Thursday, October 16, 2008

Crisis of state monopoly capitalism in NZ

The current crisis of the global economy tells us some home truths about capitalism.

First, that the market cannot exist without the state. The evidence for this is overwhelming and has a long history from the origins of European colonialism in the 16th century, right up to the post WW2 Keynesian intervention of the state in the economy. The current crisis is the ultimate proof of this calling on massive state bailouts for the survival of the market.

Second, that those who rule the market also rule the state. The evidence for this is also overwhelming and has a long history. Wherever the state intervenes din the market the outcome is in the interest of the capitalist owning class. Even those interventions that appear to benefit other classes, or people in general, are in the last analysis, designed to increase profits. When interventions become less beneficial for profits they come under attack and unless strongly defended are removed. The current rescues of the market prove that all the arguments about the state acting to distort the market are specious when the market is facing destruction.

Third, that capitalism today is what Marxists call state monopoly capitalism (SMC). If the first two propositions are correct, then we cannot be surprised at the fusion of interests between corporations that become increasingly big and powerful, and the nation states that serve their interests. This is evident from the clear benefits that flow to the capitalist owners from state policies in foreign relations, such as colonialism and imperialism, wars which are designed to extend the power and wealth of the monopolies, and the use of the state to police and repress working class opposition to these policies.

We take from these truths the fact that in order to survive capitalism has over the last century or so been forced to become more and more monopolised and that these monopolies rely increasingly on the state to defend their interests. Monopolies are defined not only the exploitation of workers in production to produce profits, but by the grabbing of the profits of other less powerful firms.
So what the capitalists argue are special circumstances today - the massive state interventions to rescue the "system" -are actually no more than the expression of the necessary historic role of the state to defend the interests of capitalism, today as State Monopoly Capitalism where the state...bails out the banks!

The case of New Zealand

NZ as a capitalist nation is a good example of these truths. Capitalism in NZ was born as SMC. The state was necessary from the start to enable colonisation to occur. The British state forcibly suppressed the Maori people and disposessed it of its best land. To develop the land and industry, the state borrowed heavily and so forced the taxpayers to fund the development of infrastructure to enable the capitalist economy to be set up. So business was funded by the national debt paid out of taxes deducted from the surplus created by workers. A market for Land, Labour and Capital was created by the state.

The NZ economy did not take off however until after WW2 on the basis of a strongly interventionist state under Labour governments that protected the domestic market from global competition. Small farmers and businesses were able to grow as a result of heavy state subsidies, tariffs and import controls. Public works created a necessary infrastructure, while state borrowing and marketing of exports subsidised the costs of individual capitalist owners.

This state protected economy allowed the rise of local monopolies. Some were state owned such as energy, rail, telecommunications etc.,- because no capitalist would risk money in such massive ventures. Others, such as building, food processing, like Fletchers, Watties etc.were in the private sector but heavily subsidised (again by the taxation of workers wealth). Growth was possible so long as exports were efficient and protected domestic industry could compete with imports. But increasingly exports were subsidised by the state out of taxation (again created by workers whose surplus value pays workers as well as bosses taxes) to compensate for the high costs of inputs from protected industry. Local industry could not sustain the cost of cross subsidies (they couldnt screw more value from workers) when monopoly industry reached the limit of the NZ market. The class interests of the monopolists in exports and domestic industry prevailed and deregulation, cuts in subsidies and removal of protection was forced through by the 4th Labour Goverment of the 1980s.

NZs SMC was then directly exposed to competition with global SMC which devalued and restructured NZ capital. A fraction of NZ SMC which had comparative advantage survived in partnership with increasing FDI. The more efficient export producers rapidly amalgamated to form monopolies like Fonterra in dairy, and to a lesser extent in the meat industry. The state backed cooperative structure of these industries is now being merged with NZ and global monopoly partners. The case of Fonterra is the subject of a previous post on redrave.

The current crisis is impacting on NZ in the following way. NZ is now fully integrated into the global economy. The crisis of profitability in the US, EU and Japan, and the prospect of a similar crisis in China, will see the big global monopolies backed by their states competing for ownership and control of NZs key productive sectors. US pension funds and Aussie banks are the most prominent. They will be looking for the cheapest raw materials and labour power and use FTAs as a way of getting the best deal. They will push for the lowest compliance costs in labor and environmental law, and the lowest taxes and biggest infrastructure and energy subsidies. They will want a NZ government that is willing to offer them these least cost options.

Labour's response to global SMC

Labour's social democratic approach to the national economy is to try to strike a balance between the interests of NZ SMC and global SMC to protect the share of value retained in NZ for redistribution as the social wage. The social wage is the redistribution of some of the value created by workers back to them to cover costs that the wage paid by employers does not eg health, education, housing. It is a workers subsidy to employers rather than a welfare payment to workers.

We can see Labour's FTAs as an attempt to negotiate deals that try to balance the interests of NZ SMC with the SMCs of the US, EU, Japan, Australia etc. So far NZ has negotiated FTAs with other small independent or semi-colonial states in a similar position to itself in the world economy. These are nations that are essentially exporters of commodities or, like Singapore, trading and service providers. The object is to trade off increased access into these markets for NZ commodities and NZ FDI for FDI access to the NZ economy in infrastructure and services etc. The FTA with China, itself an economic giant but not yet an imperialist power, is a good example of his approach.

Has the FTA with China acheived Labour's objectives of creating opportunties for the growth of NZ SMC and avoiding the dominance of Chinese SMC? The upside are a rapid reduction of Chinese tarrifs and opportunity for joint ventures (JVs). The damage done to Fonterra's JV with Sanlu is a hiccup in this process (see article on Fonterra). Chinese access to FDI in NZ does significantly change the its existing access. But given China's massive sovereign wealth fund it may replace US, Australian and Japanese FDI in the near future.

So while Labour's limited social democratic trade objectives appear to be met insofar as NZ SMC has won benefits from FTAs, there is no necessary benefit of a 'trickle down' of social wealth inside NZ. For example, increased sales and profits to JVs in China are not going to be retained in NZ (as these industries become internationalised) or redistributed to NZ workers. Fonterra and other JVs in China will have compete with Chinese and other FDI (US, Japanese, Taiwanese etc) on the basis of labour productivity in NZ and China. As the Greens and others point out this will involve increasing exploitation and oppression for workers in China (and consumers a la Sanlu) as well as NZ (see comments on Fonterra workers).
Clearly social democratic attempts to moderate the worst effects of the global market are unable to avoid the need for SMC to make its profits at the expense of increasing exploitation of the working class. I will come back to this below on the section on workers' fight against SMC.

National and Labour respond to the crisis

National's historic approach is clearly to facilitate the takeover of NZ SMC by global SMC. Their policies in the 90's continued Labour's Rogernomic deregulation. The budget was balanced, taxes to the rich were cut, labour rights were attacked and welfare spending cut. The policy was designed make NZ more attractive to foreign investment. More state assets were sold (Bank of NZ; NZ Rail; electricity) and others were turned into 'state owned assets' (SOEs). FDI increased and most large NZ banks and businesses were sold to Australian, US and other SMCs in the form of multinational enterprises, pension funds and private equity funds.

National's response to the current crisis has been to return to its former agenda of privatisation and cost cutting to encourage FDI into NZ. However because most valuable state assets have been sold, National is now focussed on partial privatisation via Public Private Partnerships (PPPs) that allow joint ventures between public and private sectors in industry and infrastructure. Their policy is to open the SOEs, roads, schools and jails to joint ventures. In the face of the global credit sqeeze, National has taken the line of global SMC in pushing for cutting the Reserve Bank interest rate, supporting the Labour led government's depositor guarantee, and arguing that the NZ Superannuation Fund should invest up to 40% of its funds in NZ.

In this way National is hoping to privatise the Super fund to bankroll new PPPs to create big profits for the private sector. This is like the profit sharing agreements of Big Oil to exploit Iraqi oil. So while National has aready promised to cut taxes for the rich, and cut to cuts wages for workers, it now proposes to tap into existing tax savings to transfer it into private profits. National objects to deficit spending on public works because these are charges on future taxation which it wants to cut further, so it is determined to plunder existing tax savings. This is the equivalent of a tax cut for business and a transfer of public spending social spending into capital spending for profit.

Labour's approach to the current crisis is to revert to the techiques of Keynesian demand management. As the recession bites Labour is prepared to increase deficit spending to fund infrastructure work, speed up house building, and set up skill training for those made redundant by layoffs and plant closures. The difference between Labour and National is that while National wants to plunder the existing savings of the Super Fund to capitalise PPPs for private profit, Labour wants to increase public debt as a charge against future taxation to stimulate the economy.

Workers' fight against SMC

Both National and Labour are capitalist parties attempting to facilitate public investment to stimulate the economy. In the case of National this is a diversion of existing taxes in the Cullen fund to finance private sector growth for profits. In the case of Labour it is spending now to create jobs, housing, roads etc. to maintain consumption paid out of future taxation which will be created by the ongoing exploitation of workers.

There is no question that both are propping up SMC in NZ which can only survive by increasing the exploitation and oppression of workers. Yet when facing these two options workers at the coming election are being asked to choose between being robbed of their taxes and pensions now as well as facing lower wages and increased exploitation in the future, or being kept in busy work so that they can continue to be exploited and pay the taxes to fund growth of profits now and into the future.

Facing this choice there is only one option for workers. If we take National's option we are agreeing to being robbed now for the privilege of facing an economy in which wages, living standards and workers rights will come under increasing attack. If we take Labour's option we reject the plundering of the Cullen Fund or the cutting of Kiwifund, and agree to deficit financing to minimise the recession and defer the question of who will pay this debt into the future. Since workers produce the wealth from which ALL taxes are paid our strategy is to keep as much of the tax wealth that we produce as possible for use in employing, housing, feeding, educating and keeping us healthy. It doesnt matter that this drives up the public debt because it it buys us the precious time we need to organise and prepare to give our collective answer to the question of who will pay for the debt in the future!

We say that workers right now must fight to retain and regain the surplus that they contribute in profits and taxation by demanding that public spending goes on our wages, health, education and housing, rather than goes into PPPs designed to boost the profits of the ruling class in this country!
  • Jobs for all on a living wage. Public works funded out of taxation (which we create). Free comprehensive health, education and housing! Tax the rich to pay for it!
  • Re-nationalise under workers control and no compensation to the bosses of privatised assets.! Take back Telecom, Air NZ, Contact Energy, BNZ etc.
  • Nationalise under workers' control with no compensation all industries that threaten mass sackings or close down!
  • Fight for these policies by building fighting, democratic unions everywhere! Build workers councils and defence committees to stop evictions and lockouts!
  • For a Workers and working farmers government and a planned socialist economy!

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