and of controls over capital outflows, and his warnings against promising too much, won applause . He seemed to have won the support of delegates for his developments of Labour's economic policy . But Doug Hoyle, speaking for the NEC, also made it clear that `the commitments that we outlined in our 1983 manifesto still remain the basis of our policy' . (Conference Report, 1984, p . 200)

Hattersley's economics 37

Is there a contradiction here? If so, how is it likely to be resolved?

For AES afficionadoes Labour's 1983 manifesto must have rung many bells . Unemployment was to be cut to below one million over the course of a parliament by reflation backed up by a radical industrial strategy and planned trade . Familiar stuff. But the attempt to integrate industrial democracy and planning was new . This approach had first surfaced in the TUCLabour Party Liaison Committee document, Economic Planning and Industrial Democracy : the framework for full employment (EPID) . The sub-heading indicates the importance attached to planning and industrial democracy in promoting employment . This document formed the basis for much manifesto policy on the economy . EPID reviewed past UK planning experience to draw lessons . The 1974/79 Labour Government's failure to implement widespread planning agreements is largely explained by : (a) Whitehall resistance . (b) Absence of a coherent planning framework within which agreements could be negotiated . (c) Inadequate powers to ensure company compliance . (d) Uncertainly about the trade unions' role in the planning process . To overcome these problems, especially corporate non-compliance, key firms in priority sectors should in future be squeezed both from above, via National Planning agencies, and from below, by workers and their union representatives . Trade unions' influence should be increased through new rights to information, consultation and representation . New institutions were also needed . A Department of Economic and Industrial Planning would oversee a five-year national plan . It would also sponsor the National Investment Bank and the National Enterprise Board, co-ordinate medium-term planning and, more generally, offset Treasury pressures to respond to short-term crises by ditching a planned return to full employment . A National Planning College would train public servants, management and trade unionists . This would help counter any civil service hostility to Labour's policies . However, National Planning Agencies would not exercise direct control over the whole economy . For, as EPID argued : `A rigid approach from the centre would also be inconsistent with what must be an essential feature of the planning system - a high level of participation by workers and management at sectoral, regional, company and plant level .'

Hattersley's inheritance

Capital & Class Planning would be democratised at all levels . A strengthened National Economic Development Council would conduct tripartite discussions at national, sectoral and industrial levels, to form a new National Planning Council . This forum would develop a National Economic Assessment . A follow-up document, Partners in Rebuilding Britain (Tuc-Labour Party Liaison Committee, March 1983) saw the Assessment as an extension of collective bargaining to the national level . Parallels with the social contract are obvious . Trade union involvement in planning at sectoral and firm level would also be boosted . Firstly, the Sector Working Parties and Economic Development Committee of NEDC - with increased union and management participation - would develop sectoral plans . Second the unions would take a leading part in negotiating agreed development plans with key firms in priority sectors . The plans would cover corporate purchasing policy, investment plans, pricing and training and so as new statutory powers would be introduced to ensure compliancy. Such powers would allow a Labour Government to refuse a company the right to raise prices, to withhold access to credit and to fail to offer protection from imports in cases of non-compliance . Third, public ownership would be extended significantly to increase social control. The manifesto `shopping list' included the nationalisation of all assets privatised by the Tories, plus the nationalisation of companies in the electronics, pharmaceuticals, health equipment and building materials sectors, one or more clearing banks would also be taken over if they proved obstructive . Finally, workers would wield influence on corporate planning, even in firms not covered by an agreed development plan, EPID summarises its major message' . . . the failure to influence decisively the strategies of enterprises is the key weakness in past attempts to plan . Progress towards our economic and social priorities therefore requires a two-pronged approach : The nationwide and democratic structure of the trade union • movement must be brought to bear on the centralised areas of economic power . • A strong national planning focus must be created to coordinate the activities of all agencies involved in planning .'

38

Developments since '83

The 1984 Conference accepted an NEC statement on the economy entitled, A Future That Works . Whilst clearly based on the 1983 Manifesto, the statement embodies shifts in emphasis, and indications of changes to come . The potential opportunities of technical change received greater stress than previously . And, whilst the commitment to extend public ownership is reiterated, the need for an alternative to old style nationalisation is raised . `We must develop new models of socialist enterprise that build on the

Hattersley's economics 39

initiative and creativity of working people and combine productive efficiency with responsiveness to consumer and community needs, if we are to inspire popular support for socialism .' Municipal enterprises and co-ops are cited as examples, and a commitment is made to build on existing achievements . In March of this year Labour launched its jobs and Industry Campaign . According to a major campaign pamphlet, its themes are based on the policies set out in A Future That Works and Partners in Rebuilding Britain . Many elements of the 1983 Manifesto find a place in the campaign . The overriding aim is to `convince people that Labour can get Britain working again .' Working Together for Britain - a major campaign document - argues that `We need a partnership of government, unions and management - working together to plan the future of their firms .' The mechanisms envisaged include agreed development plans, more industrial democracy and an extension of public ownership . But others have died a death . There is, for example, no mention of a Department of Economic Planning . Much mention is also made of new technologies and skills . `High tech socialism' is contrasted with `no tech monetarism' . This emphasis has led the FT'S political editor, Peter Riddell, to remark that `The Labour Party is advancing towards 1963 . Since the Miners' strike the party leadership has spiced up the modernisation theme expresed after Neil Kinnock's election, and the Jobs and Industry Campaign echoes both the style and substance of Harold Wilson's `white heat of technology' speech of 1963 .' (Marxism Today, May 1985) There is clearly a major tension within Party policy between Hattersley-type policies and the spirit of '83 . And, whilst much fudging can be expected, there are also signs that disagreements may soon come to a head . Hattersley seems confident that his conception will prevail . He is on record as expecting important policy changes to be passed at the next two Conferences (Times 3/6/85) . Benn, on the other hand, recently denounced the latest TUC-LP Liaison Committee economic policy statement as `an inadequate and incredible document which even Mr Francis Pym could have found acceptable' containing `violently antisocialist elements' . (Guardian 23/5/85) Part three offers some observations on current policy thinking in the hope that they will contribute to clear Party debate, rather than more fudging and nudging . 1 . Hattersley's talking down of job prospects is deeply disturbing . He is right to point both to Labour's lack of economic credibility in '83 and to constraints on expansion . But the correct

Observations on policy

Capital & Class 40

response would be to amass a credible and powerful planning armoury . The more severe the constraints, the greater the need for planning to overcome them . The 1945-51 Labour Government, armed with a plethora of wartime controls, created 2'h million civilian jobs in three yeras . 2 . Hattersley has effectively junked planning, in the traditional sense of direction, in favour of a sixties-style manipulation of market forces via taxes and subsidies . He rejects widespread nationalisations (with a vitriol which, despite verbal pyrotechnics, amounts to a ditching of clause IV) .' ° He never mentions Agreed Development Plans, which in his scheme are implicitly replaced by Project Plans, applicable only to those small and medium firms which choose to borrow from the NIB . He also sees no need for a Department of Economic Planning, or a National Planning College, as a counter-weight to the Treasury. His view is that `obdurate civil servants in some Departments become an excuse for failure . Ministers who knew that they wanted to do and got on with it could normally deal with their civil servants . That's my experience . But the economic staff of the Treasury really does have to reflect our view on economic management, and that means that there has to be a new Senior Economic Advisor . . .'(10/5/85) What about a National Economic Assessment? `There has to be a National Economic Assessment . It is a terrible phrase and I try not to use it . Being more conversational, there has to be a process whereby we all sit down together and get the common denominator of what is best . I don't believe all that needs a permanent institution . My own guess is that Neddy will go on, but it is more likely that I would, for example, come down to the House and say, `Mr Speaker, I have completed my conversations on the prospects for the economy this year and the conclusions are printed in a white paper' . All that will be done by talking to trade unionists and industrialists at No . 11 Downing Street . It cannot be done at a big meeting . It's not disingenuous or secret, but there is no way that you can hammer out a real agreement without there being any sweat about it .' (June 85) The only concession to planning we can detect in any of Roy's pronouncements is the acknowledgement that `even if we get these new forms of social ownership, there needs to be a regulatory agency for the private sector combining the old role of the Monopolies and Mergers Commission and the old Prices Commission . My own view is that the price sanction is by far the best sanction, but we are working at the moment on the notion of a central institution to see that the rules of the mixed economy are observed' . (June 85) Elsewhere, selective price controls are viewed simply as a device to combat monopolistic abuse . (section one)

Hattersley's economics

Hattersley's alternative to directive planning - which he dubs a National Investment Policy - hinges on repatriating institutional funds and channelling them into a NIB . He sees this scheme neatly short-circuiting two potential difficulties ; a collapse of sterling and a shortage of investment funds ('The scheme will provide a conclusive answer to the question so often repeated by critics of a high investment strategy - where is the money coming from?') (13 .1 .85) ) The first is a serious threat ; the second a non-problem . The government could `find' the money by printing it . This would not be inflationary providing the investment materialised (and if it did not, there would be no need to print fivers to finance the NIB) . City confidence might well be shattered by a leap in the money supply, even if accompanied by extra output . But repatriating institutional funds would have precisely the same effect on the money supply . For the NIB approach to work, two conditions must be obtained . First, the offer of subsidised loans must prompt small and medium firms to embark on massive investment programmes, despite poor profitability, questionable assumptions . Second, such an investment surge must boost accumulation significantly . This is most unlikely . Most production and investment and hence the pace of accumulation - in the manufacturing industry is dominated by giant corporations, many multi-national in scope . Since they would be treated as lepers by the NIB, why should they give a toss about a National Investment Policy? Finally, Hattersley's `exchange control' policy is not a policy of exchange controls at all . It is a package of fiscal incentive . Since no one is compelled to keep assets in sterling, there are no

41

controls .

This misnomer is symptomatic . By willfully abusing terms like `exchange controls', Roy has managed to get away with ditching Conference policy under the guise of creative development . 1. Hattersley rightly accords these themes major importance . He also stresses the alienation of poverty and income redistribution . Topics which are not discussed here . 2. Hattersley cites a potential shortage of investment funds as a third major constraint . We discuss this under modernisation . Capacity and skill shortages are also mentioned, though not discussed in detail . 3. Specifically, institutions would lose the following privileges . Occupational pension funds, tax exemption and the employer's right to deduct contributions . Life assurance : right to issue qualifying policies . Charities : tax exemption . Investment trusts : special Capital Gains Tax (cGT) rate . Investment and unit trusts and major companies with large portfolios would also have their shares treated as foreign securities (13 .1 .85) .

Notes



Capital & Class

If institutions retain `excess' foreign securities, their net returns fall 4. because (extra) tax is now levied . If they repatriate the funds, the tax burden remains unchanged but gross returns presumably fall as the motive for holding foreign securities was their greater earning power . 5. `If none of the present capital exporters chose to make themselves institutions [i .e . repatriate funds to retain fiscal privileges, JH, BM] the increase in revenue to the Treasury would be immense . If the institutions do not choose to invest in Britain and its National Investment Bank, the additional taxes which they pay will be available for that purpose' . (13 .1 .85) 6. `The NIB stock will be priced at market rates, carry no stamp duty and have the same capital gains tax treatment as gilts . It will be guaranteed by the Bank of England and will trade alongside gilts with equal liquidity' . (13 .1 .85) 7. Ministers will appoint the chair and board of directors. There will be legal restrictions on the communication of commercially privileged information to government departments and agencies . (16 .5 .85) 8. However, rather confusingly, `it may be possible to make a fourth distinction from the conventional terms for the supply of finance . This is the assessment of returns . Thus a social return rather than a narrow accounting return may allow for a more efficient allocation of funds . A social return would take account of external costs and benefits' . (16 .5 .85) But this passage seems to be an aberration . 9. The plan must cover product and market strategy, location, employment levels and conditions, pricing, financial projections, investment, technological innovation and training . (16 .5 .85) 10 . Hattersley is also out of line with Party policy on re-nationalising all assets privatised by the Tories . `I'm not terribly worried about Thomas Cook's . I'm not terribly worried about the old British Rail Hotels . I wouldn't like to waste time on a Bill concerning either of those, when we ought to be pursuing new forms of public ownership .' (10 .5 .85)

42

references

Sept83 Interview in New Socialist, Sept/Oct 1983 . 23 .9 .84 Speech to the Socialist Economic Review Conference, County Hall, London SE1 . 14 .10 .84 Aneurin Bevan Memorial Lecture, Redditch Town Hall . 16 .10 .84 Speech to the Small Business Research Trust . 8 .1 .85 Speech to a public meeting organised by COME, St Albans Town Hall . 13 .1 .85 Speech to the Teesside Fabians, St Mary's Centre, 42-50 Corporation Road, Middlesborough . 10 .5 .85 Interview in Tribune . 16 .5 .85 Speech at County Hall, London SE1 . June 85 Interview in New Socialist .

Paul Teague

The Alternative Economic Strategy: a time to go European controversial to say that industrial production and the division of labour are being thoroughly reshaped on a global basis . Equally non-contentious, for socialists at least, ought to be the observation that this process of internationalisation has substantially reinforced the citadels of capital . The British economy has become deeply enmeshed in this process . Transnational companies now dominate the vast majority of industrial sectors in Britain. These companies have opened up both industry and employment to the full impact of the worldwide restructuring of capital . At the same time, however, British financial institutions in their role as 'off-shore banker' have worked to facilitate the process . The statistics bear out Britain's central role in the development of transnational capital . The United Kingdom has the biggest share of USA multinational companies investment stock in Europe, taking 51% of the total . In money terms, this amounts to over $20 billion . Between 1963-1979 there was an overall decline of some 769,000 workers in manufacturing industries in the UK . Within the same period, however, the number of people employed in foreign transnational companies increased by 435,000 . In 1963, 7% of the total manufacturing workforce was employed in foreignowned companies, the figure now stands at 14% . Transnational companies presently contribute 40% to Britain's GDP . The penetration of the UK's industrial base by inward investment has been equalled by an upsurge in the overseas activities of UKIT IS HARDLY

The internationalisation of economic life imposes increasingly recognised constraints on labour movement activities, both at the level of industrial negotiations and in the scope of national economic policy . Part of the answer lies in extra-national initiatives, especially in Western Europe . But it would be wrong to see in European policy an escape from acute problems of policy al 43 national level . This article examines present labour movement thinking on Britain's economic relations with Western Europe,

Capital & Class 44

owned transnational companies . In 1981, for example, the foreign investment of these companies incresaed by over 40% to £5 billion .' The Labour Research Department conducted a survey of the activities of UK multinationals in manufacturing . The main conclusion reached was that `since 1978 the top British manufacturing companies have cut their UK employment by more than 470,000 . But at the same time they have expanded their non-UK workforce by almost 40,000 .' 2 In other words, it was not simply the recession, but the desire to restructure internationally, which prompted the transnationals to enact their much-publicised rationalisation programmes . Trade is a further indicator of the dominance of transnational companies within the UK economy . Approximately four-fifths of UK exports are produced by enterprises with overseas subsidiaries . In 1981 these subsidiary concerns purchased 50% of UK exports . Furthermore, about half of the UK exports in the same year were made by a mere 72 firms . 3 The policies of Britain's financial institutions have accentuated the process of internationalisation . Since 1979 when the Conservative Government abolished exchange controls, there has been a marked acceleration of overseas portfolio invstment by British-based financial institutions . Between 1979-1981 the flow of private overseas portfolio investment increased from £909 million to £4,100 million . The amount of pension funds invested abroad has risen by 100% in five years, from £10 billion to £20 billion . It is thus hard to dispute that capital's dominance of the world economy has reached a new and more intense level, or that Britain is at the very heart of the process .' These transformations have created major problems for the British labour movement . The major restructuring plans begun by transnational companies in recent years have caused thousands of redundancies and highlighted the weakness of the trade unions in the face of this process . The simple truth is that trade unions have not been able to construct an effective countervailing strategy . They have remained impotent and vulnerable . One key problem is that faced with an announcement of closure by a multinational, the trade unions are automatically placed in a defensive and weak position . In a representative case, trade unionists actively campaigning against closure by a multinational write : `Evidently closure situations where union countervailing power is most urgently needed are also ones where the methods available to labour to hamstring a multinational are at their weakest' . 5 Even at the level of analysis, writers who are sympathetic to the cause of labour have been unable to outline a coherent and workable strategy . Some obviously think the task so difficult that

Alternative Economic Strategy they do not even attempt to construct any guidelines for action . For example, Tony Lane after a detailed and precise narrative on the strategies of Dunlop to reorganise its production worldwide, concludes with the following statement : `The author of this paper has no answers to the problems and questions raised by the case-study . In the short term at least perhaps the most that could be hoped for would be measures which tie foreign investment to bilateral trade agreements . This however is to open the discussion into an area of which this writer has no knowledge .' 6 Similarly, a recent publication, The Job Crisis and the Multinationals, surveyed the role of transnational companies in the job losses in the West Midlands .' The book gives a vivid picture of how the international activities of such firms have brought the local economy to its knees . But in terms of developing a strategy which could challenge such processes the book is rather weak . The last section details in uncritical fashion a number of traditional approaches to the problem - e .g . the need for international trade union collaboration, planning agreements, etc . The limitations of these policy options are not called into question . It is self-evident that the left is on much firmer ground when analysing the strategies and practices of transnational companies, then when finding ways to counter them . Indeed, the major tendency of left economists has been to search out the key dynamics and features of the internationalisation of capital . This paper will have a different focus . It will examine the various strategies and policies developed by the left to bring the process of internationalisation under control . The major theme will be that most of the strategies put forward to harness the dynamics of international capital are deficient, and that a major rethink has to take place on the subject . It will be suggested that the establishment of a new set of extra-national policies at the European level would constitute a novel and effective approach . There will be three main sections to the paper . The first will examine the conventional strategies of the labour movement in response to the internationalisation of capital . The conventional strategies consist of two differing approaches . One advocates national policies and instruments to challenge transnational companies . The other argues for action at the international level . These two different positions will be examined in turn . The second section will detail and analyse recent calls for a more European-orientated economic strategy . In particular, it will ask whether the case put forward for a European strategy would place the left's approach to the new integrated world economy on a more sound footing . The last section will draw out some conclusions from the preceding discussion, and develop the theme that the construction of extra-national policies at the

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European level should be a major aim of the labour movement at the present time .

Conventional strategies : the national approach

The national approach is a widely held approach on the left . It perceives the nation-state as the most appropriate context in which to harness the activities of transnational companies . The main emphasis is on trade unions and a socialist government acting together to align the multinationals with overall policy objectives for the economy . For example, planning agreements to control large enterprises supported by selective trade controls which could also shelter Britain from intense international competition were the main approaches to international problems in the alternative economic strategy formulated by the left during the seventies . There are three basic assumptions behind the analysis . Firstly, that outside the national context the trade unions will automatically lose much of their bargaining strength . Secondly, that trade unions acting in isolation cannot confront the issues thrown up by international capital, and that therefore the need is for some form of alliance with labour or social democratic parties . The third and central premise is that national economic and industrial policies can shield a state's economy from the intense forces and pressures of international capitalism . 8 This last assumption highlights the continuing influence of 'Keynesian' formulations on the left's strategic economic thinking . The most pervasive notion is that instruments of economic policy-making must be established at the level of the nationstate . The theoretical shortcomings of this position were the major theme of a recent article by Hugo Radice in Capital and Class . 9 The applicability of this national model to guide genuine social and economic reform is called into question by the failings of the French Socialist Government's initial economic programme, and the debacle of the Labour Party at the last general election . Clearly, the economic programme presented to the British electorate at the last election by the Labour Party was seriously deficient . The programme was a straightforward Keynesian one, sparsely seasoned with ideas from the AES . The underpinning economic logic was exactly the same as the one used at the 1964 General Election . No account had been taken of the fundamental changes in the world economy since that date . Small wonder the electorate rejected the proposals out of hand . A much more serious and immediate problem for socialist economists is the experience of the French Socialist Coalition Government over the past four years . It is clear that the Government's first economic programme went deeply wrong . The initial euphoria has been replaced by desperate attempts to claw back electoral popularity .

Alternative Economic Strategy Unfortunately, the Mitterrand administration is looking increasingly like the crippled sibling of the 1974-1979 Labour Government . It is therefore worth giving some details of the French experiment .

The French experiment The French Socialist Party, in alliance with the Communist Party and other socialist parties, took office in May 1981, and immediately embarked upon an ambitious macro-economic programme . The expansion strategy was three pronged : the economy was given a boost by an increase in public expenditure ; consumption was raised by a series of measures aimed at alleviating low pay ; and interest rates were held down through subsidies to encourage industrial investment . As a result, the French growth rate increased by 2% to become the highest in the industrialised countries apart from Japan, and unemployment ceased to rise . However, there were costs : in one year France's current account deficit expanded three-fold, from FFR 26bn to FFR 78b ; the inflation rate was amongst the highest in Europe . The most ominous indicators, however, revealed that the reflationary programme had failed - the strategy of demand management had not succeeded in producing an increase in investment or sustainable growth in the French economy . As a consequence, the priorities of economic policy-making were reordered - the central concerns became the curbing of the balance of payments deficit and the lowering of the inflation rate . During 1982 France underwent several rounds of re-alignment within the European Monetary System which, in total, amounted to an 18% devaluation . The Government introduced a policy of freezing prices and wages in its endeavours to reduce inflation . These policies brought about a mild improvement in the economic situation . However, they were insufficient to arrest the balance of payments deficit . This caused the French Government to devalue the franc further in 1983 and to enact even tighter fiscal and monetary policies . The austerity programme was now in full operation . These policies precipitated a series of political crises . The Socialist Party suffered a series of damaging electoral defeats in recent local and European elections . Moreover, in these electoral contests the `new right' emerged as a strong political force in France . The shift in Government economic policy has also led to increasing strains within the left . This culminated with the departure of the Communist Party from the Government . The initial radical economic and political strategy is now completely defunct . Different explanations are put forward for the failure of the

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Socialist Government's first economic programme . The first is that the policy was jettisoned by capitalist sabotage via an investment strike and speculation against the franc . This view is rather conspiratorial . While the French capitalist classes were hardly enamoured with the socialist strategy, there is no evidence of a systematic attempt to undermine the economic programme . A second and more plausible argument is that there was a mismatch between the Socialist Government's economic policies and the peculiarities of the French economy . In particular, the first economic programme placed little emphasis on rejuvenating the mature industries which predominate in the French economy . A more cogent explanation, however, is made by David Cobham : in his assessment of economic policies under the Mitterrand regime he states `it should be said that the failure of the Mitterrand expansion does not imply the inevitable failure of "socialist" policies in general, but rather the inadequacy in the present economic environment of a particular kind of socialism whose Keynesian character has its roots in the 1930s and 1940s, is heavily coloured by the political establishment of the 1950s and 1960s and has not yet come to grips with the changed economic environment of the 1980s ." 0 In other words, conventional socialist economic thinking has to undergo fundamental revision . While the French Government's macro-economic programme was being blown off course by the new international economic environment of the 1980s, it is extremely interesting to note that the same process of internationalisation was carried further by developments within French industry . During the Mitterrand regime there has been an escalation of direct overseas investment by French multinational companies ." Recently released figures show that the stock of French direct investment in the United States alone has increased by 65% from 1980 . Most of this increase occurred when the Socialist Party was in office .' 2 In money terms the amount invested adds up to $6 billion . Furthermore, there has been a spate of joint ventures between French and foreign-owned companies (particularly Japanese) over the past few years, increasing the number of 'trojan-horse' imports within France . The industrial sectors most affected by such developments are computers, electronics and telecommunications .' 3 These events add further weight to the assertion that conventional socialist economic strategies have little influence over the dynamics of internationalisation . The argument so far calls into question the conventional strategy devised by European socialist parties and trade unions in response to the internationalisation of industrial and economic activity . The strategy is built upon the concept of the national economy . It is becoming increasingly recognised that the orthodox

Alternative Economic Strategy national economy approach is limited in the face of the new international economic environment . One response is that it is the particular policies that need changing, not the underlying premises of a national programme . There are two main revisions to the national economy approach . One argues that a greater emphasis must be placed on protectionist policies . The other advocates a full-blooded nationalisation programme . The next sections will examine the nature and applicability of these two revised versions of the national economy approach .

Revisions to the national approach : the protectionist option From the `right' of the labour movement, the economist Nicholas Kaldor has put forward the view that the only way to stem the de-industrialisation of Britain, and the effects of intense international competition is to construct a rigorously protectionist economy . Kaldor accepts that his proposal is contentious . The key example in support of his case is the change of policy in Britain in 1932 from deflationary measures to general import controls . This change in policy produced immediate and startling results . Kaldor writes `manufacturing output expanded by 7 .8% a year in the following five years, manufacturing productivity rose by 3 .9% each year and manufacturing employment by 4 .7% each year .'" From this evidence Kaldor concludes that a similar approach should be adopted to reverse the effects of the Thatcher Government's monetarist policies . Kaldor is not alone in advocating such a course . The left-wing grouping within the French Socialist Party CERES has reached similar conclusions from its analysis of the failure of the French Government's economic strategy . CERES believes that the policies introduced were insufficiently protectionist . The protectionist case cannot be lightly dismissed . However, the argument underestimates the economic changes occurring in the post-war period . A first example is changes in international trade, in particular the fragmentation of the operations of transnational companies, in which their production of goods and services is dispersed across national frontiers . Take for instance the production of Ford cars : many of the component parts for certain car models are made in several European countries, and then imported into Britain for assembly . Under a highly protectionist system the Government would be in a quandary . If they refused to import component parts from Fords Germany, the result could well be the closure of Ford plants in Dagenham . However, if the Government declared such imports permissible then the import system would be put into jeopardy . An even greater threat to the import control paradigm is the increase in CEC

26/SUMMER 85--D

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the number of `trojan-horse' imports . Many multinationals have opened up new industrial plants within various European states (e .g . Nissan establishing a factory in Britain), which can give their owners complete access to home markets . These schemes would unquestionably make a considerable dent in the operations of a protectionist system . 15 We must also consider the effects of international financial integration on a thorough-going protectionist strategy . Since the second world war the role of the pound in world exchange markets has declined, and the Sterling Area has ended . The most important development in this period has been the emergence of the Eurodollar credit markets . In 1980 outstanding Eurodollar deposits amounted to £1,200 billion dollars - which is approximately four times the entire monetary stock of the whole of the USA . 16 These changes in the financial system, coupled with the floating of exchange rates, have led to much more centralisation in the international money markets . The sheer intensity of these worldwide financial linkages would make it difficult to introduce tight controls on currency convertibility, which would tend to undermine a protectionist strategy . Furthermore, an effective national regulation policy for the financial system would almost certainly prove to be very costly . This is because there would have to be constant interventions in the money markets, and high interest rates to maintain control over convertibility . The result would be that a protectionist regime would find it difficult to operate a cheap money policy, which would be required to boost industrial investment, etc . Finally the extensive import control model is too isolationist . The key dynamics of the present recession are international . The introduction of a trade policy to reduce foreign imports into Britain could well have the effect of worsening the recession in other countries by causing a decline in their exports . Furthermore, if a country unilaterally embarked upon a policy of protectionism it could suffer retaliatory action from other countries . The truly international nature of the present economic crisis has caused many previous advocates of the import control solution to change their position, the most important being the Cambridge Economic Policy Group, which now argues for a European-wide reflationary programme . 17 Consequently, the Protectionist Option has limited value in the present climate .

Further revisions to the national approach : the nationalistic option The alternative economic strategy places central importance on a system of planning agreements to harness the operations of

Alternative Economic Strategy

multinationals . However, the effectiveness of this instrument is now being called into question . The reappraisal was largely sparked off by the experience of the last Labour Government, which implemented only one voluntary agreement . Some left economists are now calling for more radical policies . For example, Ben Fine, in a very rigorous article, rejects the notion of planning agreements and argues for a full-blooded nationalisation programme . He concludes that the major problem with this proposal is of a political, not economic, nature- `one conclusion to emerge from our analysis is that the relationship between the AES and the MNC's is not a technical one of economic policy but a political one which struggle can be embarked upon now .' 18 Fine's analysis is certainly provocative, and will no doubt spark off debate within the left . The arguments, however, are not water-tight . Firstly, he considerably underplays the extent to which the aspects of internationalisation described above could frustrate a government attempting to implement a fully-fledged nationalisation programme . It would not be sufficient for such a government to be armed solely with `political will' ; a deep understanding of the workings of international capital would also be essential . Even then the success of a nationalisation programme would most certainly not be assured . Moreover, the simple act of bringing industries under public control does not necessarily guarantee control over multinational companies . For example, under the Socialist Government in France, the nationalised Renault Car Company has actually expanded its overseas production . In other words, the problem of curbing the functioning of multinational companies extends beyond the principle of public ownership . Secondly, it is unconvincing at present to have a widespread nationalisation programme as the central plank of a socialist political and economic strategy . A programme of nationalisation on the lines called for by Fine would have to command general public support, and the political consciousness of the labour movement in particular would have to be at an 'extremely high level . Major changes would have to occur in the prevailing attitudes of antipathy towards nationalised industries . In taking up his position, Fine is in effect suggesting that there is no need for a transitional programme in Britain ; there can be a straight move from a highly developed capitalist system to an embryonic socialist society . It must be remembered, however, that the system of planning agreements etc . were not drawn up for their precision, but to accommodate a fundamental assessment of the political and economic structure of Britain - the assumption that an intermediate stage between capitalism and socialism is necessary to reorientate the economic institutions and values towards

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socialism, and to consolidate popular support for socialist programmes . Nothing has happened to call this reasoning into question . On the contrary, the present political climate merely reinforces the need for a transitional programme .' 9 There can be little doubt that the neo-liberal policies of the Thatcherite government have struck a deep chord in wide sections of the population . 20 In this context, Fine's formulations appear to be misplaced . They do not confront the dominant political tasks facing socialists at this juncture because the call for a full-blooded programme of nationalisation has limited appeal . 21 The above argument has dealt with the variety of positions put forward with the objective of controlling the processes of international capital from the standpoint of the national economy . It has tried to highlight some of the problems and flaws within these writings . The overriding conclusion is that the labour movement will have limited success in influencing the direction of the multinational companies if policies are introduced solely at the national level . Put differently, the labour movement is facing a completely new situation which will necessitate some radical revisions in its orientation and practice . It is essential that strategies and programmes are developed which go beyond the nation-state . In the next section the analysis will shift onto the international plane . The conventional international activities of the labour movement will be examined to try to assess their effectiveness . Conventional strategies : international trade union action

There has been a long tradition of activity by national labour movements at the international level . There are a number of features to this international activity . At one level, it is intensely political . The first half of this century witnessed a whole series of solidarity actions by trade union and working class organisations at the international level . International working class solidarity reached its high-point during the Spanish Civil War when workers of all nationalities joined the international brigades in their thousands . This rank-and-file working class internationalism has been distorted by a continual political battle in the years since 1945, between and within World Labour organisations . As a result, there is a major gulf at present between national and international trade unionism . The situation is not as bad within the International Trade Secretariats (the bodies which organise trade unions within specific industries on a global basis) . This has allowed space for some analysis on the role of international trade unionism in the face of multinational corporations etc . One major argument developed over the last decade calls for supranational trade union organisations . The underlying supposition is that as capital has

Alternative Economic Strategy become international so must labour . 22 The proponents of this argument recognise that the creation of supranational trade unions will be a continuous process, starting with activity within individual transnational companies, and ending up with a substantial transfer of power and authority from the national to the international level . It is envisaged that any new supranational trade union organisations would co-ordinate activity on a wide range of industrial relations matters, including wages . It is clear that a quantum leap would be required to change the existing international trade union federations into such high-powered supranational entities . There must be considerable doubt about the feasibility of such a project . One can also question some of the assumptions behind these arguments . In particular, one should challenge the most fundamental premise - the notion that trade unions in themselves can develop an effective countervailing force to the operations of multinationals . Much too often the trade unions are heralded as the dominant force through which socialists can make inroads into transnational capital . Such an approach comes dangerously close to a form of international syndicalism . 23 Another variant of this international syndicalism is the strategy which places the activity of multinational combine committees or worker councils as the central instrument of opposition against multinational corporations . A recent study has clearly shown that combine committees et al are of very limited strategic value . The committees are classified as communication networks for the dissemination of information on company plans etc .24 This is not to say that combine committees or such like are unimportant . Of course they are important, and their role in the present context is very necessary . Their present activities of collecting and disseminating information, and on occasions coordinating industrial action, are very fruitful . However, the limitations of such organisations should be recognised . The combine committees et al should not be viewed as the main vehicle to confront the supremacy of transnational capital . The basic problem is that the theories which see the problem of making inroads into the new international economic and industrial structure in this way, are both incomplete and inadequate . The powers of multinational companies are so vast that trade unions could only play a part in any strategy which aimed at gaining a leverage over their operations . The greatest merit of the national approach is that it realises the necessity of working in conjunction with other political forces . The existing work of international trade union organisations is too isolated, which has made them ineffectual ; in reaction the old argument that trade union activity should be continued at the national level has been repeated .

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The central conclusion from the above is that the conventional strategies devised by the left to curb the dynamics of transnational capital are deficient . National economic and political instruments are not adequate to tackle the issues and problems arising from the new intricate pattern of global production . The international activity of trade unions are also too weak in the face of this process to effect any meaningful change . Furthermore, even if trade unions became more powerful at the international level their impact would be limited . This is because most of their actions are reactive in character, which leaves intact the ability of multinationals to initiate industrial and economic strategies . In essence, the power of transnational companies rests on this inability to initiate . Therefore, if the labour movement is going to be successful in gaining some control over international capital it must develop a new international political and economic strategy . Revisions to the international approach : the project for European recovery Fortunately there has been some movement in this direction . A group of academic economists and politicians associated with the Socialist International have written an important report : `Out of the Crisis - A Project for Europe on Recovery' . 25 This group, under the auspices of the Forum for International Political and Social Economy (IPSE), has opted for a median European point between the national and international policies and programmes . In doing so they are making the basic assumption that Europe is sufficiently self-contained politically and economically for positive policies to be developed . There are three main tenets to the IPSE's alternative European Economic Strategy : reflation, restructuring and redistribution . The starting point for the group is its belief that the present economic crisis in Europe has been greatly exacerbated by monetary policy . The direct consequence has been a substantial increase in the levels of unemployment throughout Europe . The cornerstone of any recovery programme, IPSE argues, is the restimulation of demand by injecting substantial amounts of money into all aspects of the economic structure - industry, infrastructural projects, and public services . What marks its formulations off from previous Keynesian demand management is that the envisaged reflation would take place on a co-ordinated European basis . Co-ordination is the lynchpin of the entire strategy, because it is believed that national reflationary programmes would produce very little benefit for the country which adopts them, the main beneficiaries being other countries whose exports would increase . The report explicitly recognises that the days of Keynesian demand management at the national

Alternative Economic Strategy

level have passed . The main burden of this projected European reflation programme would fall on the larger national economies, West Germany, Britain and France . These countries would reflate their economies, generating a demand for imported goods and services, and thereby increasing the exports of third countries . This action would be followed by reflationary packages in first the intermediate economies, and then the smaller ones . This `locomotive operation, it is envisaged, would start off a cycle of growth . Alongside this reflationary package, the report argues for policies aimed at restructuring industry in the European Communities . These policies are necessary because capitalist economies, as presently structured, are thought to be incapable of meeting the need for growth, employment and rising living standards . There are various dimensions to the restructuring programme . Firstly, much more public control ought to be exercised over the financial sector, which the IPSE argues, has been the major source of monetarist policies . The big banks and other financial institutions may be forced to adopt policies which blend with the overall economic strategy - less rigid borrowing conditions, a more positive attitude towards industrial investment and a reduction in their inflation phobia . The report also calls for some form of European monetary organisation to promote stability between different currencies, and to safeguard against bouts of speculation . The second element of the restructuring programme is the establishment of an industrial planning system within each European nation . It is pointed out that major industrial sectors are dominated by vast monopolies and conglomerates which can fix prices, and exercise considerable economic and political muscle . A system of planning agreements, or similar instruments, needs to be introduced to ensure that this power does not frustrate the overall objectives of economic policy . The report hopes that such arrangements could be established voluntarily but suggests that if necessary, legally binding agreements should be introduced . This system of industrial planning should extend from national to local and international levels so that the European strategy is uniform and coherent . The final aspect of the project for European recovery is redistribution . The report claims that any economic programme which aspires to be democratic and progressive must include concrete proposals to redistribute wealth and resources to the poorer regions and people of Europe . The redistributional policies outlined by IPSE are both spatial and social in character . The chief economic mechanism proposed is the use of `development

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deficits' . Under this system poorer countries would be allowed to pursue policies such as import tariffs, subsidies, tax reliefs, etc . IPSE argues that this system would also benefit the richer European countries in the long term, because as the poorer economies became more developed there would be an increase in the demand for the products of the former . Out of the Crisis: A Project for European Recovery is an ambitious attempt to reorientate the labour movement's approach to economic policy-making . The call for a European-wide programme is clear recognition that the conventional national and international strategies of the left are limited in the present economic climate . However, some of the proposals put forward in the report are not fully worked out . A case in point is the lack of discussion on the European Monetary System (EMS) . The strongest component of the IPSE report is the desire to break the dominance of the neo-liberal economic ideas which have been embraced by many European governments . IPSE thinks that the way to do this is to re-establish reflationary policies as a viable alternative economic measure . Reflation is thus the cornerstone of the IPSE Project . And the lynchpin of this reflationary strategy is the existence of a European monetary agency . Although this agency plays a central role in the entire construct, its nature and functions are left rather obscure by the report . It can only be presumed that IPSE is referring to the EMS or some variant of it . But the EMS has been consistently derided by the British left, who see it as a mechanism to enact monetarist and deflationary policies . This aversion may be somewhat misplaced, since the EMS, as an instrument of economic policy, could equally be used to promote expansionary measures . The real issue is who controls the instrument . This question is not tackled in an explicit manner by the report . Consequently, it is uncertain whether IPSE is recommending that the British left urge its opposition to the EMS, or that it should support an alternative monetary agency at the European level . The question of the British labour movement's opposition to the EMS has been approached in a more direct manner by other left economists . David Fishman argues that the EMS could play a potentially progressive role . 26 His central thesis is that creating a third currency bloc around the EMS would undermine the dominance of America in the world economy . For this reason, Fishman concludes that the left should support the EMS . Two other economists, Francis Cripps and Terry Ward, have also argued strongly for British membership of the EMS . They even go further than Fishman and state that the authority of the system should be increased . 27 The argument is that a strong EMS would make it very unlikely that a European currency would experience a `loss

Alternative Economic Strategy

of confidence' during a reflationary period . Furthermore, Britain's membership would more effectively check the tendency of the German D-mark to dominate the system . The idea of a strong EMS is attractive . Certainly, it would ease some of the inevitable problems of a joint inflationary programme . However, one issue which would require careful consideration before Britain joined the EMS is a parity for the pound against other European currencies which would reflect the relative weakness of British manufacturing industries and the coming end of North Sea oil . 28 Other facets of the Report are defective, particularly the discussion of the EEC . No matter how one views that entity, it is surely only common sense to say that any proposed pan-European economic strategy must clearly define the role, if any, of the EEC . However, in IPSE's account, the discussion on the EEC is extremely brief and non-conclusive . Failure to confront such a central question can only give credence to the argument that a European strategy is naive and unworkable . This is a serious weakness, and the point will be taken up below . Certainly, any European strategy, to be viable, needs to gain a legitimacy amongst the people of Europe, especially from the different national labour movements . The Report, to its credit, does state that `if the Project to reflate, restructure and redistribute is to gain credibility at the international level and especially in the smaller European countries it will do so mainly through the advocacy by parties and trade unions .' 29 But apart from this general statement there is no discussion of how labour movements can actually forward this new European strategy . At best, IPSE assumes that trade unions will grativate in an almost voluntaristic manner to the new European programme ; at worst it views the implementation of the programme as a technical economic exercise . While in essence, the IPSE Forum advocates the creation of associative economies within Europe it fails to realise that this will entail associative links being forged between different economic groups such as trade unions within and between nation-states . In short, IPSE is much too vertical and `macro' in its approach to a European programme . 30 The absence of any detailed analysis of how the Project for European Recovery can be transformed intoa popular strategy puts the entire report at risk of being dismissed as impractical . Indeed, it is for this very reason that a comprehensive European alternative economic strategy cannot solely rest on iPSE's writings . Nevertheless, the Forum must be congratulated for placing the idea of a European strategy on the agenda for socialist parties and trade unions in different countries . The excessively vertical formulations of IPSE have been heavily criticised by John Palmer who puts forward a different

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approach to the question of a European socialist strategy . In several articles he calls for a European strategy on a horizontal basis . In particular, he advocates European-wide agitational campaigns on jobs and welfare rights e tc . to be initiated by the labour movements within different nation-states . These campaigns should closely follow the paradigm set by the European nuclear disarmament movement . Palmer is critical of strategies aimed at reforming the institutions of the EEC ; he disparages Francis Cripps and Terry Ward for stating that the Labour Party should support Britain's entry into the EMS . Such initiatives he dismisses somewhat glibly as `making capitalism work better' . 31 Palmer's arguments are partly valid but too general . Firstly there are problems in simply calling for European-wide demonstrations against unemployment and so on, not least because similar campaigns at national level had limited success . Secondly, Palmer underestimates the changes that would have to occur in national trade union attitudes . A recent study of British trade unions' responses to the EEC has shown total disarray on the issue . 32 The biggest problem with Palmer's arguments is that he concentrates too heavily on the horizontal features of a European alternative strategy . This runs a real danger of becoming purely trade union action . Certainly such activity will have its role, but it should not acquire the status of a fully-fledged European socialist strategy . The latter must try to outline how the left would solve the employment crisis, and the necessary restructuring of industry within Europe . Palmer's agitational approach gives an unhealthy emphasis to purely negative, reactive action . Rather than counterposing horizontal and vertical features of a European alternative economic strategy, the need is to integrate the two dimensions . The dichotomy between the two is false, reflecting a constant tendency within the British left to concentrate on action at state level at the expense of activity within civil society, or vice versa . The key point is to view the vertical institutions and decisionmaking apparatuses as a mechanism to transfer power to the horizontal terrain . This in turn will give a greater legitimacy for further action in the vertical dimension . Consequently the most fruitful course is to explore ways in which IPSE's programmatic approach and the horizontal agitation and pressure called for by Palmer, can be strengthened and combined to form a much more comprehensive strategy . The analysis so far has mainly been taken up with a review and critique of different labour movement approaches to the processes of transnational capital . The conclusions reached so far are that both the conventional national and international strategies put foward to control the behaviour of multinational companies are defective . This is because the writings are either conceptually

Alternative Economic Strategy 59

flawed, or that they underestimate the intensity of the new international economic climate . The analysis also examined whether recent writings calling for a European strategy could place the left's approach to the problem on a more sound footing . It was argued that while the European level provided a better context to face the dynamics of international capitalism, present accounts of an alternative European strategy were deficient . The following notes make no attempt to supply these deficiencies, merely to indicate a few of the relevant factors . The first problem which must be tackled in any European alternative economic strategy is the role of the EEC . Diplomatic attempts to sidestep this question merely make strategic discussion abstract and unconvincing . It is certainly true that the European Commission has undertaken, in the main, a non-interventionist economic strategy, and because the member-states have been very reticent to transfer powers to the European level, the majority of initiatives have been of a negative nature . Clearly, at present, the potential for a positive economic programme of EEC level is limited . The central question, therefore, is whether the EEC can be sufficiently reformed to embark on such a programme . Some on the left believe that it cannot, and as an alternative suggest that the UN Economic Commission for Europe (ECE) should be the body which co-ordinates any left alternative strategy . 33 The main reason for selecting this organisation is that it encompasses all European nations, East and West, and as a consequence any initiative would be genuinely comprehensive . Undoubtedly this is an attractive point . Against this, however, one must consider the fact that the present functions of the ECE are nebulous . It does not undertake any meaningful activities apart from drafting reports and documents on the economic and industrial situation in Europe . For such an organisation to be reconstituted with the capacity to introduce positive extra-national policies would take a long period of time, and require the establishment of a new set of structures and institutions . In reality it would mean setting up a new international body . Moreover, if the body was going to acquire any authority it would mean that the countries within the EEC would have to agree either to withdraw from it, or assign it only a peripheral role in European affairs, or to abolish it totally . It simply would not be possible for the EEC to exist with its present set of powers and functions alongside an ECE with the capacity to initiate reflationary programmes and industrial policies . There is not the space for both . Accordingly, while a reformed ECE may look an attractive option on paper, the existing political and economic reality within Europe does not make the

The role of the European Economic Communities : problems and prospects

Capital & Class 60

scheme a viable option . The basic point is that the very existence and operation of the EEC create enormous barriers to the development of any alternative economic institutions . This should not be surprising as Tom Nairn cogently points out in his seminal dissection of the British labour movement's case against membership of the EEC -'a realistic focus surely demands a more complex, less facile attitude towards `capitalist' Europe . A future `Socialist Europe' may be very different from and far better than all this . But it cannot credibly be visualised as having no real connection with the present bedraggled sordid reality .' 34 In other words, an alternative strategy cannot be established in a detached and abstract manner paying no serious attention to the dominant structures and processes currently in existence . On the contrary, it is the dominant features of European society, such as the EEC, which must constitute the starting point . The fact is that the British labour movement's debate on the EEC has been conducted at a very abstract and superficial level . Within the framework of a nation-state trade unions fundamentally insist that there cannot be a simple leap from capitalism to socialism . Society, it is emphasised, must undergo a transition ; existing social, political and economic structures must be reshaped, remoulded, but not smashed, to usher in the new order . Yet in relation to Europe thinking is either highly absolutist in character, (the EEC must be smashed or no transitional strategy is feasible), or the reforming programmes are remarkably simplistic, (the EEC must change from a rampant capitalist institution to a genuine socialist organ in one almighty act) . The point here is that the space for a European-wide programme of positive policies is occupied by the institutions and operations of the EEC . The potential to abolish that entity and rebuild a more favourable body is remote . In short, if any alternative strategy is to be implemented it must succeed in reordering the priorities of the EEC . This, of course, is not to state that the EEC can be transformed into a fully-fledged institution for the development of radical policies . This would be a serious miscalculation of the institutional and class constraints which exist at the European level . The development of associative economies

A guiding principle in any exercise to revamp the orientation and policies of the EEC could be the development of associative economies . The associative economy model sets out to pose an alternative to the notions entrenched within the economic discussion of the EEC . The aim is to undermine the fundamental premise upon which many of the economic debates are conducted - the assumption that the only options open are either national based policies or supranational European ones . The traditional

Alternative Economic Strategy `Europe' enthusiasts have succeeded in framing the debate on the EEC within Britain around this national/supranational paradigm, to the extent that much of the left's analysis has accepted the national/supranational dichotomy as the starting point for any commentary on the nature and workings of the EEC . How often has the argument been put forward that any extension in the role of the European Communities will lead automatically to a decline in the sovereignty of the British political process? Of course, that may well be the case, but it does not have to be . In other words, by accepting the paradigm constructed by fervent pro-Europeans, now largely concentrated in the SDP, the left has viewed the `national alternative' as the only viable option, and as a consequence it has acquired the image of being xenophobic, and `little Englander' . Small wonder that the arguments on the EEC within the labour movement during the last decade have been intensely uncreative, and the policies wholly negative . Consequently, the need is for the left to develop its own policies, and this is indeed the value of the associative economy approach . The left should recognise extranational industrial policies which are not alternatives to, but supports for, national strategies . Throughout this article the argument has been put forward that it is insufficient to concentrate on solely national policies . However it does not follow from this that no radical policies can be enacted at the level of the nation-state . There are political trends which are at present eagerly embracing the idea of an alternative European economic strategy because of their failure to enact meaningful social and economic reforms at the national level . But a European programme should not be viewed as a substitute for the inadequacies of past social-democratic governments . 35 Clearly, substantial and quite crucial economic and social reforms can be achieved via national economic mechanisms ; as a consequence national policy formation will remain the central focus of attention . The need for economic and social reforms beyond the nation-state is to help safeguard national programmes from constraints imposed by the dynamics of the interational economy . In short, the nation-state will remain the fulcrum of any economic strategy . The extra-national approach aims to move away from the assumption inherent in the national/supranational paradigm that actions within and beyond the nation-state are mutually exclusive . The concept of extra-national policies is largely an unexplored area ; certainly the AES - of whatever kind - has not touched upon this subject . Yet institutions which could be directed towards an extra-national pattern of intervention already exist in some areas of the European Community, e .g . the European Social and Regional Funds, and the European Investment Bank . These

61

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programmes and services operate on the basis that they complement, not undermine, national measures . It is this principle, albeit in a more meaningful form, which ought to be extended into central sectors of the economy . Obviously such extra-national policies in themselves will not be particularly socialist . The crucial role of such policies is to facilitate the implementation of more radical measures within the nation-state . During the seventies the dominant theme within the EEC was the establishment of central European institutions and policies to promote economic convergence amongst member-state economies . 36 But in the main these policies failed because of differing conceptions of convergence : the richer countries emphasised convergence of economic poliices which implied uniform measures such as controlling inflation ; however, the poorer nations talked about the convergence of economic performance, which meant the reduction of national income disparities between member states . 37 This conflict contributed to the political inertia which characterised the EEC throughout this period . The failure of the strategies of centralisation has led to a new debate on the nature and direction of the European Communities . The left must intervene in this debate : it must develop a principled positive policy for Europe, and move away from the opportunistic and pragmatic outlook of the Labour Party leadership . The pronouncement of Roy Hattersley that britain ought to remain within the Common Market but adopt a firm `Gaullist' strategy and refuse to introduce measures it dislikes, hardly presents a visionary European policy . The principle which the left should focus on in any reappraisal is the establishment of associative companies, through the formation of extra-national policies . The establishment of extra-national economic policies Reflation . A reflationary programme ought to be a major feature of any alternative economic programme for Europe . However, it would be incorrect to view a reflationary programme as either the panacea or unproblematic . There are major political and economic obstacles to the introduction of such a strategy . The strong adherence of European governments to neo-liberal economic policies would have to be broken, and at least two out of the `Big Three' (West Germany, Britain and France) would have to be active supporters . Some underlying economic conditions in Europe are certainly conducive for reflation . There is a unique level of mutual interdependence . About 70% of total exports by European countries go to other states in the same region . However, this general fact unmasks some of the specific

Alternative Economic Strategy problems in relation to a synchronised European reflation strategy . Any policies to expand demand on a European-wide basis would have to be introduced in a very co-ordinated manner . If the programme lacked integration, the countries initiating the reflationary cycle could experience an excessive increase in imports from their partners relative to exports, causing downward pressure on the exchange rate, leading to inflation and other financial problems . This is what happened when West Germany reflated its economy by 1% of GNP in 1978, to initiate a cycle of growth . A similar situation could develop if individual states over reflated relative to other states . 38 A reflationary programme would also have to take precautions against sparking off a world-wide inflationary process, or causing economies to overheat by increasing their exports too sharply . Furthermore, some assessments suggest that Britain would benefit the least out of all European countries from a reflationary programme . 39 This is essentially because Britain is in a trading deficit with other EEC countries . To offset some of the inequities, Francis Cripps suggests that a mechanism to shift trade balances could be introduced as an adjunct to the reflationary strategy . In theory, trade adjustment policies could solve some of the problems arising from expansionary measures ; however, the practicality of establishing such policies has to be questioned . In the absence of any trade adjustment or equalisation policies, the working of the EMS becomes all the more important in the management of financial pressures . It is clear from the above that reflation on a European-wide basis is not straightforward, and that its impact would be uneven . Nonetheless, in certain circumstances, it is an indispensable step in reversing the trend to contraction and unemployment . The question of `competitiveness' . A European economic strategy must go beyond the enactment of reflationary policies . The dominant themes in the economic thinking of the EEC must also be addressed by the strategy . In particular, a clear response has to be worked out to the central argument of the European Commission - that the present task is for the EEC economies to maintain or regain competitiveness by establishing a completely integrated internal market . This remains the goal of the Eurocrats in Brussels : the new European Commission has set as its top priority the total liberalisation of the internal market . The creation of a single market within Western Europe has been strongly supported by representatives of European capital . A group calling itself G16, which brings together top European industrialists and bankers, has been lobbying strongly for the removal of barriers hampering intra-EEC trading . 40 The logic behind this policy is that a European-wide common market could lay the conditions

63



Capital & Class 64

for industry to become more competitive because it could induce proper economies of scale, make production more efficient, etc . The argument is a classical free trade one . The fetish with obtaining a completely liberalised internal market would have to be curbed by an alternative strategy . In any event, the actual attainment of such a goal must be doubted . Further advancement towards a total common market would primarily come about by reducing the costs and bureaucracy involved in transporting goods and services across frontiers . The central objective of EEC policy over the past twenty years has been greater freedom and movement of goods across customs posts . 41 This policy has had only limited success, and there are no sound reasons for believing that this will change in the near future . On the contrary, the present creeping protectionism between member-states would indicate that such a strategy is not very realistic . Therefore, the goal of a fully liberalised internal market is dependent on policies which have a small chance of being introduced at the present time . Moreover, the persistent focus on the internal market blurs the fact that there has been a continuing increase in intraEuropean trading since the inception of the Common Market . The table below details the trends . Intra-Community trade has in fact multiplied 23 times between 1958-1980 . This increase in mutual interdependence has not led to any marked or dynamic effects on European economies . Therefore, in terms of past trends it is entirely legitimate to question whether any further liberalisation of the Common Market will have any significant impact on employment creation, or better industrial performance . Furthermore, the strategy of creating an open internal Intra-Community trade of total exports

FR of Germany France Italy Netherlands BLEU

United Kingdom Ireland Denmark Greece EUR 10 (source : Eurostat)

% of GDP

1958

1982

1958

1973

1982

36 28 34 57 53 20 84 58 50 35

48 49 46 72 71 41 71 49 46 52

6 3 3 22 17 3 21 16 4 5

9 8 7 29 35 6 25 10 5 10

13 8 10 35 43 9 33 13 5 13



Alternative Economic Strategy market at this juncture would be shortsighted, bearing in mind other problems in the world economy . Presumably, the strategy of liberalisation is partly geared to winning a greater share of existing world trade . Leaving aside the technical difficulties of European industry gaining such a competitive edge, this policy would almost certainly compound many of the deep-seated problems and inequities in the world economy . Of the existing total of EEC exports, 68% are accounted by six sectors (metals, chemicals, mechanical and electrical engineering, motor mechanics, agro-industries), in other words medium technology markets . If the EEC countries improved their share of these markets it would be to the direct detriment of third world countries . This would add further problems to the already intractable World Debt crisis . The main conclusion is that to talk the language of `negative integration' at present is misplaced, and that more positive policies are required to turn around high unemployment and low growth in Europe . The development of employment and industrial initiatives, displacing the logic of economic competitiveness, must be the main theme of any alternative European strategy . Along with reflation, employment and industrial measures should constitute the major aspects of extra-national policies . The European Commission already operates some positive employment policies . In regions and areas where there is exceptionally high unemployment, the EEC offers a job subsidy of 33 1/3 of total costs to employers if they take on new workers . The European Social Fund also makes available money for co-operative development schemes and training initiatives . These measures ought to be extended and integrated into an overall employment strategy . The European Commission has also given its support to the introduction of a 35-hour working week throughout Europe . This policy has not been agreed by the Council of Ministers however, mainly as a result of the opposition from the British Government . There are obvious advantages to introducing a shorter working week on a synchronised European basis, all members would have to incur the inevitable costs arising from the scheme at the same time . This policy alone would have a sizeable impact on the levels of unemployment in Europe . Clearly, this particular measure would play a prominent part in any extra-national employment strategy . While the European Commission has developed some positive programmes, albeit on a small scale, via the Social Fund, it has ruthlessly applied the laws of the market economy to many of the problems of the mature industries (steel, shipbuilding, textiles) in Europe . The consistent theme of the Commission has C€
65

Towards a European employment and industrial strategy

66

been that these industries must undergo rationalisations and cutbacks to ensure that supply balances with world demand . An extra-national strategy would have to approach the problems of mature industries in a different light . Some of the ideas developed by David Metcalf and others could constitute the basis of an alternative approach . 42 In particular, Metcalf suggests that there should be a move away from the present narrow financial profit and loss calculations to a wider resource cost and benefit analysis . Metcalf's discussion neglects the fact that calculation in a capitalist economy is not a free choice - narrow financial criteria are forced on agents exactly by financial pressures . Nevertheless, a variant of Metcalf's approach could be one side of a more positive policy at the European level . Many of the problems facing particular mature industrial sectors are common to all member-states . The introduction of a resource cost and benefit approach could help unite EEC countries around common policies to deal with common problems . To supplement the above approach, some trade restriction policies may be necessary to curb the impact of industrial policies pursued by individual countries . However, a thorough-going protectionist policy should not be introduced . The advocates of this course of action tend to overestimate the need for European protectionism . Europe's trading relationship with the rest of the world is not a cause for alarm . The export/import ratio for EEC manufacturing has deteriorated during the seventies, but not to any substantial degree . Furthermore, a recent study concluded that the impact of protectionism on European trade in manufacturing goods would be negligible : in the author's words, `the impact effect of protectionism, at any reasonable level of tariffs, would be small . With a high degree tariff of 50% or more, the effect on trade would be substantial : but it would be comparatively small in relation to manufacturing output and still more to GDP . Moreover, the Community's position in the world economy is such that a substantial increase in protection must have adverse effects on the level of activity in the rest of the world .143 A fully-fledged protectionist scheme therefore would be of limited value . However, many aspects of progressive, interventionist EEC policies are bound to run counter to the strategies of transnational companies . For example, a major trend within the USA and Japanese multinationals is towards centralising research and development of new technological ideas within their respective home countries, and then farming the results out to different countries for production . The effect is to concentrate the control of these key industries of the future within Japan and the USA,



Alternative Economic Strategy and to reduce other countries to `branch plant' economies . Such processes could be constrained to some degree by introducing trade regulation policies for transnationals . These policies could be enforced if it was thought that the parent company of a multinational operating in Europe was frustrating interventionist policies . The effect would be to limit access to the European market, pressuring the company because most multinationals are dependent on sales within Europe . Such trade regulation policies could be a potent weapon for influencing the behaviour of transnational companies at EEC level, even though no individual European country is strong enough to adopt them on its own . Constraints on concentrations of private economic power can be reinforced by the encouragement of industrial and economic co-operation within the public sector and in support for socially responsible private initiatives . Some institutional reform at the EEC level would be necessary . In particular, a new powerful Directorate of Industry would be needed to influence and induce industrial co-operation . And this Directorate ought to have close and intimate links with a revamped and stronger European Investment Bank . The Bank, rather than competing with national financial institutions for investment possibilities, should develop a new set of criteria for the allocation of its funds . In particular, the Bank should move away from the standard `rate of return on capital employed' criterion to a set of guidelines which aim at increasing employment, productivity and gross fixed capital formation within European industry . There would be considerable advantages from establishing industrial and investment institutions at the European level . These bodies would complement and enhance the operations of state enterprise agencies which exist in some form or other amongst the member-states, with the notable exception of Britain . 44 And, in general, a vibrant economy within Europe is an important condition of socialist support because of its ability to secure the present standard of living, etc . There is, of course, nothing inherently socialist in the above policies - but a thorough-going socialist programme at EEC level is as meaningless today as the purely national roads to socialism . The crucial factor is the relation of labour movements to European policies . There are various dimensions and levels to this concept . Firstly, associative links need to be fostered to ensure that campaigns etc., agreed to at the European level, are meaningful . For example, last year the European Metalworkers Federation agreed a resolution that if a trade union in one country succeeded in attaining the 35-hour week other national trade unions would refuse to undertake any extra-production work which the firm

67

Presenting the argument

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68

might transfer from one plant to another . 45 This resolution could easily remain a dead letter if greater bonds are not built between the European labour movements . Secondly, a possible effect of creating strong associative links could be to promote more trade union initiatives in relation to working conditions . For example, whatever success was achieved by German workers in their campaign for the 35-hour week could act as a catalyst for other unions to take action . Thirdly, a crucial dimension to associative links will be to initiate co-ordinated and joint campaigns . For instance, last year German and Italian trade unions in the automobile industry launched joint action also to achieve a 35-hour week . 46 If associative links had been in existence, there are no sound reasons why such action should not have included French, British and Spanish workers . Furthermore, some quite exciting proposals are being negotiated by trade unions within particular multinationals with the assistance of socialist local authorities . 47 In short, associative links are fundamentally about widening the policy vision of different labour movements to include extra-national activity within their ideas and strategies . To actually establish associative links there need to be changes in the structure and orientation of labour movements at the national and European levels . National movements must begin to approach the problems and potential of their own industry in a new manner . In particular, they must begin to address industrial issues in terms of what they would do if they had political power . At the European level the various trade union bodies must become much more open and dynamic entities . This will entail them ceasing to be mere appendages of the European Commission, and having a more direct campaigning role . To connect these changes in trade unions into a wider political strategy, revisions will also have to be made in the practice of socialist parties at the European level . Left Euro MPs, both individually and as a bloc, should pay less reverence to the European Parliament and other institutions, and take on a more campaigning role in relation to extra-national policies and initiatives . The Socialist International should form a European section which would increase the links between European socialist parties . The analysis above has separated the vertical and horizontal features of the development of associative economies . Of course, the separation is artificial : alliances are needed between forces within both arenas on issues of common concern . An obvious issue at present on which a strong joint campaign ought to be deveoped is the proposed Vredeling Directive, and the question of industrial participation in general . These proposals which

Alternative Economic Strategy

have emanated from the EEC Commission have been stoutly opposed by the multinationals and business organisations throughout Europe . The trade union response has been somewhat muted, and no effective campaign in support of the proposals has been launched . One Sunday Times report vividly highlighted the difference between business and trade union organisation : `on Tuesday taxis swept up to the (European) Parliament building bearing the most formidable galaxy of professional lobbyists Strasbourg has seen . . . the union lobby consisted of pleasant individuals from the European TuC handing out leaflets .' Clearly, greater attention must be given to coordinating activity between trade unions and political parties on such issues . This article has attempted to set out the case for a greater European dimension within the alternative economic strategy put forward by the British left . The main purpose of the article is not to devise a blueprint but to question the purely national framework of much economic and social policy discussion and to generate debate on the most appropriate forms of extra-national policies . Throughout, the key assumption has been that the left must tackle head-on problems thrown up by the present economic and unemployment crisis ; in the words of Robin Murray, `The main issue in the UK at the moment is restructuring . Capital through monetarism is carrying through their version of restructuring at the expense of labour with enormous waste and with fearful consequences as far as the state of the world economy is concerned . The task of socialists is to resist this version and instead to work through alternative versions which we have called restructuring for labour .'48 In other words, the creativity and imagination which undoubtedly exist within the left should be turned to the construction and implementation of alternative strategies .

69

Conclusion

I would like to thank John Grahl, acting for the editorial board of Capital and Class, for very helpful advice and assistance . The article, and myself, have enormously benefitted from his contribution .

1 . Department of Trade and Industry, Multinational Investment Strategies in the British Isles, London, 1983, p . 17 . 2. Labour Research, May 1983, p . 123 . 3. British Business, 27 May 1983, pp . 366-7 .

Notes



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70

4. For a highly readable account of the extent of British financial involvement in the international economy, see Lawrence Harris and Jerry Coakley, The City of Capital, Oxford, 1983 . 5. Chris Baldry et al, `Fighting Multinational Power : Possibilities, Limitations and Contradictions', Capital and Class no . 20, p . 161, 1983 . 6. Tony Lane, `Dunlop and World Tyre Industry', Communist Party Economic Bulletin no . 10, Spring/Summer 1983, p . 47 . 7. Frank Griffin and Andrew Nickson, Job Crisis and the Multinationals : The Case of the West Midlands, 1984 . 8. None of the widely-known publications on the alternative economic strategy - Sam Aaronovitch, The Road from Thatcherism ; CSE, `The Alternative Economic Strategy', The Socialist Economic Review 1982 put forward any detailed or clear proposals on the type of policies which the left should support at the international level . 9. Hugo Radice, `The National Economy - A Keynesian Myth?', Capital and Class no . 22, 1984, pp. 111-40 . 10 . David Cobhan, `France Macro-Economic Policy under President Mitterrand : An Assessment', National Westminster Bank Review, March 1984, p . 50 . 11 . Julien Savary, The French Multinationals, Pinder/IRM, London, 1984 . 12 . Economist, `French multinational companies', 15 September 1984, p . 75 . 13 . Financial Times, 17 January 1985, survey . 14 . Nicholas Kaldor (1982), The Scourge of Monetarism, p . 64 . He develops a similar theme in the Fabian pamphlet, The Economic Consequences of Mrs Thatcher, 1983 . 15 . For an account of how the EEC has assisted the development of the `Trojan Horse' process see the Institute for Research and Information on Multinationals, Multinational Companies and the EEC, no . 1/2, July 1984 . 16 . W . P . Hogan and I . P . Pearce, The Incredible Eurodollar, 1982, p. 3 . 17 . Francis Cripps and Terry Ward's article, `Government Policies, European Recession and Problems of Recovery', Cambridge Journal of Economics no . 1, March 1983 . 18 . Ben Fine, `Multinational Corporations, the British Economy and the AES', Communist Party Economic Bulletin no . 10, Spring/Summer 1983, p . 32 . 19 . For a detailed argument on the need for a transitional programme, see Geoff Hodgson, The Democratic Economy, Pelican, 1984 . 20 . Dexter Whitfield, `Sale of the Century', Marxism Today, October 1984 . 21 . Hugo Levie and Sue Hastings, Privatisation, Nottingham, 1983 . 22 . Charles Levison, International Trade Unionism, 1972 . 23 . Werner Olle and Wolfgang Schoeller, `World Market Competition and Restrictions upon International Trade Union Policies', Capital and Class no . 2, 1977 . 24 . Christopher Baldry et al, `Multinational clsoure and the case of Massey Ferguson, Kilmarnock', Industrial Relations Journal vol . 15, no . 4, 1984, pp . 17-27 . 25 . This group consisted of 25 academic economists and politicians . It has met informally over a ten-year period . The co-ordinator of the `Out of the Crisis' project was Stuart Holland, and most of the British members

were drawn from the Department of Applied Economics at Cambridge . 26 . David Fishman, `A Radical View of the European Monetary System', Politics and Power no . 1, 1980, pp . 175-84 . 27 . Francis Cripps and Terry Ward, New Socialist no . 6, July/August 1982, pp . 22-5 . 28 . Doug Jones, `Is there a case for joining the EMS?', Guardian, 30 May 1984 . 29 . Stuart Holland, Out of the Crisis : A Project for European Recovery, p . 151 . 30 . John Grahl rightly emphasises this point in his view of the strategy in Communist Party Economic Bulletin, Spring/Summer, no . 11, 1984 . 31 . See John Palmer, `New Vision of a Socialist Europe', New Statesman, 18 May 1984, and New Socialist no . 9, 1983, pp . 15-19 . 32 . Paul Teague, `Labour and Europe : The Response of British Trade Unions to Membership of the European Communities', unpublished PhD, LSE, 1984 . 33 . Tony Benn, `Labour must not be in the market for capitalist benefit', The Guardian, 25 July 1983, p . 9 . 34 . Tom Nairn, Europe Super Power or Failure, Amsterdam, 1976, p . 79 . 35 . Anew concensus is emerging around the SDP and the Labour Right about the necessity of a European strategy . The Left must not allow this strategy to deflect from the need to enact meaningful reforms at the national level . 36 . For a study of the EEC economic policies during the seventies see M . Hodge and W . Wallace, Economic Divergence in the European Communities, 1981 . 37 . Yao-Su Hu, Europe under Stress, 1981, gives a detailed account of the reasons why no convergence occurred between member-state economies . 38 . See OECD Economic Outlook, `The importance of International Economic Linkages', no . 33, July 1983, pp . 16-21 . 39 . Francis Cripps, `Britain, Europe and Macro-Economic Policy', in Jenkins, Roy (ed .), Britain and the EEC, Macmillan, 1983 . 40 . See Economist, `Bosses want the Common Market Brussels never built', 26 May 1984, pp . 75-6 . 41 . In 1980 the European Parliament started to take proceedings against the European Commission because of its failure to achieve any meaningful advances in EEC transport policy . 42 . David Metcalf, `Employment and Industrial Assistance', in A .P . Jacquemin, European Industry : Public Policy and Corporate Strategy, 1984 . 43 . Ann D . Morgan, `Protectionism and European Trade in Manufactures', National Institute of Economic Review no . 9, August 1984, p . 57 . 44 . See Peter Maunder, Government Intervention in the Developed Economy, 1979. 45 . Financial Times, March 1984, p . 12 . 46 . Financial Times, 6 April 1984, p . 12 . 47 . A very good example of this is the GLC aiding the trade unions within the multinational firm Kodak to develop an alternative plan for the firm . 48 . Robin Murray, `Pension Funds and Local Authority Investments', Capital and Class no. 20, Summer 1983, p . 103 .

71

Richard Bryan

co

The theory of competition and monopoly in Marxist analysis has started to receive attention and generate debate only in recent years . But with this development, analysis of the effects of mpetition and monopoly has extended ahead of analysis of their meanings within a Marxist discourse . This paper is concerned with the general question of how competition and monopoly might be defined in a specifically Marxist way, divorced from the preconceptions of neo-classical usage . A theory of monopoly defined in terms of the market power of large corporations is rejected . Instead, monopoly is defined at a more abstract level, within the circulation of social capital. Here, monopoly is identified with the reproduction of nonequivalence in the movement of value between the forms of money, production and commodities . Hence it is contended that 72 monopoly does have a widespread existence but that, unlike the school of monopoly capitalism, which emphasises the power of giant corporations, monopoly is understood as just a form of competition, not its antithesis .

Monopoly in Marxist method • THE THEORY OF competition and monopoly has been seen as something of a non-issue in Marxist analysis . Too frequently, the term `monopoly' has been used simply as a synonym for large companies and `competition' understood as a veil which disguises exploitation, or worse, as a category of concern to exclusively neo-classical economics . Accordingly, the terms have often been applied in Marxism in an untheorised and unsystematic way with the notable exception of a number of recent contributions which will be referred to within this paper . It is not necessary here to trace the historical uses of competition and monopoly within Marxian discourse, but a couple of prevalent applications should be noted . One widely-adopted application has involved theories of `monopoly capitalism', in the tradition of Baran and Sweezy (1966) and O'Connor (1973) . The generality of this position asserts the economic and political dominance of giant corporations (so-called `monopolies') and the associated suppression of the competitive process . A corollary is the capacity of these `monopolies' to maintain high profit rates by means of monopoly pricing (Sherman, 1968) . The other principal application has involved the adoption of a concept of competition within the analysis of theories of accumulation . Such a concept is usually imprecisely specified . It is sufficiently developed to permit an exposition of laws like the tendency of the rate of profit to equalise across branches, or for the rate of profit to fall, but

Monopoly

generally without critically appraising the concept of competition itself. A formal theory of monopoly and competition has been correspondingly relegated to the sphere of 'Marxology' the task of constructing a theory from the elements of Marx's works, for the sake of theoretical completeness, but of no practical significance to Marxian economics . The object of this paper is not to attempt this construction in any comprehensive way . On the contrary, it is partly to suggest that such an exercise will not reveal in Marx a single underlying theory of monopoly and competition . Yet nor can it be accepted that a theory of monopoly and competition is unproblematical . Indeed, it will be argued that theories of `monopoly capitalism' and also institutionalist interpretations of Marx have implications which are distinctly non-Marxist . It follows that there is need to clarify the minimal conditions of a Marxist theory of monopoly and competition which are compatible with Marx's theory of accumulation . Some recent contributions to a Marxist theory of monopoly and competition have recognised this need and have sought to challenge the common applications identified above . Semmler (1982) attempts an empirical and theoretical refutation of the `monopoly capitalism' thesis that giant corporations can secure long run profits above the average (but see Sherman (1983) ) . Correspondingly, he shows that `monopoly' is entirely compatible with Marxist value theory and thus with the existence of 'competitive' forces . Wheelock (1983) has sought to extend Semmler's work in a particular direction and to theorise systematically the structure of exchange relations within and between the sectors of `monopoly' and 'non-monopoly' capitals . But while Semmler and Wheelock may refute the rhetoric and simplicity of 'monopoly capitalism' theory's propositions about the economic power of giant corporations, they nonetheless both remain within its problematic . They continue to locate a Marxist theory of competition and monopoly in the institutionalist categories of relations between enterprises of different sizes . Even though Semmler in particular is concerned to show the verity of volume 3 of Capital in the era of giant corporations, his propositions on the reformulation of a theory of monopoly and competition, which will be discussed later, do not extend to a consideration of those categories within value theory and within economic class analysis . In direct contrast, Weeks (1981, ch . 6) is concerned precisely to establish that a Marxist analysis of competition cannot be understood outside of class relations . His approach is to emphasise that competition must be theorised in its specifically capitalist dimensions . Accordingly, competition is seen as contingent upon relations between labour and capital in two respects . Firstly, the

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Capital & Class relation between labour and capital in production is itself a competitive relation and hence one dimension of a general theory of competition . Secondly, because all aspects of accumulation are contingent upon commodified labour and the production of surplus value, so competition between values, as a key element in the accumulation process, is premised upon class relations in production . This emphasis by Weeks points to the limitations of the institutionalist conception of competition and monopoly, but it remains assertive rather than demonstrative of the centrality of class relations and value categories . In particular, it is necessary to address the class relations generated within the process of competition between capitals . For Weeks, class permeates by

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definition relations of competition between capitals and also determines the social structure within which competition occurs, but this is only a passive theoretical presence . It establishes that class relations are important, but not how they are important - the actual process by which the class dimensions of competition and monopoly are articulated within value theory . This paper proposes that the way forward from these problems is to construct the categories of competition and monopoly from more basic categories of Marxist theory . Before addressing this directly, it is necessary first to clarify why Marxism cannot simply take on the popularly-accepted meanings of competition and monopoly as found in neo-classical economics . The critique of neo-classical notions

Recent contributions to a Marxist theory of competition have identified three areas of major divergence from the commonlyadopted neo-classical theory . These can first be identified independently before being analysed collectively . First, competition should not be understood as a form of market structure (the perfect market), but as a process - more particularly as the process which articulates relations between individual capitals . In Marxist theory competition may, on occasion, take a monopolistic form, but monopoly is not distinct from competition . As with competition, monopoly too must be seen as a process rather than as a market structure . Second, the process of competition is not restricted to relations between sellers in a market place, in which capitals compete for the sale of particular use values . Rather, each capital competes with every other capital for a share of total surplus value . Thus competition occurs throughout the process of the reproduction of each individual capital as the mechanism by which value circulates and surplus value is appropriated . Third, competition is the process by which individual capitals cohere in the formation of total capital, for it is by competitive relations between capitals that capital in isolated

Monopoly

forms is integrated into the circuit of total social capital . Thus, it is competition which constitutes total capital as a contradictory entity, for competition unites individual capitals by integrating their reproduction (including their shared relations with labour) while at the same time dividing them in their competition for a share of total surplus value . Central to each of these points is a rejection by Marxism of an equation of competition with the ideal type of a `perfectly competitive market', so favoured in neo-classical theory . It is not the purpose of this paper to make yet another critique of perfect competition or the use of ideal types generally . A number of pertinent points should, however, be noted, for they can be seen to apply equally to certain Marxist applications of the concepts of competition and monopoly . Theoretical discourse contingent upon a conception of perfect competition involves the conflation of competition as process and the assumed structure of a (perfectly) competitive market . This leads directly to the neo-classical proposition that any deviation from perfect competition (large numbers of buyers and sellers ; costless knowledge ; costless mobility, etc .) involves the negation of competition itself . Weeks (1981, p . 153) aptly labels this as the `quantity theory of competition' : the fewer the numbers of buyers and/or sellers in the market, the more limited competition is understood to be . At the limit, a single seller or buyer (monopolist or monopsonist) defines the total absence of competition . The narrowness of this conception of competition means correspondingly that neo-classical analysis of so-called `imperfect competition' remains restricted to the postulation of theoretical, if not empirical, special cases : monopolies and oligopolies are defined in terms of their deviation from perfect competition and so constitute an aberration within a competitive system . Hence, in neo-classical theory, imperfect competition is conceived only negatively, by the absence of any of the assumed conditions of perfect competition . It follows directly that the market solutions of imperfect competition can be defined only negatively, as the absence of determinate prices (except for pure monopoly, which is also an ideal type) . In neo-classical terms, imperfect competition is strictly an antilogy, so that indeterminate solutions are a compatible effect . In search of determinate solutions, neo-classical economists invariably hide in the security of the perfect market . The inadequacy of the neo-classical understanding of competition as perfect competition has been clearly identified in recent Marxist work on monopoly and competition, especially by Weeks (1981) and Semmler 91982) . But it has not been identified by Marxists alone . The works of Schumpeter (1947) and McNulty

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(1968) are particularly noteworthy as non-Marxist critiques of the neo-classical theory of competition, including imperfect competition . Both draw out the static and ahistorical nature of the neo-classical concept . The importance of a Marxist analysis is not so much its capacity to identify new critiques of the `internal' adequacy of neo-classical theory, but the capacity to develop this critique into a more complete conception of the competitive process : a specifically Marxist development demanded by the way in which Marxism theoretically constitutes the concepts of capital and accumulation . Capital theory and competition in Marx

A Marxist use of the concept of competition is quite distinct from that of the neo-classical problematic . In Marxism, competition relates to the general sphere of relations between capitals inter-capital relations from the perspective of individual capitals, and intra-capital relations from the perspective of total capital . Marx defined competition simply as `the action of the many capitals upon one another' (Marx, 1858) . It might at first appear that starting at this level of generality has problems because of ambiguities and imprecision in the concept of capital . That is, for Marx, `capital' means both a form of wealth (capital as value) and also a particular form of social unit within which wealth is generated (capital as enterprise, as in the concept of an `individual capital') . We find, however, that this is not an ambiguity at all, but reflects different levels of abstraction and of reality in Marx's analysis . Accordingly, just as capital is defined differently (but not incompatibly) at different levels of abstraction, so competition, as an intra-capital relation, must be conceptualised differently at different levels of abstraction . Here, reference is to Marx's distinction between the levels of capital in general and individual capitals : Capital in general as distinct from particular capitals does indeed appear (1) only as an abstraction, not an artibrary abstraction, but an abstraction which grasps the specific characteristics which distinguish capital from all other forms of wealth - or modes in which (social) production develops . These are the aspects common to every capital as such, or which make every specific sum of values into capital . . . ; (2) however, capital in general, as distinct from particular real capitals, is itself a real existence . (1939, p . 449) Hence, capital in general, as an abstract category, is the elemental form of particular individual capitals, expressing the hidden logic by which they exist and reproduce themselves . Correspondingly, individual capitals are the concrete level of capital's apparent existence as a multiplicity of entities which are popularly conceived of as `enterprises' . Collectively, these individual capitals

Monopoly form the circuit of total social capital . Parallel with these different conceptions of capital, it is possible to distinguish `competition in general' (the abstract, elemental form of competition) from the concrete level of competition between individual capitals within the circuit of total social capital . This can be seen in the distinction Marx draws between the essence and appearance of competition : Conceptually, competition is nothing other than the inner nature of capital, its essential character, appearing in and realised as the reciprocal interaction of many capitals with one another, the inner tendency as external necessity . (1939, p . 414) The abstract level of competition in general as the `inner nature of capital' exists logically prior to the existence of capital in the form of individual capitals and so can in no sense be reduced to competition between enterprises . This abstract level poses competition as the dimension which describes the cohesion of the isolated elements of capital accumulation . Competition's essential function is to unify discrete movement of capital in a way which secures the production and reproduction of a social system of wealth generation . That is, competition occurs in the circuit of socal capital in the process of capital moving between the forms of money, production and commodities as the circuit reproduces itself. The unifying role of competition is to secure the rate at which value is transferred between these forms of capital (i .e . the commensurability of capital in different metamorphoses) . Put simply, it is only by an abstract notion of competition that it is possible to conceptualise equivalence between the money form, the productive form and the commodity form of value . It is clear that, at this level of abstraction, the process of competition is not restricted to inter-enterprise exchange because competition in general exists in processes which, at a concrete level, would be identified within as well as between enterprises . It is too often forgotten by Marxists that the enterprise is not the unit of the circulation of value and hence is not the unit which determines the commensurability of value, but the unit of appropriation of value . It follows that the enterprise is not important in defining the circuit of social capital (i .e . the process of accumulation) but in the concrete articulation of the circuit . As with Marx's concept of capital in general, a concept of competition in general provides a dual role . First, it establishes the inner laws governing capital . Second, it provides an abstract reference point by which to comprehend concrete diversity . In this first role, abstract competition `merely expreses as real, posits as an external necessity, that which lies within the nature of capital' (Marx, 1939, p . 651). In its second role, abstract com-

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petition is a concept with which all more concrete anlysis of capitalist competition, including competition between enterprises, must be directly theoretically compatible . The relationship between abstract and concrete competition is that abstract competition in the circuit of social capital determines that concrete competition between individual capitals is constrained to adhere to the underlying laws of expanded reproduction of capital . In the context of a discussion at the abstract level of capital in general, Marx contended that : `Competition subordinates every individual capitalist to the immanent laws of capitalist production, as external and coercive laws . It compels him to keep extending his capital, so as to preserve it, and he can only extend it by means of progressive accumulation' . (1867, p . 739) Competition in general ensures that the actions of an individual capitalist are `a mere function of capital' (ibid .) . At the concrete level of individual capitals, competition designates the process by which surplus value is apportioned between individual capitals in the forms of profit of enterprise, rent and interest . Thus, concrete competition involves the prac-

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Monopoly 79

tices by which individual capitals seek to maximise their share of total surplus value . It therefore relates to both the production and circulation of value . The conditions of production (what Marx calls the formation of prices of production) within different enterprises involves competition to reduce costs of production below the norm of other enterprises . Relations of exchange between buyers and sellers determine which individual capitals are able to appropriate the surplus value generated in the sphere of production (Shaikh, 1978, p . 241) . While relations of exchange in the movement of capital determine the average rate of profit within a branch, differences in prices of production between enterprises determine whether individual enterprises earn above or below the average rate (Marx, 1894, pp . 373-4) . Thus concrete competition expresses competition in general articulated through a system of individual capitals, and mediated by a whole series of empirical complexities . It directly determines both the allocation of social resources between uses and the development of the productive forces under capitalism . It can already be seen that a Marxist conception of competition, in both its abstract and concrete levels, does not rely on a specification of market structures (perfect or imperfect markets) and so is not contingent upon a distinction between competition and monopoly . However, in posing a Marxist theory of concrete competition in these dimensions, there is need for initial qualification . A close reading of Marx will identify a number of occasions of incidental reference to monopoly which characterise monopoly as the opposite of competition, in a way similar to neo-classical economics . But `monopoly' used by Marx in this way can be found only prior to volumes 2 and 3 of Capital precisely the works in which Marx developed the explicit theory of relations between individual capitals . That is, when Marx came to consider directly for the first time the function of competition between individual capitals in the circuit of social capital he did not use a concept of competition which was exclusive of monopoly or vice versa . We can thereby refer to the Marxist theory of concrete competition as that found within volumes 2 and 3 of Capital. In neo-classical theory, competition is associated with the simple reproduction of capital . There is no recognition of expansion as being integral to the logic of caiptal . Techniques of production, which determine optimal enterprise size at minimum production cost, are an exogenous assumption of the perfect-competitive model . This permits the ahistorical assumption of large numbers of producers and that, from an initial equilibrium, an expansion in industry output will be met by an increase in the number of

The need for a concept of monopoly

Capital & Class 80

producers, while their size and optimal levels of output remain constant . It is because of these static assumptions of competition that monopoly can only be explained outside of the theory of competition . If Marxist analysis of the competitive process cannot embrace and explain the tendency towards the growth of some capitals (capital concentration) and the dissolution of others-in aggregate, the tendency towards the centralisation of capital - it remains static and largely irrelevant . This points to the fact that the integrity of Marxism requires a clear break with neo-classical precepts . Yet nor is a Marxist concept of competition redeemed simply by imposing the assumption of expanded reproduction of capital as a means to inject the historical dimension of concentration and centralisation of capital . The recognition of concentration and centralisation certainly breaks with the neo-classical theory of competitors (the `theory of the firm'), but not with its theory of competition . Relations between individual capitals in the expanded reproduction of social capital do reveal an inherent tendency towards concentration and centralisation, but these relations cannot be reduced to that tendency alone . However, this is not universally accepted within Marxism . Many Marxists, unwilling to make this break, have attempted to reconcile a neo-classical theory of competition with the recognition of a historical process of concentration and centralisation of capital . One form of this is the tendency to adopt the Kaleckian notion of `degree of monopoly' : a concept which simply provides continuum within the neo-classical antithesis . The more widely utilised attempt to synthesise neo-classical and Marxist theory is to be found within the distinction between historical phases of competitive capitalism and monopoly capitalism and/or between sectors of competitive capitals and monopoly capitals . The theory behind this distinction needs to be closely scrutinised . Whether posed as a historical or a sectoral juxtaposition, it serves to reproduce neo-classical concepts of accumulation, simply with a `radical' bent . The essential problem is that, in each case, the distinction pivots on the difference between `small' and `big' capitals . While such a difference is clearly not empirically false, nor should it be seen as central to an explanation of the circulation and accumulation of value . The neo-classical aspect of the difference is the association of small capitals with competition and large capitals with monopoly . The `Marxist' ('radical') aspect of the difference is the proposition of the tendency for big capitals systematically to dominate small capitals in the market place and for the former to grow at the expense of the latter . Yet however much temporal element is utilised within this `Marxist' aspect, it remains an essentially synchronic analysis within

Monopoly institutional categories . It cannot explain the dominance of monopolies other than by exchange relations within the market place, nor can it explain the conditions of reproduction of `small' capitals under the dominance of `big' capitals . Within this attempted marriage of `Marxist' and neo-classical elements, the underlying premise is that competition and monopoly are to be analysed as occurring only within the market place . This premise should be called into question . Its essential emphasis is on the numbers and size of sellers : that is, the market structures which ensure that so-called monopolies `out perform' so-called competitive enterprise . Once Marxism concedes this limitation on a theory of competition and monopoly it loses the depth and coherence of value theory as the explanation of relations between individual capitals . This can be seen in the need perceived by some Marxists to edit, reformulate or even reject value theory in order to accommodate an explanation of `monopolies' . For example, Sweezy (1942 ; 1979) contends that the law of value is valid only in the competitive phase or sector but not in the monopoly phase or sector because monopoly prices bear no relations to values . Similarly, in Hilferding's famous Finance Capital, his focus on the institutional forms of cartels, combines and monopoly pricing can be seen to derive from his proposition that : ` . . . the monopolistic combine, while it confirms Marx's theory of concentration, at the same time tends to undermine his theory of value' (1910, p . 228) . The concern of this paper, however, is not to proffer a resolution of this question of the relationship between values and prices under conditions of `monopoly capital' . It is to criticise the conception of monopoly from which this question derives : a conception defined entirely within the `market place' . It will be shown that analysis based on the market power of big capitals (so-called `monopolies') assumes as unproblematical the concept of monopoly itself. Indeed, such analysis adopts an approximation of the neo-classical conception of monopoly power and the effect has been largely to replicate the neo-classical distinction between perfect and imperfect competition . This is seen particularly in Wheelock's (1983) attempt to formulate within Marxist theory, different laws of competition which operate within each of the monopoly and competitive sectors and between the two sectors . The two sectors come to assume the status of ideal types each with their own internal logics of reproduction . The result has been not a Marxist theory of competition, but a sociology of the market place . The prevalence within Marxism of this theory of monopoly and competition demands that it be subjected to detailed criticism . Three principal areas of criticism can be defined . The first, a C&C 26/SUMMER 85-F

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preliminary criticism, is associated with the signifiers `monopoly' and `competition' themselves . Their implication is that monopoly and competition are exclusive forms : that there can be no monopoly in the process of competition and that monopolists do not engage in competition . The proposition that competition contains no monopoly directly reproduces the neo-classical ideal type of perfect competition, for in the absence of any one of the assumed conditions of perfect competition (i .e . small numbers ; imperfect knowledge or mobility, etc .) monopoly market power can be said to exist . Further, the theoretical adoption of a phase or sector of monopoly capitalism creates the impression that the centralisation and concentration of capital is a recent or sectorally limited phenomenon rather than inherent within the concrete process of accumulation . Similarly, the proposition that monopoly contains no competition has no meaning in Marxist theory for it leaves unexplained the process by which value circulates `into' and `out of' these so-called `monopoly' enterprises . It has already been emphasised that competition in the capitalist mode of production is a central element in the development of the forces of production ; in the allocation of productive capacity between alternative uses, and in the general process of the circulation of value (esp . Shaikh, 1978, 1978) . So-called `monopolies' are subject to all these processes . By definition, then, they engage in competition . In summary, instead of the process of concentration and centralisation defining the process of capitals' development, many Marxists still adopt the statically-conceived distinction between `big' and `small' capitals . In this conception the big capitals are called monopolies because they exercise power in the market place (i .e . the neo-classical distinction between price makers and price takers) . The contradictory process by which capitals grow large is not considered, yet it is precisely the process which is a central element of competition . The second criticism of the monopoly-competition juxtaposition follows directly from the first . It relates to the distinction between monopoly and competition being defined within the market place . The effect of this is to see the role of monopoly and competition as that of price formation within the market rather than the movement of social resources between productive activities . Yet price is only an indicator, the embodiment of information ; it is not a real effect in itself . Even in neo-classical theory, equilibrium is achieved not by price movements per se, but by the resource movements which are a response to changes in relative profitability which, in turn, derive from changes of price . It is only by sleight of hand that resource allocation can be reduced to market price formation, for it is only under the restrictive

Monopoly assumptions of perfect competition that movements in market prices form an unmediated explanation of changes in resource allocation . It is only in perfect competition that the profit effects (opportunity costs) of price changes are sufficiently sensitive so as to always generate a commensurate shift of production (resources) between industries . Outside of perfect competition, the nexus between profits, market prices and resource allocation is broken . Thus, if competition between capitals is to be understood as the process of distribution of social resources between activities (i .e . the expression of competition in general), this process cannot be read off from market prices . Monopoly and competition must be explained at a more fundamental level than price formation . This need derives in part from the fact that, outside of perfect competition, resource movements (the circulation of capital) need not take the form of exchange, but may occur within an enterprise and thus need not logically enter the price sphere . In this regard, Clifton (1977, pp . 146-8) has emphasised that capital is more mobile within enterprises than between enterprises . Accordingly, it is the large and diversified, so-called `monopolies' whose resource allocation is most sensitive to changes in the rate of profit in different productive activities . He argues that small enterprises do not have the capacity for mobility between productive activities, while large enterprises have the capacity to undertake multiple productive activities simultaneously . Large enterprises can thereby allocate money capital and means of production (new investment) to those activities within the highest expected rate of return . The equalisation of the rate of profit, as an expression of the competitive process, can thereby be achieved by investment decisions within large enterprises, and is in fact facilitated by the largeness of the enterprise . This aspect of the competitive process is not grasped by those Marxists who are concerned only with the institutional dimensions of market competition between enterprises. It is only apparent when competition is associated directly with the process of circulation of value . The third dimension of criticism of much Marxist analysis of competition and monopoly is its restricted conception of monopoly in the context of `monopoly capital' . This concept of monopoly capital refers to large-scale producers which undertake sales promotion (product differentiation) and enjoy barriers to entry and other constraints on the emergence of `competition' . The argument follows that this permits the exercise of market power and thereby the appropriation of surplus profits . This definition fits within the precepts of neo-classical categories . Insofar as it defines monopoly at the level of market structure

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(number of producers/sellers), it implicitly defines competition as existing only between sellers of the same product (use value) . Thus the single seller of a use value or differentiated use values defines the terrain of `monopoly' . Marxist theory, however, recognises that competition is not restricted directly to the market place and to the sellers of identical use values . Rather, each capital competes with every other individual capital as each seeks to secure a maximum share of total surplus value (i .e . surplus value appropriated from all productive labour by all individual capitals combined) . Thus, the extent of relations of competition is not delimited by the sale of particular use values (defined even to include all related commodities with a cross elasticity of demand greater than zero) but by the extent of circulation of surplus value . It follows that, within Marxism, monopoly is explained within the articulated relations between individual capitals and total capital, not within discrete commodity markets . In this regard, monopoly has no automatic relation to enterprise size, either absolute or relatively within the `market' . Correspondingly, there is no reason to assume that monopoly profits will accrue to large enterprises as postulated within the theory of monopoly capitalism . From Semmler's survey of empirical sources on enterprise rates the same conclusion is drawn . He found that the existence of large corporations does not necessarily mean the existence of market prices which persistently deviate from prices of production and that these corporations do not, in general, secure long-run profits above the average (1981, pp . 105-11) . Thus, if monopoly is to be identified with the securement and reproduction of surplus profits (i .e . the capacity of capitals to avoid the profit-equalising effects of the competitive process) this cannot be explained in terms of `bigness' of enterprise per se . A Marxist theory of monopoly must take a different course . Semmler's own solution is to proffer a distinction between corporate power and monopoly power . Here, monopoly power pertains to the structure of a particular market (the market for a particular use value) in which a seller faces a less than perfectly elastic demand curve, while corporate power occurs beyond the limits of particular markets, lying in the capacity of large corporations to circulate capital internally, beyond the scope and regulation of particular markets . While this solution does not conflate monopoly power with enterprise size, it nonetheless returns the concept of monopoly to the neo-classical terrain of imperfect competition . In essence, Semmler has identified a level of competitive activity of large corporations beyond the neoclassical conception of monopoly, but without ever problematis-

Monopoly 85

ing that concept itself . The problem is that a Marxist theory of monopoly is not to be formulated by developing a more sophisticated description of the activities of capitals as institutions unless such description is founded within the theory of competition in general .

In developing such a theory, it is appropriate to return to Marx's Capital . It is apparent there that Marx adopted two concepts of monopoly, both of which are important in understanding the allocation of resources and the distribution of total surplus value between individual capitals . On a number of occasions, Marx referred to a distinct variety of `natural' monopolies . Natural monopolies he defined as `those arising out of the capitalist mode of production itself(1894, p . 298) . This form of monopoly is associated with the process of concentration and centralisation of capital . It is `natural' insofar as it is a direct expression of the inherent tendency of capitalism towards the expanded reproduction of capital . It is the case of economies of scale which comes with the growth of individual capitals . As is well recognised in many industries, large capitals can enjoy lower average unit costs of production than small capitals . But this is not to be confused with either Semmler's concept of `corporate power' or the neoclassical concept of monopoly . The latter focuses not on the absolute size of production, but size relative to the market . The status of being a single seller involves surplus profits by the capacity to exercise `power within the market' . Marx's natural monopoly is not posed in terms of conditions of revenue maximisation, but simply in terms of more efficient utilisation of labour power and means of production which derives from (and demands) the concentration of capital . Thus, also in contrast to Semmler's `corporate power', there is no suggestion of capital circulating outside of the jurisdiction of the law of value . The other variety of monopoly is not associated with the growth of individual capitals, but with other conditions under which surplus profits of individual capitals are not eradicated by the competitive process . The nature of this second type of monopoly is elaborated most clearly by Marx in relation to rent theory (1894, part 6) . He defined rent on land as `a form of surplus profit, which constitutes its substance' (1894, p . 813) and so it is to be associated directly with monopoly . Marx developed an explanation of differential rent in the illustration of a privately-owned waterfall . This waterfall could be used to generate cheap power for a single producer and so lower the cost of production of that individual producer below the industry norm . Further, so long as the waterfall remained in

Monopoly in accumulation

Capital & Class 86

private (monopoly) access for this individual capital, it could continue to generate surplus profits because other producers could not adopt the lower-cost production technique . There are two relevant aspects of this illustration . First, the surplus profits exist because there is just one producer with access to a waterfall . The effect of all producers having access to cheap power would be to lower the price of production in that industry, and so reestablish the universality of the average rate of profit . This is the `technical' aspect . The `social' aspect, which is specific to Marx's illustration, is that the surplus profit is appropriated as rent by the landlord because the waterfall is owned by the landlord, not by the industrial capitalist . We can separate the `technical' aspect from the `social' aspect of Marx's illustration so as to clarify the nature of this type of monopoly . That is, irrespective of the fact that, in Marx's illustration, surplus profit is appropriated as differential ground rent, there remains conceptually the conditions under which a single producer can generate surplus profits without the tendency for other producers to adopt the same techniques of production . These conditions we must also associate with monopoly . The relationship between landlord and industrial capitalist determines only who appropriate the benefits of monopoly, not the existence of those monopoly benefits . Our illustration from Marx was associated directly with land, but competitive conditions which secure the reproduction (not just temporary existence) of surplus profits are not specific to land . This has been long recognised by neo-classical economists for whom the category of rent is no longer land-specific . Joan Robinson, in her seminal formulation of the neo-classical theory of imperfect competition, defined rent as : the surplus earned by a particular part of a factor of production over and above the minimum earnings necessary to induce it to do its work . . . The conception of rent has often been too closely interwoven with the conception of land . Particular units of factors of production which belong to the other three borad categories, labour, entrepreneurship and capital, may also earn rent . (1933, p . 102) Marxist value theory is, of course, not formulated in the categories of `factors of production' - a mode of analysis criticised by Marx in his analysis of `The Trinity Formula' (1856, Addenda ; 1894, ch . 48) . But Marxists engaged in an analysis of competition would do well to recognise a category in the profit sphere comparable to that of neo-classical theory's `economic rent' . This would focus directly on the conditions under which an individual capital can secure long-run profits above price of production . This does not imply, as in neo-classical rent theory, a static

Monopoly

conception of the process of accumulation in which any value in excess of that required to secure simple reproduction of a factor is deemed to be a `surplus' . On the contrary, the concept of price of production is a category posed internal to a theory of capital as self-expanding value . The essential point is that, by associating monopoly with the capacity to appropriate a rent, it is possible to overcome the limitation of the institutionalist association of monopoly with market power, to the neglect of a consideration of competition in general . As is the case in Marx's waterwheel or, for example, a patented technique of production, the condition of long-run reproduction of profits above price of production is not necessarily to do with production by big enterprises, nor with a seller which faces a less than perfectly elastic demand curve (i .e . with the ability to exercise competitive muscle in relations of exchange) . Hence it is not to be reduced to either the conditions of `natural' monopoly, nor what Chamberlin (1933) termed `monopolistic competition' (market competition between sellers of differentiated products) . Rather, it is monopoly at the level of production : a constraint on the equalisation of technical norms of production and thus on the tendency for profit rates to equalise . The distinction between monopoly expressed at the level of exchange and monopoly at the level of production cannot be developed within the institutional discourse . It is apparent only in a theory of competition based in a conception of competition in general, focusing on the commensurability of different forms (metamorphoses) of value as capital moves through the full circuit of social capital . This can be seen as follows . Monopoly in exchange generates surplus profits in the sphere of realisation, in the movement from the commodity form to the money form (C'-M') . Power in the market place permits the realisation of C' at a price above the value of M' . Monopoly at the level of production, by contrast, occurs within the movement C . . . P C' and involves a given value of output (C') being produced with a lower value of inputs than the norm . Monopoly in production thereby raises no basis of denial of the law of value, as found in theories of monopoly capitalism . Output sells tendentially at its price of production, while still securing surplus profits . At the abstract level of competition in general, monopoly indictes the existence of socially reproducible non-equivalence between the values of money production and commodities, in the circuit of social capital . Within concrete competition, monopoly is associated with a range of empirical forces which prevent profit rates from equalising . A Marxist theory of competition which neglects monopoly in production is forced to adopt the neo-classical assumptions of perfect competi-

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tion to ensure equalisation of the rate of profit . Yet to reject a theory of perfect competition does not require the adoption of the (neo-classical) theory of imperfect competition, as adopted in theories of monopoly capitalism, for this locates competition exclusively within the sphere of exchange . Rather, Marxism must recognise monopoly as integral to the laws of capital accumulation . In this respect, a conception of monopoly in production must be contrasted with a theory of monopoly defined in terms of market power in two important dimensions : the relationship between monopoly and class, and the role of concentration and centralisation of capital within competition between capitals . Some brief comments can be made on each of these . Monopoly in exchange has no direct association with relations between labour and capital . Its market focus identifies relations between buyers and sellers, not between classes . Monopoly affects labour only as a buyer of commodities, by the effect on the cost of the means of subsistence of labour of certain commodities selling at a price above value . Yet if, in aggregate, prices are to equate to values, there must be other commodities selling at a price below value . In these cases, labour must gain . The class content of a theory of monopoly in exchange thereby reduces to an empirical identification that monopolies are found predominantly in markets for subsistence goods . Otherwise, value categories must be rejected, leading to a theory not of relations between classes, but between producers and consumers . With monopoly in production, by contrast, commodities will sell tendentially at price of production . This indicates that surplus profits derive directly from the extra surplus value generated in production under conditions of high labour productive (relative surplus value) (Marx, 1867, p . 434) . While monopoly in production secures labour productivity above the norm, none of the benefits of high labour productivity accrues to the sellers of labour power, but are appropriated by the dominant class, be it capitalist or landlord . This is not to suggest that these benefits should accrue directly to the productive labour, for this would impose an individual rather than a social determination of the value of labour power . Rather, it indicates that analysis which neglects monopoly in production will tend to understate the rate of surplus value . Thus the popular contention that monopoly reduces total surplus value (for example, Mandel, 1981, p . 63) can be seen to be based entirely on a concept of monopoly in exchange, and thus present a highly restricted explanation of the effects of monopoly on the production of surplus value . Indeed it is precisely the negation of monopoly rents, by the decline in the norm of production within a branch, which reduces the mass of

Monopoly

surplus value by reducing the social value of that branch's output . The second issue, concentration and centralisation of capital, is an important element in both monopoly in exchange and monopoly in production . In the former, the connection is quite explicit : concentration and centralisation creates individual capitals of a size capable of exercising market power and determining market prices . Moreover, concentration and centralisation becomes self-reproducing to the extent that it secures, via the monopoly pricing, the surplus profits on which growth, and hence market power, will be sustained and extended . Within this conception of monopoly in exchange, concentration and centralisation is understood entirely in its market consequences, quite outside of the value-creating process . Monopoly in production, by contrast, focuses on the role of concentration and centralisation of capital in reducing costs of production below the norm . This is realised through such means as economies of scale and technological development, both of which are commonly associated with the growing size of individual capitals . In this respect, concentration and centralisation expresses an aspect of the competitive struggle to secure a rate of profit above the average, by cutting costs of production . Monopoly in production therefore draws out a central link in Marx's theory of competition, and one which cannot be found in a theory of monopoly in exchange . Marx identified two major historical developments associated with capitalist competition : the development of the forces of production and the growing concentration and centralisation of capital . These are usually discussed as discrete, though parallel tendencies . However, this analysis suggests that the forces of production develop by means of the competitive struggle to reduce costs of production and secure surplus profits (monopoly in production) (Uno, 1964, p . 76) . Concentration and centralisation is a key process by which individual capitals pursue continual reductions in their costs of production . In this respect, the development of the forces of production and the concentration and centralisation of capital are both associated with the one process of monopoly in production . The relations of exploitation in the two different forms of monopoly points to a significant conclusion . Those Marxists who associate monopoly simply with the market power of big corporations do so frequently in order to highlight the contradictions of capitalism in its modern form (Sherman, 1983) . This, however, turns out to be very much the liberal critique . Relations between buyers and sellers are not class relations : higher prices charged by so-called `monopolies' do not involve an `exploitation' of labour

89

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any more than it makes possible the proposition that big capitals exploit' small capitals . This critique of modern capitalism reduces to the proposition that, with the concentration and centralisation of capital, competition does not realise the solutions of the perfect market . This is hardly a profound conclusion . Indeed, it is a tautology . And, like all tautologies which are given the appearance of analysis, it is the underlying premises which permit the formulation of tautologies which is where the real issues of debate are to be found . The premise of that Marxist and institutionalist analysis which has been criticised in this paper is that competition and monopoly can be seen as structural, synchronic relations between enterprises, conceived of largely outside of a Marxist theory of accumulation and historical development . We are given a theory of unequal exchange rather than a theory of the reproduction of total capital under conditions of the contradictions between the expanded reproduction of individual capitals . The socially and economically progressive nature of the centralisation and concentration of capital (the socialisation of production) is lost if competition between capitals is reduced to a game between players of various sizes . A further problem of the formulation of a theory of competition and monopoly in the sphere of market relations is that it leads Marxism to the entirely secondary issue of price formation under conditions of `imperfect competition' . Undoubtedly, as Sweezy contents (1970, p . 271) there are no laws regulating such price formation . But this should, for Marxist theory, involve not a denial of value theory but precisely its importance . That is, the laws of the process of capitalist competition are not to be found within the formation of prices but in the circulation of value, in the determination of the commensurability of capital as it moves through the forms of money, production and commodities . In the process of focusing on the sphere of price formation in relations between big and small (so-called `monopoly' and 'nonmonopoly') capitals there has been a neglect of the issue which is at the heart of capitalist accumulation - the exploitation of labour by capital. This paper has emphasised that relations of competition between capitals, as a process by which surplus value is distributed between capitals, is not separate from the creation of surplus value . Surplus profits derive not only from exchange relations between capitals but also from the super-exploitation of labour . A theory of monopoly must be able to explain both sources of surplus profits . Accordingly competition and monopoly must be understood as processes within the whole circuit of social capital - within production as well as within circulation . Marxists have devoted too much time looking for monopoly

Monopoly

in the reified form of institutions - giant corporations - and too little attention to a theorisation of monopoly within the sphere of capital and accumulation . All too often this has resulted in the depiction of `monopolies' as the major contradiction of modern capitalism . Class relations become lost in market relations . The alternative perspective on monopoly and competition proffered in this paper starts from the concept of capital as value in movement . It then poses competition as the process of movement and monopoly an expression of non-equivalence in that process . There is no automatic concern with the size of individual capitals because there is no reason to assume that big capitals inherently generate non-equivalent in the circulation of value . This, it is to be hoped, can lead Marxism away from the rhetoric of opposition to giant corporations, multinational enterprises, etc ., so that the progressive (for socialism) effects of concentration and centralisation of capital might be identified .

Acknowledgements : I am grateful for comments on an earlier version of this paper by Ron Horvarth, Even Jones, Scott Macwilliam, Rob Reid Smith, Frank Stilwell and Andrew Wells .

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Capital & Class 92 Bibliography

Baran, P . and Sweezy, P . (1966) Monopoly Capital, New York (Monthly Review Press) . Chamberlin, E . (1933) The Theory of Monopolistic Competition, Cambridge (Harvard University Press) . Clifton, J .A . (1977) `Competition and the Evolution of the Capitalist Mode of Production', Cambridge Journal of Economics, vol . 1, pp . 137-51 . Hilferding, R . (1910) Finance Capital, London (Routledge & Kegan Paul) 1981 . McNulty, P . J . (1968) `Economic Theory and the Meaning of Competition', Quarterly Journal of Economics, vol . LXXXII, pp . 639-56 . Mandel, E . (1981) Introduction to K . Marx, Capital, vol . III, Harmondsworth (Penguin) . Marx, K . (1856) Theories of Surplus Value, part 3, Moscow (Progress Publishers) 1975 . Marx, K . (1858) Marx to Engels, April 2 . Reprinted in K . Marx and F . Engels, Selected Correspondence, Moscow (Progress Publishers) 3rd edition, 1975 . Marx, K. (1867) Capital, vol . I, Harmondsworth (Penguin) 1976 . Marx, K. (1894) Capital, vol . III, Harmondsworth (Penguin) 1981 . Marx, K . (1939) Grundrisse, Harmondsworth (Penguin) 1973 . O'Connor, J . (1973) The Fiscal Crisis of the State, New York (St Martin's Press) . Robinson, J . (1933) The Economics of Imperfect Competition, New York (Macmillan) 1969 . Schumpeter, J . A . (1947) Capitalism, Socialism and Democracy, London (Allen & Unwin) . Semmler, W . (1982) `Theories of Competition and Monopoly', Capital and Class, no . 18, pp . 91-116 . Shaikh, A . (1978) `Political Economy and Capitalism : Notes on Dobb's Theory of Crisis', Cam bridge Journal of Economics, vol . 2 . Shaikh, A . (1979) Notes on the Marxian Notion of Competition (unpublished paper) . Sweezy, P . (1942) The Theory of Capitalist Development, New York (Monthly Review Press) 1970 . Sweezy, P . (1979) `Marxism Value Theory and Crisis', Monthly Review, vol . 31 . Sherman, H . (1968) Profits in the United States, Ithaca (Cornell University Press) . Sherman, H . (1983) `Monopoly Power and Profit Rates', Review of Radical Political Economics, vol . 15, pp . 125-33 . Uno, K . (1964) Principles of Political Economy, Sussex (Harvester Press) 1980 . Weeks, J . (1981) Capital and Exploitation, Princeton (Princeton University Press) . Wheelock, J . (1983) `Competition in the Marxist Tradition', Capital and Class, no . 21, pp . 18-44 .

Vincenzo Ruggiero

The encounter between big business and organised crime Using the case of Italy, the author argues that the distinctions between `criminal' and `clean' business are becoming increasingly blurred . The characteristics of mafia enterprises are generic features of all enterprises and the relations between both criminal and healthy businesses are increasingly collaborative and mutually enabling . Illegal activity develops into business activity and business activity cannot avoid illegal activity . Correspondingly, the institutions of law, administration and finance have adapted their traditionally repressive functions to their vital, cohesive roles of providing the instruments and framework of economic regulation .

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94 Loyalty and Disloyalty RECENT ANALYSES of Italy's penal system have shown that in the current state of criminal affairs, only those who do the riskiest manual jobs in this sphere of `work' end up in prison . Crime's most exposed pawns, it is said, become sacrificial victims to the judicial machinery since they take the most direct risks and, as workers involved in extremely dangerous tasks, pay very high personal taxes for activities that are not exactly well-paid . The prison thus holds a metaphor . It protects society, certainly not from crime, but from a simple representation of crime, at its most delicate and innocuous . This is clear from the periodic campaigns against petty crime, the recurrent slogans calling for `peaceful towns' and the highly successful police operations which, as the same institutional sources reveal, put an ever increasing number of minor delinquents in prison, in spite of the substantial decline in their earnings .' The immediate functions of prison institutions become plain when at the beginning of every judicial year, alarming facts come out about so-called economic crime, higher in monetary terms than the total damage caused by any other type of crime . It is reasonable to see the prison, nowadays, as a sort of symbolic monument designed to protect the general public from the anxiety and uncertainty aroused by alleged waves of criminal violence . But it is also an implicit lesson for those planning criminal careers, that they should abandon the inefficient, independent gangs and work for the more powerful organisations instead . 2 However, the recent arrests of representatives of organised crime, middlemen and businessmen guilty of financial crimes would appear to run counter to what has been deemed to be an undeniable premise of the judicial system .

According to many we are seeing a sudden inversion of tendency in judicial action, to such an extent that it could profoundly change the composition of the prison population, with white collar workers and `managing directors' of large firms substituting for the old representative of the subproletariat and the poorest `criminal classes' . Furthermore, faced with a corrupt political structure and a disintegrating administrative class, the judiciary is seeking, through its recent operations, to restore a climate of legality and seriousness which none of the parties, disgraced as they all are, can achieve . Can the judiciary finally achieve popularity? Can it claim its rightful autonomy from the executive? Can the legitimate distance between the three constitutional powers be reestablished? My own view is that the judiciary's recent initiatives have worked to the advantage of precisely that political and economic world which they were seeking to attack . While the courts' actions have penalised some representatives of administrative power, at the same time they have also indirectly restored a veneer of credibility to the administrative class as a whole . Amongst the principal victims of the purge have been those in non-elective posts, those linked with the running of public administration either through selfappointment or because they have developed privileged economic relations with elected bodies . They inhabit an extrainstitutional territory, and it is in these areas that the source of all corruption has been `discovered', thereby implicitly denying the weight and expansion of cryptogovernment and sub-administration in local government . 3 By placing the blame and concentrating the disloyalty on a few unelected individuals, the structure of government as a whole is reconfirmed in its competence and loyalty .

Mafia business Such methods, however, will certainly not help to undermine those mechanisms of government, whether open or concealed (for the close links between them are now generally recognised), which are corrupt . On the contrary they will be given encouraging signs to adopt new norms of conduct more appropriate to a public image of concern for renewal in public administration . The same applies in the more strictly economic field where an imaginary line has been drawn between honesty and roguery, and where the field of commercial loyalty has been defined and separated from the disloyal morass inhabited by pirate businessmen . Indeed, this emphasis on the 'dysfunctions' of the socio-economic system only ends up by confirming its legitimate `functions' . Clearly, methods that are commonplace in dealing with crime have been extended : a `pathology' is discovered to absolve the social formation that produces the disease and the blame for it is attributed to a single organ so as to give a bill of good health to the organism as a whole . The disloyalty of a few thus serves to demonstrate the loyalty of all . Meanwhile, the economic system and those intricate administrative networks which are the breeding ground for all `disloyalty' thrive and are, on the whole, exonerated .

regions . These arguments have now been 95 taken up not only by sociologists but also by criminologists, who see aggressive development policies as the only way to bring the south back to civil order and reasonable co-existence . Such opinions are so widespread and influential that it is important to challenge them whenever possible . The phenomenon of criminal counterpowers, not to be confused with terrorism, is regarded as a symptom of a polluting model of the management of power . 4 Forms of patronage, administrative irregularities, and widespread petty illegalities are seen as the surviving traces of older modes of production which only industrialisation, with its ensuing forms of democratic representation, will be capable of dissolving . By turning this thesis upside down, we see that it is not where the state is absent but on the contrary, where it is excessively present - that we find the cause of what is defined as `archaic remnants' . It has been said, and it is worth repeating, that the patronage system, for example, breeds brokers who act as mediators between the community, where they have deep roots, and central power, with which they have good connections . Irregularity and corruption in local government can thus be ascribed to an increasingly pervasive central authority which uses the services Development and underdevelopment of brokers, those carriers of corruption The contrast between loyalty and dis- but also of stability, who are capable of loyalty throws up an old ambiguity : the reconciling the needs of the community parallel contrast between development with those of the state, the periphery with and underdevelopment . Loyalty and dis- the centre . 5 loyalty are intrinsically associated with Similar arguments have been made to advanced socio-economic systems and account for the existence of major criminareas of backward social and economic al organisations in the south . Decaying development, respectively . Gramsci's institutions, the inadequacy of bureaufollowers have always identified back- cratic machinery, and the moral poverty wardness in production as the source of all of politicians have created those power social disorder and administrative corrup- vacuums which organised crime is always tion, especially, of course, in the southern ready to fill, functioning as a supplemen-

Capital & Class

96 tary command structure . It has already been noted elsewhere that the mafia and camorra no longer play a purely prescriptive role, that is to say as a parallel police, with an explicit mandate from central government or tacitly legitimated by the population itself . This mediation between citizen and authority has been gradually eroded to leave space for those functions in which economic-regulatory aspects predominate, valid enough to create forms of government within society and to regulate relations between citizens from the inside . 6 In other words, the presence of large criminal organisations in the labour market is so rooted as to acquire implicit social legitimacy. If they once served to interpret an `ethical' order accepted by all in the community, they now represent an economic order which possesses an equally vital cohesive force in that community : they bestow income, mobilise productive energy and present themselves as not particularly heterodox business enterprises compared with national economic practices . I am naturally referring to the constant demand for labour aimed at the extra-legal world ; but I am also talking about those employment opportunities created in commerce, in the services and in small industry which have now acquired legal status, even if they clearly derive from illegally gained capital . Rackets, illegal commerce and swindles, at the ultimate expense of the state and the EEC, have provided a form of primitive accumulation for business, which still remains as remunerative in its rate of development as it is lively in its demand for labour . The amalgamation between illegal activity and legal business is at such an advanced stage that any intervention claiming to `distil' and reorder the two terrains is completely ineffectual . It should be clear by now that develop-

ment feeds on that `apparent waste' which in reality forms elements functional to the state of equilibrium in that they are created, and not by chance, by the development process itself. The process of development also drags along in its wake those social forms which appear eccentric but which, once assimilated, leave room for successive `anomalous' expressions in an incessant and reversible flow between development and underdevelopment . And if within the notion of underdevelopment we want to include the `brutal' business of organised crime, then it is not a paradox to presume a form of permanent, mutual aid between it and its healthy business twin . Echoing the frequent applications of the concept of entropy to the social sciences, the economic order contains criminal disorder ab initio . . . Normality and abnormality A comparison between the methods used by the 'cosca' and the means that have always been part of the legal armoury of social competition makes it easy to demythologise the image that has been constructed of the `bestial' criminal . I am referring here not only to the economic competition among those who control the means of production, but also to the antagonisms unleashed among simple individuals who are condemned to perpetual competition by their insecurity and poverty . The occasional horror of decapitated bodies and twisted entrails bears extreme witness to a war that is fought elsewhere according to rather less primitive rules, in less Elizabethan and less spectacular ways, but which are not therefore any the less persuasive . The phenomenon of ritual violence `peculiar' to the mafia and camorra `brotherhoods', has already been effectively studied by students of subculture . 7 Our concern here is to avoid the lurid images used to

Mafia business describe criminal behaviour, which implicitly depict it as something remote from the society that determines it, and then end up by judging it as a social epiphenomenon, if not as pure individual anomaly . The tone usually found in the media on this subject claims to be descriptive but is in fact profoundly evaluative . Such claims are an inevitable and conscious refuge for establishment journalists, but they also occasionally ensnare `critical' writers and opposition/radical groups . Certainly, the judgements of those who see crime as a series of aberrant acts to be countered with pure repression must be opposed . But we must recognise too that our analysis is undermined by those positions which, on the contrary, see all criminal deviancy as an expression of rebellious behaviour to be wholly exalted . Both are approaches which ultimately derive from well-known positivist models . There is a symmetry of perspective in that both judge criminal facts in terms of their behavioural abnormality . For the first, by concentrating on the individual character of anomaly, it follows quite simply that the individual may be defined as a pathological subject . For the second, even while referring to an etiology of a social nature, it is still the individual act, loaded this time with subversive anomaly, that defines its antagonistic nature . In other words, the action of the individual is called upon to symbolise an unquestionable revolutionary ontology and is ascribed again to an innate disturbance, to a sort of 'anti-institutional pathology' . This is not the place to elaborate those arguments which have demolished such positivist constructions . It is only worth mentioning some of the theories which could be useful to free us from the burden of the notion of `abnormality', especially when its persistent and insinuating presCS
ence tends to do away with more objective 97 analysis . If one looks at the work of Durkheim, Merton, and the whole school of functional-structuralist theories, criminal actions would seem to possess an undoubted functionality, by arousing indignation, and by cementing a common sentiment around the violation of rules . Furthermore, deviancy is seen as a phenomenon innate to any organisation of society ; it is not only inevitable but actually positive when it acts as a stimulus capable of producing novel institutional responses, always creating new sociocultural balances, and feeding the laboratories of social control with new information . 8 If we also look at the psychoanalytic approach, not as applied to individual aberration but to collective disturbance, we end up finding traces of anti-social behaviour everywhere in civil society ; the abnormality is thus taken back to its roots in the widespread norm . Thus even the most violent acts and the bloodiest crimes can at most be seen as a paradox, as an extreme obscenity in the midst of less obscene features, a symbol of absolute disturbance in a society where disturbance is the rule . 9 These are well-known theories that open the way to the demystification of crime . Furthermore, they are now widely accepted and enable students of criminal deviancy to shift their analysis to more fertile ground and to invest crime with a dignity otherwise denied it - that of economic reality . Schumpeter and Locke The most interesting studies currently available as well as the latest judicial investigations have, so to speak, removed the clutter of notions of abnormality and have reconstructed the productive and economic fabric of organised crime . There is universal recognition of the

Capital & Class 98 importance of the economic activities in which mafia businesses are involved : the reconstruction in grand style of major town centres, the building of entire districts, and the monopoly interests in wholesale markets . It is well known now in Campania that the camorra organisations have unquestionable control of the construction and tourist industries . We know too of the presence of Calabrian organised crime in all large-scale public works : the two-track Napoli-Reggie Calabria railway or, most recently, the preparations for the steelworks at Gioa Tauro . And in Calabria, as elsewhere in the south, one cannot help but see the myriad model fruit plantations, the immense citrus groves, and the nurseries and greenhouses - amongst the most advanced in Europe - that bear witness to the way in which criminality and business logic live together in perpetual symbiosis . It is widely believed that these and other businesses in fact owe their existence to capital accumulated through illegal activity ; but the reality is often misunderstood in that the productive mafia is seen as an obstacle to `healthy' economic development and the plans of `clean' business . On the contrary, the mafia has been able to create its enormous available capital not only through rackets, kidnapping and illegal trafficking but also through its very careful exploitation of every available opportunity for appropriating funds . This extraordinary accumulation comes not only from its well-known criminal activities but on a massive scale from public national and international finance, of which, significantly, not even a small part has been dissipated . EEC subsidies for olive oil production, as well as national funds allocated to the south, have been used in completely legal activity, following a truly exemplary ethic of exploitation . No `healthy' entrepreneur could have

capitalised on funding and resources with greater intelligence or rationality . The old camorra saying that `we could make gold out of fleas' possesses a certain grain of truth . 10 A very astute observer has recently coined the term 'enterpreneurial mafia', in contrast to the demonic qualities usually ascribed to the mafia phenomenon ." Drawing on Schumpeterian ideas, he has shown that all the distinguishing features of all businesses are present in mafia businesses ; the innovative aspect ; the element of rationality and capitalist calculation ; and the irrational aspect, that is the Keynesian `animal' spirit indispensable for taking the risks involved in any entrepreneurial venture . But even such a cynical study, and it is one of the more serious, is marred by the numerous moral elements that damage the objectivity of the analysis . The competitiveness of mafia business is supposed to be based on sinister elements such as the availability of financial resources, the stifling of competition and, finally, low pay levels . Countless attempts have been made and not without some trepidation - to expose the profound corruption of the economic structure of mafia business but they consist in fact of attributing to it those features that we find everywhere in the new crisis businesses . I am referring to the `underground' economic miracle based precisely on the availability of financial resources, handed out by the same large groups ; to the `secret' boom that has grown precisely out of the discouragement of competition and wage reductions . I am referring to the network of small businesses, born with decentralisation, which are now autonomous and competitive . The recourse to the honest Schumpeter lends credibility to attempts to discover a moral distinction that binds together the representatives of the present ruling class .

Mafia business For isn't Schumpeter after all the representative of that economic idealism which trusts in the search for harmony, in the peaceful composition of conflicting interests, in the process of balanced economic development? Isn't it Schumpeter who sees the rotten apples of capitalism as extraneous to the ideal organisation of the capitalist mode of production . 12 We must turn from the mild Schumpeter to the clearer, if more brutal Locke to retrace the roots which characterise modern business, criminal or otherwise . We can then observe the return in grand style to liberal doctrines, the restoration of individual forms of contracting, the lack of public intervention in dealing with the social costs of development, the new affirmation of the old business freedoms, the restoration of the idea that the dignity of the individual is connected to `absolute ownership of his own property' . 13 The legality of instruments of accumulation depends, thus, on the economic and social results of business activities, and only these can given them legitimacy . And here again Locke turns up, in a regressive process which is only apparently paradoxical . ` . . . He who appropriates land to himself by his labour does not lessen but increases the common stock of mankind .' 14 This is how the new pirate entrepreneurs are appreciated today, with praise for the creators of an underground economic recovery that has been dubbed elsewhere as the new `Italian model' . And with these compliments come the judgements of many `managers' and `workers' employed in mafia business : `The mafiosi? They are after all only people who exploit the resources of our land .' 15

the existence of an inverse journey . It is 99 possible to hypothesise that `clean' capital, never contaminated by contact with mafia business, turns ultimately to the latter from an opposite direction to the one normally recognised? It would be useful to follow the first part of this trail which sees the assimilation by organised crime of an increasing proportion of crimes committed by the middle classes - so-called white-collar crime . In defining this type of crime we adopt Sutherland's by-now classic principles : they are offences committed by respectable citizens of high social status, in relation to their professional activity . 16 White-collar crime thus rests on an abuse of social trust and by its very nature goes beyond all etiological constructions of the various criminological approaches . It is difficult to even imagine how a respectable person could not be fully integrated, emotionally and intellectually, with social norms, or that a member of the ruling class should express the values of a subculture, or that he should follow a criminal career simply by virtue of a label that defines him as a deviant . White-collar crime seems, rather, to reproduce itself through the spreading of a technique, when the experience of some transforms a series of norms of illegal behaviour into the collective patrimony of a `caste' . To sum up, social areas of wellbeing appear to induce stimuli to imitate, as a result of competition, illegal or not, between individual inhabitants of these areas, as though administrative committees and finance offices were in themselves fertile criminal terrain . We should recognise that white-collar workers, in carrying out their traditional illegal activity, are gradually losing their Mafiosi and white collars autonomy . Their criminal work increasIf the idea that business often grows out of ingly requires more explicitly illegal strucillegal activity has now been accepted, it tures which can guarantee protection and can be asked whether it is possible to prove security while supplying indispensable

Capital & Class

100 institutional collusion . The well-known channels of collaboration which link organised crime with the centres of institutional power inevitably give rise to centralised organs of administrative and financial crime . In fact they encompass the methods and techniques of this type of crime to such an extent that they constitute an exclusive presence in the field . It is impossible to imagine that an individual white-collar worker could carry off the crime of bribery or make concessions through patronage or manage large-scale tax evasion . Even if the worker could avoid legal controls, it would be difficult to avoid the attention of those who exercise a de facto monopoly in that field . The example of Sicily is striking as the monopoly presence there of mafia families in the register of public contractors, with the obvious white-collar crime associated with it, allows us to understand the kinds of alliances into which small companies are drawn . 17 Even more interesting is the incident of the theft at the Cassa di Risparmio di Calabria (Calabrian Savings Bank) when the careless perpetrator (the secretary of the committee for allocating council houses) was summoned by the local 'cosca' to repay 98% of the booty for trespassing in an area outside his jurisdiction . 18 Today's mafioso is unlikely to come from the lower social classes, but is far more likely to be a white-collar worker, employed in commerce and industry, and part of the functionary-professional middle classes . His behaviour bears the stamp of the unscrupulous pirate businessman, and it becomes an attractive model for those trying to make quick money and always on the lookout for the easiest ways of capitalising on their social position with their own capital . High-ranking public officials as well as small businessmen, professional people and technicians, in

fact all who tread the path of financial crime will come across the major criminal organisations . It is enough to recall the involvement of professionals in the administrative, technical, productive and commercial fields, all of them indispensable to the smooth functioning of mafia business . And then too there are the medical and legal experts with their reexhumed Ganzer syndromes 19 and their implausible speeches that succeed in persuading friendly magistrates that there is insufficient evidence . If the passage of companies from non-mafia to mafia business is common in the field of small businesses, it is even more common to see the metamorphosis of single `clean' family concerns into mafia businesses through the co-option of the owners themselves into the 'cosca' . By way of conclusion we can say that white-collar crime, traditionally the symbol of non-productivity and parasitism, indirectly becomes highly productive once it is drafted into mafia companies . By making room for the rescue and restructuring of companies in crisis, the cosca has shelved the strict, old endogamy in favour of more remunerative cartel-style marriages . Economic crime and economy as crime If we were now to ask whether the economic and financial world could be equated with an immense criminal organisation, there could be objections that the examples given so far deal only with cases of entrepreneurial deviancy and that they constitute a number of anomalies in an otherwise healthy and loyal arena . We should bear in mind the incalculable number of hidden economic crimes and the degree of impunity amongst delinquent businessmen : On occasion they escape criminalisation thanks to their own abilities, but more often than not it is

Mafia business because of the objective tolerance of a law that does not punish the majority of economic acts which would be considered criminal in other situations . In the first instance we can speak of impunity and in the second of immunity . We must therefore consider those instances of economic criminality which are not legally defined as such, and widen the notion of business crime to any activity that can be shown to be socially damaging . 20 We must also take account of the major role played by self-image in the definition of a `delinquent' and consider how unlikely it is that an entrepreneur will be recognised by himself or by others, as having a criminal character . 21 We could even explore the ways in which violence and coercion are intimately rooted in market mechanisms, to the point of going back to that supreme and original source of all crime: capitalist exploitation . However, to avoid simplifications and tautology, it would be more useful to examine at least those situations in which implicit criminal offences are most overt in some sectors of the economy and the financial world . But here too, we must avoid making clumsy, stereotyped definitions which concentrate on the dealer or the dishonest trader or the astute embezzler and which serve to deflect 'attention which otherwise would be spread to cover, if not a whole class, at least whole sections of it' . 22 It is well known that organised crime passes from crimes where subjective choice and the use of violence are crucial, to crimes largely connected with the objective structures of the economic system . It is therefore likely that organisations such as the mafia, having colonised the so-called deviant companies, press on through natural expansion to formally legal concerns . Or, on the other hand, that the latter turn to the mafia when they

urgently need to realise their capital and 101 invest it in secure, if unusual, fields . Large criminal organisations are masters in the field of `extraordinary' accumulation when they invest in legal companies and, simultaneously, in parallel illegal activity which is more advantageous in the short run . They present themselves as natural partners for companies which go through periodic slumps in the course of ordinary accumulation . When the transfer of capital into alternative legal investments is costly and time-consuming, much private capital presumably takes hidden paths . This may be in the form of the clandestine export (of capital) which is unlikely then to remain frozen in a bank . It will rather flow to those complementary islands as illegal traffic which guarantees immediate returns and allows for that extraordinary accumulation which is capable of restoring vitality . A few brief examples can substantiate what might appear to be mere allegations . The market in works of art, and the theft which seems intrinsic to it, sees such a massive circulation of capital that we can have no doubt as to who controls the first and commissions the second . Every transaction in this market `shows too vast an initial availability of capital to be judged autonomous from the finance of large economic complexes' . 23 Equally, similar methods could be employed in economic deals like drug trafficking and kidnapping and it is possible that both these activities surround the subsidiary investment islands which attract `healthy' companies at certain times . The evidence lies in the exorbitant initial costs, the ultimate increase in income and the growing levels of impunity with respect to investment in these fields . 24 Illegal investment can moreover be carried out without the direct participation of the capitalist, who needs never

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102 know the `dirty' use to which the finance is put, particularly as `the profit returns laundered through a variety of financial instruments' . 25 The system of payoffs is also operated by the major criminal organisations, but the non-mafia businessman must first apply to them . This is certainly the case in the illegal arms trade . Law no . 895 (2 October 1967) regulating the sale of arms requires that the contract should be between the national government and the purchasing country and not between the producer and the client, but this law is broken regularly, even by major Italian arms producers, and the evidence for it is plain from the flourishing state of the Italian arms industry . 26 It makes profits in clearly privileged ways through private illegal exchange, and is then compelled to turn to international organised crime to avoid tax controls and legislative restrictions . The same applies to the traffic in currency, which is run by a series of operators in Switzerland or Lichtenstein, with real or fake companies or with even simple bank account numbers . These structures allow the transfer of money from bank to bank without money ever physically crossing the border . 27 Again it is reasonable to suggest that the currency traffic network set up by organised crime for recycling illegal profits is now used by honest businessmen . The occurrence of economic crime has always been regarded as the product of a contradiction which is difficult to resolve, a contradiction between capital as collective intelligence and capital as anarchy . On the one hand we have a capitalist rationality that tends towards selfdiscipline and sets limits on the degree of exploitation, while on the other hand we have the individual capitalist who, to maximise profits, breaks with discipline and goes beyond the bounds of legality . On the contrary, it now seems that the

long business and financial experience of traditional criminal organisations has left an exemplary mark in the field of accumulation, both in technical methods and organisational structures, which any representative of the economic world can easily follow . The end of piracy In conclusion it would be interesting to reflect on the probable results of the `La Torre law' in dealing with the entrepreneurial mafia . The new anti-mafia law deserves attention both for its strictly penal and its generic economic complications . With respect to the first, the legislature claims that it has identified the distinctive features of mafia association : the force of intimidation and that associative link from which omertd (conspiracy of silence) and subjugation derive . 28 The aims of mafia organisation are identified as being the acquisition of control of socially and economically important activities, as if these were not identical to the aims of any entrepreneurial institution . A peculiar, additional objective of the mafia company would be the perpetration of crimes ; and it is precisely this propensity for crime, even if it cannot be actually proved, that defines the association as objectively dangerous . In other words, it is not necessary for members of the mafia to actually use intimidatory force ; it can be satisfactorily presumed that they do from the probability that they will commit crimes . 29 The danger in such thinking is clear when we consider that the new categories of criminal offence can be used against behaviour that was not originally criminal . By declaring war on so-called mafia counterpower, we end up by criminalising any action or thought that could be considered to be a threat to the monopoly of state power and to its monopoly in the use of force . The call for such a con-

Mafia business clusive presumption of guilt cannot in reality be intended either as a punishment for crime nor as a social or symbolic compensation for the victim . Nor does it seem to be produced out of any ethical exorcising of brutal crimes . The new set of laws seems to be aimed at eliminating competition that is inconvenient for formally legal companies . We now come to the second aspect of the `La Torre law' . The anti-mafia law is not concerned with individual behaviour and cannot thus be assimilated into the traditional instruments of criminal repression . It is rather an instrument of economic regulation which is designed to balance and redefine norms of development . It obliges large-scale organisations to separate clearly legal from illegal activities and, up to a point, legalises mafia business as a whole, by eliminating the element of insecurity and affording protection which was completely lacking when it operated in secret . The La Torre law can thus act as a general indemnifying instrument capable of making mafia business conform to the rules of the game which govern the legal economy . If mafia enterprises were to be encouraged to invest in productive activities using more labour-intensive methods, at least a part of finance capital would risk becoming unmanageable in the official economy . In this sense, the judiciary presents itself as an irreplaceable instrument of economic `planning' when it intervenes to halt the dystrophic growth of purely speculative financial activity and forces a part of the proceeds to be invested for social benefit . It is impossible in fact that the confiscation of mafia property should hit the productive activities in which the workforce is involved . The judicial operations would carry extremely high social costs and would provoke incalculable economic upheaval . It is as

though, after being permitted to achieve a 103 kind of extraordinary primitive accumulation through any form of illegal traffic, mafia businesses were obliged to adjust their accumulation to the normal run of things . 3 o A parallel, and hardly an amusing one, comes to mind - a parallel with other forms of banditry, connected with big business and protected by monarchs . The pirates Drake and Morgan enjoyed royal favour ; they sacked islands and accumulated riches, and rarely did they waste their foreign booty on greed . Their unscrupulousness was a pioneer of colonialism, prepared future enslavement, predatory methods, and techniques of exploitation ; they thus anticipated European settlement in recently conquered countries . 38 And their native government, having used them extensively, made sure that they integrated the new pirate businessmen while deciding at the same time to deal severely with the hardened adventurers, the `sea dogs', as mere outlaws .

Notes 1 . `Thieves earn less while number of events grows' . This article appeared in the daily newspaper La Stampa during last summer's `peaceful Rome' campaign . The journalist also stressed that `petty thieves, who lack professionalism and do not employ sophisticated tools, are more easily caught : 57% of total arrests' . At the national level, arrests for petty crimes have increased recently by 35%, while the financial damage of such crimes has fallen by about 20% . 2 . In this context I can do no more than refer to two functions of the contemporary prison system . For a more detailed examination of the labour market, see II Carcere Imperialista, Verona, 1979 ; and II Carcere in Europa, Verona, 1983 . 3 . A brief essay on non-elected politicians and sub-government corruption can be found in Quaderni Piacentini No . 8, 1983 .

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4 . This is the thesis of Communist Party jurists like Guido Neppi Modona, whose contributions appear regularly in the daily newspaper La Repubblica. 5 . See G . Gribaudi, mediators . Antropologia del Potere Democrastiano nel Mezzogiorno, Torino, 1980 . See also the review of this book in CONTROinformazione No . 21, December 1981 . 6 . This thesis was also supported in previous articles on Neapolitan organised crime, the socalled 'Camorra' . See CONTROinformazione No . 21, December 1981 and No . 26, December 1982 . 7 . The historical texts on the `Mafia' could produce a virtually endless bibliography . I refer here to only two books that are usefully thorough in their use and quotation of available material : M . Pantaleone, Mafia e Politico, Torino, 1962 and by the same author, Mafia e Droga, Torino, 1966 . 8 . This is not intended as an endorsement of the assumptions of these sociological and criminological schools ; I am arguing that the functionalist approach has at least contributed towards the demythologisation of criminal behaviour, whereas, it must be admitted, most Marxist approaches have failed to do so . 9 . A recent contribution on this subject can be found in F . DiForti, Per una Psicoanalisi della Mafia, Verona, 1982 . 10 . A . de Blasio, Ussi e Costumi dei Camorristi, Napoli, 1892 . 11 . P . Arlacchi, La Mafia Imprenditrice, Bologna, 1983 . 12 . Schumpeter, Capitalismo, Socialismo e Democrazia, Milano, 1955 . 13 . J . Locke, Two Treatises on Government, Cambridge, 1960 . See also C .B . Macpherson, The Political Theory of Possessive Individualism, Oxford, 1962 . 14 . J . Locke, op . cit . 15 . Also quoted in P . Arlacchi, op . cit . 16 . E . H . Sutherland, White Collar Crime, New York, 1949 . 17 . Daily newspaper of Milan, Il Corriere della Sera, 10 .10 .1982 .

18 . Magistratura Democratica, Mafia e Istituzioni, Reggio Calabria, 1971 . 19 . According to this well-known nineteenth century notion of pathology, a notion that has been revalidated by many psychiatrists who assist mafia bosses, people who feign madness for a long time end up actually becoming mad . 20 . See for example M . Pavarini, La Questione Criminale No . 3, September 1975 . 21 . For an overall approach to this question see H . Mannheim, Comparative Criminology, London, 1965 . 22 . N . Coco-C . Serra, Devianza, Conflitto, Criminalitk, Roma, 1983 . 23 . Very few commentators recognise the existence of illegal islands of investment that also attract so-called legal capital . Among these N . Coco- C . Serra, op . cit . 24 . Kidnappings in Italy went down from 59 in 1979 to 39 in 1983 . This, together with the growing profits of this crime, seems to indicate a natural selection among the organisations that commit it . In the meantime last year, only one out of two culprits of kidnapping were arrested : a 50% impunity rate . 25 . W .J . Chambliss, On the Take . From petty Crooks to Presidents, Bloomington, 1978 . 26 . See the interesting essay by Communist judge C . Palermo, 'Le forme nuove del crimine organizzato', in Democrazia e Diritto No . 4, 1983 . 27 . C . Palermo, op . cit . On this subject see also J . Ziegler, Une Suisse au-dessus de Tout Soupgon, Paris, 1979 . 28 . C . Turone, 'L'associazione di tipo mafioso' in Questione Guistizia No . 2, 1982 . 29 . In the light of this we should also look at the recent interventions of the Reagan government against organised crime in the States : the business of crime is becoming so huge that the authorities now require that a fixed proportion of these speculative profits be invested in productive activities . 30 . See G . Fiandaca, `La Legge La Torre e la criminality mafiosa' in Democrazia e Diritto No . 4, 1983 . 31 . See the interesting study by P . Butel, I Pirati dei Caraibi, Milano, 1983 .

Kathy O'Donnell

Brought to account : the NCB and the case for coal • EVER SINCE THE

miners' strike ended in March of this year, the left has been engaged in a wide-ranging assessment of the yearlong dispute and the lessons to be drawn from it (see, for example, New Socialist, April 1985 ; Marxism Today, April 1985) . Not surprisingly, the policies and tactics of the National Union of Mineworkers' leadership have featured prominently in these discussions ; but also the role of the Labour Party and the part played by various support groups, both within and outside the mining communities, have been considered . A number of important questions have been raised . Was the outcome of the strike a complete defeat for the miners and their communities, or could it be viewed as a victory in some sense? Would the outcome have been different had there been a ballot during the initial stages of the dispute? Why was mass picketing unsuccessful? And why was there relatively little industrial support from other groups of workers, particularly the other unions within the Triple Alliance? Aside from these issues, however, there is one question which, while apparently critical during the strike, has been almost entirely neglected by post-strike assessments - the issue of economic viability of deep-mined coal production . For many on the left, the economic case for pit closures is reckoned to be a smokescreen, a thinly veiled disguise for what is in reality a determined effort by this government to demoralise and ultimately smash the National Union of Mineworkers (NUM) .

Kathy O'Donnell argues that the campaign to defend miners' jobs and communities can be strengthened by elaborating the economic case for the coal industry. She examines the NCB's accounting procedures and the State's policy towards the industry since nationalisation . She argues that coal should play a central part in meeting Britain's energy needs in the 1980s and beyond . 105

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Others have perceived it as an attempt by the government and the National Coal Board (NCB) to divide the labour movement by isolating the NUM, thus deflecting attention from the more salient issue of preserving jobs and communities . The central argument of this paper, however, is that the campaign to defend jobs and communities can be strengthened by engaging directly with the economic issues of deep-mined coal production . There are three reasons for arguing thus . First it can be shown that within a positive and integrated energy policy a robust case for the industry's expansion can be developed in which the so-called uneconomic pits have a role to play . Second, unless these issues are confronted, the campaign against pit closures can be misrepresented (as it was throughout the strike) as a `piece of special pleading' which cannot be backed up with `an economic case of substance' (see for example, Sunday Times, 14 October 1984) . Thatcher herself argued in precisely these terms when she stated on television that `There are an awful lot of uneconomic pits . . . you don't need to argue about them . . . they have to be shut down .' (Guardian, 8 February 1985, cited in Samuel, 1985, p . 6) . Finally, and more immediately, the NUM's decision to return to work without a negotiated settlement means that the dispute over the criteria for colliery closure will continue . Indeed, the NUM's recent decision to close pits, irrespective of its agreement with NACODS regarding the role of an independent colliery review procedure, suggests that further conflicts are bound to occur in the near future . It would of course be wrong to suggest that the NCB's economic case for pit closures went uncontested . Andrew Glyn, writing on behalf of the NUM during the dispute, made an important and timely contribution (Glyn, 1984) . He argued, on the basis of a social cost benefit analysis, that no positive economic benefits to society would accrue from pit closures . This conclusion, not surprisingly, contrasted sharply with the findings of other economic analysts, whose recommendations suggested that anything between 50 and 90 pits should close (Minford & Kung, 1984 ; Davies & Metcalf, 1984) . A significant contribution was also made by a group of academic accountants (Berry et al, 1985) . Their argument, based upon a detailed analysis of the NCB's accounting procedures, highlighted serious deficiencies in the evidence used by the NCB to justify their programme of pit closures . Both contributions provide an important point of departure for this paper . By exposing some of the major weaknesses in the NCB's case for pit closures, they constitute a first step towards the presentation of a positive case for coal . But it is necessary to go further . The case for coal needs to be presented within a frame-

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work that locates the origins of the present crisis within the industry, while also connecting with the broader issue of the future energy needs of Britain . It is necessary to show why pit closures are once more on the agenda and why they have been a more or less continuous feature of the industry's development since nationalisation . It is argued that the industry's present situation is in large part the culmination of policies adopted by successive governments . Making sense of the industry's experience under nationalisation is basic to the task of assessing the future potential of coal within an integrated energy policy . It is also relevant to arguments currently in progress on the left about the role of nationalised industries within a socialist strategy . The paper begins with a discussion of the events immediately preceding the strike and outlines the nature of the conflict between the NCB and NUM over the criteria for colliery closures . Glyn's economic case against pit closures is examined and is found to contain several weaknesses . The use of the NCB's accounts as a measure of performance is then considered and, building on the work of Berry et al, it is argued that they are highly misleading in significant respects . On this basis, and with reference to the wider question of an energy policy for Britain, a case for expanding the coal industry is elaborated . The argument concludes with a brief analysis of the future role of nationalised industries .

On 6 March 1984 the NCB announced its plans to reduce deepmined output in order `to bring supply and coal demand into balance' (NCB, 1984, 7) . A reduction of 4 million tons was proposed for the year 1984-5, bringing total output to 97 .4 million tons . According to the Board, this would necessitate the closure of 20 collieries and the loss of 20,000 jobs . Although the responsibility for selecting the 20 collieries was delegated to the Area Directors, it was clear that the burden would fall primarily on the peripheral coalfields of Scotland, South Wales, Kent and the North-East . The NUM regarded the announcement as a first step in a massive closure programme involving 70 pits and 70,000 jobs . A leaked document outlining the long-term plans for the North-East coalfield appeared to substantiate the union's claims ; the Board was planning to close 13 of the area's 17 collieries over the next 15 years with a loss of over 12,000 jobs (The Miner, 12 November 1984) . In announcing its plans, the NCB was attempting to achieve the objectives which had been laid down for it in the Coal Industry Act of 1983 . The Act stated that `in the Government's view the justification for coal production, like that for any other

Economics of pit closures

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business, lies in the ability of those engaged in it to earn a satisfactory return on capital while competing in the marketplace' (NCB, 1984, 8) . The NCB was specifically instructed to reduce its costs in real terms, to break even by March 1986, and to align its productive capacity to its share of the energy market . The means of achieving these objectives were outlined in the report of the Monopolies and Mergers Commission (MMC) which examined the industry's efficiency . It recommended that, in the face of the dual dilemma of over-capacity and high cost pits, the NCB should reduce capacity by closing the uneconomic, lossmaking collieries . In 1981-2, 141 collieries out of a total of 198 made a financial loss . 90% of the NCB's total losses, however, were accounted for by 30 pits . These were the collieries which the NCB was determined to close . Demonstrating its intentions to reduce the scale of its losses, the NCB announced the closure of Cortonwood Colliery in South Yorkshire . This, together with the Board's plans to close Polmaise, Snowdon, Herrington and Bullcliffe Wood, sparked off the miners' strike . From the outset, the NCB's definition of an uneconomic pit was clear ; a colliery was defined as unprofitable and hence uneconomic whenever the costs of producing coal outweighed the proceeds generated by its sale . In response the NUM argued that it would not accept economic grounds as sufficient justification for closure . A colliery should only be closed, according to the union, if its reserves were exhausted or if their recovery would endanger the safety of miners . The area of disagreement between the NCB and the NUM is illustrated by the proposed closure of Cottonwood pit . On the basis of the NCB's accounting system, the colliery is a loss-maker ; indeed a deficit of £1 .7 million was recorded in 1981-2 . But the colliery has at least 5 years of proven reserves and should, in the union's view, be kept open until those reserves are exhausted or demonstrated to be non-recoverable . The NUM's argument dealing with exhaustion of reserves has received the greatest publicity and also the most criticism . Various commentators have stated that, taken to its logical conclusion, it means that a mine will not be allowed to close until the last lump of coal has been extracted, whatever the financial costs involved . Although this is obviously a distorted view of the NUM's case, as the union's evidence to the Select Committee on Energy reveals (see their Report on Pit Closures, 1982 ; 7), their defence against closures is in crucial areas weak and ambiguous . Just as it is possible to question the NCB's definition of an uneconomic pit, so it is possible to query what colliery exhaustion means in practice . More importantly, however, the NUM's defence can be interpreted as a negative case for coal . Widely perceived as an argument in favour of the status quo, it failed to

The case for coal

connect - most certainly in the minds of many trade unionists with the broader question of energy provision in Britain . The case against pit closures was instead elaborated in terms of the need to maintain jobs within mining communities at a time of unprecedented high unemployment and few, if any, alternative job opportunities . There is of course nothing intrinsically wrong with this argument ; but it was hardly likely to succeed in establishing the case for coal at a time when industries in general were undergoing a massive programme of rationalisation, with jobs disappearing in virtually all sectors and regions of Britain . Nowhere is the problem more striking that in Glyn's analysis of the economic case against closures, a report which, during the course of the dispute, acquired something approaching the status of an official NUM policy document . Because of the significance accorded to Glyn's analysis, both by supporters and opponents of the NUM, it is important to examine his argument in some detail . The basic elements of his case are set out in a short paragraph at the beginning of his paper . He writes : `The effect of closures is to reduce coal output by the contribution of the pit concerned . This is a cost to society which no longer has the coal at its disposal . In the present context of mass unemployment, numbers out of work will increase by the number of people who lose their jobs after closure . There is accordingly no rise in production elsewhere to compensate for the fall in coal production . Society as a whole loses by the amount of coal foregone' (Glyn, 1984 ; 4) . The closure of so-called uneconomic pits, in other words, far from benefitting society, would lead to a net loss in social welfare. He estimates that the closure of collieries producing the highest cost 12% of output would involve a loss of coal production worth £475 million . Basic to his argument is the view that miners made redundant as a result of closures would be unlikely to find alternative jobs ; indeed in present conditions, if they were to get jobs elsewhere, it would be at the expense of others seeking work . In short, the net gain in output would be close to or equal to zero . To keep the pits open, on the other hand, would confer a net gain on society . The gain would derive from the additional coal produced (£475 million), against which has to be set the cost of employing the miners to produce that coal . This cost, however, is equal to the difference between the miners' wages and the cost of unemployment benefits, yielding a net cost of £270 million . When deducted from the value of the additional coal produced, this gives an overall gain of £205 million . Generalising his argument for all pits in Britain, Glyn suggests that in every case the cost of closure exceeds the cost of keeping them open . Cortonwood, for example, makes a loss of £74 per miner per week ; but

109

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closures would cost the government £295 per week in terms of redundancy payments, unemployment benefits and lost tax revenue . Glyn concludes that : `closing the so-called "unprofitable" pits, while perfectly in tune with the NCB's task of increasing profitability, would hav imposed substantial losses on the rest of society as well as the miners concerned' (Glyn, 1984 ; 4) . By widening the definition of economic production thus to take account of the opportunity costs to society as a whole, Glyn is able to construct a plausible case against closures . But, as suggested above, from the standpoint of making a positive case for coal, his argument has significant limitations . Three difficulties can be readily identified . First, his conclusions can be seen to rest heavily on the assumption that workers, displaced from the industry, would be unable to secure alternative employment . Undoubtedly there are many, including the present writer, who find this perfectly plausible . But, as Glyn himself recognises, there are others, working with different models of the economy, who are likely to reach quite different conclusions . Thus Davies and Metcalf, on the basis of different labour market assumptions, argue that `50-60 pits should perhaps be closed on average after 5 years' (Davies & Metcalf, 1984 : 1) . More extremely (although entirely predictably), Minford and Kung propose that all loss-making pits should be closed (about half of the NCB's current tonnage) to allow a more effective economic use of resources (Minford & Kung, 1984 : 13-17) . When placed alongside these reports, Glyn's case against closures seems to have little to do with the specific merits of the coal industry . Many would consider his argument to be more concerned with the case for selective (regional) employment subsidies . The contingent nature of Glyn's defence can be demonstrated with reference to the rundown of the industry during the 1960s . Between 1960 and 1969, 420 pits were closed and approximately 50% of the workforce (about 322,000 miners) left the industry . In the more buoyant economic conditions of that time, however, many miners were able to find alternative employment . Under these circumstances Glyn's case against closures collapses . Indeed were a similar exercise in social cost benefit analysis to be undertaken for that period it would almost certainly yield results more in line with those reported by Davies and Metcalf for the mid-1980s . In other words, Glyn's case has force only in circumstances where demand conditions throughout the economy are such as to render the opportunity costs of employment within the coal industry close to zero . This leads to the second problem . Glyn's analysis stresses demand side factors to the exclusion of other important questions . In particular, he does not address the issue of why there are so

The case for coal

many high cost, unprofitable collieries . Two reasons are given to explain the NCB's decision to cut capacity : deficient demand and the introduction of new low cost capacity . On the first point, Glyn argues that because production and incomes throughout the economy have been depressed by the present government's deflationary policies, the demand for energy and coal in particular has fallen . Had coal sales continued to grow at their pre-1979 rate, no reduction in capacity would have been required . By implication, a general reflation would, by stimulating energy demand and prices, transform pits currently designated as unprofitable into profit-making concerns . This, essentially Keynesian perspective, totallly ignores the cost structure of the industry . In recession conditions, certain mines are revealed to be unprofitable because of their relatively high costs and not merely because of the relatively low price of coal . Yet on this point, and the related question of why pit closures have been a recurrent feature of the NCB's history, Glyn is silent . Furthermore, the proposed solution of general reflation, while possibly giving the condemned mines a stay of execution, clearly would not remedy the underlying problem of high-cost capacity, an issue returned to in greater detail below . A third limitation of Glyn's analysis concerns his treatment of the role of new low-cost capacity, such as the Selby mine complex . Again taking demand conditions as exogenous, as a constraint within which the industry must operate, Glyn argues that new capacity should not be introduced . To do so would simply accelerate the pace at which high-cost capacity would have to close . An alternative, more satisfactory, argument would be to stress the important role that new low-cost capacity can play in transforming demand side constraints . But this presupposes a view of an expanding coal industry in which, for the foreseeable future at least, both low-cost and high-cost pits would have a part to play . It is the absence of such a view which severely limits and weakens Glyn's defence against closures . His perspective on the introduction of new capacity is, moreover, strangely at odds with the NUM's well-known position on the need for new investment in the industry; this is, of course, basic to the Plan for Coal, the maintenance of which was central to their case throughout the dispute .

The question of high-cost pits has been raised above in relation to Glyn's analysis . While arguing that such pits should be preserved in the current economic climate of Britain, he does not investigate the origins of cost variations across collieries . Yet this is basic to

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Accounting for uneconomic pits within the NCB

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the task of challenging the NCB's closure programme . According to the NCB, high-cost collieries are inevitable in a mature extractive industry such as British coal, in which the average age of pits is 80 years . The Board argues that as collieries approach the point of exhaustion, productivity declines rapidly and costs escalate (Select Committee on Energy, 198 : 6) . Because, in the Board's view, the ageing process is fundamental to the economics of the industry : `it is not possible to make a clear-cut distinction between closures which arise from "exhaustion" of reserves (since exhaustion is rarely absolute in a physical sense) and those which arise from "economic" conditions' (Select Committee on Energy, 1982 : 6) . As pits move into inferior seams, costs rise and profits decline . In such circumstances, closures are considered inevitable . Yet, as Berry et al have shown clearly in their examination of the NCB's accounting procedures, factors other than geological conditions are important in determining the economic performance of individual collieries (Berry et al, 1985) . The standard accounting statement for individual collieries is a profit and loss account known as the F23 statement . It records a colliery's costs and proceeds and the difference produces the operating profit or loss . These figures, however, should be viewed in context, in terms of the constraints imposed upon individual collieries by the NCB . Of particular importance, from the point of view of explaining variations in pit performance, are the pricing, output and investment policies of the NCB . Consider, first, the output targets allocated to individual collieries . Because of the relatively high level of fixed costs within the industry (averaging at 20% of total costs according to Berry et al, 1985 : 12), unit costs of production at colliery level tend to vary inversely with the level of output . That is to say, by spreading overhead costs over a larger range of output, pits with relatively high output targets are able to achieve lower unit costs . Furthermore, collieries that achieve a satisfactory level of performance, as measured by unit costs, have tended to attract higher levels of capital expenditure . This has given rise to a virtuous cycle in which high-output pits are reproduced as low-cost centres, while low-output pits are gradually run down until closure is more or less inevitable . Although the Board continues to maintain that variations in costs of production between pits are a consequence of geological factors, they have failed to bring forward evidence to substantiate this claim . Yet there is evidence to suggest that the allocation of investment corresponds closely to reported variations in pit performance, a point implicitly acknowledged by the NCB itself (Select Committee on Energy, 1982 : 38-9) . To be specific, it was conceded that the performance of 11 pits, previously designated

The case for coal

as 'short-life', had been transformed by major investment programmes (Ibid .) . Also unsubstantiated are the NCB's claims that cost performance in certain collieries (e .g . Snowdon) has been adversely affected by the `incredible stroppy attitude of the miners' (Daily Telegraph, 10 April 1985) . The NCB has publicly justified pit closure decisions by pointing to the financial losses incurred by individual collieries . Many criticisms can and have been levelled at the Board's accounting practices which produce these results . These concern, in particular, the form in which fixed costs are incorporated into a colliery's financial statement and the method of attributing revenue and expenditure items to specific pits in the presence of interdependencies between collieries . It has been suggested that a colliery's financial statement `does not provide a sensible basis for debate on pit closure' and that had different procedures been adopted many pits, currently considered uneconomic, would become profitable (Berry et al, 1985 : 10) . The first point concerning fixed costs can be illustrated with reference to Cortonwood . Many of the costs attributed to its profit and loss account, such as compensation for subsidence, and the costs of maintaining coal preparation plants and Area and HQ administration would still have to be borne, even in the event of a colliery being closed . As such, these fixed costs should not be considered relevant to the question of whether to maintain or close a particular pit . Yet, in practice, because of their impact on financial performance, they contribute directly to the decision . In the case of Cortonwood, where, as noted above, a deficit of £1 .7 million was recorded for 1981-2, unit costs would fall by as much as 23% were fixed costs to be set aside . Indeed, it has been shown that this would have the effect of transforming the pit into a profitable concern with an annual surplus of E1 .5 million (Berry et al, 1985 : 3) . The second problem of interdependencies between pits means that financial results do not necessarily provide an accurate description of performance at the level of an individual pit . Coal is often transferred between collieries so that different qualities of coal can be blended into a saleable mixture . In these circumstances only a notional selling price is attributed to individual pits rather than the actual selling price . A further difficulty arises from the system of pooling capital equipment at the Area level . Since the costs of maintaining this Area plant pool are distributed across pits, but not strictly in proportion to the amount of equipment used, those pits using a relatively small quantity of equipment tend to subsidise more heavily mechanised ones . Together these examples demonstrate that there is no simple relationship between colliery performance, as reflected in financial C&C

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statements, and geological conditions . Indeed it has been shown that variations in performance are to a large extent of the NCB's own making ; that is to say, they are the product of particular control mechanisms operated from the centre . The Board's policies in respect of pricing, output and investment impinge directly on the organisation, management and performance of individual collieries . Drawing upon Berry et al's analysis of the NCB's accounting procedures, it has been possible to reveal the often rigid constraints within which particular pits operate . Perhaps more importantly, it has also been possible to show that the NCB's assessment of a colliery's potential can easily become a selffulfilling prophecy . There can be little doubt that, for the purposes of challenging the NCB's supposedly unambiguous case for pit closures, these arguments provide a useful starting point . But it is important to go further . It is necessary to move beyond a purely technical assessment of the accounting practices of the NCB . The force of Berry et al's analysis is to question the financial and economic grounds on which the NCB's case has been elaborated . Fundamentally, their analysis calls for major reforms in the Board's management and control systems, a conclusion also reached by the Monopolies and Mergers Commission . What they do not explore, however, are the broader influences which condition the NCB's internal strategies . Yet, as argued below, these are of considerable importance in the context of the NCB and the nationalised industries (NIS) more generally, for they are subject to a variety of politically determined economic and financial constraints .

State policy and the NCB

The operations of the NCB, in common with other nationalised industries, have been formally governed by a framework of control laid down in Acts of Parliament and a series of White Papers . As well as being given general directives, such as `to secure the efficient working of coal reserves in the UK', the NCB has also been given a set of economic objectives to guide pricing and investment decisions . These guidelines, however, have either proved to be impossible to achieve (for example, the instructions to adopt marginal cost pricing) or have been overruled by the exercise of government-imposed financial controls . The latter have taken two forms : the setting of a financial target which states either the profit to be earned or the loss to be incurred by the NCB, and a limit specifying the amount of external finance that can be raised . In addition, the NCB has also been obliged to work within output targets . Since 1950 there has been a `Plan for Coal' which, on the basis of estimates of future demand and the likely contri-

The case for coal

bution of alternative energy sources, specifies production and employment targets . To a large extent, the NCB is in an analogous position to that of an individual colliery : it is given a target level of output to be achieved with a given amount of financial resources, while also being instructed to satisfy specific performance criteria . By examining the nature of these financial, output and pricing targets, the Board's position on so-called uneconomic pits can be set in context ; in particular the critical role of the state can be examined . At the most fundamental level what distinguishes NIS from capitalist firms is the absence of profitability as a direct mechanism of control . While they may be instructed to earn a profit, the NIS can record substantial deficits and still continue to operate as long as the state is prepared to underwrite the losses . For capitalist firms, on the other hand, persistent losses would inevitably lead to bankruptcy or takeover . Since the NCB, like other NIS, is prohibited from borrowing from private financial markets, its source of funds is essentially restricted to internally generated surpluses and loans or subsidies from the government . Internal finance is, in turn, dependent on pricing and output policy which are heavily influenced by government . Since nationalisation, the industry has been instructed to break even, a constraint which, by acting as a quasi-competitive force of coercion upon the Board, has necessitated various cost-cutting measures . This is perhaps most clearly illustrated by the Board's wages policy which on several occasions has been totally restructured so as to reduce unit costs (see Fine et al, 1985, for a more detailed account) . The government's role in determining financial targets has meant that the NCB has, and continues to be subject to close political control (Fine & O'Donnell, 1981) . These politicaly determined constraints have had a major, but varying, impact on the economic and financial performance of the NCB . In the most recent period they have been used to present the NCB in the worst possible light, a particularly blatant example being the decision to change the form in which operating grants are paid to the industry . Formerly included as a source of income in the NCB's profit and loss accounts, they have now been redefined as `deficit' grants and are given to the industry only after its financial results have been declared . This practice, it should be emphasised, is quite different from that pursued towards private sector firms, for they continue to receive state grants as part of their income . It is plausible to conjecture that the primary motive behind the change was to provide some justification for the present government's extremely hostile approach to the coal industry . By taking steps to ensure that its economic performance is presented in the

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worst possible light, the government is able to claim some legitimacy for the present closure programme . It also provides a convenient point of departure for their (unproven) case in favour of a switch to nuclear power sources . The NCB and the Nis as a whole have been used as an instrument to further macroeconomic objectives, such as controlling inflation . During the 1960s, for example, finance for the NIS was restricted as part of government's deflationary policy . The present government's commitment to monetarist policies and, in particular, its belief that a reduction in the size of the Public Sector Borrowing Requirement is necessary to control inflationary pressures, has led to a further contraction in finance for the NIS . Between 1979 and 1983, government lending to the NIS was reduced by 9% . At the time of writing, the Tories are proposing yet more stringent financial controls, despite opposition from the Nis and parts of the government itself. It is feared that the NIs are to be used increasingly as an alternative to fiscal policy in achieving specific taxation objectives . The long-term capital requirements of the industries will thus continue to be very much a second order consideration in the determination of financial targets . A further major constraint upon the NCB's performance are the output targets negotiated periodically with government . These have been determined under the rubric of an energy policy for Britain . To call it a policy, however, is highly misleading for there has been no coherent strategy towards the provision of energy, despite the fact that, with the exception of oil, all energy sources have been under public ownership . Nevertheless a'Plan for Coal' has been produced every decade which projects the future development path for the industry . During the strike frequent reference was made to the 1974 Plan . This tripartite agreement was drawn up between the union, the Board and the government, to plan the expansion of the industry to the year 2000 and beyond . The main point of disagreement between the NUM and the NCB arose over the planned level of output for 1984-5 . The 1974 Plan set a target of 135 million tonnes (mt), of which 120 mt was to come from deep-mined output . In March of last year, however, the NCB set a new target of 97 .4 mt . This downward revision was in many respects a continuation of past practice . The closure programme of the 1960s was preceded by a similar revision of output . In 1950 the then Plan for Coal set a target of 230-250 mt for the mid-1960s . By 1959 this had been reduced to 200-215 mt, and by 1965 output was 187 mt . The Plan for Coal is in fact a plan in name alone . As Lawrence Daly, General Secretary of the NCB from 1968 to 1983, pointed out after the contraction during the 1960s : `official re-

The case for coal

views of fuel policy give the impression of being more a response to [changes in the consumption of coal] than a determinant of it, more a confirmation of trends too obvious to ignore than a conscious attempt to achieve a desired objective' (Daly, 1969 : 54) . In other words, whenever sales fluctuated significantly and coal stocks mounted, the NCB, acting under instructions from the government, would reduce its planned level of output . In the 1960s declining sales to the gas and railway industries together with the relative price advantage of natural gas and oil were given as the reasons for the contraction of the industry . This left the NCB with two major customers, the steel industry and the Central Electricity Generating Board (CEGB) . During the current recession the NCB's sales have been particularly hard hit as steel production and energy supply have slumped . Indeed since 1979 coal consumption has declined by about 15 mt per year . Yet the declining fortunes of coal cannot be explained merely by pointing to the demand constraints which have increasingly squeezed the industry . What needs to be explained is why these constraints have proved so binding given that the institutional mechanisms necesasry to coordinate energy provision within Britain have formally existed since nationalisation . When viewed in the context of the energy sector as a whole, coal can be seen to have occupied a unique position . Not only has it been severely handicapped by the financial controls exercised by successive governments, it has been treated virtually as a residual source of energy, to be expanded or contracted depending on the conditions of supply in other energy industries . In short, instead of occupying a central position within Britain's so-called energy policy, coal has come to be viewed as an uneconomic, largely defunct industry . The weak position of the NCB within the energy sector needs to be placed in context, against the background of a series of unfulfilled investment programmes . During the 1950s, in particular, many capital expenditure projects were either delayed or shelved altogether : of the 167 major colliery reconstruction schemes started in 1947, for example, only 20 had been completed by 1955 (Schumacher, 1969 : 4) . This record of unrealised investment is explicable in terms of the combined effects of financial and price controls . While the former have limited the NCB's access to external sources of finance government price regulations have damaged its potential to generate funds internally . Thus during the first decade of nationalisation 10 applications for price increases were made by the Board : of these, one was refused outright, four were granted at a level considerably below that which had been requested, and five began later than the proposed date (The Economist, 17 May 1958) . In the 1960s, prices

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Capital & Class were again strictly controlled as part of government anti-inflation policy ; in 1965 alone, two applications were delayed because of `their implications for prices and incomes' (Millward,1976 : 233) . Apart from the NCB being used to achieve macroeconomic objectives, it has also served as an instrument of foreign policy .

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Perhaps the most striking example occurred during the first 10 years of nationalisation . The NCB was instructed to export coal to France despite domestic demand having to be satisfied by importing coal from the United Staes at higher prices . This decision followed a request by the French government for British coal in the aftermath of a strike by French miners in opposition to the importation of American coal . In effect the NCB was used to execute the British government's foreign policy . Yet the cost of the policy, which amounted to £74 million, was carried by the coal industry . Given that at the time annual capital expenditure in the mines was approximately £20 million, the significance of this policy for the industry is immediately apparent . These examples of government policy towards the NCB illustrate the constraints within which the industry has developed . The scale of pit closures, both in the past and presently, should be viewed accordingly . Insufficient investment, resulting from financial and price controls, together with restrictions on the industry's output have left a legacy of high-cost pits . For the most part these are concentrated in the peripheral coalfields of Scotland, South Wales and the North East, a situation reflecting the Board's differential investment policy . Indeed, since 1974 only 21% of total new investment has been allocated to these areas . Different policies could and should have been pursued . The point of the analysis presented above, however, is not to speculate about what might have happened in the past but rather to draw appropriate lessons for the present and future needs of the industry . And these needs should of course be determined in the light of the energy requirements of Britain as well as the availability and desirability of alternative energy sources .

An energy policy for Britain?

Given the NCB's heavy reliance upon one customer, the CEGB, which purchases 70% of the industry's output, coal's future depends critically upon decisions taken in respect of energy sourcing for electricity generation . As the CEGB's plans stand at the moment coal does not have a central role . With the completion of the Drax complex of coal-fired power stations no plans have been put forward to build any more . Furthermore, since 1979, the vast majority of the 52 stations which have been decommissioned have been coal-fired . Accordingly the CEGB

The case for coal

predicts that by the year 2000 its demand for coal would have fallen by 40% . The declining role of coal in power stations' fuel consumption has been matched by the rise of nuclear power. The switch to nuclear energy has been justified by both the government and the CEGB on grounds of relative cost advantages . To a large extent, however, their economic case has been discredited . One independent report on the economics of nuclear power, for example, concluded that : Nuclear power is totally uneconomic . Each 1 .5 GW power station built will cost the electricity consumer £2,000 million more than the cost of building and operating an equivalent coal-fired power station for the same period of time . (Committee for the Study of the Economics of Nuclear Electricity, 1982 : 38) The decision by the CEGB and the government to opt for nuclear power rather than coal is based on highly questionable assumptions about present and future movements in coal prices . As the Sizewell Inquiry has revealed it is generally assumed that the NCB's prices are (or should be) set in accordance with the world market price for coal . It is on this basis that the alleged cost superiority of nuclear fuel rests, for it is argued that world coal prices will rise significantly in the future as production is increasingly based upon marginal seams . But as one witness to the Inquiry pointed out, the concept of a world price can be challenged on several grounds, both theoretical and empirical (Fine, 1984) . It presumes, for example, that an international market for coal exists and that it is capable of grinding out a unique market clearing price . Even if the very powerful theoretical objections to this idea are set aside, it is not difficult to demonstrate that a world market for coal, with adequate price adjustment mechanisms, does not exist . Indeed only 7% of world consumption is traded on a `spot' market and virtually all of this is sold at a loss (Labour Research, December 1984) . Most coal is in fact exchanged subject to long-term contracts because traders prefer to avoid the often significant fluctuations in price and quantity associated with spot markets . Because both the NCB and the CEGB are NI's government has a central role in setting coal prices . At the moment, the price charged by the NCB to the CEGB is closely related to the price of imported coal, a situation reflecting the present government's commitment to the concept of a world market . Furthermore, the NCB's long-term investment plans are based on the assumption that the value of coal in Britain will be related to changes in the world price . By adopting this policy, the conditions of domestic supply are effectively subordinated to those prevailing in the rest

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of the world . Yet in many instances the supply and price of imported coal is not related to its costs of production . The supply and price of Polish coal, for example, is determined as much by its foreign exchange requirements as it is by mining costs . Some doubts have also been raised about the long-term security of supplies of coal from producers such as South Africa, Australia and the United States (Turner, 1984 : 18-23) . The government's pricing policy, moreover, obscures the fact that the NCB produces the lowest cost deep-mined coal in Europe . In 1981-2, production costs per tonne were £41 in Britain, £47 in West Germany, £45 in France and £61 in Belgium . Further, the NCB receives the lowest level of government aid : it was given only £4 .23 per tonne in 1981 compard to £27 .34 in West Germany, £59 .41 in France, and £87 .21 in Belgium . These figures have prompted the NUM to observe that `if only a quarter of the aid, in terms of £ per tonne, which is granted to the West German coal industry were offered to the NCB, the entire recorded loss on deep-mined operations would be wiped out' (Select Committee on Energy, 1982 : 104) . Given that the conditions of coal supply in Britain are relatively favourable compared to rival deep-mined coal producers, how well does British coal compare when compared with alternative energy sources? We have noted above that the alleged cost superiority of nuclear fuel does not take account of the true conditions of supply and hence the real potential of the NCB . But what about oil? In the past and during the strike, oil has been the chief substitute for coal . Indeed it is in many respects far more relevant for an assessment of the NCB's relative production costs than vague gestures towards a world market and price for coal . In 1983, oil cost the CEGB over 40% more than coal with equivalent heat output . And all energy forecasts agree that the price of oil will continue to remain high . If the price of coal was brought into parity with oil, allowing for their relative energy deficiencies, the NCB's recording operating losses from collieries for 1983-4 of £317 million would be replaced by a profit of £1,344 million . Coal is also cheaper than gas for industrial users : in 1983, for example, gas per therm was 26% more expensive than the equivalent cost of coal (Labour Research, December 1984) . In view of these observations, it is clear that within an energy policy concerned with the provision of cheap energy sources, coal would feature much more prominently than it does presently . But there are other good reasons for insisting that the NCB should be anticipating expansion rather than contraction . The adoption of Combined Heat and Power (CH!) schemes would not only guarantee an increase in coal sales, they would also provide efficient heating systems . These convert the heat that is normally wasted in power station cooling towers into hot water

The case for coal for central heating systems . It has been estimated that CHP power stations are 100% more efficient in their use of energy input than their traditional counterparts . Were CHP power stations to be widely adopted they would involve the use of an extra 20 million tonnes of coal per year (Feickert, 1985 : 250-1) . Apart from electricity generation coal can be used directly as a source of energy . District heating schemes, for example, offer enormous opportunities to expand the outlets for coal . Furthermore, the development of new technologies, such as liquefaction, gasification and fluidised bed combustion would ensure an expanding market for coal in the future . A prerequisite, however, is that resources are directed towards the coal industry now, since it is the conditions of supply that will influence which energy sources are adopted in the future . But at the present time the opposite is happening . The NCB has significantly reduced its Research and Development expenditure on these new technologies . The force of the arguments presented above is to make a case for an expanding British coal industry on economic grounds . There are of course other issues which should be considered . Of crucial importance is the question of the desirability of alternative energy sources on environmental and safety grounds . These have not been discussed because the central aim of this paper has been to provide a more robust economic case against pit closures than was presented during the strike . Nevertheless, the case for coal is strengthened when the debate is widened to take account of these issues . The case against nuclear energy is well known and points overwhelmingly to its potential dangers if developed without proper social checks and controls . Given the dominant interests of profit-seeking multinational corporations in the development of this energy source it is unlikely that safety and ecological issues will feature prominently . Aside from these questions, however, the economic case for coal needs to be related to current political debates on the left . What issues should the miners and their communities, and the labour movement more generally be campaigning around? The thrust of this analysis has been to stress the centrality of the question of energy policy in Britain . Ultimately the case for coal and hence the preservation of jobs and mining communities needs to be related to the broader issues of energy provision and the satisfaction of social needs . This poses the fundamental political question of how to ensure that resources and productive activities are geared towards the realisation of this end .

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Capital & Class 122 Concluding remarks

The case for an expansion of the coal industry presupposes an approach to energy which recognises the need for coordination between different energy industries and long-term planning of resources . In postwar Britain, however, this type of approach has been sadly lacking . Instead of evaluating the long-term energy needs of society and planning how those needs can best be met, energy provision has been influenced by a range of factors, such as defence (as in the case of nuclear power), macroeconomic objectives, distribution policy and even governments' foreign policies . Consequently, individual industries have operated on the basis of competition rather than planned cooperation and integration, a point illustrated by the CEGB's current investment plans which entail the rundown of the coal industry . To understand why and how this situation has developed, it is not necessary to argue that the state has consciously and consistently planned to decimate the coal industry . For it is not only the energy sector which has suffered from the absence of a coherent industrial policy (Hesselman, 1983) . The lack of supply side planning within Britain has indeed been a general characteristic of the state's approach to the economy . The failure of an integrated energy policy to emerge, in spite of the extent of public ownership within the energy sector, inevitably raises questions about the efficacy and future role of nationalisation . It has become common on the left to dismiss the NIS out of hand . They have been criticised both on conventional economic grounds and also for their failure to transform capitalist production relations . It has been argued in this paper that, in the case of the NCB at least, poor economic and financial performance has been the result of specific policies directed towards the industry . While accepting that production relations are not automatically transformed under a selective nationalisation strategy, it is important to recognise that they can provide an organisational basis for coordinating productive activity within and between sectors of the economy . With this point of departure, political struggle can be concentrated on ensuring that these industries are organised so as to serve the needs of society instead of being subordinated to the varying political objectives of the state .

The case for coal V . Allen (1981) The Militancy of British Miners, The Moor Press . T . Berry, T . Capps, D . Cooper, T . Hopper & T . Lowe (1985) `NCB Accounts : A Mine of Mis-information?', Accountancy, January . H . Beynon (ed .) (1985) Digging Deeper : Issues in the Miners' Strike, Verso . Committee for the Study of the Economics of Nuclear Electricity (1982) Nuclear Energy . The Real Costs . L . Daly (1969) `A Future for the Miners', Trade Union Register, Merlin Press . G . Davies & D . Metcalf (1984) Pit Closures, London Weekend Television . D . Feickert (1985) `Towards a New Future', H . Beynon (ed .), Digging Depper, Verso . B . Fine (1984) Evidence to Sizewell Inquiry . B . Fine & K . O'Donnell (1981) `The Nationalised Industries', Socialist Economic Review, Merlin Press . B . Fine, K . O'Donnell & M . Prevezer (1985) `Coal After Nationalisation', B . Fine & L . Harris, The Peculiarities of the British Economy, Lawrence & Wishart (forthcoming) . A . Glyn (1984) The Economic Case Against Pit Closures, NUM . L . Hesselman (1983) `Trends in European Industrial Intervention', Cambridge journal of Economics . Marxism Today (1985) April . R . Millward (1976) `Price Restraint, Anti-Inflation Policy and Public and Private Industry in the United Kingdom 1949-1973', Economic journal, June . P . Minford & P . Kung (1984) The Costs and Benefits of Coal Pit Closures . Monopolies and Mergers Commission (1983) National Coal Board : A Report on the efficiency and costs in the development, production and supply of coal by the NCB, London, HMSO Cmnd . 8920 . National Coal Board (1984) Annual Report and Accounts for 1983-4 . New Socialist (1985) April . R . Samuel (1985) `A Managerial Power Cut', New Socialist, April . E . Schumacher (1969) `Some Aspects of Coal Board Policy 1947-1967', Economic Studies . Select Committee on Energy (1982) Pit Closures, London, HMSO, HC80 . C . Sweet (1982) The Costs of Nuclear Power, Anti-Nuclear Campaign . L . Turner (1984) Coal's Contribution to UK Self Sufficiency, Heinemann Educational Books .

Acknowledgement : The paper has benefitted from the helpful comments and suggestions of the editors and referees of Capital and Class and also Peter Nolan .

References

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Editorial Comment Hodgson, Nove and Gorz have all recently published books which contain different views on what constitutes socialism, how this is to be achieved, and how the economy is to be structured and organised . Is the socialist economy to consist of large nationalised firms or small self-managed co-ops, is coordination to be by planning or by the market? The need for a future vision of socialism and how it should be operationalised are important issues . Capital and Class 24 contained an article by D Byrne relating to Gorz's visions of Utopia in Farewell to the Working Class . In this issue we have reviews by Francis Green and Chris Whitbread which raise issues relating to alternative views on a socialism for the future . Although they cover some common ground, each suggests a different position on the nature of a future socialist society . Many other views are possible and the Editorial Collective hope that these pieces stimulate future debate on this important question .

Review article

ChrisWhitbread Gorz, Nove, Hodgson : the economics of socialism Farewell to the Working Class, Andre Gorz, Pluto 1982 . The Economics of Feasible Socialism, Alec Nove, George Allen & Unwin 1983 . The Democratic Economy, Geoff Hodgson, Penguin 1984 .

• MY PURPOSE here' is to review three major contributions to recent debates on the themes `How should a socialist economy be organised?', `How should a transitional economy be organised?' These are urgent questions if the left is to regenerate its vision and its appeal as a movement capable of restructuring the economy in a progressive way . I'll briefly summarise the three books, then ask how we can use them to clarify our ideas on self-management, planning, markets, and competition . I conclude that markets and competition must have a key role in the socialist economy we are aiming for, under the control of democratic planning . But there are many problems ; they constitute some elements of a research programme for socialist economists . The political background is provided by the discussions which have been taking place on the British left since the sizeable electoral defeats suffered by the Labour Party in 1979 and 1983, and the split in that party which led to the formation of the Social Democratic Party in 1981 and the subsequent SDP-Liberal Alliance . However, I don't propose to take up the debate on issues such as whether 'Thatcherism' is a new force on the British right,

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whether the labour movement is on the retreat, whether socialist ideas have been losing ground in the population, and what the strategic response of the left should be (see, for example, Jacques & Mulhern, 1981 ; Hall & Jacques, 1983 ; Fine et al, 1984) . I want to confine myself to one aspect of such a response, which has to do with the question of how production and distribution - the material life process of society - should be organised in a socialist society . Socialist thinking on these subjects is in an unsatisfactory state, deriving, of course, from the Soviet Union's failure after more than half a century to develop forms of organisation which could be seen on balance as offering any improvement by the vast majority of workers in the advanced capitalist countries . In Britain, we have seen a rash of confused debates on `the market', `popular planning', `democracy', `decentralisation', 'competition', and so on . Of course, some people on the left think such debates unnecessary, relying on an extension of nationalisation in the traditional mould, in the hope that the widespread popular antipathy to old-style nationalisation reported by opinion surveys can be transformed . (A survey carried out in the months before the 1983 general election found only one in ten supporting more public ownership of industry, and only one in five among Labour supporters .) But even among those who take these issues seriously, the lack of satisfactory working models of actually existing socialism, together with the certainties proclaimed by free-market theorists on the right and traditional nationalisers on the left, has meant that an adequate basis for strategic thinking has been lacking . The analyses of Gorz, Nove and Hodgson - coming from different backgrounds, and each the outcome of a considerable period of work - may help to clarify what is at issue . These questions are important for socialist practice at several levels . In electoral politics, they are relevant to the industrial policies put forward in campaigns and adopted in government, nationally and locally . For example, in 1984 the Labour Party's deputy leader, Roy Hattersley, delivered a speech to the Socialist Economic Review group's annual conference which aimed to re-examine party policy on public ownership . This speech amounted to listing various forms of social ownership - state monopolies, large state-owned companies competing with a few large privately-owned ones, co-operatives, local authoritysponsored companies - together with ideas for government and workforce shareholdings and worker participation . Tl- re was no real discussion of the internal organisation of `socially owned' enterprises or relations among them, and no strategic perspectives other than those of improving efficiency and investment performance and `distributing power more widely' .

Review article

Another example is the growth of worker co-operatives . The Industrial Common Ownership Act of 1976, which among other things set up the Co-operative Development Agency, probably provided the basis for the subsequent explosion in the number of small producer co-ops (this Act and the growth of co-ops owed much to the work of the movement promoting co-ops, especially the Industrial Common Ownership Movement, supported by some Christians but largely ignored or derided by the left) . Subsequently, Labour-controlled city authorities such as the Greater London Council and the West Midlands County Council have tried to initiate local industrial policy in the face of central government's refusal to undertake a relevant national one . Part of their strategy has involved promoting worker co-ops . What should the policy of these authorities be with respect to relations among co-ops and other firms they support? What is the best role for planning here, and for competition? Idealistic statements from people in the co-operative movement that 'co-ops don't compete' are wide of the mark . Co-ops whose internal organisation maintains an exemplary democracy can be seen, as far as inter-enterprise relations are concerned, in the same uneasy balance between cut-throat competition and collusion against the consumer that appears in the capitalist market place . What should the guiding principles be here? Confusion reigns, except for the cynics who repeat that without central planning co-ops must suffer the dire effects of `the market' . Even those who reject any involvement in this kind of initiative as `reformist', and consider that as revolutionaries their proper field of action is the class struggle, need to think about models or blueprints for a socialist economy . Otherwise we won't know what we're aiming for . Let us see what Gorz, Nove and Hodgson have to say .

Parisian journalist Andre Gorz has tried for a long time to maintain a Marxist political philosophy which sees the industrial working class as a the agent of capitalism's destruction and of the building of socialism . But he became increasingly influenced by ecological perspectives that criticised the concept of economic growth and the evolving nature of industrial society ; he lost faith in the core industrial working class as the agent of change ; and he came to believe that democratic planning and self-management of modern industry are illusory goals, because of its necessary large scale and complexity . In 1974, Gorz was already writing : `Imagine . . . that the major industries, centrally planned, produced only that which was required to meet the basic needs of the population : four or

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five styles of durable shoes and clothing, three or four models of sturdy and adaptable vehicles . . . Uniformity, monotony, boredom? On the contrary, imagine the following : Each neighbourhood, each town, would have public workshops equipped with a complete range of tools, machines, and raw materials, where the citizens produce for themselves, outside the market economy, the non-essentials according to their tastes and desires .' (Gorz, 1980 : 9)2 Here we already see in Gorz the profound influence of (or convergence with) the views of the Catholic social critic Ivan Illich . But in place of Illich's anti-modernism and nostalgia for a medieval society and a craft economy, Gorz proposes a dual economy in which modern industry is limited to a much-reduced role . In Farewell to the Working Class, Gorz returns to a Marxist theory of history and revolution which stresses what Marx took from Hegel . Hegel wrote : `The destiny of the spiritual World, and - since this is the substantial world, while the physical remains subordinate to it . . . we allege to be the consciousness of its own freedom on the part of Spirit, and ipso facto, the reality of that freedom .' (Hegel, 1956 : 19) Hegel saw history as a succession of stages, in each of which (to give a modern, sociological interpretation) social life is `produced' by the spirit or culture of the epoch . Each stage's internal contradictions (on the cultural level) lead to its demise and replacement by the next, until the end and `destiny' of history when Spirit recognises its own creation, the social world . Hegel's philosophy of history is `the key to Marx's dialectic' according to Gorz . Marx replaced Hegel's `spirit' by classes as `social subjects' which do the work of making history regardless of the perceptions and aims of their members . The destiny of history is still the overcoming of the otherness of the social and material world, but this for Marx is communism, whose construction is the historical role of the proletariat . It would be able to do this because it would become collectively capable of organising the whole of material production, and also it would have to do it because the constantly increasing social nature of economic life would mean that it could no longer be run by a multiplicity of private owners without contradictions and crises . This, Gorz states in a tone of increasing bitterness, is `the working class according to Saint Marx' . (Should it rather be according to Saint Lukacs?) `Orthodoxy, dogmatism and religiosity are not therefore accidental features of marxism . They are inherent in a philosophy structured upon hegelianism' (Gorz, 1982 : 21) . Gorz appears to simply ignore structuralist interpretations of Marxism that have tried to disentangle it from its Hegelian

Review article antecedents, and which dominated Marxist throught in the 1970s . I'll return to this in connection with Hodgson's work . Gorz's disillusionment with Marxism and the proletariat (note that the original title of Gorz's book is Adieux au Proletariat) is because, still faithful to the Hegel-Marx vision of the end and destiny of history, he now sees the proletariat as incapable of bringing about this end, or even conceiving it . But what now is the aim? `The liberation of time and the abolition of work' . `Work', for Gorz, is a 'heteronomous' activity, one carried out for someone else, controlled by someone else, for a wage, for example . Opposed to `work' is not rest or `leisure', but autonomous, self-determined activity . `When self-determined activity is one of production, it is concerned with the creation of objects destined not for sale, but to be consumed or used by the producers themselves or by their friends or relatives' (Gorz, 1982 : 2) . It would be interesting to know from where the concept `autonomy/heteronomy' found its way into Gorz's thought . Absent from his 1980 collection Ecology as Politics, it dominates Farewell to the Working Class . It doesn't come from Illich ; although in Gender (1983 : 68) Illich develops the concept of the vernacular, meaning `the inverse of a commodity' -'those things that are home-made, homespun, home-grown, not destined for the market-place, but that are for home use only .' So the aim is `the liberation of time and the abolition of work' . Now Gorz's thought is faced by a fork in the road, and both roads lead to impasse . Capitalist development, Gorz says, has made the working class more and more incapable of collectively appropriating the means of production . Firstly, the technology itself is anti-socialist . `The productive forces called into being by capitalist development are so profoundly tainted by their origins that they are incapable of accommodation to a socialist rationality .' Secondly, the political imperatives of the class struggle have made the labour movement build itself as a `replica of capital' . Autonomy is not a proletarian value . `Thus the traditional ideology of the labour movement confirms, extends, and even completes the work begun by capital of destroying all autonomous capacities and possibilities among proletarians .' Thirdly, the idea of seizing the means of production was in history specific to skilled workers who in fact already controlled production at the workplace level . The polyvalent skilled worker is disappearing, according to Gorz . `In the immense majority of cases, whether in the factory or in the office, work is now a passive, preprogrammed activity which has been totally subordinated to the working of a big machinery, leaving no room for personal initiative .' C&C 26/SUMMER 95-1

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The other road from the fork - taken from Marx's Capital and quoted at length by Gorz (1982 : 95 ; Marx, 1959 : 820) stresses the inevitable persistence in all social formations of the `realm of physical necessity' - the struggle with Nature . Only beyond this can the `true realm of freedom' develop, with the shortening of the working day as its prerequisite . Hence Gorz's dualistic perspective . The `potential social subject' of the abolition of work is found in the new 'non-class of post-industrial proletarians' . This includes all those who are unemployed or underemployed as a result of automation . `The traditional working class is now no more than a privileged minority . The majority of the population now belong to the post-industrial neo-proletariat which, with no job security or definite class identity, fills the area of probationary, contracted, casual, temporary and part-time employment .' This might remind us of the recent ideas of `flexibility' developed by managers of firms, aiming at a core group of employees with job security and various layers of peripheral, semi-casual groups without security . 3 Gorz's analysis of tendencies in capitalism is completed by the assertion that `once automation has been fully achieved' a `viable society endowed with everything useful and necessary to life' could need only two hours' work a day or equivalent though this would be in the sphere of necessity, of large-scale industry, where it would be pointless aiming for democracy or self-management . `From the point of view of the individual, the plan has no advantage over the market' - it remains `other' . As long as planning is the lynchpin of socialist programmes, they will be unattractive to wealthy societies, whose inhabitants want to build a sphere of freedom outside `work' . Gorz sees feminism as a leading element of the movement for a future society, precisely because of the separation of women's concerns and consciousness from the industrial machine and wage labour. The women's movement, in `asserting the centrality of non-economic values and autonomous activities', could 'become a dynamic component of the post-industrial revolution and, in many respects, its vanguard .' Marcuse (1975) and Touraine (1978) are appealed to here . `Women's activities and qualities prefigure a post-capitalist and post-industrial society, culture and civilisation .' Gorz's strategic perspective thus becomes a dual society where a small proportion of time is spent in the industrial system, which has the character of a huge machine and must be centrally planned and managed . The rest of time can be passed in the sphere of autonomy . Against anarchist views, for Gorz the state is necessary to guarantee laws and to run the planned sector . The

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task of politcs is to define the attributes of the state and to draw up guidelines and instruments for the planning system . As a writer, Gorz has unashamedly adopted the method of utopianism . He tells us a fairy-story in which a new society is instituted by government fiat, building on existing tendencies towards autonomous activity at base level .

In contrast, Alec Nove, ex-professor of economics at Glasgow University, tries to avoid utopianism . His aim in The Economics of Feasible Socialism is to investigate a possible `state of affairs which could exist in some major part of the developed world within the lifetime of a child already conceived, without our having to make or accept implausible or far-fetched assumptions about society, human beings and the economy .' While he adopts a broadly socialist position, Nove differs from the other two writers considered here in that he doesn't begin from a Marxist framework (though he is ready to quote Marx when it suits him) . His approach may perhaps best be called one of `organised common sense' drawing on a long period spent studying the Soviet and East European economies and nationalised industry in the west . Nove contends that `Marx had little to say about the economics of socialism, and . . . the little he did say was either irrelevant or seriously misleading .' Abundance is an unacceptable assumption, so goods will still have to be rationed by price ; and the labour theory of value gives no guide to price setting in a socialist economy . Marxists, following Marx and Lenin, have underestimated the difficulty of the task of organising a communist economy . They have seen it as a simple matter, or at any rate as simple as organising a postal service . But they have underestimated the vast scale and complexity of a modern industrial economy like that of the USSR, with over 12 million products, 50,000 industrial establishments, and so on . What Nove calls the `ex ante illusion' assumes that production can be directed by needs determined beforehand . But this is inconsistent with consumer choice, since we change our minds . Competition, deplored by socialists, is a corollary of choice, given the technical inability of a non-market system to respond quickly and flexibly enough and in sufficient detail . Against the traditional Marxist view, Nove writes : ` . . . in a complex industrial economy the interrelation between its parts can be based in principle either on freely chosen negotiated contracts (which means autonomy and a species of commodity production) or a system of binding instructions from planning offices . There is no third way . What can exist, of course, is some

Nove : socialism that works, in our lifetimes?

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combination of the two basic principles . . . In fact these principles must be combined, must coexist (do coexist under modern capitalism too) .' (1983 : 44, emphasis in original .) Nove writes that a long agenda faces socialist economists, and that they cannot even begin to face the real problems unless they openly reject the utopian elements of the Marxist tradition . In the Soviet Union market mechanisms were rejected in favour of centralised economic planning, which implied an undemocratic political system . The problems of Soviet planning are enumerated : the `curse of scale', shortages, sellers' markets, inflexibility, problems of success indicators and price setting, and the failure of mathematical methods despite high technical expertise . Turning to other East European countries, Hungarian market socialism' is judged a qualified success, although Nove remarks that for competition to be effective, there must also be penalties for failure, and these have been avoided . The Yugoslav system is seen as a bundle of contradictions : decentralisation and localism with erratic, improvised central controls and political interference . `There is a widespread belief in Yugoslavia that the system as it is today cannot continue .' (1983 : 40) The Polish catastrophe is explained by a unique combination of official incompetence, popular anti-Sovietism (and opposition to the Polish government) and economic adventurism . Nove now considers strategy for a transition to socialism in the west . The left is criticised for a preoccupation with income distribution, a lack of concern for productivity, and an opposition to wage controls coupled with a belief in price controls and import controls . The combined effect of these policies, Nove says, would be to drive the political centre to the right, whereas electoral victory is only possible if the centre moves left . Nove sees two possible strategies for a left-wing government : (1) `To attempt a gradual shift in economic power away from big business . . . in alliance with small business (or at least keeping it neutral) . Nationalisation . . . is clearly an important way forward .' Pressure for higher wages may prove the biggest obstacle . Market forces must be allowed to function - not disrupted by price controls, import restrictions and material rationing . Limitation of wage increases is vital and political (socialist) influence in trade unions is necessary . (2) `Take advantage of a temporary leftward swing of opinion, reinforce it with some immediate distribution of benefits which would empty the treasury and exhaust reserves, and then take political action to prevent the right backlash from lashing, by appropriate changes in the constitution towards a `people's democracy', plus the strengthening of the `socialist' police, the creation of a workers' militia to replace or fight the army, and so

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on .' For Nove, the danger is that, as in Chile, a left government may pursue policies which unintentionally create this kind of crisis . On the transition from `socialism' to socialism in the Eastern bloc, Nove maintains that a democratisation of the planning system without strengthening market elements is not feasible unless it is thought that the allocation of every 10 tonnes of metal, 1,000 metres of cloth and so on should be voted on . The only way forward is that attempted in 1968 in Hungary, with the creation of small autonomous units, especially co-operatives, as a matter of urgency . For `developmental socialism' in the Third World, Nove recommends a `state capitalist' mixed economy which allows the market a major role and takes its logic into account . Finally, Nove discusses what the socialist economy should look like, what the aim of socialist politics in the transitional period should be . The political assumption is a multi-party democracy, with periodic elections . The legal structure should permit the following kinds of productive enterprise : 1 . Centralised state corporations . 2 . Socialised enterprises with full autonomy . 3 . Co-operative enterprises . 4 . Small-scale private enterprises, with limits on number of workers and capital employed . 5 . Individuals . An objective of the legal structure should be to allow the expression of producers' preferences in the organisation of work, while consumer preferences should predominate in determining what to produce . From this point of view, small-scale workplaces and enterprises have an advantage and should be encouraged as far as possible given technical economies of scale . Gorz is referred to here : how would the small-scale enterprises Gorz envisages interrelate? Nove thinks Gorz's approach implies a market, but Gorz does not spell this out . Nove `wrote to ask him, but he did not reply' . On competition, Nove says that we need to investigate the desirable or benign and the undesirable features of competition . This is not at all the same as the distinction made in Soviet theory between `competition' (bad) and `emulation' (good) . Soviet experience itself shows that the `evil side' of competition can emerge with or without a market . For socialist economists, it is necessary to devise rules which will prevent the wrong sort of competition from emerging . The role of central planning, Nove suggests, should be as follows . It should undertake major investments and monitor decentralised investments . It should carry out `naturally' centralised activities like electricity, oil, railways, etc . It should set the

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legal ground rules for the autonomous and free sectors . And it should organise trade and long-term planning . Throughout, Nove argues that the best way for consumers' preferences to be expressed is through the market, and not, except for broad priorities, by some kind of democratic process : `With a given distribution of income (as egalitarian as the given society chooses it to be), there is no better way of enabling citizens to register their preferences than to allow them to spend their . . . money . If this is denounced by the fundamentalist as a "market", so be it . . . no voting system can be a substitute, because, first, the huge variety of preferences makes it an impossibly unwieldy task, and secondly . . . because this is not a matter of majority vote anyhow, since a minority is entitled to be supplied also .' (1983 : 54) Another theme is that individual or small business should be allowed a role in a socialist economy : `I must admit to a deep prejudice against the use of police to prevent people from producing goods and services which others want and are prepared to pay for . . . If large-scale production is indeed more efficient, it would not need extra-economic coercion to prevent the private farmer from competing . But if, say, wheat, maize, milk and butter are amply supplied by large farms, but private enterprise finds it advantageous to supply mushrooms, raspberries, green peppers or goat's milk cheese . . . it would surely be wrong to stop such production in the name of socialism .' (1983 : 144)

Hodgson : cybernetics and democracy

Geoff Hodgson of Newcastle Polytechnic, in The Democratic Economy, states that one of his prime objects is `to change the terms of political and economic debate . There is a dialogue between Left and Right which is preoccupied with dogmatic assertions of the virtues of public ownership on the one hand, and of markets and private ownership on the other . What is missing is a serious discussion of economic democracy . . .' Hodgson believes that democracy, a 'supra-class concept', is an end in itself, and `the most important characteristic of socialism is a full and extensive democracy' of the participatory kind . He also argues that markets and competition have a vital, but subordinate role in socialism . To back this up, some general theory is developed . `Capitalism has to accommodate within itself other forms of organisation and regulation ; typically the family, planning within the firm, and the state . We shall call these forms impurities . The idea that they are necessary to the capitalist system we shall call the impurity principle (as applied to capitalism) .' Hodgson adds that system should be seen as structured totalities and not as `soups' with various ingredients . After identifying impurities in

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slavery, feudalism and state collectivism, Hodgson introduces the principle of dominance - socio-economic systems generally exhibit a dominant economic structure . Thus the impurity principle becomes : `every socio-economic system includes at least one non-dominant structure . . . every dominant structure requires at least one other structure for the system as a whole to function .' This is contrasted with Marx's view, which is stated as the idea that `the dominant economic system could in principle encompass social life in the process of expanding and destroying all adjacent economic structures' and so must perish through its own internal contradictions . So far, Hodgson's new principles have appealed only to casual observation . But an attempt is made to give them a theoretical backing in cybernetics and general systems theory . W . R . Ashby's `law of requisite variety' on system control states that `if a stable target outcome is to be attained, then the variety of the controlling system must be at least equal to that of the activity which it is controlling' . (Economists will recognise Tinbergen's equality of policy targets and instruments .) Stafford Beer (who worked in Allende's Chile) has applied this to management theory, and in a recent paper Espejo and Howard formulate a `law of insufficient variety' : `for every single system there is a disturbance for which there is no response that will lead to a target outcome .' Pure systems have `insufficient variety' . This provides a justification for the impurity principle, though I am not sure whether Hodgson realises that it is a functionalist one - I will discuss this later . Hodgson uses these ideas to support his argument that socialism must be economically and politically pluralist . Hodgson then develops various scenarios for developments in capitalism in the immediate future . In the corporatist scenario, the market economy is undemocratically managed by interestgroup politics at the level of the state . The new right scenario attempts to shift the initiative back to the market, but this leads to social disolocation and increasing repression . Hodgson's own scenario and strategic recommendation for the labour movement is `a difficult but progressive process of democratisation under capitalism, leading to its transformation into a socialist system' . Signs of the beginnings of this process are found in movements for greater political participation, the growth of co-operatives, the women's movement, awareness of ecological issues, antinuclear campaigns, and so on . `The preservation and extension of democracy is a worthy end in itself, and a task that cannot be postponed to a future beyond capitalism . It is a matter of applying democratic leverage to the existing system to the point where a fundamental transformation of society is effected .' Against the objections of the left, Hodgson supports worker participation in

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management of capitalist firms ; this is a `Pandora's box' . `The participatory society of the future has to be prefigured within the capitalism of the present . Without examples to point to, people will never be convinced of the viability of socialism .' Hodgson criticises the orthodox view in which economic systems are ranged along a line with planned/command economies at one end and free/market economies at the other . Instead, he suggests a two-dimensional view with `degree of popular participation in decision-making' on the vertical axis and `extent to which markets or planning dominate the other' on the horizontal one . Economies can then be represented as points in this plane . The impurity principle rules out certain pure forms . Paths between positions can be drawn, picturing political strategies, including different paths between the same two `current' and `goal' points . This diagram is used to argue against the path which most socialists argue for, which initially extends state ownership . That path goes dangerously near corporatism . Instead, Hodgson proposes an initial emphasis on decentralisation . Hodgson refers to the implications of his impurity principle as `economic pluralism' . He also argues that `some form of political pluralism, typically in association with a parliamentary democracy, is necessary for the functioning of a healthy socialist society where common ownership and control of the economy prevail .' Initially, pluralism means two or more parties . ` . . . the frequent undervaluation or rejection of pluralism by sections of the Left is related to a misconception of the nature of social reality in general, and to an implausible account of how a healthy socialist economy could work in practice .' Such an economy, Hodgson argues, should be dominated by planning, but would need a measure of market regulation . With 12 million different products, the fastest computer now available would take 18 years to carry out the computations necessary to centrally plan the whole economy . On the other hand, advocates of `popular planning' are criticised because they reject central planning, but also the market . `We are left with nothing but a crude and vaguely specified "lobbying" model of a proto-socialist society in which people put pressure on public institutions to order the alternative goods to meet obvious needs' - a vision Hodgson calls `the "utopia" of perpetual street demonstrations' . `The decentralisation of control over industry inevitably means the establishment of a market mechanism ; no realistic alternative has been found .' Hodgson is `aware that I am uttering heresy' - Tony Benn, for example, has often defined socialism as the absence of markets . Hodgson would argue that this is inconsistent with Benn's support for co-ops as autonomous enterprises .

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A socialist society, Hodgson says, must `construct a healthy symbiosis between planning and a subordinate market' in which planning dominates (1) long-term and environmental decisions, (2) overall frameworks, like transport, (3) capital goods, (4) sectors like education and health where the consumer can't make a rational, informed choice . Measures are needed to counteract the bad features of markets (encouraging acquisitiveness ; creating inequality) but permitting their good ones (flexibility ; innovation ; quality variation) . This is `not a wishywashy argument for a mixed economy' since either planning or markets must be dominant . `The future is in the hands of the radicals and visionaries .' At the end of Hodgson's book, the concept of autonomy makes an appearance . `To prosper, democracy must encourage what is in a sense its opposite, i .e . autonomy, or the self-rule of the minority . But autonomy will be constituted in such a way that it remains subservient to overall democratic control .' `The object should be to create communities with the maximum degree of self-sufficiency .' `The slogan . . . is democracy and autonomy . . . therefore, the demand for a 30-hour week is more important than that for the nationalisation of the banks ; the erosion of civil liberties is of more concern than the loss of free collective bargaining ; the humanisation of life and work has priority over the pursuit of economic growth .' Small business, while it `does not encourage the best of human characteristics, within limits . . . has to be tolerated, and no longer regarded as the cancer of the community . Measures of autonomy such as these, which do little overall harm, and give millions of people some sort of control over their lives, have positive as well as negative features . Traditionally, the left has identified the private and market-based features of the small business as sufficient to condemn them in the future . Yet the real problem arises when private business defies the interest of the majority and conducts its internal affairs in a dictatorial fashion . Thus the emphasis should not be on getting rid of the small businesses and market relations, but on encouraging democratic and cooperative forms of enterprise on a small scale, in sectors of the economy where they are appropriate .'

Gorz's version of Marx's historical materialism, which he rejects, seems to exemplify the Hegelian idea of totality criticised by Althusser . In Benton's words, The Hegelian notion of totality is what Althusser calls 'expressive', in the sense that each specific element or `moment' of a seemingly complex whole is interpreted as `expressing' in

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its own particular way some general or essential character of the whole : the appearance of complexity is reduced by the Hegelian philosophical method to an essential simplicity . By contrast, the respect for the independent and specific reality of the concrete objects of study imposed by Marxist materialism commits historical materialism to a recognition of the irreducible complexity of social totalities . . .' (Benton, 1984 : 62) In contrast, Hodgson's `Impurity Principle' and `Principle of Dominance' appear closer to the Althusserian view, though not referring to that school or using its language . (Possibly, Althusserian views were discounted by Gorz and Hodgson, as they were at one time by the present reviewer, because they seemed, perhaps incorrectly, to be associated with a project of resurgent Stalinism .) Hodgson tries to cross-fertilise historical materialism with ideas from the systems approach . This is a worthwhile project, since if systems theory has the generality it claims, it should encompass historical materialism . However, Hodgson's interpretation of Impurity in terms of its functions in the stabilisation of systems is open to the usual charges levelled at functionalist explanations . We may accept, for example, that it is functional for capitalism to have other modes of production - pre-capitalist, family, state-organised present but subordinate within it . But how is this plural structure built and maintained? What is missing is the political and historical process by which leading members of the ruling class theorise these functional aspects and take action - for example, through law and the state - to create and maintain them . In an attempt to settle his accounts with Marxism, Hodgson says that Marx's greatest contribution was to develop a theoretical framework in which different socio-economic systems may be analysed . But he goes on to point out faults in this framework : for example, a lack of political theory linked to an unfounded catastrophism in economics . Then, pointing out that the history of various nations can't be fitted easily into a simple historical materialist framework, Hodgson concludes that `it is necessary to abandon the Marxian historical schema' (1984 : 194) . Hodgson wishes to reverse the conventional wisdom that Marx's contributions to history and sociology are more important than those to economics . This is a puzzling conclusion, however . It leads Hodgson to argue that `classes are not the primary objects of historical analysis . It is structures and systems that are primary' (1984 : 198) . He also wants to abandon the notion of a ruling class . Successive additions to historical materialism to fit the complexity of concrete history are likened to the attempts to preserve Ptolemaic astronomy (in which the earth was thought to be the

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centre of the universe) by adding more and more wheels within wheels . Clearly there are more things in history than were dreamt of in Marx's philosophy . But the strength of historical materialism is that it allows us to get behind the peculiarities and the seductive ideological ways in which societies explain and express themselves, and look at any concrete society in terms of `who is doing what to whom' . It is not at all clear that, for socialists, it would be better to start by asking `what are the structures and systems' . Socialism is, after all, supposed to be the politics of the working class, not the theory of trading off democracy against system efficiency . Three paragraphs back, I used the phrase `ruling class' in talking about functionalist explanations . Would I have meant the same thing if I had substituted a phrase like `political elite'?

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I now want to ask what the three authors under review have to tell us about socialist perspectives - how far they can help us delimit what is possible or feasible and, thus, what is the area within which socialist goals should lie, and what the research programme of socialist economists should consist of .

Socialist perspectives

Firstly, we have to distinguish between the internal organisation of enterprises and the relations among them and between enterprises and consumers . The capitalist model of the enterprise has a hierarchical internal organisation - Marx's `despotism of the factory' - where management insists on its right to manage and the extraction of surplus value in the form of profits is the condition for the survival of the enterprise . Clearly full internal democracy is incompatible with this, though Hodgson argues that `worker participation' is a Pandora's box that challenges the capitalist organisation of the labour process . Gorz's view is that modern industry cannot be organised democratically . For him, the logic of its technology requires top-down coordination and discipline as a condition for efficiency . This leads him to a dualistic perspective in which desirable work, work which itself provides a field for satisfaction of desires, can only be expected outside the industrial machine . But Gorz's sphere of autonomy, despite his protests, appears like a sphere of hobbies, while the real struggle for existence goes on elsewhere, in the industrial world of alienation. Against this dualism, Nove and Hodgson offer a richer scenario containing enterprises of various types and sizes . 4 Not everyone wants or should be expected to want to work

Internal organisation

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in a self-managing structure . We might conclude that socialist perspectives should envisage work units with different types of organisation - but with a much larger self-managing sector than we have now . Size and complexity are related to the possibility of internal self-management . What is still not clear from economic research is how far the evolving size of capitalist firms relates to technical economies or imperatives, and how far firms have grown and merged together for other reasons connected with power in the market place, with finance and with managerial empire-building . For example, some motor industry experts have said that the western world `only has room' for seven automobile firms of a competitive size . This doesn't necessarily mean that it's senseless to produce cars in a smaller firm or group of firms ; it means you need to be a giant to compete on a world scale with other giants . Similarly, research has shown (Prais, 1981) that the substantial postwar increase in concentration in British industry has not been accompanied by a general increase in plant sizes . Some (e .g . Tomlinson, 1982 : 132) have taken this to mean there is no technical need for enterprises to be as big as they have become, and that socialists could envisage splitting them up into smaller ones where internal democracy could flourish . Things are not so obvious, however ; there could be technical gains in the coordination of several plants ; and what is the critical size beyond which internal democracy becomes too difficult? However, it's plausible that large firms contain small departments which could be independent . To some extent, this corresponds with the views of some capitalist managements and theorists, particularly in industries where innovation is going quickly . More relevantly for the left, thinking about these issues responds to the ideas of `green economics' which emphasise small scale, localism and ecology . The great defect of all these approaches (and one which Gorz shares) is that they neglect entirely the question of relations among enterprises - plan or market - and their consequences . Internal organisation is connected with scale . But a reduction in the scale of enterprises raises the problem of the relations among units and of implications for class formation, culture and politics, to which we now turn .

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Plan or market?

Plan or market? This is the great unsolved riddle of socialist economics . It is difficult to avoid Nove's conclusion that there is no third way - unless we have in mind a partial abandonment of the social division of labour, and a return to partial local selfsufficiency on a non-market basis, which seems to be Gorz's vision . Even then, it is hard to see how commodity production

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and markets would not spontaneously be re-born - unless, of course, they were forbidden by law . . . and then we have the image that haunts Nove, of someone being arrested and jailed for starting a restaurant . On the other hand, Hodgson's critique of `popular planning' seems well-founded . Its advocates have simply not understood the complexity of modern economies, a complexity that creates the need for thousands of decisions which the market decentralises very well . It's hard to credit the idea of replacing these decisions with an infinite series of meetings or a `utopia of perpetual street demonstrations' . Nove too argues that the idea that all decisions on what to produce could be made in a democratic political process is a fantasy . The Soviet model of central planning could be defended as a lesser evil than the market economy . At least, central planning can avoid the miseries of poverty, insecurity and unemployment . It trades them for the miseries of despotism, rigidity and the stifling of creativity and initiative . The technical functioning of the market system has been at the centre of the recent resurgence of ideology on the right (internal organisation of enterprises has received far less prominence) . This has various aspects . At a theoretical level, `perfect competition' is erected as an idealised, imaginary market system - a bourgeois utopia - which is shown mathematically to produce `optimum' results according to its own assumptions . As is well known, these assumptions - a multitude of small firms, consumers with private, fixed tastes, and so on - are far from the reality of General Motors and IBM . Moreover, the `optimum' supposedly achieved has no connection with income distribution . But bourgeois economists still invariably use this imaginary world as a point of reference in judging the real one . On a more practical level, market theorists point out the three functions of prices in guiding resource allocation according to needs (and of course ability to pay) (e .g . Friedman, 1980 : 33-44) . Prices transmit information, provide incentives and distribute rewards . Most of the problems of central planning, in fact, come from the failure of prices to play their information and incentive roles . (Moral incentives are considered and dismissed by Nove .) To those of us who are not economic theorists, the market and competition appear in two opposing forms in everyday life . When we confront it as consumers, competition among producers appears as a good thing, because it encourages a better, cheaper product or service (though there may be waste of resources, invisible to us, on advertising, duplication, etc .) . As workers, on the other hand, competition appears as a bad thing, exerting downward pressure on pay and work conditions ; and

141



Capital & Class 142

the market' appears as a malign force which can close down firms (or co-ops) and throw us out of work . Central planning avoids the market's insecurity, but loses its responsiveness to our wants as consumers . What characterises a `mixture' (Nove) of the two? Hodgson makes this question more specific by his characterisation of economic systems as `structured totalities' and his Impurity Principle . The problem here is to see how what is proposed is any different from the `mixed economy' which west Europeans know well, in which bureaucratic state monopolies coexist with giant multinational firms . One or the other must be dominant, and a socialist economy needs to ensure that planning is dominant and that the market's role, though vital, is limited . As Eatwell (1982 : 143) writes, `like fire, the market is a good servant, but a bad master' . This seems to me to pinpoint the problematic and the research programme for socialist economists . Is all this illusory, a capitulation to bourgeois ideas and centrist trickery? I don't think so . Too much is lost when markets are suppressed by state power . Certainly competition has bad aspects, to which I will turn in the next section . The task for socialists is to devise legal structures and rules that will minimise the bad aspects .

Competition, culture, class structure, politics

While Gorz ignores the market/plan question, Nove and Hodgson both devote too little attention to the undesirable effects of markets and competition . First, a market system depends on material incentives and so encourages an acquisitive culture . Hodgson answers this by quoting the Polish emigre Brus to the effect that acquisitiveness seemed to him more prevalent in the East than in the West . Nove points out that `the evil side of competition' rears its head in the USSR outside the market context . Neither of these responses are really to the point . Moreover, market systems generate inequality - if incentives work, those who succeed get more, those who fail get less . Taxes and benefits can soften this effect, but there is clearly a tension between effective material incentives and equality . Socialists are people who care, and many of us see the market simply as a producer of suffering . Perhaps even more important are the implications for class structure and development . Some people on the left have long argued against co-ops on the grounds that they encourage a small-business mentality among workers, and set them against other workers in other co-ops, as opposed to trade unionism, which unites similar workers across enterprises . Nove (1983 : 42) refers to Lenin's view that `small production engenders capitalism

Review article and the bourgeoisie continuously, daily, hourly, spontaneously, and on a mass scale' . Indeed, Lenin thought that `It is a thousand times easier to vanquish the centralised big bourgeoisie than to "vanquish" the millions and millions of small owners ; yet they, by their ordinary, everyday, imperceptible, elusive, demoralising activity, achieve the very results which the bourgeoisie need and which tend to restore the bourgeoisie .' (1970 : 33) Clearly, Nove does not agree with this view . But how can a feasible socialism avoid Lenin's picture of capitalism constantly springing up like weeds in the garden? In Nove's view, by legally limiting the scale of private enterprise and by not allowing incomes from pure property ownership . (Is this `feasible'? What about a working proprietor who gradually works less and less, while still drawing a salary?)

The advocacy of `new forms of social ownership' (for example, by sections of the British Labour Party) is seen by some as an attempt by right-wing social democrats to hoodwink the left and gain its support for an anti-nationalisation policy in line with the views of the electorate according to opinion polls . Those who argue for municipal enterprise, co-ops and so on may, on the other hand, see themselves as the left and the defenders of old-style nationalisation and `a planned economy' as the right . This confusion arises because, to follow Hodgson, two different dimensions are being looked at : the dimension of Labour versus capital, and the dimension of democracy versus bureaucracy and totalitarianism . Those who attack local, small-scale and experimental forms of social ownership may do so because they see them as weak compared with the strength of capital . In this view, promoting co-ops (for example) only promotes a self-exploiting sector subordinate to big capitalist corporations, which will milk them of surplus value until they decide to crush them ; and local industrial policy is illusory in the absence of a national industrial policy in the hands of a strong left government . Certainly, a transitional socialist government should integrate its promotion of small and medium socially-owned enterprises with its industrial policy and with planned state enterprises at a sectoral level . But it's not necessarily a bad thing for socialised enterprises to be subject to the discipline of market forces insofar as these express what people want to consume . The emphasis on `the market' in the ideology of the right serves to obscure the power which derives from ownership or control of means of production . This may have distracted our attention towards `the market' as an organising principle which is

143

Socialist strategy and the research programme for socialist economists

Capital & Class 144

blamed for capitalism's ills, and away from the more crucial question of power . As Wainwright (1984) argues : `In different relations of production the market performs different functions . . . The focus of a socialist strategy must therefore be on transforming production itself, which includes transforming the function and consequences of competition between enterprises .' The danger with 'reconsiderations of nationalisation' like that of the British Labour Party is that they will simply lead to the dropping of nationalisation from the agenda, while the `new forms of social ownership' are quietly forgotten . The combination of plan and market I am talking about here has nothing to do with the so-called social market economy of multinational corporations . There are more points raised by Gorz, Nove and Hodgson which I do not have space to discuss - for example, the relationship between economic and political structures and the concept of totalitarianism . What I want to propose is that we can find in these writers some elements of a research programme for socialist economists that is forward-looking and abreast of the times . Some elements of such a programme would be : • Structures which combine plan and market . • Competition : its good and bad aspects and their regulation . • Implications of different forms of ownership . • A socialist organisation theory for the democratic running of enterprises . • Socialist accounting at enterprise and national levels ; social audits . • The pros and cons of small-scale and large-scale enterprises . • Possibilities and limits of `popular planning' . • Opportunities for new forms of organisation presented by electronics . • Implications for culture and class structure of industrial policies, legal forms of enterprise and incentive systems . • The role of the existing managerial and entrepreneurial strata in a transitional strategy . • The relationship between socialist economics, the labour movement and the emerging ecological perspective of `green' economics . There is a lot to do, and I believe a careful reading of the authors reviewed here is a good place to start .



Thanks to Ciaran Driver and John Grahl for helpful comments . 1. 2. Originally published in Le Sauvage, April 1976 . Italics in original . 3. See, for example, `Flexibility : a cause celebre of the 1980s', by Brian Groom in the Financial Times, 25 June 1984, p . 12 . This reports on a conference on `Flexible Manning, the way ahead' organised by the Institute of Manpower Studies and the temporary labour firm Manpower . According to the report, John Atkinson of the IMS portrayed a `flexible company' using four classes of labour : core group, first and second peripheral groups and external groups . 4. John Grahl has raised this interesting question : is democracy a way of organising economic life, or simply a constraint which makes organisation harder?

Notes

Benton, T . (1984) The Rise and Fall of Structural Marxism, Macmillan . Eatwell, J . (1982) Whatever Happened to Britain?, Duckworth/BBC . Fine, B ., L . Harris, M . Mayo, A . Weir, E . Wilson (1984) Class Politics: An Answer to its Critics, Central Books . Friedman, M . (1980) Free to Choose, Penguin . Gorz, A . (1980) Ecology as Politics, South End Press. Gorz, A . (1982) Farewell to the Working Class, Pluto . Hall, S . and M . Jacques (eds) (1983) The Politics of Thatcherism, Lawrence and Wishart . Hegel, G .W .F . (1956) The Philosophy of History, Dover . Hodgson, G . (1984) The Democratic Economy, Penguin . Illich, 1 . (1983) Gender, Marion Boyars . Jacques, M . and F . Mulhern (eds) (1981) The Forward March of Labour Halted?, Verso . Lenin, V .I . (1970) `Left Wing' Communism : An Infantile Disorder, Peking . Marcuse, H . (1975) `Marxisme et Feminisme', in Actuels, Galilee . Marx, K . (1959) Capital, Vol . 3, Lawrence and Wishart . Nove, A . (1983) The Economics of Feasible Socialism, George Allen and Unwin . Prais, S .J . (1981) The Evolution of Giant Firms in Britain, 2nd edition, Cambridge . Tomlinson, J . (1982) The Unequal Struggle : British Socialism and the Capitalist Enterprise, Methuen . Touraine, A . (1978) `La revolution culturelle que nous vivons', Le Nouvel Observateur, 1 August . Wainwright, H . (1984) `What's wrong with "The Market" ', Socialist Society Bulletin, London, December .

References

C&C 26/SUMMER 85-J

145

The Democratic Economy

0

by Geoff Hodgson,

(Penguin, Harmondsworth, 1984, pp256 . ISBN 0 12 022495 5 ; £3 .95) Models in Political Economy by Michael Barratt Brown,

(Penguin, Harmondsworth, 1984, pp281 . ISBN 0 14 122543 9 ; £3 .95)) Reviewed by Francis Green

e 0 O CO l

146

has seen not only the emergence of the New Right ideologies but also the reassessment of a number of basic ideas about socialism . These two interesting books absorb some of these debates and aim to present them in coherent fashion to an informed, not necessarily academic, public . Contained in both is the criticism that many socialists have previously conceived of their objectives far too narrowly, hence incorrectly . Thus the notion that socialism means nationalisation of the commanding heights, or some THE LAST DECADE

Book Reviews such equivalent formula, ignores the general principles of a participatory democracy, of internationalism, and so on . Hodgson's aim, therefore, is to change the present terms of the debate . . . from nationalisation versus markets and private enterprise, to the issue of how is democracy to be combined with autonomy . Barratt Brown would not disagree with this, though his aims are wider . Both books take the reader through alternative scientific and prescriptive models for the economy, grappling with segments of the left as well as the monetarists and the New Right . However, of the two, Hodgson, by confining his argument to the ramifications of one main principle, manages to make his case most clearly . Hodgson states that : `A society based on the fullest extension of popular participation in power, where democracy predominates, and where there is no great inequality of income or wealth, must be a form of socialism' . But the bulk of The Democratic Economy is devoted to the specific question of democracy rather than the wider concerns of socialism . He examines the advantages of democracy in general, its role in capitalist societies and the attitudes towards it taken both by the New Right (mainly in the persons of Milton Friedman and Hayek), and by the Leninist left . At the risk of oversimplifying, Hodgson's argument proceeds as follows . In the first two parts, he begins by proposing the thesis that democracy is necessary for progress : it should be regarded as an end, and not a means . He criticises the New Right's concepts of freedom, and produces a standard yet competent critique of markets . But at the same time he asserts an `impurity principle' which is the idea that besides the dominant relation in society there must exist at least one other form of relation in all modes of produc-

tion . He also takes issue with the `Leninist 147 Rebuttal' - the supposed distinction between bourgeois and proletarian democracy . He debates the relationship between capitalism and democracy, arriving at a middle way between the `Compatibility Thesis' and the `Incompatibility Thesis' . The former proposes that developed capitalism has been historically fostered and still is nurtured by parliamentary democracy . The latter, held by both right and left wings, holds that democracy must come under increasing strains as capitalism develops and state expenditure expands . Hodgson's rejection of either opposing view as a necessity is appealing . Both could happen, but neither need to . For example, there are a number of possible limits to growing state intervention in a capitalist economy: too high taxes and social security could remove the incentive to work or catastrophically diminish the incentive to invest ; too much social provision calls into question the ideology of the market ; there could be a total collapse of the economy in which case the state, being part of it, would naturally fall along with everything else ; or nation states could become completely impotent in the face of transnational capital . Any of these things might happen, and they thereby place upper limits on the size and role of the state, but none are necessarily important . And, as Hodgson argues, if the economy picks up and productivity expands, it is possible for state expenditure to grow beyond present levels and for parliamentary democracy to survive still in a capitalist environment . In the final part he arrives at the question of `practical socialism' . His argument, briefly, is this : `worker participation' is necessary for economic and social well-being ; economic planning requires a political pluralism ; socialism plus demo-

Capital & Class

148 cracy implies decentralisation ; and, because of the problems of planning, this means there must be some role for markets . These themes are lucidly and powerfully developed over three highly recommendable chapters . That participation in production is necessary for social well-being will probably not be hotly contested by socialists . That it should also be necessary for economic reasons seems to me to be much more speculative . Hodgson implicitly believes that there are no such costs, as he expects worker participation and industrial democracy to lead to greater productivity, on the basis of several pieces of cited empirical studies . But is this automatically or necessarily so? One can quote examples which illustrate but do not prove the case either way . To balance against Hodgson's cited studies, can we also suppose that capitalists in Brazil, South Korea and Hong Kong have experienced such phenomenal success through worker participation? The point is that worker participation can have various effects on productivity . Even if there are inefficiencies in the Taylorist method, there are also problems with greater democracy . After all, at the crudest level it takes time to discuss things . It is certainly possible that it may have to be achieved at some cost in terms of lower productivity . We should be prepared for the eventuality that meeting social needs may imply reduced efficiency as measured by the market . It follows that integration into markets, either internal ones within the socialist bloc or external ones in the remaining capitalist regions, may bring problems at least for some types of enterprises . One cannot assume them away . That decentralisation of resource allocation decisions and democratisation of planning are proper objectives is also un-

likely to meet great opposition . But there are sure to be some who will disagree with his espousal of markets as a necessary if minor `impurity' in a socialist economy . According to some, the market is the essence of capitalism . Hodgson rejects this equation, saying that even under socialism, in order to promote democracy markets are necessary in some areas of the economy . He differs from the traditional `mixed economy' propositions of social democratic parties, in that markets are not to be predominant and are to be subject to the prevalence of the plan . This is probably a sustainable argument but the criteria need to be elaborated and clarified . Whatever one may feel about Hodgson's position in this controversial and dogma-filled arena, one cannot fault him for his unusual clarity of exposition . He concentrates on the question of democracy because he wants to raise the image of socialism - so that anti-socialists cannot gain support by simply railing against nationalisation and other attendant evils of bureaucratic state intervention . I think he is right in this, and it is particularly important to consider the message at this time of privatisations . The danger is that Labour's future response will be a negative one, of putting a minus where the Tories place a plus, instead of working for a participatory industrial democracy . Yet he might also be accused of not widening the debate far enough . There are other essential principles of socialism, such as egalitarianism, internationalism, social abundance and so on, with equally pressing claims . Barratt Brown's book touches on these other issues, and tackles some of them head on . It is more of a teaching text than a thesis with one sustained line of argument . Nonetheless it professes a single ultimate aim which is `to discover a socialist model that links the needs and activities of men and women

Book Reviews

where they live and work with the big decisions that have to be made about the allocation and distribution of national and international resources . In the first part there are chapters on various conceptions of the capitalist economy : the national market model, the international monopoly model, the corporate model of a command economy, Keynesianism, Monetarism, Marxism, Feminism and the Green model . It is not a particularly long book, so as you can deduce none of these are treated in any depth . As a teaching book it carries with it all the usual dangers of a `quick sus' . Being for long frustrated by the problems of giving one-off lectures on Marxism, I have to admire Barratt Brown's ability to condense quite sensibly the notions of the commodity, labour power, money, and absolute and relative surplus value into only four pages . More depth might be required in an academic context, but as a brief introduction to those unfamiliar either with Marxism or with bourgeois economics I would think it a reasonable introduction . In fact I found the best and clearest chapters to be those on the less orthodox models, such as that of the Green movement in Germany . Yet there are several points where I had my doubts about his analyses, short though they are . For example, he suggests that Thatcherism carries with it a hidden agenda, separate from its usual prescriptions : the deliberate weakening of domestic capital in relation to transnational companies . This is interesting, and of course the outcome may be as he says, but the mechanism sounds all too conspiratorial for me . As for the chapter on the Keynesian model I found it confusing that he should use that context to try to describe the rise and fall of the post-war capitalist boom . More substantially, I must register dis-

agreement with his focus on the monopoly 149 model as somehow more apposite than the market model . No doubt this reflects the long tradition of `monopoly capitalist' theorising, but the evidence is now pointing more towards an increase of competition throughout the world's capitalist markets, despite the rising levels of aggregate concentrawton . That, however, is another story . In the second part, the same summary treatment is given to a number of 'socialist' countries : the Soviet, Chinese, Yugoslav and African models . There is something here again for the newcomer . Then in the final part, Barratt Brown discusses recent theories of imperialism and of the permanent arms economy, before proceeding to models for building socialism . On the question of armaments his discussion is interesting, focussing as it does on the question of competition between transnational companies for arms orders and their search for cheap labour and for markets, while nation states compete for spheres of influence . Yet there is curiously no mention of the importance of the military in internal repression . On socialism, a full discussion is allotted both to the models of transition, and to a model of a socialist society . These last two chapters form the main objective towards which the rest of the book has been heading . In the latter of the two he emphasises, first, the principle of cooperative production . Modern technology is to be harnessed to allow for replacement of boring tasks, reducing plant size, and facilitating exchanges without a market . A second principle is that of democratic social provision, while a third is that socialism should replace the capitalist hierarchical and sexual divisions of labour with a new model that redefines the very nature of work and leisure . There is much to agree with, here, and even if the argu-

Capital & Class 150

ment is not followed through in places, there is an undogmatic air about it . However one cannot help but be troubled by all the questions which remain unresolved or even unmentioned . For example, he draws an unusual conclusion following his discussion of decentralisation and exchange : in his world there is to be no money, there would merely be `paper checks' representing labour values added to products, which would be paid to workers . but bearing the `veil of money' is not the essence of capitalist exploitation, nor is the abolition of money a necessary part of socialism (abolition of money-as-capital, yet, but not money-as-revenue) . If there is to be some decentralisation of production, and neither markets nor money, someone has to postulate how exchange is to be organised without making utopian assumptions about the coincidence of individual and social interests . Unfortunately, Barratt Brown's appeal to computer technology as the solution doesn't satisfy . On an equally important note, he does not however get much further on the question for which I earlier criticised Hodgson - the costs of democracy although he builds up a model of 'horizontal planning' which is to replace or be superimposed upon vertical planning of the old type . His suggestions about how the new technology is to help are only vague, though one can hardly blame him for that . It only serves to demonstrate again this lacuna in socialist thought . In general I found this book an interesting one, with some new ideas here and there, but at the same time a frustrating one : too often the arguments failed to satisfy or were not clearly presented . A particular niggling feature is that the schematic diagrams, the `models', used in some of the chapters, are not properly integrated into the text . That said, it is

otherwise well produced . Hodgson and Barratt Brown are right in asserting that socialists are in need of alternative visions to those posed by the New Right . It is necessary to discuss and posit radical and optimistic models with imagination and hardheadedness, and both books have contributions to make . To conclude with a brief agenda . Neither of them takes up in any detail two especially important issues : the degree of dispersion of incomes in a decentralised socialist economy, and the promotion of socialist internationalism . It may be hoped that future works of this kind would be able to address themselves to these problems .

Book Reviews political sense of devising appropriate 151 means for its transformation . The central focus is on the notion of the spatial division of labour and its implications for contemporary politics, both of class and gender . In a search for geographical and historical specificity, the various authors concentrate upon an analysis of the labour process in relation to the overall process of social reproduction of a capitalist social formation, and reach a common conclusion - geography matters . Besides sharing a common substantive focus, the three books adopt similar methodological stances, aimed at escaping from the artificial constraints on the social sciences imposed by the disciplinary division of labour in academia . Cooke is the most explicit in his adoption of a specific epistemological position, that of realism . This position is arrived at after a review of those traditions in urban and regional Space and the Divisions of Labour planning (chiefly idealism and positivism) which arbitrarily legislate on the identifiTheories of Planning and Spatial cation of those `real processes' with which Development social scientists may legitimately be conPhilip Cooke, cerned, and which therefore tend to specify (Hutchinson, London, 1983) the discipline in terms either of a specific method (positivism or rationalism) or of a The Arena of Capital given relation between theory and practice Michael Dunford and Diane Perrons, (instrumentalism) . Realism is preferred by (Macmillan, London, 1983) Cooke because ` . . . it aoids the atomism of independent events which fragments Spatial Divisions of Labour : Social the conceptual world portrayed in positivStructures and the Geography of ism, and seeks to ground theoretical stateProduction ments in material processes unlike idealDoreen Massey, ism and rationalism' (25) . The central task (Macmillan, London, 1984) for realist analysis is then to link abstract and concrete concepts in a non-reductionReviewed by Alan Hooper ist manner, and to ground these concepts materially in a given social formation . For THE BASIC ARGUMENT of these three books Cooke, this involves articulating the is that the geography of a society is of concepts of production relations, civil fundamental importance, not only in the society and the state, it being ` . . . of key analytic sense of adequately understand- importance that urban and regional ing a particular social formation but in the development planning under capitalism is

Capital & Class 152

conceptualised as a somewhat limited and indeterminate part of an equally indeterminate framework of uneven social relations' (264) . Dunford and Perrons, in reviewing the epistemological procedures dominant in the discipline of geography, argue for the rejection of empiricist and naturalistic ideologies, asserting that the discipline can be distinguished from others not by a distinctive method but by that fact that it studies a particular real object ('materially determined spaces or landscapes' (32) ) . They argue for a materialist epistemology involving the articulation of abstract and concrete concepts, but do not explicitly consider whether such an epistemology need be realist . Indeed, their assertion that geography is a science which is distinguishable from others in terms of a particular real object clearly implies an Althusserian conception of knowledge which is at odds with realist epistemology (see Keat & Urry, 1975 : 135), given its rationalist heritage (Anderson, 1976 : 64) . Such dualism in thought, or `rational idealism' (implicit in the Althusserian conception), has recently been identified as an obstacle to the development of a materialist theory of knowledge (Sayers, 1983 : 22), and it is unfortunate therefore that such a major methodological plank is laid at such an early point of the analysis without an adequate discussion of the foundations upon which it rests . Nor is this without substantive implications for the authors' treatment of historiography, particularly in relation to the respective roles of structure and human agency in their account of historical change . Massey's book also begins with a discussion of methodological issues, the intention being ` . . . to break with the dichotomy between formal models and empirical description' (6) . Like Cooke and Dunford and Perrons, she wishes to

avoid the rationalist imposition of categories upon reality, and the economic reductionism and functionalism so often associated with that tradition . Whereas Dunford and Perrons' discussion of methodology is couched in terms of geography as a whole, Massey's is focussed upon the study of industrial location . She points out that any explanation of geographical processes has to deal with highly differentiated and unique outcomes . This will necessarily involve an initial conceptualisation of the economy which provides internally for a specification of `basic units of analysis' which have both empirical referents and relate to causal structure . Much of Massey's initial concern is with a discussion of those 'middle-order' concepts which can link theories of long-run capitalist accumulation with the particularities of space and place . This is done utilising a framework developed from Wright (1978) which specifies the internal social structure of capitalist production, but, Massey notes, `Not only is there a relation between developments within the social relations of production on the one hand and the social structure on the other, but that relation occurs over space' (39) . Since space is inscribed within the social relations of production, it is both an integral component of the conceptualisation of the realm of the `economic' in a particular capitalist society and a specification of its historical contingency . A conceptual emphasis on the labour process is cleverly deployed to relate economic base and superstructure within a particular social formation, and to bridge the theoretical gulf between abstract and concrete levels of analysis . Throughout, Massey's concern is to avoid superimposing a formal framework on the `real world' . In this connection it is interesting to note that in her discussion of the social division of labour (36) relations of posses-

Book Reviews sion are only one of the dimensions used to define class relationships, whereas in the account offered by Dunford and Perrons (80-83) these forms of property are elevated into a logical history . It is perhaps not surprising, therefore, that the historical specificity offered by Massey is altogether more convincing than that of Dunford and Perrons, for she points out that in dealing with the articulations between place in economic structure of production, type of labour process and the organisational structure of capital the question of linkage is essentially an empirical one . By this means, she introduces historical specificity (and contingency) into a conceptualisation of `the economic' and its regions . This point, though couched in terms of methodology, is of direct political relevance, for, as Massey puts it, `The point of theoretical concepts, and of frameworks such as those elaborated here, is to provide tools for the analysis of specific situations, analyses on which action can be based' (50) . The arena of capital To a considerable extent the success of each of these books depends upon the way in which it defines its object of study . The Arena of Capital exemplifies difficulties in this regard in a rather acute form . Its objectives are varying(' . . . to present an analytical reconstruction of the process of uneven development and of the evolution of the geography of contemporary Britain' (xi-xii) ; `to present an account of some of the major changes in the structure of the space-economy which have accompanied the development of capital' (2) ; and `to show that concepts developed by Marx can in fact be used to study geographical phenomena' (79) ; and each of the four parts into which the book is divided deals unevenly with these three aims . It seems C&C 26/SLIMMER 85-K

particularly unfortunate that the authors 153 specifically indicate, in their preface, that they will be eschewing debates about the theoretical position adopted, for in their outline of a materialist conception of geography in part I they juxtapose a rather structuralist conception of the capitalist space economy to an ontology of social labour which stresses human agency . The assertion that the elements comprising a structure are somehow `underlain' by a conception of human praxis tells us nothing about the nature of this relationship and, as Anderson (1976 : 70-73) has warned us, the theoretical systems established by Althusser and Colletti are largely incompatible . To introduce these systems unproblematically as compatible ingredients in a materialist geography is likely to produce major substantive problems in the text, which the authors rather belatedly acknowledge in their conclusion' . . . while conscious goal-determined human activity plays a crucial role in the conception of human praxis advanced in Part I, in the studies in Parts II and III we have not given much explicit attention to questions of human agency' (356) . They go on to seek to justify their structuralist account in terms of a distinction between routine activity (structures) and consciously transformative human action, which seems to introduce a humanist anthropology redolent of the Frankfurt School into their ontology of social labour . What we end up with from Parts I and IV is a pot-pourri of incompatible Marxist traditions, rendering entirely problematical the conception of `mode of production' articulated by the authors as a tool for historical analysis . Thus, for Dunford and Perrons, the structure of the space economy of capitalism comprises four interdependent elements (production, consumption, distribution and circulation), which activities can be differentiated according to the

Capital & Class 154

relations of production by which they are structured . These relations of production embody human social activity and human labour, which, the authors argue, can be conceptualised historically in terms of the forms of property corresponding to various stages in the development of the social division of labour - the forms of property being `identified as analytical stages in the process by which the labourer was separated from, and ceased to be included among, the different objective conditions of production' (83) . Here we find confirmation of the authors' view that' . . . an understanding of the labour process is the lynchpin of any satisfactory attempt to incorporate a non-naturalistic conception of geographical conditions and of spatial differentiation into analyses of the overall process of social reproduction' (3) . Parts II and III of the book contain the substantive historiography, and deal respectively with the development and transformation of the feudal space economy in Western Europe and Britain, concentrating upon the general mechanisms of development which lay behind long waves in the development of the economy and society of West European countries, and the rise of industrial capitalism in Britain, concentrating upon four regimes of accumulation corresponding to long waves of growth . Over both time periods (comprising some 700 years), the authors stress the role of the labour process as the central conceptual vehicle linking space and society . This is true for the `middle order' concepts introduced to tackle the development of industrial capitalism - the theory of `long waves', taken over from Mandel (1975) and the notion of'accumulation regimes' and `regulation' taken from Aglietta . The authors indicate that they wish to modify the theory of long waves, replacing Mandel's emphasis upon technology with a stress upon the labour

process as a central facet of any regime of accumulation . This is in sharp contrast to their earlier treatment of British industrialisation (212-214) . The notion of `regimes of accumulation' is perhaps a more appropriate vehicle for the authors' ideas, since it seeks to integrate the labour process with the material condition of that process, and thus internalises class struggle within the core of a social formation, rather than treating it in the somewhat peripheral manner of Part II of the book (for which the authors apologise (88) ) . However, the authors' assertion that ` . . . the material side of the labour process is of necessity and more obviously constituted in space' (228) is enigmatic in the extreme, and is unsupported by the conceptual discussion in Part I . Nevertheless, it serves as the main vehicle linking their treatment of capitalist accumulation and the geographical location of economic activity . The utility of the notion of `mode of regulation' is that it inscribes the labour process within a schema of reproduction with given institutional forms and class practices, but for such a notion to be useful as an historiographical tool it must be capable of great sensitivity to historical variation . The authors' treatment of leading sectors of the economy (the cotton industry, coal, iron and steel) makes a convincing case for their thesis concerning the labour process and a regime of accumulation, but leaves the question of the applicability of `mode of regulation' much more open, since so few of the institutional forms and class practices involved in that conceptualisation are traced through in detail . In so far as the authors do investigate such forms and practices, the conceptual priority given to the labour process tends to be replaced in their empirical analysis by technological and market factors (e .g . 322) . The analysis in Part II of the book,

Book Reviews

dealing with the transition from feudalism to capitalism, is therefore unsatisfactory due to the ambiguities in the authors' specification of `mode of production', and in Part III of the book these ambiguities extend to the failure to integrate the structure of the space economy with the notion of `mode of regulation' . Hence the spatial dimension appears most often as a geographical field, in which spatial patterning is a residue left by constantly transforming socio-economic processes . This is clearly the opposite of the authors' intentions, but it is perhaps the logical outcome of an approach which claims that `By placing human social activity and human labour at the centre of geographical analysis and by using a more social and historical conception of the economy, geographical theory can be reconstructed by drawing on the classical tradition in political economy' (78) . Whilst one can admire the ambition of the authors in seeking to apply a materialist analysis to such a broad sweep of historical change, the text leaves one with a sense of dissatisfaction concerning the theoretical exigesis and disappointment in relation to the uneven historical treatment of structure and agency .

essentialism and abstractionism, and 155 includes Marxist and non-Marxist approaches . Cooke persuasively argues that : to the extent that recent progress can be said to have occurred in the theorisation of processes of development, due to the new and deeper awareness of underlying spatial tendencies associated with capital accumulation, such advances may be being simultaneously undermined by a failure to theorise these dialectically . That is, by focussing upon a fundamentally linear idea of capital accumulation to which the remainder of the complex determinations of capitalist society, state, classes, culture, ideology, are conceptually subordinated, a large slice of material reality which, for part of the time at least, exists in opposition to accumulation imperatives, and modifies their spatial manifestations, remains untheorised (166) .

In reviewing class, crisis and capital theories of the state, Cooke makes a strong case for including struggles over the conditions of the labour process, especially legal rights, in the mediation between state and capital accumulation process . This is a standpoint considerably removed from that of Dunford and Perrons who follow Aglietta in locating the state in the Theories of planning and development relations between the monetary relation Cooke begins his substantive analysis and the wage relation (Aglietta, 1976 : 27) . from a similar premise to that of Dunford For Cooke the issue of legal rights is and Perrons : ` . . . it is crucially important inscribed in the public realm in the sphere to begin the analysis of the processes of civil society, separate from the state, which produce differentiated spatial divi- and this conceptual device is deployed to sions of labour with the study of capital break the usual rationalist and idealist accumulation, a task which necessarily links made between state and capital in so focusses attention upon the changing many Marxist accounts . The sphere of strategies of capital at the point of pro- civil society facilitates the analysis of class duction' (64) . This position is reached conflicts outside the relations of producafter extensive critiques of planning theory tion, especiall those ` . . . of exchange and theories of spatial development pro- (circulation) and relations of reproduction cesses which are shown to be based on (consumption) in determining the form functionalism, rationalism, idealism, taken by the state' (179) . Cooke's thesis is

Capital & Class

156 that the separation between state and economy and between production and exchange necessitates state intervention to facilitate accumulation in the sphere of circulation, which is circumscribed by law . This, he argues, is crucial where the commodity under consideration is labour power, and the labour market is a fundamental constituent of civil society . Since civil society stands between the state and production relations, there are a great many bases for collective identification which are not simply reducible to class relations . Urban and regional planning of the spatial development processes of capitalism is thus located in state action through the medium of law upon civil society . The main relationship between the central state and civil society lies in the sphere of reproduction which is contingent on the legal nexus, rather than the cash nexus linking production to civil society . Control over the coercive power of law is the immediate site of political struggles in civil society . For Cooke, ` . . . the local state . . . derives specificity from the form of its local social relations ; the complex combination of its local civil society as structured by its local labour market, which in turn derives from the local impact of the spatial division of labour nationally and internationally' (202) . Great emphasis is thus placed on the recomposition of the working class, and Cooke gives due emphasis to cultural, ethnic and gender issues . Thus levels of planning within the state are related to three spheres of civil society (circulation, reproduction and authority relations) and three modes of struggle are identified in each sphere, including popular struggle as a non-class basis of identification . The similarity with Dunford and Perrons is the linking of spatial trans-

formations with the geographical reorganisation of the division of labour, though much greater attention is given by Cooke to the sphere of reproduction and state action . Since capital does not directly control the production of labour power as a commodity, struggles over the exchange relationship between capital and labour become crucial and link the realms of reproduction and circulation with production . Particular attention is given to class-based analyses of spatial variation between local labour markets and to the recomposition effect on local class structures, including the implications for gender effects . Crucially, such class structures have to be arrived at empirically (222), although a simple typology is offered on the basis of existing research . Of particular note in the construction of the typology is that the significance of space becomes contingent - it ceases to be a continuous field, and is characterised by discontinuity (230), for in some instances space may be subservient to gender or ethnicity (227) . Whilst Cooke's account of the role of state intervention in the socio-spatial recomposition of labour power is novel and convincing, his treatment of the landlabour relation is much more brief and less satisfactory . An exclusive focus upon the reproduction demands of labour tends to lead to a neglect of important conflicts within the capitalist class between landed interests and capitalist interests in the development of urban and regional planning, but this theme, with its important implications for the space economy of capitalism (Harvey, 1982) received very little airing . Nevertheless, Cooke's overall conclusion that ` . . . it is of key importance that urban and regional development planning under capitalism is conceptualised as a somewhat limited and indeterminate part of an equally indeterminate

Book Reviews framework of uneven social relations' (264) properly restores the role of historical contingency to materialist accounts of spatial development processes . Spatial division of labour This point is of major methodological and substantive import in Massey's approach, which specifically seeks to arrive at a conceptual structure which accommodates dimensions of potential variation . In mapping the social and spatial structures of production, she is concerned to avoid the rationalism inherent in viewpoints which ascribe specific spatial forms to ` . . . characteristics of the labour process, the requirements of accumulation, the stages of the mode of production, or even the demands of capital' (85) . Such approaches neglect the dimension of political struggle, and tend to focus upon apparently simple `objects' rather than processes and relations (108) . Different spatial structures of relations of production are linked by Massey with the social characteristics of groups performing different functions . As she notes : `It is not just the relations of production which have a spatial shape : so does the division of labour between the social groups performing the different functions within those relations' (109-110) . Thus 'Particular forms of geographical inequality have as a necessary condition particular forms of organisation of production' (112), facilitating the interrelations of social class and spatial structure . But spatiallydifferentiated patterns of production are not the only basis for geographical variation in social structure and class relations, since such patterns are themselves historically complex and the combination of layers of such patterns produces a mutual determination between space and class structure . Hence local changes and

characteristics do not merely reflect structural process - the variety of local conditions affect these processes in a determinate way . By focussing upon the relation between the general and the particular, Massey lays the basis for a materially-grounded regional geography . Noting that a region may be embedded in a multitude of spatial structures involving different organisations of dominance and subordination, she points to the significance of the social relations of production taking place over space and the consequences for the geographical or spatial division of labour . Geography is thus not merely a product of social relations, but is an integral part of their development . The middle-order concepts deployed to tackle the conceptualisation of capitalist production in space are `place in economic structure', 'contrasts in labour process' and `the organisational structure of capital' and these concepts are concretised with reference to empirical examples at each stage of the analysis . The sectionalisation of the economy is dealt with as an empirical question (30), so that the basic units of analysis are meaningful in terms of the wider causal structure . What is especially worthy of praise in the first, theoretical part of the book is the manner in which concepts are introduced sequentially and simply, and are then extended in complexity . This is likely to be helpful not only to students but to the lay public in general, and will make the book accessible to a much wider audience . Even its style reflects the author's concern to marry generalisation with particularity . The second part of the book deploys the analysis set out in the early chapters to explain the industrial geography of Britain in the post-war period . Historically, it is thus more focussed than the scope of Dunford and Perrons' analysis, establish-

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158 ing the peculiarities of recent British capitalist development in terms of its changing spatial structures in general, and in relation to major sectors of the economy in particular (both expanding and declining sectors) . As with both the earlier texts reviewed, the emphasis is on spatial divisions of labour, but drawing so extensively upon recent research in which the author has been involved the material has a contemporary relevance absent from the other texts . The contrast in spatial structure between small and large capital is analysed in terms of its abilities to respond to different dynamics of capitalist accumulation and political struggle . Spatial differentiation is not given conceptual priority over temporal change, nor is the spatial division of labour automatically accorded priority over its social (class, gender or race) division . After examining the view from the vantage point of production, the author turns to the particularities of local areas, examining the interaction of class and gender relations in the coalfield areas and in Cornwall . In each case, the 'combination of layers' set out in the theoretical chapters is successively penetrated in a rich historiography sensitive to the particularities of place and class . She concludes that a new spatial division of labour is in the making in Britain, with the general feature of the decentralisation of jobs for women being underlain by a range of different causal structures and a variety of distinct spatial structures . A political and cultural analysis of the economy as a whole is made in the light of the empirical findings of preceding chapters in which the degree of geographical unevenness and spatial discrimination inherent in regional policy is examined in a stimulating manner . Massey points to the emerging importance of internationally-

oriented capital and its logic of accumulation, stressing the implications for the spatial division of labour and the structure of spatial inequality . This is done firstly in terms of the distribution of ownership, and then related to contrasts in the labour process . Hence the recomposition of the working class is seen to be premised upon changes in the spatial division of labour, with direct political implications . Geographical form and spatial mobility are demonstrated to have been integral to recomposition . Thus `Geography matters, but it does not in itself determine any particular social outcome' (296) . In a postscript, Massey points out that ` . . . increasingly, the ways in which companies are being organised over space means that geographical inequality is actually inherent in the spatial structure itself' 298) - spatial inequality is inherent in growth as much as decline . Hence regions and locations are constantly being reshaped, but their reshaping cannot be `read off simplistically from the state of the economy . When the social location of control and organisation of production is woven into the analysis, the political dimension of transforming the social relations of production is seen to be the key to unlocking `the regional problem' . And it is the specific class form which these relations take regionally, nationally and internationally which is the focus of the analysis in this excellent book . A very interesting area of debate opens up when the several `criteria' which Massey outlines in Chapter 2 of her book are counterposed to Cooke's distinction between the spheres of production, circulation and reproduction, for they cut across these distinctions and give an overriding emphasis to production . Cooke's notion of civil society could, with advantage, be utilised in Massey's discussion of political intervention in `the regional

Book Reviews 159

problem', and Massey's discussion of the internal recomposition of the labour process within production could be related to Cooke's discussion of the sphere of reproduction . Further developments in relating to Massey's criteria for sectionalising the economy to Cooke's articulation of the relationship between the state, civil society and capitalist accumulation are likely to provide the most fruitful ground for a materialist approach avoiding both economism and rationalism . The issue of the social and spatial division of labour, and its relation to class and gender divisions has thus been put firmly on the academic agenda . But only Massey's book contextualises these issues in terms of contemporary political struggles, and the clarity and political engagement demonstrated throughout the book is likely to guarantee its appeal to the widest spectrum of readers of Capital and Class . Why Economists Disagree References Aglietta, M . (1979) A Theory of Capitalist Regulation, London, NLB . Anderson, P . (1976) Considerations on Western Marxism, London, NLB . Harvey, D . (1982) The Limits to Capital, Chicago, University of Chicago Press . Keat, R . & Urry, J . (1975) Social Theory as Science, Routledge & Kegan Paul . Mandel, E . (1975) Late Capitalism, London, NLB .

Sayer, S . (1983) `Materialism, Realism and the Reflection Theory', Radical Philosophy, No . 33, Spring, 16-26 .

by Ken Cole, John Cameron and Chris Edwards, (Longman, 1983, £6 .50 paperback) Reviewed by Shaun Hargreaves Heap WHY ECONOMISTS DISAGREE is a book by Ken Cole, John Cameron and Chris Edwards, which is based on their experience teaching a new style Principles of Economics course . The argument of the book is captured well by their inversion of Keynes's famous quip about politicians being the slaves of defunct economists . They wish to supplant this popular image of the economist as a technician providing impartial advice, and replace it with the view that it is the economist who is the slave of politics . This is politics in the broadest sense because there are three schools of economic thought in this account .and each represents the interests of a major group in

Capital & Class 160 society . There are owners, managers and producers, and economic theory 'reconstructs economic reality from the point of view of each of these interest groups .' The short answer, then, to the question about the disagreement among economists is that it is a reflection of the conflicts between these different groups in society . This framework for approaching economic theory is set out in the first chapter . The starting point is the subject matter of economics : `Economics is essentially concerned with valuation in its widest sense .' There are three theories of value : subjective preference theory (i .e . individual tastes determine values) ; cost of production theory (i .e . technical conditions of production together with the distribution of income determine values) ; and abstract labour theory (i .e . value is an expression of contradictory technical and social relations) . Each theory provides a coherent account of what happens in society and a guide to action which expresses the interest of one of the three groups in society . The finishing touch to this framework is provided by an argument that there is no scientific criterion for choosing between these theories . There is no theory of scientific knowledge as such . Instead, there are three theories of scientific knowledge . Each theory of value has its own theory of what constitutes scientific knowledge . So, with this final element, each theory of value becomes self-referentially coherent because the appropriate theory of knowledge `justifies' the particular theory of value and insulates it from external criticism . Hence, the only criterion for judging is to be found from within . In short, `in terms of our thesis that each theoretical perspective serves a sectional interest, all theories are correct insofar as they further such interests .' The three theories of value are developed sequentially in the subsequent chap-

ters of the book . Their historical origins are sketched and located in the emergence of these three interest groups, and they are put through some of their standard analytical paces . The final chapter returns to the basic theme and connects the three theories of value approach to the current debates about the economic crisis in the UK .

There is nothing novel, as such, in the organisation of economic theory into three schools . Indeed, the reader would not be badly misled if s/he were to substitute the more familiar titles of neoclassical, neoricardian and marxian, for those used in the book . However, there are two important distinctive features of Why Economists Disagree . The first is that this tripartite division has become the central organising principle of the book ; and the second is that each of the three schools is treated as a coherent, self-justifying philosophy/ ideology . I shall take up both these aspects after a couple of preliminary remarks, because they seem to constitute the important challenges of this book . A couple of general comments One excellent feature of the book is the addition of flow diagrams at the end of each chapter . These flow diagrams summarise the argument of the chapter . The idea is credited to Tony Buzan (in Use Your Head) and they struck me as powerful heuristic devices . Any division of economic theory into three schools is going to do an injustice to somebody, and so it will irritate some readers . This book is no exception . Now, this seems inevitable : any powerful generalisation is bound to ride roughshod over some of the details . So, it would be churlish to make an issue of the observation . Nevertheless, it seems right to warn the reader that the book is likely to excite some irritation on this score . In particular,

Book Reviews you may feel hard done by, if you have ever been tempted by the neoricardian label . If I were a neoricardian (heaven forbid!), I would be inclined to feel that I had not been allowed to operate with the full deck because these authors had removed some of the better cards from the pack . In a way, this is not very surprising since neoricardianism and the associated sectional interest of managers have been the locus of much recent controversy in the social sciences . What is a little more surprising, perhaps, is that Austrian economists are likely to feel aggrieved by this particular tripartite division . In effect, they have been shoehorned into the neoclassical school and the fit is not always very comfortable . This will probably not worry readers in the same way as the characterisation of neoricardianism might, for the obvious reason that the dispute over neoricardianism is closer to home . However, I mention it now because I shall argue in a later section that this collapsing of Austrian into neoclassical economics is illustrative of a more general weakness in this particular tripartite classification of economic theory .

The three theories of value as an organising principle All of us who have taught Economics Principles courses must have felt unhappy about the approach of the typical textbook . The standard approach is broadly distinguished by a division between micro and macro, and an awful lot of neoclassical economics . So, if you use one of these texts, Economic Principles appears to be synonymous with neoclassical economics and neoricardian or Marxian economics gets relegated to a series of afterthoughts . (Or neoricardian and Marxian economics gets pushed into a complete separate course which, in a flurry of liberal humour, is designated optional .)

This book offers an alternative approach which breaks with the standard one on both counts : there is only economics and each theory of value is given equal weight . On the face of it, this would seem to have much to recommend it . Aside from the qualificiations of the next section, I regard both changes in organisation as movements in the direction of what economics is really all about . However, I do have some doubts about applying these insights concerning economics quite so literally to the teaching of economics . These are doubts born more of ignorance than conviction, but let me explain what I have in mind . I have always experienced difficulty in persuading students that economics is a genuinely contested field of knowledge . After `A' levels, the typical student seems to expect economics to contain a series of law-like truths . They have a very textbook scientific view of the discipline, and undoubtedly this is one of the perceived attractions of the subject because it appers to offer a `hard' credential in a difficult job market . This does not surprise me since the law-like, textbook scientific belief is more convenient in a variety of ways than the prospect of the `tortures' of something like moral philosophy ; and it is consonant with the authoritarian structure of the immediate social institutions like schools which the undergraduate will have experienced . However, a pressing question then becomes how best to subvert this bias . Clearly, the standard text is not very helpful here because it is more likely to reinforce the bias with its concentration on neoclassical economics . What is not clear to me though, is whether the upfront, three theories of value approach is the best alternative . The worry here is simply that relative to that average experience and expectation, the three theories of value has more than a whiff about it of Willie

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Capital & Class 162 Whitelaw's `short, sharp shock' approach the heart of the three theories of value approach of this book . I say `seems' adto learning . The great advantage of this book's visedly . I suspect the authors might reply approach is that it gives you the whole that they wish only to jolt the popular picture from the beginning . This is a notion of economics as a `scientific' welcome gesture in the direction of a discipline . Theirs is an exercise in restorgestalt approach to learning rather than ing the balance and in the context of the the building block, sequential approach popular notion, the opposing viewpoint which is found in most textbooks . My needs to be baldly stated . I have much worry in this context is that, perhaps the sympathy for this `bending of the stick the shift in this direction has been too large : other way' . But, I think the opposing case because the three theories gestalt may be is overstated and that this leads to a false so alien to the average student that it is just closure on what ought to be interesting debates in economics . Of course, I also passed over . To repeat, this is a doubt born of believe that at root much of the conflict in ignorance and so I do not have an altern- economics is well captured by this relativative blueprint to expand upon . What ist account . However, there seems to be seems certain, though, is that this book more to it than this . There are two parts to will have done us all a service if it succeeds my argument here . The first is that people do not have a set in sharpening our thoughts about how best to teach economics . The teaching of of ideas just as a result of occupying a economics is a relatively neglected subject particular position in society . These ideas on the left in this country . And it shows! I are acquired and evolve over time by suspect that this neglect is partially people who value and argue about them . reflected in the left's failure to share fully The process of evolution, of argument and in the growth in popularity of economics . debate, may not have perfect epistemoSo, I can only hope that this book encour- logical foundations . but, neither can it be ages us to think more seriously about the explained simply in terms of material position . There is an imperfect but issue . nevertheless genuine dialogue over conflicting ideas and socialists need to underThe discourse on value : avoiding the `r's Reducing conflicts in economic theory stand that process if they are to make an to conflicts between different groups in impact upon it . In its own way this book is society and making any theory potentially a powerful testament to the point that correct for a particular group, courts the there is a domain of genuine discourse danger of relativism . By relativism, I mean which cannot be reduced to a set of that what you value does not depend on irreconcileable material interests . Why any set of intrinsic qualities, it depends else would you care how economic theory only on your particular time and place in is presented and taught? The second is that each theory of value the history of the world . When these different groups are only distinguished by does not have a convenient theory of their different economic roles, then these scientific knowledge which makes it selfsame moves also embrace a form of mat- referentially correct and insulated from external criticism . It is the argument erial reductionism . I do not subscribe to either the relativ- about the convenient range of theories of ism or the reductionism that seems to be at science that is the cricual move in the book



which seems to underpin the relativist conclusion . It is this thought which delivers the notion that the holding of a set of ideas has nothing to do with their merits because merits are not independently defined, and so the holding of ideas can only be explained with reference to something else (i .e . material position, in this case) . It is this move which is not legitimate . Let me give an example of where their argument goes wrong which reveals some of what I think gets lost as a result of overstating the case . It is Karl Popper's version of positivism that is supposed to buttress the subjective preference theory of value in this book . But, in fact, it does nothing of the sort . It is more like a fifth column since it proves a major embarrassment to neoclassical economics . The key feature here of Popper's version of science is his demand for clear prior specification of the conditions under which a theory would be falsified (i .e . what empirical evidence would constitute falsification) . This is precisely what neoclassical economics is unable to do . Every neoclassical prediction is issued ceteris paribus, and among the `ceteris' are a series of unobservables like utility functions or preference orderings . So whenever a prediction fails it can always be claimed that some of the unobservable ceteris were not paribus, and the theory emerges unscathed . Now, there can be no doubting that many neoclassical economists sleep easy in the belief that Karl Popper is on their side . but, we ought not to be encouraging them in this belief. Rather we should be pointing to their failure to do the science they so proudly claim . This brings out my root objection to the relativism of this book : I do not actually think any theory is as good as another given your material position . Instead, I think one theory is superior and the claim to superiority should not be

ceded, rather it should be argued for . Playing Karl Popper off against neoclassical economics is an example of such an argument . It can be expanded upon in at least two ways . The predictions (or explanations, since this is the other side of the prediction coin in this framework) of neoclassical economics are bound to have a restricted range because neoclassical theory artificially separates economic from social affairs and it has no internal mechanism for generating change . The former lays the ground of the familiar argument for political economy, and the latter observation highlights the need for a concept of contradictions and a dialectical methodology . These are useful and important points to make given the weight enjoyed by the fusion between neoclassical economics and Popper's method, which is otherwise known as positive economics . So, it is a pity that an opportunity to make these points has been overlooked . But, it should be clear from the outset that they will not cut any ice with that other group of economists who share the individualist foundations of neoclassical economics but who reject Popper's method, the Austrians . The Austrians have never cared for prediction and they can be as critical as anybody of positive economics . However, this need not be the end of the argument . To appreciate where it can be taken up, we need to go back to the philosophy of science. The authors are correct when they say that there is no theory of scientific knowledge as such ; but wrong, as I hope to have shown, to associate each theory of value with a cosy theory of science which insulates it from external criticism . The alternative message which I draw from the philosophy of science is that there is no reputable scientific methodology ; and this opens the window, at least in the social sciences, on to a moral discourse .

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The picture of the individual and the notion of justice are two possible areas in the domain of moral discourse which are worth exploring . I have always thought that the picture of the individual in neoclassical and Austrian economics is very fertile ground for criticism . Firstly, because there's nothing obvious which distinguishes their `individuals' from rather simple computers . Secondly, because the introduction of recognisable human features into the account of individuals is likely to involve ideas like contradictions of the mind ; and once the possibility of change is embedded in their basic units, it is difficult to see how neoclassical and Austrian economics can sidestep the issue of explaining change more generally . The notion of justice, however, is rather more of a problem . It may seem very natural for the three theories of value to borrow from the moral philosophy part of the philosophy cupboard . Indeed, it may seem more natural than the move to the philosophy of science which the authors make . After all, `Economics is essentially concerned with valuation in its widest sense .' This is the claim, and I would wish to endorse it and the move into moral philosophy . At first, it seems easy enough : Nezick seems made for the subjective preference school ; and Rawls and the cost of production school

look like perfect partners . But, who are we to associate with the abstract labour theory? This is where we encounter the problem . What contemporary writer has set out a scheme of Marxian ethics on a par with Nezick or Rawls? I suspect the question lingers . And, in that lingering space, we find part of the answer to why Maggie Thatcher has made such ideological inroads with her views on `freedom' and `justice' . So, I want to argue that some of the dispute in economics shifts into moral philosophy . This should not be resisted : it can be the source of a strong critique, but it also reveals a weakness . We need to develop inspiring visions of Marxian justice and freedom . This seems, to me, to be one of the hidden challenges of this book . To summarise, then, my criticism of this book is that its relativism falsely closes down important areas of discussion . What gets lost is an exciting and challenging field of moral discourse and the opportunity to make clear the poverty of the explanations which are provided by orthodox economics . But, then, this is a provoking book in the best sense of the word, and I am sure the authors will be happy that it has succeeded in this way . Here is a clear argument about economic theory that issues a variety of important challenges to the reader : it would be foolish to ignore them .

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