Thursday, 8 October 2015

Origins of the UK Welfare State

The golden age of the British Labour Party was the 1945-51 Labour government. So it is worth noting some little known aspects of its policies to cast some light on the political background to the modern day resurgence of ‘Corbynism’. Highlights of this administration in British popular consciousness are the introduction of the welfare state, establishing the NHS and a pension system. While there were economic problems in spending on welfare, since the UK was essentially bankrupt in 1945, the Labour government rose to the challenge. How did they do this? By using British imperial power!
One of the 1945-51 Labour government’s priorities was to maintain Britain’s imperial role. For good measure, this also included re-establishing French and Dutch colonial power in Asia, as a sign that the status quo ante could be revived in Burma, Malaya, Vietnam, Indonesia, etc. Using colonial Indian troops and Japanese troops to bring this about highlighted British politicians’ pragmatism and flair. Who else would have come up with the idea of defeating anti-colonial nationalists with soldiers both from a colony and from a recently defeated imperialist power? A stroke of imperial genius![1]
Although these eventst might seem to be an unfortunate foreign policy to liberal souls, having nothing to do with progressive social policies at home, in fact the two things were closely linked. Just look at how the new welfare state was financed.
Britain’s finances in 1945 depended upon foreign loans in 1945 amounting to £2,100m, or a massive 20% of GDP (note that £1 used to be worth something in those days). Of this sum, £1,100m was from the US. It was not exactly enthusiastic about Labour’s spending plans, but it was happy that the Brits were playing a necessary role worldwide in suppressing ‘communism’. For example, apart from the colonial efforts, think of Britain’s role in the defeat of Greek radicals and establishing a military dictatorship after 1945. So, history will record that the US played a role in funding the setting up of the UK welfare state! Another £250m was from Canada, which was both politically close to the UK and had done well out of the Second World War. Significantly, Britain’s colonies ‘lent’ £750m through the financial mechanism of the Sterling Area that gave them no choice but to do so. These were borrowings by Britain whose international value was reduced when sterling’s exchange rate against the US dollar fell in later years.[2]
After 1945, the welfare system quickly became unaffordable on the basis of Britain’s economy, especially when Labour increased defence spending during the Korean War. Apart from charges for prescriptions of medicines, something that led to ructions in Labour’s ranks and the resignation from government of Labour saint Aneurin Bevan in 1951, it also led to several years of rationing goods even more stringently than during the war. Above all, it prompted ever more nefarious plans to milk the colonies for economic resources in addition to the previous Sterling Area financial rip offs. Details on the former are set out in my article on this blog, 'Labour's Colonial Policy', 7 December 2014.
That is some of the historical background to typical Labour ‘progressive, alternative’ policies. It is based on using Britain’s privileged position in the world economy to deliver benefits to the British populace, completely consistent with Britain’s imperial role and nothing that could be described as a socialist view of policy in the world economy, far less anything that is anti-capitalist.
Jeremy Corbyn may know the history, in which case being a longstanding, proud member of the Labour Party raises a few questions. If he does not know the history, then it would reflect the more widespread arrogance, all appearances to the contrary in his case, of assuming that the rest of the world owes the Brits a living.

Tony Norfield, 8 October 2015

[1] I am not making this up. See Christopher Bayley and Tim Harper’s book, Forgotten Wars: the End of Britain’s Asian Empire, Allen Lane, London, 2007.
[2] There are few studies of these embarrassing (for Labour loyalists) events. One accessible source, written from a pro-capitalist market, although strikingly critical, perspective, is Edmund Dell, A Strange Eventful History: Democratic Socialism in Britain, Harper Collins, London, 1999, especially Chapter 7.

Thursday, 24 September 2015

October Events

This is an advertisement for two events in the next few weeks, and some shameless self-promotion. Both talks are held in London.

Tuesday, 6 October, 6.30-8pm

Venue: The Institute of Contemporary Arts, The Mall, London SW1Y 5AH

Topic: The Future of the Global Economy

Speakers: James Meadway, Mary Robertson, Tony Norfield

Admission fee: £10 (£7 for ICA members)

This is the first session in a series run by Verso Books, entitled, 'Radical Thinkers: Crisis Economics'. See their advertisement here.

I will be discussing financial aspects of the crisis.

Thursday, 29 October, 7pm

Venue: The Marx Memorial Library, 37a Clerkenwell Green, London EC1R 0DU

Topic: The Current Capitalist Crisis

Speaker: Tony Norfield

I believe there is no admission fee, but you may be asked for a donation to the Library.

See the MML advertisment here.

(Incidentally, the Library is open as a reference library from 12 noon to 4pm Monday-Friday)

Hope to see those interested at one or both events! (My talks will overlap a little, but cover different things)

Tony Norfield, 24 September 2015

Thursday, 27 August 2015

Women and Society

Societies must reproduce themselves year after year, or they would cease to exist. They do this not simply by producing enough food, shelter, clothing, etc, for people to survive. Just as importantly, there are particular relationships between the members of that society determining how things are produced. [1] Slave owners might force slaves to do all the work on pain of death. A class of landlords might extract payments of rent from the tenants working on their land. Capitalist employers will offer jobs to those whose work will make them a profit. But could there also be something more fundamental than this division of society into classes? Could it be that, despite the many ways in which societies develop, there is always the same group of people that come off worse, no matter to which economic class they might belong?
This, basically, is the stance taken by much feminist literature that identifies men as being the problem for women. In this view, men have a privileged position in all kinds of society and use that position to oppress women, either by force or by making sure that legal and other forms of discrimination keep women ‘in their place’. Many examples back this view, and they appear all the stronger as convincing evidence because only some have changed very much over history. These include denying women the right to vote in elections, to own property, to have the right to end a marriage or to get the same kinds of job as men for equal pay, or where social rules are invented that allow women less freedom than men. For example, still today in personal relationships, the socially ‘correct’ procedure is usually one where the man makes advances to the woman and invites her on a date, or proposes marriage.
What might account for this? Evidence shows that, on average, men are stronger and bigger than women. This might appear to back the idea of there being an innate male ability to use force against weaker women since time immemorial. Hunting for food and overpowering large animals is important in primitive societies. Yet, it should not be ignored that this is usually done in a social way by many hunters, even if they are men, who cooperate to capture the prey. It is not a wrestling match between a beefy hunter and a wild animal. Physical strength might be a key issue in hand-to-hand combat in a war, but even then it is a question of what weapons are at the disposal of the warring parties. Weapons are produced in a social division of labour, and do not occur naturally in the hands of the male fighter. In a deadly confrontation, most people would prefer to be a weakling with a gun than a muscle-bound fighter with a big fist. Still less are these physical differences between men and women an issue in everyday life now. How much physical strength is required to order groceries online or to type on a keypad?
Nevertheless, for the past several thousand years, the form taken by social organisation has meant that women have usually been in a subordinate position to men. This fact can make it seem valid to place the responsibility for women’s oppression at the hands of men, as it would not seem to be determined by a particular kind of society. However, that would be to miss out some important historical facts, ones that show how women in earlier forms of society were not subordinate to men.
1. The basis of social equality and inequality
Historical evidence shows that the social subordination of women has not always been the case. Even with no such evidence, on reflection it is not clear why it would be true. Just consider that the key to the maintenance of society depends upon there being children of adults – or else the social system dies out – and that women are the ones who bear the children. This makes one question why women would have been subordinate in all history. In primitive societies, where economic life was organised around kinship groups of people, not families as we know them today, this meant that women played a huge part in running society. The role of caring for, educating and socialising infants was specifically a woman’s task, following on from childbirth. It was obviously a fundamental feature of social reproduction. Often, in primitive society women had an equal, even higher status compared to men. While the identity of a child’s father was unclear, or at least not certain until recent DNA testing, it was obvious who the child’s mother was. Descent could only be reckoned in the female line, from mother to mother, and matrilineal custom prevailed in early societies.
A sign of this is seen in the belief system of ancient Greece, 2000-3000 years ago. This system included many female gods. Even though Zeus, a male, was the king of the gods, the females did not just include Aphrodite, the goddess of love. Artemis was a hunter goddess and Athena was the goddess of everything from wisdom and courage to law, mathematics, war strategy and the arts. Notably, one of the most important surviving relics of ancient Greece is the Parthenon, dedicated to the goddess Athena, and after whom Athens is named. This suggests that women had a significant social role in ancient society, although the evidence from the Greece of Socrates, Plato, Aristotle and Archimedes is that this social role had by their time already been undermined by the domination of males. As Engels put it in his book, Origin of the Family:
‘In the heroic age a Greek woman is, indeed, more respected than in the [later] period of civilization, but to her husband she is after all nothing but the mother of his legitimate children and heirs, his chief housekeeper and the supervisor of his female slaves, whom he can and does take as concubines if he so fancies’.
Between the time of the primitive societies in which women had an equal, even higher, status than men and that of the ‘heroic’ age of the Greeks, something had happened to change the social status of women. There was a shift away from more communal relations between groups of people, ones that included group marriage. In the place of such communal relationships, there was a shift towards monogamy, a single pairing of a woman and man, but one in which the male was dominant, and in which he also had more sexual freedom. The key factor prompting this major social development was the growth of private property at the expense of the resources available to the social group as a whole.
In the earlier forms of society, there were few resources available in excess of those needed to survive, and communal relationships between people, in economic as well as personal terms, tended to dominate. But as the productivity of agricultural production rose, and as surplus products came to be traded between different groups of people, this formed the basis upon which property also came to be owned by some individuals and groups more than others. Slowly, over centuries, and at a different pace in different areas of the world, individual property became a more important factor in social organisation, and class divisions developed within society.
If there was a move away from communal property, why was the focus on the man as the individual who owned private property and not the woman? The reason was that the surplus of resources that became this property arose outside of the domestic sphere that was the realm of the woman. So, from being at the heart of the community and society, the woman’s domestic role made her relatively isolated from the accumulation of wealth. Men had more direct command of tools and agricultural output, from crops to cattle, and more access to markets in which to sell these products. This led to a diminution of women’s social status, and, eventually, also to monogamy.
As Engels puts it: monogamy ‘was the first form of the family to be based, not on natural, but on economic conditions – on the victory of private property over primitive, natural communal property’. The institution of monogamy had nothing whatever to do with a man and woman wanting to raise children on their own. It had everything to do with the man being in control and having superior social rights, as made clear from the ability of the man to have affairs, etc, something which in the case of the woman was liable to be met with punishment. Monogamy as a social institution came about essentially as the ‘marriage version’ of the ownership of and control over property.
Some later forms of society were not as harsh on women as the classical Greek one. Furthermore, because relationships between people will always vary according to circumstance, there is no strict model that is followed by all societies at a particular stage of economic development. Even a society with a male-dominated monogamy can be more or less restrictive for women. Solid evidence about the social relations between men and women also gets patchier the further back in history one goes. Nevertheless, the historical evidence available to make inferences about these relationships backs up these points, especially the information about legal systems relating to property rights.
Another important point is that the property aspects of marriage and monogamy were of far more concern to the upper, richer strata of society. These strata had wealth to pass on to their offspring, while ordinary people had little or no wealth, and, for them, passing on small items of property to descendants would have been a very minor concern. But as social productivity developed to allow a surplus of goods well beyond what was needed simply to subsist, this was also the basis for a class society. The economically richer, more powerful minority of families had the means to control the labour of, or to buy the products from, the majority. Over time, these groups became a class of people ruling over all society, and the social system they put in place, along with laws and rules for morality, applied to everyone.
Women’s social status has been subordinate to that of men for a very long time, but not for all time, nor in all kinds of society. In his book, Origin of the Family, Engels gives examples up to as late as the 11th century in which there was far more freedom for women in pairing forms of marriage in Wales – and in which women could even divorce men on the grounds of bad breath! – than there was in much of the rest of Europe. What drove the subordination of women was the way that all developed societies eventually adapted to the growth of the economy, especially in commerce and commodity exchange. This occurred at the expense, in terms of social importance, of the social realm that women occupied.
2. Women and capitalism
Capitalism as a form of social production has existed for around three hundred years, developing initially in Europe and then throughout the world. Capitalism is a peculiar form of society, one that depends upon a division between workers, who own no means of producing what they need by themselves, and capitalists, to whom workers must sell their ability to work on the market. Capitalists are the owners of the means of production, and they will employ workers if they can profit from what they have produced. This is a different form of social production from earlier ones. It is not slavery, in which slaves are actually owned by the slave owners. It is not feudalism, where serfs must work part of the week for their landlord and hope to produce what they need to live by working for the remainder. In these pre-capitalist societies, despite the class distinctions, there was nevertheless usually some obligation of the rich to the poor, as much as there was one of the poor to work for the rich.
For example, the feudal lord had a duty to protect his tenants and manage disputes between them. In return, the tenants were usually under obligation to support the lord in any military campaign. Despite outrageous things like the droit de seigneur, which meant that the feudal lord had the right to have sex with a peasant bride on her wedding night, this did not prevent feudalism lasting for five or six hundred years in Europe. After feudalism, which ended in Europe around 1500, came the beginnings of a more commercial society, and also the beginnings of capitalism. This was a form of society where economic dealings between people, groups and countries were much more based upon market exchange, although that overlapped very much with earlier forms, depending upon the degree of economic development in each area. The big social change that signified the beginnings of capitalism was where a worker’s ability to work was also sold on the market. Workers became ‘independent’ wage labourers, often by being driven from the land, as with the enclosures in England, especially from the 1600s. Of course, this meant that workers also had a problem if they were not able to find work with an employer in the market. A ‘free’ labour market also meant the worker was free to starve.
What does this all mean for women’s position in society today? Engels makes important points on this question, stressing how the role of women changed as society developed economically:
‘In the old communistic household, which comprised many couples and their children, the task entrusted to the women of managing the household was as much a public and socially necessary industry as the procuring of food by the men. With the patriarchal family, and still more with the single monogamous family, a change came. Household management lost its public character. It no longer concerned society. It became a private service; the wife became the head servant, excluded from all participation in social production.’
This change in the status of women predated capitalism, and so it cannot be blamed upon capitalism alone. But within capitalism the subordination of women takes a new form. The new form of capitalist organisation of society meant that while some things became worse for women, others improved. For a working class woman, the downside remained that she was the person in the family who had most responsibility for looking after children and maintaining the household. The upside, given by the growth of industrial capitalism from the 19th century, was that she could again take part in social production, could earn a living and be a part of the broader society. The latter positive aspects nevertheless had, and still have, many negative features.
Female workers have consistently been paid less than their male counterparts for the same work. Partly, this was based upon the capitalist employer calculating that working women needed less of a wage on which to live since they were likely to be married to a man who also earned a wage that would support a household or family. It was also based upon the actions of established (male) workers’ trade unions that collaborated with employers to keep such wage differentials in place – a disgraceful anti-working class activity from the very institutions supposedly defending the working class. For example, during the First and Second World Wars, when principally men in the UK had been ‘called up’ to fight, women were introduced into the factories as much-needed labour. But the women were dismissed again, with unions often driving this move, once the war was over and were replaced by men.
Even in recent decades, when there have been laws to prevent discrimination and for equal pay for equal work, the social factors that determine employment usually mean that far fewer women than men get the better paying jobs. With a woman’s role being signified by capitalism, as in earlier societies, as being one where they have the principal, or full, responsibility for looking after the family, and where this role is considered to be outside what capitalist society will take into account, this remains the basic problem for women in society today. Even when a woman is not married and has no children, and so has none of these burdens, she is defined and valued according to social type. Something that is as basic and necessary for any society as looking after children lies outside what capitalist society is prepared to allow for, and so is an economic disadvantage for all women in this kind of social organisation. It is only the so-called ‘superwomen’ of the privileged sections of the middle class who can gain highly paid jobs and successfully ‘juggle’ the responsibilities of work and childcare, usually helped by poorly paid female housekeepers, nannies and childminders taking on the domestic burden for them (and their husbands/partners).
3. Gender, class and society
By developing society’s ability to produce more things in a given time with less effort, capitalism appears to offer economic freedom. Historically, capitalism has been the form of society that has most increased productivity, so that the necessaries of life, and much more, can be afforded in richer countries by anyone with a job. But this has been a very uneven development. Not only because of rich capitalist countries’ plunder of weaker societies, with slavery, colonialism and later forms of domination, but also because of the contradictions that exist even within the richer countries, including unemployment and poverty, and, of more specific interest for this article, the oppression of women.
Domestic work remains outside the social sphere of capitalist production and it is a private matter, even if some people are able to buy things, or buy help from other people, to do it. Household appliances, bought by most families, from washing machines to vacuum cleaners, also help to reduce the burden of domestic work. This burden, and the related responsibility of bringing up children, nevertheless almost exclusively remains that of women. It continues to affect the position of women in the capitalist jobs market, even if it has sometimes given them some ‘advantages’ over men in getting a job because they are more favoured by employers as cheaper forms of labour. The result is that social differences based upon gender are overlaid onto class relations between workers and employers in capitalist society.
As Engels put it: ‘The emancipation of woman will only be possible when woman can take part in production on a large, social scale, and domestic work no longer claims anything but an insignificant amount of her time’. This, however, cannot occur within capitalist society based upon production for the market, because the domestic sphere of work lies outside the capitalist labour market and employers have no reason to take this important sphere of social activity into account. They are concerned only with their profits, and this will also have a major impact on the policies of any capitalist government. Only a form of society where all kinds of activity that are socially useful are valued, and given resources so that they can function, will lead to the emancipation of women. That will not happen under capitalism, where market production is the way in which the owners of society’s productive resources determine what will make them a profit and what will not.
4. Feminism or a theory of society
The term feminist indicates someone who supports women’s rights, but it is lacking in many respects. To understand the social forces that oppress half of humanity in particular, and humanity in general, including males, means that one has to go further than feminism. The dysfunctional capitalist social system ruins everyone, including men – even including those who benefit from that system, although they would be the last to admit it, and would fight violently to keep it in place (actually, they would provide money for others to fight violently for them).
Gender, sexuality, disability, etc, are all forms of potential and actual social discrimination, in addition to the disadvantages that might come from someone’s economic position in society. But an upper class woman or homosexual, or a black capitalist, or a rich, disabled person will have better life chances than a poor, white, able-bodied, working class man. People are unequal in many ways. I am taller, stronger and faster than some, shorter, weaker and slower than others. I know more or fewer languages, and I am better or worse in playing a musical instrument, swimming or calculating, or even in finding my way out of a revolving door. But the thing that would probably make me better than most other people – no matter how stupid or incompetent I may be – is if I belong to a superior economic class. Just ask George W Bush. This argues against focusing on the way that society may ‘identify’ different groups of people, and instead to look at where people actually stand in the economic hierarchy. That is what really determines their circumstances.
The oppression of women under capitalism goes beyond that of working class women alone. But all these ways of restricting rights and opportunities are still based upon capitalism, its social mores and its form of economic regulation. Fighting for the rights of women under capitalism means fighting against capitalism. Any effective action to improve the position of women must be taken in the clear knowledge that this will also challenge the economics of this moribund system. Real opposition to women’s oppression does not start by taking into account what the capitalist system can afford to concede. The starting point is what society, not what capitalism, needs.

Tony Norfield, 27 August 2015

[1] This article is based partly upon the 1884 book by Friedrich Engels, Origin of the Family, Private Property and the State, available here. It is also based upon other readings and observation of contemporary capitalism. My aim is to clarify some important points about how the role of women in society has been determined, and what this implies for women today.

Wednesday, 26 August 2015

British Media

For those who wonder how the BBC and the rest of the British news media work, the Jimmy Savile sexual abuse scandal provided interesting examples of double dealing and cover up (see here and here). More telling for my purposes is how there is a systematic sidelining or downplaying of any information that is unwelcome to the political establishment. For example, this accounts for the way that Israel's aggression in Palestine is treated. There is ‘balance’ in the news reporting where an agitated Palestinian spokesman is given a few seconds to protest an Israeli crime, while a smooth Israeli diplomat is given ample time to distort the truth. This is predictable, but what nevertheless may be surprising is how the system works without any overt command from on high. With very few exceptions, the news media just ‘do the right thing’, whether it is reporting on Ukraine, Russia, Syria, what is going on with ISIS, or anything else that might be important for British political strategy.

Although the details have changed since George Orwell wrote the following paragraph in 1945,* his summary of the basic mechanism still looks apt:

“Unpopular ideas can be silenced, and inconvenient facts kept dark, without the need for any official ban. Anyone who has lived long in a foreign country will know of instances of sensational items of news – things which on their own merits would get the big headlines – being kept right out of the British press, not because the Government intervened but because of a general tacit agreement that ‘it wouldn’t do’ to mention that particular fact. So far as the daily newspapers go, this is easy to understand. The British press is extremely centralised, and most of it is owned by wealthy men who have every motive to be dishonest on certain important topics. But the same kind of veiled censorship also operates in books and periodicals, as well as in plays, films and radio. At any given moment there is an orthodoxy, a body of ideas which it is assumed that all right-thinking people will accept without question. It is not exactly forbidden to say this, that or the other, but it is ‘not done’ to say it, just as in mid-Victorian times it was ‘not done’ to mention trousers in the presence of a lady. Anyone who challenges the prevailing orthodoxy finds himself silenced with surprising effectiveness. A genuinely unfashionable opinion is almost never given a fair hearing, either in the popular press or in the highbrow periodicals.”

Ironically, here Orwell was complaining about his difficulty in getting his attack on the Soviet Union in Animal Farm accepted by publishers in the last year or so of the Second World War. Once imperial priorities had changed a little later, both that book, published in 1945, and his 1984 would form an important part of anti-communist propaganda.

Tony Norfield, 26 August 2015

* The quotation is taken from a Preface to George Orwell's Animal Farm. It did not get published in 1945, or in (many) later editions, and was first published in 1972 in The Times Literary Supplement.

Saturday, 25 July 2015

Labour ‘Leadership’ and British Politics

The British media is focused on Jeremy Corbyn, the radical outsider who, according to opinion polls, might win the Labour Party’s leadership vote. That vote is in about seven weeks’ time, so don’t hold your breath. But it is worth making some comments on what this reveals about British politics.
Most of the Labour leadership contenders make Ed Miliband look like a charismatic guru who could inspire followers to walk over burning coals and not feel a thing. By comparison, Corbyn is an exception, at least in having a personality and some political beliefs. I would only point out that his political beliefs have not prevented him from remaining a Labour Party Member of Parliament for more than thirty years. Just consider what that means. So many years and so many crimes, either committed by, or supported by, the party to which you belong. Was the Labour Government’s interventions in Afghanistan and Iraq weird anomalies – against which a critical voice could build an effective opposition? Or would history judge instead that Labour has always supported British imperialism’s interests and that dissident voices reflected naivety at best?
However, Corbyn’s dissident beliefs on Iraq and Palestine, among other things, are not the basis of his support, either in his London constituency or among ordinary Labour party members in this leadership contest. Instead, that support comes from his anti-austerity stance. Yet while his inner-City constituency might support Corbyn’s position on opposing cuts in welfare payments, the rest of the UK does not. Against his stance, one has to consider why the other Labour leadership contenders basically support the Conservative government on the need to slash welfare payments, something summed up by the recommendation of Harriet Harman, acting Labour leader, to abstain in the recent Parliamentary vote on welfare cuts. The Conservative government’s proposals reflected not just a Conservative prejudice, but also a view that they would go down well with their supporters and others. Recall that, in the May 2015 UK general election, close to 50% of the British electorate voted either for the Conservatives (36.9%) or for UKIP (12.6%).
This is the substance of the horror expressed in the news media, by Tony Blair and others who are shocked by Corbyn’s rise to prominence in the polls. A vote for Corbyn as Labour leader will make Labour even more unelectable! It is not a question of his anti-New Labour beard, or even his opinion that the government should discuss with Hamas and Hezbollah. The key point is that he has failed to reflect in his political stance the fundamental conservatism of the British electorate.
It will take an eruption some years in the making even to begin to alter the scene. Perhaps that will come when this Conservative government eventually encounters its own ‘Poll Tax’ moment, a wall that Thatcher hit after believing that British politics was at her command. But, at close to the peak of her power, even she could not make her favourite adviser, Alan Walters, like Caligula’s horse, a consul and instead lost Nigel Lawson, her once-feted Chancellor. This miscreant group of slimeballs has less ability. It is full of low-grade chancers, not least Boris ‘water cannon’ Johnson, so it could unwittingly contrive to generate protest from the UK populace. However, personally, I do not bet on that eventuality making any real difference.

Tony Norfield, 25 July 2015
(some small amendments to the text on 31 July)

Tuesday, 7 July 2015

Imperial Hypocrisy and Greek Debt Data

The recent Greek referendum 'No' to its creditors' plans was welcome, even unique in recent history, as a sign of some serious resistance to being crushed by the exigencies of capitalism. Yet, the referendum has changed nothing because the Greek economy remains at the mercy of the creditors, especially its euro-based creditors. It is worth looking back at some points on the history on this, which will shift attention from the intransigence of German politicians like Merkel and Schauble to the double dealing of the French.

The question of writing off some of the obviously unsustainable debts was first raised back in 2010, when Greece's problems first exploded into view as the debt was over 130% of its GDP. Then, a certain Dominique Strauss-Kahn, the hereditary European who was chosen as the head of the IMF, and also a key French politico, was against a debt 'restructuring' (ie write off). No doubt citing fundamental IMF principles and the laws of God, or Mammon, Monsieur DSK was no doubt also mindful of the fact that a large proportion of Greek debt was held by French banks. In March 2010, French banks were holding the biggest pile of dung. Out of €134 billion worth of European bank claims on Greece, French banks had €52 billion, one and a half times as much as Germany.

In 2010, Greece was given further IMF and other loans, amounting to €110 billion. This was not because Greece did not have enough debt already, but because this was a way of paying off liabilities to the European banks, among other things, and making the new debt a liability of the Greek state to official creditors, who would have more power in forcing eventual repayments. One study estimates that:

"Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is. Governments have filled the breach, but not in proportion to their banks’ exposure in 2010. Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

"In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above.  In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion.  Total German exposure is up by a similar amount – €35 billion.  Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

"In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010.  The upshot is that Italy and Spain are much closer to financial crisis today than they should be."

This was not a full escape for private creditors, since they (including non-Europeans) were also pressured to write off roughly half of their 'assets' - around €100 billion - in a 2012 restructuring of Greek sovereign debts. But in 2012 this had become more manageable, since there had been some economic recovery and also much more intervention by central banks to prop up the financial system.

The sticking point for Greece's creditors remains writing off official debt. Now the IMF, led by Christine Lagarde, another French politico - who once smiled sweetly at Yanis Varoufakis, perhaps expecting the compliance that her position demands - is able to negotiate with a lower exposure of the French banks and the French state. Her aim now is essentially to put the burden of the creditors' setbacks onto eurozone members in general, especially Germany. Previously, the (French) banks, as the main original creditors, would have been in the front line for write offs.

In this context, there is another neat, hypocritical manoeuvre by French president Fran├žois Hollande, who now wants to act as the supporter of a deal for Greece. France has long positioned itself as the saviour of southern Europe, hoping politically to build up a counterweight to Germany's supporters in any euro-based vote. As long as France can manage to put the economic burden of its political decisions onto some other country, then it will continue to do so.

Tony Norfield, 7 July 2015

PS: The authors of the debt analysis cited above also note that Greece has an unusually large amount of defence spending compared to other NATO countries of more than 2% of GDP. Why Greece needs this, apart from idiotic nationalism believing that Turkey will invade at any moment, is a mystery, but is another dysfunctional feature of the economically unviable Greek state.

Sunday, 28 June 2015

Greek Lessons

Here are some points to consider when sorting through the news stories about Greece.

The media coverage is naturally focused on day-to-day events. However, the key point to understand is that, long before the crisis broke in 2010-11, the Greek economy was unviable. It had for many years been dependent on grants from the EU, extensive credits and low interest rates. Before the 2008 worldwide financial implosion, these boosted Greek living standards. Post-2008, there was the reckoning, starting with much higher borrowing costs.

What had characterised Greece both before and after 2008 was a low level of tax revenues compared to state spending, but this was only another way in which its fundamental economic weakness was expressed. Greece had little to offer apart from shipping and tourism. But tourism had become more uncompetitive, while shipping was 'offshore', paying little tax. Along with other weak, usually southern European states, such as Portugal and Spain, but also Italy, Greece had found its competitive position undermined with the rise of cheap labour countries in Asia.

In 2010-11, the EU 'solution' was to lumber the Greek state with more debt so that it could pay off private bank creditors, mainly German and French banks. This was to avoid a reckoning in terms of writing off debts that could not be paid by adding to the debt pile which was now held to be held mainly by the Greek government. The political logic at that point was that the European banking system could not withstand taking more write offs when it was so weak, and the legions of policy-making geniuses had not yet managed to work out anything else.

A debt write off -  effectively 100bn euros or so - was then organised in 2012. Private creditors took a hit in a 'debt swap', being forced to restructure their 'assets' into loans at greatly subsidised interest rates. However, by that time, the Greek economy had collapsed under austerity measures imposed by creditors, so nothing improved and the ratio of debt to GDP continued to soar.

There followed a never-ending story of Greek-EU negotiations and subterfuge. By 2013, Syriza managed to convince itself, or at least had the political platform, that a much better deal was possible, both staying in the euro system and getting an end to austerity policies. After forming a government in January 2015, it did next to nothing to challenge the Greek oligarchs or deliver a reality check to the Greek middle class, its social base, and instead postured against Germany, the main creditor country, and annoyed all of its creditors. But, with their Ukraine policy falling apart, and with their policies in the Middle East and North Africa in a shambles, leading to many thousands of refugees trying to escape to Europe, the creditors had other things on their minds apart from endless meetings with recalcitrant Greek debtors.

So far, the Greek government has not yet defaulted on other official (government/IMF) creditors. But the European Central Bank (ECB) has extended many tens of billions of loans to the Greek government and given Greek banks another almost 100bn in emergency liquidity via the Greek central bank. On Tuesday there is also a Greek government payment due to the IMF, a default on which does not happen for a country that is meant to be one of the insider's club, yet there appear to be no funds to pay it.

The ECB may have today (Sunday) issued the coup de grace that the euro system is not otherwise able to deliver by refusing to increase its liquidity provision to Greek banks. So there will be a banking system closure in Greece on Monday, with no sign of when banks will be able to open again.

There is no legal mechanism for being kicked out of the euro, nor for a member leaving it, as far as I am aware. If anything, a euro member leaving might well threaten its membership of the wider EU. Yet, the ECB can stop doing business with one of its constituent parts, namely the Greek central bank. By stopping further funding of Greek's imploding banking system, the ECB, if it continues, will preside over the collapse of Greece's economy, forcing an exit from the euro system.

There are many economic details in dispute regarding the EU/IMF/ECB conditions to be agreed with Greece, but the creditor position at present is that the debtors have walked away from negotiations, so there is no more to discuss. One interesting angle is the question of taxes. Syriza's offer was to push the burden of adjustment onto corporate taxes rather than spending cuts, given that the latter would be focused on pensions, etc. Apart from any normal, reactionary bias in creditor demands, the inability of the Greek government to collect taxes must have been a factor in rejecting this alternative programme.

What happens in the next few days will signal again how far the 'independent' ECB is independent of the need to abide by its formerly sacrosanct rules in order to keep the euro political-economic system intact. A Greek exit from the euro is believed by many politicians to be less of a problem than it would have been in 2010-11. That is probably true, but it will nevertheless be a serious blow. One aim of Europe's bumbling ruling classes may have been to crush Syriza in order to undermine oppositional movements, such as Podemos in Spain. However, by showing that there is an exit door for euro members, even if it leads a lift shaft, this also shows that other countries may be pushed into it.

More broadly, the destruction of the Greek economy is a sign of what awaits other, previously privileged, countries that cannot make the grade in today's rapacious and imperialist world economy. If there is a lesson in the Syriza episode it is that a middle class-led movement that tries to restore the status quo ante inevitably fails.

Tony Norfield, 28 June 2015

Note: One of the first articles on this blog, 'Origins of the Greek Crisis', 24 June 2011, covered the background to recent events.