Bank Nationalisation?

Nationalising banks might look like a good idea, especially if you think that private sector banks caused the worldwide economic crisis and that state ownership would eliminate the risk of it happening again. It would look even more attractive if you think that popular pressure on the state doing the nationalising would make sure that, in future, banks, or important parts of the financial system, would then benefit the national economy. This article explains why this view not only misunderstands what is really at stake but how it is a ‘reform’ proposal that can only endorse the capitalist system of power and control.

I do not claim that this proposal is at the forefront of most people’s minds, but it does come up in discussions and was also raised in questions on a lecture I gave at the Institute of Contemporary Arts on 6 October. Given time limitations, I preferred to respond to other questions from the audience in the Q&A session at the ICA and left to one side the question of calling for bank nationalisation. It would have taken more than a minute or two to respond adequately because it raises a number of different points. In the following paragraphs I will set out the key issues. Later this week, I will cover these points, and many others, in another lecture on the crisis (29 October, at the Marx Memorial Library, 37a Clerkenwell Green, London EC1R 0DU, 7pm).

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Two views underpin the ‘nationalise banks’ proposal. First is the notion that there is a national economy that can be managed in a progressive way. Second is the idea that the capitalist state can be forced to do it by popular pressure.

Proponents of nationalisation are aware that, in the wake of the crisis, many capitalist governments have already put some institutions into state ownership, even in the home of liberal financial regulation, the US and the UK. In the US, this was called putting important financial companies into ‘conservatorship’ to avoid the politically charged term. In the UK, the term ‘nationalisation’ was also avoided, and the government made a special effort for the largest affected banks, RBS and Lloyds, to keep a portion of their shares in private hands. However, not embarrassed by the capitalist state having upstaged their demands, proponents of nationalisation would argue that the state could have forced these banks, and others, to redirect their lending policies to boost domestic industry, investment, employment and the economy in general.

A belief in the benefits of nationalisation is more than simply naïve. It reflects the view that the capitalist state is like a weapon that can be taken from the hands of the capitalists and used against them in favour of the mass of people. So the state, with its laws, institutions, multi-layered backing and means of applying influence and force can be redirected in a progressive way, rather than remaining a capitalist machine churning out policies that reflect capitalist class power. Proponents of such a view avoid the key distinction between taking power away from the capitalist class and advocating reform policies within a framework that keeps the capitalist class in place. This is why, when reform proposals fail – when they are rejected by capitalist markets as unworkable – the reforms are junked and the reformers are either kicked out of office or capitulate to the demands of the market. Worse than this, such a political stance always has the logic of demanding that the state do something for the mass of people. It is not a demand for social resources to be put into things that people need and organising people to do this. It is a plaintive call for the capitalist state to deliver on its ‘obligations’, ones that it does not have except in the imaginations of the reformers.

Then there is the question of the role of finance and banks in the capitalist system. What is called a ‘financial crisis’ is the outward expression of a more serious and fundamental problem. Recent decades have seen a boom in financial transactions, new ‘financial instruments’ such as derivatives, and massive loans and debts worldwide. Especially in the 2001-2007 period, these helped boost global demand, output, employment and ‘prosperity’, especially in richer countries. However, these things ran well beyond the production of value and profit in the world economy. The bubble then burst when US mortgage defaults hit financial markets. The impact was so big because these financial markets had become inflated worldwide. Essentially, this boiled down to a problem of capitalist profit versus the huge level of debt and the ability to pay off this debt, or not – with the problem then of taking the losses. The following chart from a recent report from the Bank for International Settlements illustrates that the debt problems have not gone away, and were even worse at end-2014 compared to the size of the global economy than in 2007.

Core Debt in Non-Financial Sectors, % GDP 

All this has not that much to do with banks. Yes, banks played a part in the process of credit creation and financial excess. Yes, the banks were bailed out with ‘taxpayers’ money’. Yes, most people would prefer to see senior bankers in jail or under a bus, rather than retiring on huge pensions. But financial power in the modern world is not confined to banks, and is certainly not constrained within national boundaries.

Financial securities are issued by and traded by banks, but the securities are mainly issued on behalf of the many industrial and commercial companies that are otherwise seen as the good guys versus the ‘bad bankers’. As Marxist theory shows, and as common sense would endorse, value is created by productive workers. From this value, profits are derived, and commercial capitalists and financiers share in these profits. They are all directly concerned with and benefit from the exploitation of workers. Furthermore, the major capitalist corporations operate internationally, backed by their states, and the ones from the powerful countries can use their financial leverage, though mergers with and acquisitions of other companies, to increase their economic power in the world market. This also has little to do with banks: all kinds of financial and non-financial company are involved in this process. One study showed, using data for 2007, that just 50 companies, largely based in the major powers, controlled through cross-shareholdings around 40% of the equity in a total of 43,000 international companies based in 116 countries. Most of these 50 were financial companies, but they were mainly asset managers and insurance companies, only a minority were banks.

In the light of this reality, the idea that nationalising banks will rectify the national capitalist economy is ludicrous. It is an idea based on a nationally-oriented social democratic delusion, one that soon becomes political support for the national state to protect the domestic economy against the ‘unfair’ policies of other countries. Recently in the UK, the loss of steel industry jobs due to a decline in the world market has led to demands from across the political spectrum that the British government take action against cheaper imports of Chinese steel. This makes a defence of jobs and livelihoods dependent upon state action to oppose another country, rather than showing how the job losses result from an outmoded, dysfunctional capitalist system of production. Worse still, it encourages the natural opposition that workers have to bearing the consequences of capitalism to become a demand for the state to defend the national version of capitalism against other national versions. In the UK case, it is all the more naïve when the policy of the British government is to expand deals with China, both to finance energy and other infrastructure projects that local capitalists will not do and to open up financial transactions with one of the few expanding areas of the world economy as a means of boosting British imperialism’s revenues.

To conclude, I should add that I am not, in principle, opposed to taking control of the banking system. But the precondition is first to have a progressive, anti-capitalist force taking political power to make this work, also known as making a revolution. That is something British radicals do not want to mention because its probability shrinks under the weight of a very long experience. The irony is that even with such political power and control, the issue of ‘nationalisation’ does not necessarily arise. For example, the Bank of England was nationalised in 1946, but that has made no difference to its operations as a supporting institution of British imperial power. The European Central Bank is also owned by its respective national governments, but has hardly been progressive in its policies. More importantly, since when has nationalisation been a sign of a socialist outlook, except in the capitalist state-oriented outlook of the British Labour Party and the delusions of its radical supporters?

Tony Norfield, 25 October 2015

Imperialism and Social Democracy

This item is a response to comments made by 'Anonymous' on two of my blog articles earlier this month: Immigration and the Imperial Mentality, with a comment on 24 April, and The Dead Sea, with a comment on 27 April. I would prefer that people who comment use a name, but let that be. I would also prefer that the comments or questions had more substance, rather than simply recycling prejudices. But, since the prejudices raised are commonly held, I feel inclined to answer them, rather than to think they are from an Internet troll or a calculated wind up from someone who knew that they would make my blood boil.

I have reproduced each of the main comments in bold below, and then answered the points raised in the text below each one. My replies are brief, partly because I have other things to do and partly because the ill thought out nature of the comments does not deserve a more extensive response. The views of Anonymous reek of imperial prejudice. However, it is not the confident prejudice of the British establishment, but the no less sickening hypocrisy and prejudice of the British ‘labour movement᾿.

The latter is cloaked in a concern for the mass of people, but is really an assertion of the rights of imperialist country workers over those elsewhere. Notably, the comments from Anonymous have been raised on the question of immigration. The answer to this question determines whether you are on the side of the working class internationally, or whether you want special privileges for your ‘own’ working class, ones that you think will come from calling on ‘your’ state to implement the correct policies. This is the core of the argument presented by Anonymous, covered with the stinking slime of ‘Europe’ and ‘Western values’.

So, to begin …

1. “Should Europeans commit the last of their pension money, destroy their social democracy, extirpate their cultures, genetic identity, etc., to facilitate invasion of their countries? Would mass-suicide be a proper move, speeding the process up a few years?” 27 April 2015

a) Pension money. This comes from money invested in financial securities, usually with a return based on income gained from equities and bonds, but perhaps also from property, commodities, etc. This money is not simply workers’ and others’ savings, but savings that are directed into funds that earn revenues from worldwide investments, particularly in the funds run by the major powers. So, pension payments are based on the profits produced worldwide, rather than simply being a means of saving for retirement. Note also that many poor countries do not pay any pensions of significance, while most rich country pension funds have payment liabilities that greatly exceed the expected returns on their assets.

b) Social democracy. This is a form of politics that originated in Western Europe from the late 19th century, one that tried to reconcile the newly enfranchised working class masses with the capitalist system. It offered social reform as a palliative to the exigencies of the capitalist market that drove many into poverty. Particularly in Germany before 1914, it also offered a gradual, reform-based road to socialism, but everywhere it supported the state’s war on other states, mass slaughter and the oppression of Europe’s colonies. No political movement in the West today could in any sense be called social democratic; the mainstream parties all accept capitalism as a permanent fact of life. It is appropriate that even radical ones adopt ‘Keynesian’ views of managing the economy, as Keynes himself wanted to save capitalism.

c) Cultures. Europe? Personally, I prefer Indian and Middle Eastern mathematics to Roman numerals, and jazz and other forms of music (from Africa and the Caribbean) to Classical music. I really do not like Morris dancing. Everyone to his or her own taste.

d) Genetic identity. You should check this out more. Scientific evidence would suggest that everybody comes from Africa. In any case, what has genetics got to do with the development of society, which in its main forms has developed in the past ten thousand years?

e) Invasion of countries. This is a preposterous exaggeration of the scale of immigration. You would also do better to study European military invasions in the Americas, Africa and Asia to find real examples of how to ‘extirpate’ cultures.

f) Suicide. Everyone must make his or her own decision whether life is worth living. More important is the decision whether to try and understand what drives the world, rather than accepting first impressions or whatever the political climate imposes.

2. “Do you know how much wage suppression causes, extending capitalism by keeping profits at that sweet 12 percent/year it demands? Do you know how the accelerated the destruction of social services are, a combination of right-wing cuts and over extension from millions of illiterate, intolerant peasants? Do you know the hundreds of millions in remittances the immigrants send home, further eroding the domestic economy in an age of austerity?” 27 April 2015

a) Wage suppression. It is a mystery where you get your 12% (rate of) profit. In any case, there is always an attempt by capitalist employers to keep wages low. How have ‘millions of illiterate, intolerant peasants’ contributed to this? You also ignore the role of trade unions in colluding with management to split the workforce into insiders and outsiders, the latter being part-time, temporary workers, etc.

b) Destruction of social services. There has been little cut back in social services spending, at least so far in the UK. There will be significant cuts in future, and these are attempts by the ruling class to restore profitability, the lack of which has undermined the revenues from which these unproductive (for capitalism) expenditures can be funded. However, you want to blame immigration for putting pressure on social services, rather than capitalism for being increasingly unable to provide decent living standards. As for ‘right-wing cuts’, you ignore the role of the previous Labour Government in backing privatisation, school academies, etc. In any case, this raises a point about the origin of the social services. If you look, you will find that the 1945'ish origin was (i) promoted by the Liberals (Beveridge) and (ii) was planned under the subsequent Labour Government as being funded by exploitation of Britain's colonies. This was part of a ‘social contract’ between the British ruling class and the mass of people: in return for mass support for British imperialism, the state delivered some social welfare. The economics behind that game is over. But you moan about not getting your goods, while still clinging loyally to the capitalist state. The term reactionary fool comes to mind.

c) Illiterate, intolerant peasants. Is it so hard to meet the relatives of those who made the shirt you are wearing? Those who are more than 10 years behind our elevated standards on women’s rights? Those who often have a stronger sense of community than the British? Your European culture has been fuelled by the blood and oppression of countries that are the source of your fearsome peasants.

d) Remittances. Yes, I do know the scale of remittances. It is very small indeed compared to the other items in the balance of payments, on imports, exports, etc. Notably, you are more nationalist-minded, not to say racist, in these calculations than British and other national capitalists, who also take into account the benefits they get from the supply of cheap labour from immigrants. For example, since the 1950s, low-paid immigrants have increasingly staffed the NHS. Presumably, you would be opposed to higher wages in such jobs because that would only increase the remittances these foreigners could make. That would be consistent with your choice of nation before class.

3. “Have you ever traveled? If so, you know full well not one non-Western country is importing workers, much less to the point of total destruction of the home culture by ones that do not believe in tolerance or left politics.” 24 April 2015

a) Have you ever travelled? Yes.

b) Not one non-Western country is importing workers. Migration is affected by many things, wars, social disruption, natural disasters, people seeking a better life or job elsewhere. Countries have many different ways in which they regulate immigration, naturalisation of immigrants as citizens, etc. While economics is a key driver of migrant flows, with poorer people usually moving, or attempting to move, to richer countries, it is not a one-way street. It is simply wrong to say that non-Western (meaning poorer) countries do not import workers. There are about six million migrants from other countries in India. Brazil even has co-official languages (usually Italian or German) in cities where there is a large proportion of immigrants.

c) Total destruction of home culture, tolerance and left politics. I cannot tell you how much I miss bread and dripping, a day at the dogtrack, breeding pigeons, colour bars on jobs and housing and racist chanting at football matches, because I don't miss them. Tolerance is a function of relative comfort. ‘Left politics’ has been moribund for decades in rich countries, not least the UK. It tried to connect with the pro-imperial mentality of the masses in rich countries and was always delusional, relying on the state.

4. “There's nothing in Marxism that demands obliteration of one culture by importing unlimited amounts from another culture to offer a one-off wage suppression.” 24 April 2015

There is nothing in Marxism that calls upon the state to defend the privileges of one group of workers at the expense of another.

Tony Norfield, 29 April 2015