The British left faces a deep crisis of policy and orientation. Between 1974 and 1979 the expectations of the labour movement were dashed under two successive Labour governments, its previous victories against the Tories undone by its own government and leaders in one of the worst attacks on living conditions since the war. The subsequent electoral defeat has delivered the workers into the hands of a Tory government that makes Selsdon man look like a pinko socialist.
In this context the Labour left, particularly the wing led by Tony Benn, developed the idea of an Alternative Economic Strategy (AES), cutting edge of their challenge to the policies of the party leadership. At the October 1979 party conference, the Bennite Labour Activist (no. 7, October 1979) featured the following, fairly representative platform:
1) Britain should act in advance of other countries to expand her economy and return to full employment.
2) There should be an explicit plan for reflation and a return to full employment, including increases in public spending of £3000 million a year, financed not by personal tax increases but largely by savings on unemployment benefits and higher tax yields from economic growth.
3) To prevent a flood of imports that these policies might create, Britain will plan a growth of imports broadly equal to its growth of exports and will plan an increased share of trade with the Third World within this total.
4) The government should specifically make full employment its first priority. By full employment, we mean a reduction to 750,000 unemployed within two years, as a result of expansion and import planning, and to under 500,000 within two years after sustained implementation of the industrial strategy.
5) Companies should be required to enter into planning agreements with the government of the day, and in co-operation with the unions. The government should have the power to take big companies into public ownership wherever necessary.
6) These proposals make our aim of democratic accountability even more important. We must make a reality of industrial democracy, bring in a Freedom of Information Act, and make the government accountable to Parliament.'
With the fall of the government, policy programmes of this type have become (along with the issue of inner-party democracy) a focus of struggle in the party, the left's answer to the Tories' monetarist policies and to Callaghan's austerity. Many variants, both left and right, have appeared, but all have prominently featured four main recommendations.
1. The government should respond to the economic crisis by stimulating expansion, augmenting public expenditure and ending restrictive monetary policies.
2. Investment should be channelled towards domestic industry, in leftwing variants by an extension of public ownership into key industrial sectors, in the more mainstream versions by planning agreements with the big monopolies.
3. The power of financial institutions and big business should be curbed by a combination of determined government action and an extension of industrial and popular democracy.
4. Rigid price and import controls and, in some versions, incomes policy — should be used to offset the effects of such policies on inflation and the balance of payments.
The exponents of such policies as these boast of their realism. But can the recommended measures actually offer the working class lasting reform in the framework of a 'mixed economy'? How far can such policies take the working class if they are put in practice by a left government? These questions, which I will try to answer in this article, are far from idle. The Allende government in Chile tried to implement a very similar package. As European capital sinks deeper into the mire, governments that try to tread the 'middle road' of an AES may well be propelled to power. Theoretical considerations about Alternative Economic Strategy would then become eminently practical.
Theories and bases of AES
Two figures have been especially prominent in shaping AES policies. Anthony Wedgewood-Benn, now heading the Labour left's leadership challenge, has been the major popularizer. But the most consistent theorist is undoubtedly Stuart Holland, who has produced the most detailed and coherent blueprints. He was instrumental in shaping the 1974 manifesto, which he defended in Strategy for Socialism (Spokesman, 1975) and the more elaborate The Socialist Challenge (Quartet, 1975). In his recent works, including Beyond Capitalist Planning (Blackwell, Oxford, 1978), he has developed and extended these ideas in the light of the experience of the 1974 Labour government. Further reflections on this experience appear in his essay 'Capital, Labour and the State,' in What Went Wrong (Spokesman, 1979), a collection of essays on the failure of the 1974-79 government.
Holland's is not the only argument for the AES, nor the only version. Brian Sedgemore of the Tribune group has presented his own version, including a stronger commitment to incomes policy and selective import controls, in The How and Why of Socialism (Spokesman, 1977, p. 30). The views of the Communist Party influenced left may be founded in an article by the London CSE group in Capital and Class, no. 8. Geoff Hodgson has defended his own version in the pamphlet Socialist Economic Strategy (ILP, London, 1979); his views have been further developed in another pamphlet entitled 'Militant' and the Alternative Economic Strategy (Clause 4, 1979). He has upheld the important idea, which we will discuss below, that the AES should be supported as a transitional strategy towards socialism. The TUC leaders also have their own AES, well to Holland's right, and the Bennite left has consistently fought for alternative strategies close to those of the trade unions.
Any serious critique of the AES, however, must begin with Holland's ideas, which embody an approach that merits the title of a 'theory' of the AES. Other advocates, like Sedgemore, Hodgson, and Benn himself, draw primarily on Holland's work, and most criticisms of his ideas apply equally to other versions of the AES.
Holland's basic argument may be summarized in four parts, as follows.
1. In the 1960s the Keynesian revolution seemed to have 'not only solved the problems of mass unemployment, but had made feasible an indirect control of the economy itself. It was argued that if the State secured control of the level of aggregate demand, the profit motive and private self-interest would ensure the response of an efficient supply of goods and services in the public interest', (Strategy for Socialism, p.13.) Keynesian policies thus became the basis of a new orthodoxy, popularized in the writings of Anthony Crosland, according to which the State could compensate for the deficiencies of private capital and the market without abolishing either. 'It (Keynes' theory) not only swept academic thinking, but also challenged the socialist claim that only public management of supply could ensure economic efficiency and social justice. It implied that, subject to a general role as umpire, spender and planner, and within a general framework of progressive taxation, the State could achieve the ends of socialism with only a limited degree of socialization of ownership. This provided a fundamental link between Keynesian thought and postwar Social Democratic thinking.' (Strategy for Socialism, pp. 13-14.)
2. But the experience of the 1964 and later governments shows that this thinking is no longer valid. 'Since 1970, the Labour Party has come to question the permanence of the Keynesian revolution. The awareness of this need stemmed partly from the deflationary package of July 1966, which ended the expansionary hopes of the National Plan, and with it most of the hopes for a planned re-distribution of income and increase in welfare on which the 1964 government had come to power. But the new awareness stemmed also from the patent failure of the efforts of the 1970-74 Conservative government to promote a sustained increase in investment supply through management of demand, and a realization that the British economy was facing a degree of crisis unprecedented since the early thirties.' (Strategy for Socialism, p.16.)
3. The failure of state intervention was not the result of temporary or accidental factors like the increase in oil prices. Neither, however, was it the product of any intrinsic weakness. New factors have come into play, neutralizing the effects of traditional policy: 'This present and continuing crisis in the British economy reflects a fundamental change in the structure of modern capitalism both at home and abroad. The main reason for the crisis has not so much been the misapplication of Keynesian techniques of demand management as their erosion by a new mode of production which has divorced macro policy from micro structure.' (The Socialist Challenge, pp. 14-15.)
Most important is the rise of large-scale business, or 'meso-economic sectors', to the point that national states can no longer control the economy: 'Our economies have been subject to the rapid growth and increasing influence of very powerful large firms described here and elsewhere as the "meso-economic" sector, a new phenomenon between micro-economics and macro-economics. This sector does not respond to overall demand management by the public authorities in the same way as an economy based on small firms. The structure of competition itself has been transformed and operates under new "rules of the game."'
4. This calls for a new approach. The government must involve itself directly in decisions that affect production and supply, with the aim of countervailing monopoly and multinational power. It must force big power-centres to comply with socially determined needs.
Holland's strategy
Holland's solution is often hard to interpret. His abundant socialist rhetoric suggests that he stands for the abolition of private capital, even for a revolutionary attack on it. At the beginning of Strategy for Socialism he defines capitalism as a class society and reiterates that the goal of socialism is the abolition of class division and inequality: 'Class bias is no accident. It stems essentially from the structure of power and unequal incomes necessary for the functionary of a capitalist system based on massively unequal rewards as the so-called incentive to efficiency.
'This cannot be overcome through more fiddling with tax rates and indirect incentives by the government. It can only be transformed through a radical equalization of wealth, a socialist programme for public ownership and control of the means of production, and new social controls of the expenditure and use of enterprise in the transformed system.' The very next paragraph, however (written in 1974), tells us, apparently without irony, that 'in practice, such a socialist programme for new public enterprise and social control lies at the heart of the new direction in Labour Party policy since 1970, as any reference to the published texts of Party documents or this book will clearly demonstrate.'
Closer study shows that Holland's proposals fall far short of a socialist takeover of production in the accepted sense. In The Socialist Challenge (p. 154) he describes his project as one of 'revolutionary reforms' aimed principally at the meso-economic sector: 'It (the meso-economic sector) is so deeply entrenched that nothing short of a transformation of the mode of production, distribution and exchange within this sector can put a socialist government in a position to master economic policy and radically increase social expenditure.' (Emphasis added.)
The emphasized phrase is the key to Holland's picture of socialist transformation. His new 'mode of production' amounts not to the overthrow of capitalist ownership of production, even in the monopoly sector, but simply to the reversal or counter-action of the new power of the big firms. This is spelled out as follows (pp. 159-160): 'any such strategy must, in the first instance, secure a transformation of the mode of production in the multinational or mesoeconomic sector of the economy... such a transformation of the mesoeconomic mode of production does not need the extension of public ownership and control through the entire sector. But it does need decisive action to bring individual leader firms in the main industries and services into public ownership and control...
'Such an extension of public ownership into some rather than all of the mesoeconomic firms clearly need not exclude further extension of public ownership.... But it is important to distinguish between the scale of the initial extension of public ownership that is necessary to reverse the imbalance of public and private power in the meso sector, and the further extension of the same or different forms of ownership and control. Essentially, no transformation will be possible unless a critical minimum of leading firms in the meso-sector is brought into public ownership and control. On average, four to five firms control the upper half or twenty of the twenty-two main industrial and services sectors of the economy. One in four to one in five of these firms must be socialized through new public ownership and control if we are to begin the critical transformation of private mesoeconomic power. This was part of the analytical case behind Labour's Opposition Green Paper on what came to be known as the "20 to 25 companies".' (Emphasis added.)
This is far from socialist transformation as we understand it. 'One in four to one in five' in the meso-economic sector means about one-tenth of the capital in the economy. What is seen as important is not to end capitalist ownership but to 'change the mix' between public and private ownership.
How can this bring such dramatic change? It will work because it is only part of a much more general assault on meso-economic power. The attack, Holland argues, must come from two directions: the government and the workers.
The government should oblige all major companies (those with £50 million or more of turnover) to enter into planning agreements. These create a mechanism whereby investment can be planned in accordance with public need, so as to control investment and supply. This would create a 'systematized bargaining process between the government and the giant private and public corporations' (p. 231). Although company management 'would be left free to initiate its own programmes' (p. 232), the state would intervene with carrot and stick to 'determine whether or not these programmes conformed with its economic and social objectives' (p. 230). Its method of intervention would be 'less than wholly imperative, but more than indicative'. It would have power to offer discriminatory incentives: grants, assistance, access to planning information, etc. And it would have limited, rather vaguely defined, veto powers.
Industrial democracy and planning agreements
It could be argued that this is exactly what governments have been trying to do for the past thirty years with regional policy, using Industrial Development Certificates as a stick and regional subsidies as a carrot — with appalling results. Holland argues that two things will help avoid past mistakes.
First, public ownership will allow government access to detailed knowledge of the conditions under which business operates — cost structure, technical knowledge, etc. This will stop business 'blinding the government with technical and commercial knowledge'. This is very much the role the British North Sea Oil Company was seen as playing. Public enterprise will also be able to act as 'leader', going into areas where monopolies have been unwilling to commit themselves, and so showing that investment possibilities exist and even spearheading their exploitation. This will also threaten big firms with loss of markets and opportunities if they do not follow such a lead.
Second, the relation between workers and industry must be changed by a very widespread democratization: 'there is a crucial step in the process of transforming the present hierarchical and oligarchic structures of decision-making throughout British society. This is the exercise of state power in the area of industrial democracy and workers' self-management through "opening the door" on both information [illegible] government will decisively [determine] the extent to which it is prepared, literally, to open the corridors of power to working people from firms, industries and services of strategic importance in the economy as a whole. It will also do so by the extent to which it "opens the books" on key areas of decision making which involve no state security in any legitimate sense of the term, nor commercial security concerning the future viability of firms and enterprises. These are the kinds of changes ...which have been anticipated in Labour's Programme 1973.' (The Socialist Challenge, pp. 161-162.)
What emerges is a programme of government economic reforms, enacted by the existing state machine and backed up by popular democracy at grass-roots level. This will change the basis of the economy, counter meso-economic power, and put the government and state back in the driving seat. Nationalization of the 'twenty-five firms', planning agreements, and popular democracy — these will place workers in control of the transformation process and launch us on the socialist road.
Perhaps the most important question to consider at the outset is the cause of the present economic crisis. Holland maintains that because of the rise of the multinationals, governments are no longer able to master the economy. The implication is that government intervention was responsible for postwar prosperity in the first place and that this prosperity is [illegible] basically new element: monopoly domination. As we shall [see], neither of these suppositions stands up to analysis.
The postwar boom and state intervention
Let us begin with the postwar boom. Not only Holland but also Hodgson, who ought to know better, makes much of the alleged 'Keynesian solution' to capitalism's problems, which is supposed to refute 'vulgar Marxism' and its forecasts of inevitable economic crisis. But both consistently fail to mention one small point: before Keynesian methods of state intervention were adopted, the world passed through twenty years of slump, fascism, war, and counter-revolution. Keynes's genius must be measured against such factors as the destruction of the organizations of the working classes of Japan, Germany, and Spain, and their severe dislocation in nearly all other major countries; the division of the world into 'spheres of influence' between the world's biggest imperialist powers and the first revolutionary socialist power, quarantining the revolution and guaranteeing long-term stable investment prospects; the restructuring of the major capitalist economies through the slump, rearmament, and the postwar application of military technology; and last but not least, the emergence of the United States as a new hegemonic world power able to act as policeman and banker for the [capitalist world].
Who really pioneered Keynesian methods? Most Social Democratic writings suggest that they were first formulated by the postwar socialists in the wake of the climactic triumph of the 1945 Labour government. The suggestion is wholly illusory. Sweeping state intervention was first introduced in the wartime economies of 1914-18, and developed to its fullest extent by the Italian and German fascists. The bourgeoisie learnt state intervention in the school of fascism and war.
The basis of the welfare state in Britain was laid not by the Labour Party but by the wartime coalition. The Education Bill was passed in 1944, the Beveridge reforms were well mapped out before the election, and for the most part Labour implemented an agreed arrangement with the capitalists of the day. Attlee writes of the wartime coalition: 'I have very pleasant memories of working with my colleagues in the Government. It was very seldom that any Party issue arose to divide us, until the last stage, when I think they were designedly fomented by certain persons. Usually applying our minds to the actual problems which faced us, we came to an agreement as to what was the best course... quite naturally, in war, when the public good must take precedence over private interests, the solutions had a strong socialist flavour.' (Cited by A. Miliband in Parliamentary Socialism, p. 275.)
In fact, the capitalist class imposed clear limits on what the 1945 government could do. In 1948 the government foolishly embarked on the nationalization of the iron and steel industry, in a sop to the left, frustrated by the wholesale retreat from the rest of its programme. As Miliband comments, 'of all the Labour Government's nationalization measures, the nationalization of iron and steel was the only one which entailed a serious threat to the "private sector".' (Parliamentary Socialism, p. 288)
Attlee writes of this measure: 'there was not much opposition to our nationalization proposals. Only iron and steel aroused much feeling.'
This bill became the target of an intense anti-nationalization campaign. By September 1949 the insurance companies 'had set up 400 anti-nationalization committees up and down the country on which 4,000 employees were working after office hours to publicize their objections to the Labour Party proposals. Insurance agents also constituted a ready-made army of canvassers.' (Nicolas, p. 72, cited by Miliband, p. 302.)
Tate and Lyle organized a campaign based on the figure of Mr. Cube. His picture and anti-nationalization slogans appeared on two million sugar packages, 100,000 ration-book holders distributed free to housewives, and on all delivery trucks. Material was sent to 4,500 schools. More than 3,000 speeches and lectures were delivered in factories and working men's clubs; £200,000 was spent on advertising. Even the House of Lords sprang to life, stopping the government making any appointments to the Iron and Steel Corporation until 1 October 1950, and prohibiting the transfer of any properties until 1 January 1951 — after the general election.
When these 'purely electoral' tactics failed to prevent the election of a second [Labour government, the capitalists] systematically sabotaged the bill, organizing a deliberate policy of non-co-operation with the Iron and Steel board among middle and lower management. On 19 September 1950 the minister of supply explained that when he invited representatives of the steel interests to submit the names of 'experienced men who would be acceptable to their fellow industrialists for inclusion in the Corporation', the Executive Committee of the Iron and Steel Federation refused to respond, 'on the grounds that in their opinion the government had no mandate to carry out the Iron and Steel Act'. 'They warned me', he continued, '...that the Corporation, deprived of such people, would be unable successfully to plan the steel industry. Further, I was informed that every effort would be made to dissuade any important man I might approach from serving on the Corporation.... In short, these people decided to threaten, and indeed they did carry out, a political strike'. There was 'a gentleman's agreement throughout firms in the industry not to serve on the Corporation'.
In other words, when the capitalists' interests clashed with the government, they did not hesitate to call on the solidarity of the entire class to sabotage the most elementary attempt at state control — and they succeeded.
The policy of the postwar state was quite consciously tailored to meet three central purposes. First, a homogeneous, relatively well-provided and literate semi-skilled labour force able to service high-technology productive capital was required. The state therefore assumed functions like health, social security, and education, which individual capitalists could not support. Second, the state intervened directly in the cycle of capitalist accumulation. Government expenditure became a major element of the economy, moving into sectors like coal, transport, and energy, that were essential for capital as a whole, but could no longer generate sufficient profits to attract investment by individual capitalists. The state used its augmented economic weight to inflect the growth of capital. 'Indicative planning' was inaugurated in an attempt to persuade entrepreneurs to invest in accordance with the general interests of national capital. Mergers were encouraged. Grants and subsidies were distributed to alter the patterns of employment and wealth in an attempt to improve the competitive position of British capital on the world market.
Third, for the first time in the absence of war, government loan-expenditure was used to dampen the capitalist boom-slump cycle and to maintain full employment. The state would intervene to prevent slumps running their course, going into debt during recessions to buy capitalist produce that would otherwise have failed to find a market. The technique is known as 'creating demand'. The government sanctioned and took part in debt creation as a principal means of finance. Commodity money (such as gold) was gradually replaced by paper money, which in theory was backed no longer by real commodities but by capitalized or expected future income.
In theory the state would also retrieve these debts in time of boom, thus preventing the economy from preparing to produce more than it could sell. But this simply did not happen — and here lies the crux of the present crisis of state intervention. Debt, both public and private, rose constantly. The result was a continuous, irreversible, and ever increasing inflation of paper money. As the years wore on, government expenditure proved less and less able to hold back slumps. The amount of expenditure required called forth more and more horrendous rates of inflation and generated ever more massive debts, on such a scale that real risks of the bankruptcy of big banks and even whole states began to loom. Successive governments came to face a stark choice between inflation and unemployment, between unacceptable levels of loan expenditure combined with inflation rates of 15-20%, and a return to the unemployment figures of the thirties.
Until recently, however, this policy met the needs of the dominant capitalists, for whom widespread price-cuts during slumps were increasingly unacceptable and who wanted to buy social peace by taking the edge off the effects of recessions on the working class. The proportion of capital tied up in large units of fixed capital became very large. It became ever more imperative that this capital not suffer sudden and disastrous devaluation, or the capitalists would not be able to risk expansion. Demand management to keep prices up and prevent bankruptcies, far from conflicting with monopoly interests, was the perfect counterpart to their conservative policies of price-fixing through restriction of supply and of maintaining profit levels adequate to keep the most backward producers afloat.
Three basic conditions must prevail if this state intervention is to be acceptable to and effective for the leading capitalists.
1. The average profitability of the capitalist class must not suffer. State intervention must increase, and not decrease, the growth opportunities of the capitalist class as a whole. In a crisis of profitability like the present one, the state must actively transfer income from workers to capitalists, which is exactly what the 1974-79 government did. Not only did it impose an incomes policy that cut real wages by 12 per cent in three years, it also pumped more than £3,000 million directly out of the social services and into the hands of the capitalists in the shape of grants and subsidies.
2. The average surplus or super-profit — must remain intact. If capitalists are to explore new prospects for investment, they must be assured not only of the average rate of profit, but the possibility of a higher than average profit such that they can enrich themselves at the expense of other capitalists. They need control over the movement of capital. This is not an incidental feature of capitalist behaviour, but the essence of bourgeois power. Capital that cannot be spent where its owner wills simply ceases to be capital, because it ceases to be generally convertible, can no longer be used to make surplus profits, and loses its value as anything except a source of unearned income, at a fixed rate, or a simple store of value, in which case it might as well be put in a bank or a bedsock.
3. The capitalists must be satisfied that the political climate can guarantee stable profits, at least over the accounting or turnover period of fixed capital (generally seven to eight years, but as much as twenty years for an investment in new technology). This requires proper military defence of the foreign and strategic interests of all capital. And it calls for guarantees against unwelcome interference by the working class. Amongst big business's strongest objections to Benn's economic policies, which would make perfect sense under a fascist government or with a weak and disorganized working class, is that Benn would be unable to control working-class resistance to the profitable reconstruction of industry. They do not fear Benn — what they fear is what the working class might do if it took him seriously.
In conclusion, state intervention is neither a socialist invention nor a universal answer to capitalism's problems. Full-scale 'welfare state' intervention, coupled with full employment, can be used only under very specific conditions. It is thus very important to decide whether these conditions prevail today, and whether they can be brought into existence.
The crisis of state intervention
Holland explains the failure of Keynesian methods as follows: 'such a crisis (as the present economic one) reflects a situation of fundamental change in the structure of modern capitalism .... The competitive firm of micro-economic theory was too small to influence macro-economic aggregates such as national investment, trade and employment. Even in collusion, it was generally held, they could not seriously influence the price level set by sovereign consumers. Such theory still has relevance to the thousands of small companies which the giants are squeezing into the bottom half of industry. But between these micro-economic firms and the macro-economic level of government policy, the new giants have introduced an intermediate or meso-economic sector .... Raising prices has always been the prerogative of the monopoly. It is a key feature of their private power and public irresponsibility.'
'Under the capitalist structure of the turn of the century ... the consumer could choose between many firms in the top half of any given industry or market, and this tended to keep prices down.' (Strategy for Socialism, pp. 17-18.)
This is simply false. Monopolies do not have unlimited power to raise prices; all capitalists try to do this, and what stops them is not consumer freedom of choice but competition between capitals; and monopolies have not escaped competition between capitals.
The key determinant of competition is not the number of firms present in the market but whether fresh capital is free to move in and take advantage of high profits. Once we realize this, we can see that the classical effects of monopoly came to dominate world capitalism no less than half a century earlier than Holland claims, because even quite large numbers of producers were able to combine and associate to prevent new entry. No qualitatively new stage of monopoly was reached in 1964, because not even the mightiest world conglomerate is able absolutely to restrict new competitors. Every big league firm knows full well that it must set prices at levels such that it can maximize total profit without provoking the entry of new competitors, or can at least limit newcomers to an acceptable market share. Such firms thus garner above average, but not unlimited, profit. They form a privileged sector of capital, but they do not stand above it.
To give only one well-known example: in 1931 three American cigarette trusts controlled 97 per cent of US production. They raised their prices by 10 per cent. By November 1932 — just over a year later — independent tobacco firms selling cut-price cigarettes had captured 22.8 per cent of the market. Modern computers offer an equally graphic example, for high-priced mainframe products of big firms are continually undercut by smaller and cheaper products of new competitors, often composed (like DEC, for example) of disgruntled employees of the old, large corporation.
It follows that if we want to understand monopoly, we have to study not the freedom of the consumer, but the institutional, economic, and political factors that restrict the free movement of capital in monopoly-dominated sectors. Classical Marxist analyses of monopoly, from Marx's own studies of ground rent onwards, have always adopted this restricted starting-point.
How are super-profits obtained and stabilized by big capital? Holland describes only the most developed form of monopoly power: a unified manufacturing concern dominating a national market. It is true, and his figures prove it, that the market and output shares held by such giant concerns have risen quite rapidly during the last twenty years. It is also true that national states are under particular pressure from the best-known type of such firms: the modern multinational.
But the formation of a single, integrated, and possibly multinational company is only the last stage of a process that already dominated world capitalism as long ago as 1916, when Lenin defined imperialism as the monopoly stage of capitalism.
The first phase in the centralization of capital — the formation of cartels to restrict output and keep prices up — was well under way by the turn of the century. In January 1901 the chairman of the British Soap Makers Association noted that it had become 'impossible to make profits without association and combination'. (Charles Wilson, Unilever, Volume 1, p. 66.) The second phase was the pooling of capitals to form integrated blocs, the formation of trusts, and their eventual fusion with large sections of banking capital to form what Lenin termed 'finance capital' — the amalgam of banking and industrial capital that typified the monopoly stage of capital. Because finance capital controlled large amounts of mobile capital, it could lend much greater weight to the restrictive practices of the cartels by refusing to lend capital to dangerous competitors in spheres in which existing investments might be threatened. This was already a major factor in the time of Engels, and by 1916 it was decisive in determining world movements of capital. Between 1897 and 1904 the number of US trusts rose from 38 to 257. By 1897 the annual capitalization of mergers had reached $2,244 thousand million in the United States. (Ernest Mandel, Marxist Economic Theory, Merlin, London, 1962, Volume II, p. 403.)
It was finance capital that played the major role in financing and organizing imperialist expansion, and it was with this phase that capitalism finally ceased to play any progressive role on a world scale. With the sole exception of its role in extending the world market, finance capital acted as a fundamentally conservative force. It failed to bring about the industrial development of the colonies and condemned them to backwardness; it put preservation of monopoly privilege above the expansion of production in the imperialist countries; it created new parasitic classes living off interest, military conquest, corruption, and monopoly rent, and fortified decaying classes such as landlords and aristocracies; it leant on these decadent classes for support against the working class rather than sweep them away when they blocked progress.
The essential features of this system have not changed. What we are seeing now is a logical development of what has gone before. It is the international extension of a third phase of direct merger of already oligopolized interests to form unified productive enterprises. In short, we are seeing a major surge in the international centralization of capital.
This has a double function. First, the giant firms consolidate the gains they have already scored through colonial exploitation and collusive control over financing. The superprofits thus amassed are now manipulated directly by the unified command of the merged firm, and no longer indirectly through myriad clandestine deals and connections.
Second, the most characteristic feature of postwar monopoly — the control of technology to restrict new entry and maintain super-profits — is truly brought into its own. This calls for the fusion of previously diverse units into a single, homogeneous entity that shares out the tasks of research, development, and manufacturing entirely within its own confines. These tasks are farmed out internationally to take full advantage of local labour and product markets, typically concentrating low-skill assembly operations in the Third World or depressed regions, and centralizing administration in the financial and commercial centres of the owning nation; research installations are located wherever skilled technical and scientific labour can be found.
Successive British governments have been desperately aware of this general situation. The wave of mergers provoked by the first Wilson government under the slogan of the 'White Heat of Technology' was intended to forge a productive base for British capital that would not be completely bypassed by European, American, and Japanese capital. This was the function, for example, of the government support that has been poured into the computer industry. The attempts to create a 'European' aerospace industry serve a similar aim. Any British government faces a redoubtable problem in this respect in the development of a semi-conductor microchip industry. It is reckoned that Japanese industry has sunk some [illegible] million into semi-conductor research and development, while the British government proposes to spend a piddling £50 million!
This phase of merger has contradictory effects. Within certain limits, productive capital has begun to transcend national barriers. Capital has not ceased to operate from a national base; it is generally owned within a single nation. (See, for example, Mandel, Late Capitalism, London, NLB, 1975, p. 310ff.) But the large companies have begun to set up an international system of production.
However, contrary to Holland's view that this has ended competition between capitals, it has actually increasingly shifted it to a world arena. A single company, like ICL, may well dwarf its British competitors, and we might wrongly conclude that the British computer market is monopolized. But on an international scale ICL is in turn dwarfed by IBM, and stands at best on a par with CDC, Burroughs, Honeywell, and the other 'seven dwarfs' of the industry.
The rational kernel of Holland's tirade against the multinationals is this: national states are now drawn into international competition between capitals and are used as instruments in the fight for survival. The national states are forced to offer ever more favourable grants, guarantees, and facilities to multinationals in search of factory sites. If they reject the demands of the multinationals, they don't get the investment. Conversely, large companies like Lockheed and Leyland have become systematically involved in bribery and corruption as a normal instrument of company policy, as recent scandals have shown.
This competition between states, however, ultimately reduces to a competition to defeat the working class; the most successful states will be those that can extract the greatest surplus from their workers and promise the most docile work force. The ultimate development is the 'free trade area' in countries like Hong Kong and Ceylon, which is a zone in which the host country is forced to drop virtually all restrictions, legal and fiscal, on its rapacious and parasitic invaders. The truth is thus the diametrical opposite of what Holland maintains. It is not the absence of competition, but its international extension and the consequent greater involvement of national states in it, that renders the modern interventionist state 'powerless' in the face of the multinationals.
We may summarize our conclusions as follows:
1. Big capital has not forged a new mode of production. Above all, it retains its private character. The monopoly sector is a privileged layer of capital as a whole that relies heavily on its relative control over the movement of investment capital. Any strategy based on trying to persuade the big league firms peacefully to relinquish their control over capital movement is utopian.
2. Neither monopoly nor the interventionist state has resolved the basic contradictions of competitive private capitalism, which have simply been removed to a higher level. The present crisis represents a manifestation of the same contradictions in a new form. Postwar capitalism is not immune to the tendency of the rate of profit to fall. It continues to suffer periodic over-production crises. Inequality has continued to grow. The system is still plagued by massive excess capacity. It has created, and sustains, enormous social obstacles even to its own progress: the nation-state itself, parasitic and reactionary classes, socially irrational investment patterns, and so on. Most important, it is incapable of overcoming these obstacles to its own progress by any but the most extreme violent means.
3. The efficacy of state intervention as a means of offsetting the worst effects of the boom/slump cycle has reached its limit. Increasingly enormous sums are needed to 'prime the pump' of depressed economies, and this generates greater and greater inflationary pressure. The capitalist class is increasingly forced to return to mass unemployment. Previous cycles of state intervention have accumulated a backlog of inefficient and socially unnecessary capital that has not been 'shaken out' by the normal mechanisms of the capitalist slump.
4. All these factors have combined to produce an intractable and worsening international crisis of capitalism, characterised by:
i. The re-emergence of synchronized world slumps, signalling the exhaustion of the postwar boom;
ii. The end of American economic hegemony and the opening of a new period of fresh inter-imperialist rivalry;
iii. The breakdown of world monetary stability;
iv. Deliberate political attempts to attenuate the crisis at the expense of the working class: narrowing the state's welfare functions and transferring income to the capitalist class; reconstitution of an army of unemployed; attempts to restructure industry through brutal policies of closure and redundancy.
v. Efforts to dampen working-class organization and combativity in nearly all imperialist countries, since the workers have resisted every effort to offset falling profits by driving up the rate of exploitation and have (so far) prevented any major economic restructuration.
vi. A wave of revolutionary challenges to imperialist control of production and investment in the semi-colonial world, and the first rumblings of revolution in the West, opening with the events of May 1968 in France, followed by the Portuguese revolutionary upsurge of 1974-76.
vii. The more general destabilization of world politics and a sharp increase in the preparation of and the tendency towards war.
No capitalist 'solution' to this crisis could be purely 'economic' or 'governmental', and still less purely 'national'. No government economic policy could be effective unless the basic conditions for successful state intervention were first restored: profitability, guarantees of investment stability, freedom for private capital to enrich itself, and a reorganization of the world economy on the basis of a new international division of labour corresponding to the objective development of the productive forces. But the capitalist class can bring about such conditions only if it inflicts a debilitating defeat on the working class on a world scale, effects a sweeping reorganization of the present system of national states, and somehow settles accounts among the three main continental blocs of capital: American, West European, and Japanese and Southeast Asian. Finally, to bring about such cataclysmic upheavals would be very difficult without major conflicts with the workers' states in an effort to reconquer substantial portions of the globe for capital.
AES in practise
It is not our purpose here simply to decry the AES. The labour movement needs a sober appraisal of it, and more particularly of what would happen if it was actually implemented.
Britain is a declining imperialist power, heavily dependent on world trade. It has not developed domestic industry, but has relied instead on amassing super-profits through control of foreign markets. It has thereby landed in a double bind. When the economy expands, imports are sucked in; but Britain's declining position in world markets prevents it from generating extra demand for its exports.
Attempts to expand the economy, particularly in a recession, quickly run up huge debts. The fortunes of every Labour government since the war can be read through this simple equation. Recently released cabinet minutes show that American financial pressure forced the Attlee government into devaluation and spending cuts of £256 million just before the 1950 election. Wilson records in his memoirs that immediately after the 1965 election, he went to see the governor at the Bank of England, who told him point-blank that he could not carry out the programme on which his government had been elected. And the 1974 government was more than £3,000 million in debt by the end of its first six months in office. The IMF told it, in no uncertain terms, not to be so silly.
There is an underlying problem that runs even deeper. The British economy is plagued by persistent failure to invest in domestic industry. This is a consequence of its imperial past. An article by R.E. Jones published in Lloyd's bank review compares investment per employee in a number of countries. The figure for Britain now stands at £7,500 — compared with £23,000 for West Germany and more than £30,000 for Japan. Jones calculates that an investment of more than £100 thousand million would be required to bring Britain into line with its major competitors.
A comparison between this amount and actual investment points to the depth of the problem. New plant in manufacturing, the key indicator of productive investment, has not risen above £4,000 million in any year of the past decade, even when industry was receiving nearly that amount from the Labour government in grants alone.
This is not a trivial problem to be solved by some fresh government policy. The fact is that the British ruling class, imperialist to the core, has substituted foreign for domestic investment. British capitalists tend not to invest at home, because they have a much wider and safer range of opportunities abroad. And this has been further aggravated with the advent of the multinational corporation. Britain is the second-largest home of such companies after the United States, with over £18 thousand million in foreign holdings by MNCs. More than twice as much production by British-based companies is carried out abroad as at home. To ask British-based capital to invest at home is to ask it to invest at a lower rate of profit than it can obtain through its traditional channels. The problem is not the average rate of profit, but the rate of profit on new investment opportunities. Any attempt to impose domestic investment therefore meets, and will continue to meet, implacable opposition from an ancient and entrenched network of foreign investors, financiers, and ex-colonialists, now supplemented by the new monopolists, whose class interests are opposed to such pressures.
Finally, it should be noted that British dependence on world trade and investment makes it especially sensitive to world recessions, as the 1974 Labour government discovered to its cost.
The likely consequences of an attempt to implement an AES would be:
i. A short-term consumer-led boom leading to a substantial increase in employment and living standards and some improvement in social services.
ii. A flight of capital abroad and a widespread refusal of foreign credit.
iii. A rapid balance of payments crisis, aggravating the problem of foreign credit and leading to trading difficulties and shortages of imported materials.
iv. A wholesale refusal by capital to invest in new production, and an attempt to run down or wind up existing productive investment.
v. Widespread shortages and special inflation, as a result of the above factors.
vi. An organized boycott by the industrial bourgeoisie of both political and economic planning, orchestrated by big business and particularly by British imperialist capital, coupled with an attempt to blame the economic chaos on government policies.
vii. Preparation for the overthrow of the government and a repressive assault on the workers if the less extreme measures do not produce a government retreat.
This is not abstract speculation. We have sound evidence in the fate of the 1974 Labour government, particularly the results of its first six months in office.
We have already noted that Holland himself points out that his thinking 'underlies Labour's 1974 manifesto'. And so it did. Labour was elected in February 1974 on a programme all of whose essentials represented an AES policy. It called for an expanded economy, greater social services, a significant broadening of public ownership, an industrial strategy based on planning agreements, and a wide expansion of popular democracy. The Social Contract was to be an exchange, in which [illegible] increased.
The government more or less held to this policy for its first six months of office, amidst a worsening international economic recession. The results were spectacular. After an initial boom, the balance of payments went £3 thousand million into the red; the trade deficit was even worse. The annual inflation rate reached 30 per cent. Industrial production fell 10 per cent, and as much as 20 per cent in some sectors, like construction.
Government policy became the target of a furious political onslaught in which nearly all capitalist forces joined: industrialists, financiers, and the state apparatus. The course and results of this offensive are very clearly traced in a book recently produced by representatives of the Labour left itself (What Went Wrong, Spokesman, 1979).
Two aspects of the attack deserve special attention: the role of the state bureaucracy and attitudes to Benn's industrial proposals. Far from remaining aloof or neutral, the state was intimately and directly involved in the campaign. This is most sharply exposed in Michael Meacher's article in What Went Wrong: 'Whitehall's Short Way with Democracy'. He enumerates no less than five ways in which Whitehall subverted government policy. Interdepartmental co-ordination constitutes a 'government within the government' that is so powerful that Crossman can write: 'I have yet to see a Minister prevail against an inter-departmental official paper without the backing of the Prime Minister, the First Secretary, and the Chancellor'. The senior echelons of the Civil Service are 'enmeshed in the business-finance power structure outside' (p. 179). Meacher writes: 'the source of information provided by officials — and also at the interpretation placed upon it — is invariably the CBI, top managements of individual companies, the Bank of England or particular finance houses ... it is their policy slant rather than that of any other group (since the TUC is not regularly consulted) which permeates the documents put before Ministers.' He goes on to say, somewhat naively, that the 'close symbiotic relationship with leading representatives of industry and finance must inevitably raise questions of the impartiality of civil service advice ... not that any implication of conspiracy is intended'.
Conspiracy or not, John Pardoe reported in 1976 that he had reliable reports that 'a number of people from Britain representing both Treasury and City interests had at that time told the US Treasury that it would be better if Britain were to get no more loans from the IMF or the international financial community'. And Joe Haines, no friend of the left, records that in June 1975 the Treasury and the Bank of England let the pound slide in order to force the government into statutory wage controls. He describes this as an attempted 'civilian coup against the government'.
Most significant of all, however, is the special attention devoted to Labour's plans for the control of industry, the linch-pin of Holland's strategy. This is graphically described in Tom Forester's contribution in What Went Wrong, entitled 'Neutralising the Industrial Strategy'.
Throughout 1974 a big campaign was waged against 'Bennery' in general and Labour's industrial proposals in particular. It opened in February with a statement from Sir Michael Clapham, president of the CBI, that his organization was 'hostile' to the government's 'interventionist line'. Wilson personally assumed command of the Cabinet committee concerned, and announced: 'Private industry must have the necessary confidence to maintain and increase investment to do their duty by the people. And confidence demands that a clear frontier must be defined between what is public and what is private industry.'
Wilson was merely expressing the nearly universal hostility of Whitehall and the business community. Ray Tuite, the DTI press officer, remarked that 'the CBI made it clear that they would pull out of the NEDC and break off all working relations with the government if companies were forced into investment commitments'. Forester writes: 'The Civil Service, too, were wholly opposed to an interventionist strategy.' Adrian Ham, Healey's special assistant, speaks of a 'Whitehall-wide conspiracy to stop Benn doing anything'. Whitehall's devout respect for parliamentary democracy was demonstrated by Benn's own Departmental Secretary, Sir Tony Part (now chairman of Orion Insurance and a director of Debenhams, EMI, the Life Association of Scotland, Metal Box, Savoy Hotels, and Lucas Industries), who is said to have greeted his supposed superior on his first day with this penetrating crack: 'I presume, Secretary of State, that you do not intend to implement the industrial strategy in Labour's Programme.'
By June 1975 Benn had been sacked and Labour's Industry Bill gutted. The NEB was turned into a fountain of handouts to industry, placed under the direction of Leslie Murphy, a merchant banker. In place of Benn's promised thirty-two planning agreements, the government signed exactly one, with Chrysler UK, and that only when Chrysler tottered on the brink of bankruptcy, its Scottish factory occupied by workers demanding the nationalization of the company. The government doled out some £40 million of taxpayers' money; two years later Chrysler broke the agreement and sold out to Peugeot-Citroën.
But what if Labour hadn't retreated? The most probable scenario would have been a repetition of the demise of the Popular Unity government of Salvador Allende in Chile. Indeed, Holland and Hodgson have both referred to this experience in defending their policies. Granted, it is dangerous to push an analogy with a dependent and relatively backward economy too far. In particular, it would be wrong to assume that the economy of an imperialist country stands in the same relation to the world market as that of a country like Chile. But the Allende experience does sharply illustrate the equivocal consequence of expansionist state intervention, when it conflicts with capitalist interests.
In its composition and policy the Allende coalition was a Popular Front. Despite this, it embarked on a series of radical capitalist reforms unacceptable to Chilean capital. Popular Unity, unlike the classical European Popular Fronts of the 1930s, defined itself as an instrument of struggle against imperialism and not fascism. Its programme included measures like the nationalization of the copper industry, which the petty bourgeois parties saw as anti-imperialist rather than anti-capitalist. Its practical policy therefore bore many similarities to an AES programme. The aim was to carry out profound reforms within the framework of a mixed economy, directed against the large and privileged sectors of capital, especially international capital. The poor and exploited of Chile were to be the social base for a battle against imperialism, which would also face the wrath of 'anti-imperialist' capital. A broad redistribution of income was to be combined with a policy of full employment, expansion of the public sector, and a 'popular democracy' that would remain constitutional, that would not challenge the state.
There can be no doubt that Popular Unity scored major successes during its first year. It established nearly full employment, a spectacular achievement for a dependent economy. Personal consumption rose 12 per cent, and production increased in nearly all sectors. Popular satisfaction was expressed in the March 1971 municipal elections, when the left won an absolute majority of the votes cast.
But behind these successes, the basic problem of investment remained unsolved. Gross domestic investment fell by 7 per cent during the same year, and this minimizes the real drop in productive investment, because it includes the large government construction programmes. Foreign investment fell drastically. Capital movements shifted even more dramatically: a net inflow of $149 million became a net outflow of $103 million. The balance of payments moved from $91 million positive to a deficit of $315 million.
By mid-1972 production began to decline; it then fell more or less continuously until the coup. A second problem was the way in which nationalization was carried out. It could not be legislated easily because the Congress and Senate were dominated by the opposition. Popular Unity lawyers therefore dug up Law 520, which had been put on the books in 1932 and never repealed. It entitled the government to intervene directly in industries that failed to meet any of a number of conditions, such as the maintenance of normal production; companies that held back supplies, engaged in profiteering, or simply provoked labour disputes could be 'intervened'.
The Chilean workers made full use of this potentially superb law. Typically, they would occupy a factory, demand state intervention, and often restart production under their own control. The government would send along an official, the 'intervenor', who more often than not would simply recommend nationalization. In May 1971 workers seized fourteen textile mills at once, which were then requisitioned to maintain production. In the same month they seized a Ford motor plant, which was then nationalized and reopened under an agreement that Fiat would operate it to produce trucks. Later, in 1972 and 1973, the workers responded to bosses' strikes and an attempted coup by wholesale factory seizures, taking Law 520 to its logical conclusion under conditions in which the whole bourgeoisie was trying to sabotage the economy.
But the government saw the law quite differently, as a technical device for legal arguments with the bourgeoisie within the confines of the state. It relied on the dubious bureaucracy instead of the workers, and found itself embroiled in hopelessly complex legal battles. The government was fighting on the bosses' own ground, and it lost time and again. On several occasions the bosses trumped the government with the shadowy Controller General, whose constitutional function was to decide whether presidential decisions were legal; he outlawed many nationalizations. The result was that by the end of the first eighteen months the government controlled only 20 per cent of production and could not plan at all effectively. It was powerless to stop the drying up of productive investment.
The administrative structure of industry was a perfect Chilean reflection of the Bennites' proposals, containing five state representatives, five workers, and a president. The workers were unable to exercise effective control, and the state bureaucracy was perfectly placed to sabotage or confound any attempts at planning. Christian Democracy, suddenly discovering a new enthusiasm for the right to work, put a law through parliament making it illegal to sack any state official. A mountainous bureaucracy, grossly inefficient, thus arose and discredited nationalization and socialism, particularly amongst the middle classes.
The third problem was inflation. Price controls kept this within bounds for a time. But government policy created an inflationary climate — an excess of monetarily effective demand, with no expansion of production to match. Shortages and a black market arose, and the problem was compounded by the government's determination to compensate owners of nationalized firms, which required the printing of new money, again creating more monetarily effective demand without a commensurate boost in supply.
Price controls constantly eroded profit margins, thus further decreasing the incentive to invest. Eventually galloping inflation burst out. By 1973 Chile earned the dubious distinction of sporting the world's highest inflation rate.
What caused the crisis
Apologists for the coup tend to present Chile's crisis as the result of bad economic management. This is true only in the sense that Allende refused to take the obvious step, recommended by Vuscovic, his own economics minister, of handing the economy over to the workers and abolishing capitalist ownership of production altogether. But this was a political decision, not 'bad economic management' (Vuscovic was sacked in 1972.)
The Communist Party and sections of the Socialist Party, on the other hand, have placed all the emphasis on conscious sabotage of the economy, particularly by the CIA, which spent $8 million trying to destabilize the economy. But Western governments spent far more than that trying to 'destabilize' the fledgling governments of Russia and China after their revolutions, not to mention the wholesale internal and external sabotage of the Cuban economy. What accounts for their success in Chile? And was the American intervention the only reason for the crisis?
The truth is that the American intervention worked only because the political decisions taken by the government created the soil in which the counter-revolution could take root. A far more accurate explanation is to say that the whole of capitalist society spontaneously, profoundly, and thoroughly rejected the reforms Allende was trying to carry out. The economic class conflict erupted into an open political struggle between the ruling class and the working class. Ultimately, the issue could be settled only by the victory of one class or the other. The question of power rapidly became the central issue.
The greatest tragedy is that the Chilean working class itself was forging an alternative. Every stroke of the capitalist was met by a counterstroke by the workers until the very end. When shortages became widespread, the workers used the state rationing committees to take over distribution of food and other necessities. When sabotage of production began, they set up workers' committees and fought to take over production. When sabotage became widespread, and was co-ordinated through the lorry-drivers' strike, the workers responded by building a network of popular committees — the cordones industriales — that laid the basis for a genuine alternative administration for the country. They answered the first, abortive coup, early in 1973, with the wholesale occupation of production. A million workers paraded before the presidential palace, demanding people's power.
At every stage, Allende responded by trying to compromise with the army and the employers. He repeatedly tried to persuade or even force, workers to surrender occupied factories, and peasants were evicted from land they had seized. Instead of relying on the workers to break the lorry-drivers' strike, he called out the army. Faced with the spread of fascist and capitalist sabotage, he brought generals into his cabinet — the very generals who later proved to have been the vanguard of the destabilization campaign. Most disastrous of all, when workers began arming themselves after the first, attempted coup, he introduced the notorious 'arms law', which gave the army full authority to search out weapons. The theory was that the army would disarm both the fascist gangs and the 'leftist extremists'. In reality the former were left intact — or even supplied with weapons — whilst working-class districts were systematically raided and terrorized.
The revolutionary left is often challenged to produce its alternative to the AES. Our reply is that the Chilean working class itself produced the alternative, just as the Paris Commune did in 1871, the Russian workers in 1917, the German workers in 1919, the Italians in 1920, the Catalans in 1936. The alternative exists. The question is whether or not to embrace it.
Stripped of all its pretensions, this is what the AES really is. Now, if workers could run the country with the agreement of the capitalists, it would be excellent. But this has never happened, and it will not happen. A strategy for socialism must therefore deal with the opposition of the capitalists. In practice, the AES would lead either to a government retreat before the bosses or to the very situation it is designed to avoid — an open struggle for power between the two main classes.
Holland might object — and Hodgson does — that revolutionaries should not oppose anything that will lead to a struggle for power. But our objections lie not in the fact that the AES will lead to a struggle for power, but in that it does not prepare or even force, workers to win that struggle. It is based on the principle that the workers should not take power, should not attack the state, should not expropriate the capitalists. There is nothing realistic about this.
We should, of course, support the AES against the right's policies, provided it is put forward for action, and not as an alternative to action. As a government policy it would introduce reforms that would benefit workers and hurt capitalists. It should thus be backed, like any other reform that benefits the working class. But it is not a strategy for socialism. The fewer illusions the workers have on this matter, the more likely they are to follow an effective alternative course, and the better equipped they will be to cope if the AES is implemented by a misguided left government. But honest socialists should harbour no false hopes about the AES's chances of success in the long run. Instead they should explain very clearly that the capitalists will sabotage it, and that the only way to meet this sabotage is to prepare to dismantle the ultimate sources of capitalist power: the state and private property.
Our basic criticism of the AES is that it disarms the working class. Our criticisms have little in common with those traditionally advanced against it. Critics such as Andrew Glyn, for example, have emphasized the failure of AES to insist on public ownership. (Tribune's Alternative Strategy, Militant pamphlet, 1976). They place themselves on the firm ground of the postwar left-right debate in the party.
There are some good reasons for their attitude. In past Party struggles retreats on public ownership have always accompanied shifts to the right. Indeed, there is a certain historic irony in the present debate, in the light of claims that a new breakthrough in undogmatic thinking has been made.
In 1944, when the Labour government was up to its neck in coalition, the NEC Executive opposed public ownership in its preparation for postwar elections. It argued for the 'transfer to the State of the power to direct the policy of our main industries, services and financial institutions'. The state should 'control the Bank of England, and the lending policy of the joint stock banks, and set up a National Investment Board'; finally, it should 'control the location of industry'. (Miliband, Parliamentary Socialism, pp. 276-7, emphasis added.) In contrast to this modern and undogmatic policy, the well-known dogmatic sectarians of the TGWU demanded that 'all vital services, Land, Banking, Coal and Power, Steel, Chemicals, and Transport (including Road, Rail, Shipping and Civil Aviation) shall be brought under a system of public ownership and control'. (Ibid., p. 278.)
The AES therefore lies squarely in the tradition of the postwar Labour right. Its supporters stand on the left of the party only because the right has moved to even worse extremes.
AES supporters reply to this criticism in two ways. First, they point out, quite correctly, that the Russian revolution left large sectors of industry in private hands until 1929, and even restored a limited market during the NEP in the early twenties. Sweeping nationalization is not necessarily the first task of a new workers' power — workers' control is far more important in the short run. Why make such a shibboleth of public ownership?
Second, they point out that nationalization is unpopular precisely because it is implemented bureaucratically and limited to declining or service industries. The 'traditional' left seems to defend a socialist ideal that workers visualize as a cross between British Leyland, the National Health Service, and the Kremlin on one of Brezhnev's off days.
We can add a third point of our own, one Hodgson also makes. In practice, the 'blood and thunder' of the old Tribunite left did not stop Foot and company marching into the lobbies for wage cuts and the death of the welfare state. Militant does not in practice propose a fighting alternative to the AES.
Our view is that criticism must focus on three more fundamental weaknesses, of which confusion and hesitation on public ownership is only a symptom.
First, like all Social Democrats, AES supporters insist on using the capitalist state. Second, their strategy completely fails to understand the significance of a struggle against British imperialism and all the social privileges and classes linked to Britain's imperialist role. Third, in practice the strategy depends on the goodwill of the capitalists.
The state
As we have seen, Holland wants to use the state to 'discipline' capital in its own best interests. Much of his argument rests not on any proof that this can be done, but on rejection of the alternative: that the workers should take power into their own hands. He states his case in a chapter of The Socialist Challenge entitled 'Against Violence'. Revolution, he claims, leads to absolutism and the loss of civil liberty.
Moreover, violent insurrection has succeeded only in Eastern Europe and Asia, and is not suited to Western conditions: 'The most effective answer to the case for violent transformation of capitalist society lies in the fact that a violent overthrow of capitalism may in some countries be the only means of progress, but in others is simply a painful means of changing the form of exploitation ....
'But there are further arguments against violent revolution. One of the most important is the failure of such attempts at armed uprising in Western Europe in the twentieth century.' (The Socialist Challenge, pp. 162-163.)
This polemic against violence neatly ducks the real dilemma Holland faces. Democracy is more than just 'involvement', 'opening doors', or even civil liberties. Properly speaking, democracy — the rule of the people — does not exist unless the majority of the people have the right to decide what society is to do, on all the crucial issues that face them.
But the right to decide must be real, and not merely formal. The majority has to be able to implement its decisions. The bourgeois state administration is, and always has been, the central obstacle to genuine workers' democracy, in both autocratic and bourgeois-democratic countries. It is a hierarchic and non-elected body whose ruling members draw their privileges from the monopoly of executive power they hold in trust from the ruling class. Using this monopoly, the state always usurps decision-making power. It is the Civil Service, and not Parliament, that dictates the most important government decisions. The police, the army, and the courts command the coercive power to ensure that these decisions are carried through.
Real power lies in the hands of the majority of society only when executive power is held by the workers themselves. But this is possible only if the old bourgeois state bureaucracy is dismantled, and if the means of administration and coercion cease to be the monopoly of a privileged professional caste. This is why the mass of workers must really enter into the process of government, which means not simply passing laws but carrying them out as well.
But Benn and Holland's entire approach to workers' democracy is built on the premise that the state must retain its monopoly of administration. This leads them to abandon any real project for workers' control, and to entrust the state executive with the job of carrying out the government's economic strategy. They reduce the working class to a cheerleader that can only encourage the home team, throw toilet rolls at the other side, or shout foul at the referee. But the referee is the away side, and the home team has been nobbled. The only way out is for the workers to take to the field and run the game themselves.
AES supporters tend to overlook the fact that the state is actually very unpopular. It is a bloated, hierarchic, and bureaucratic machine whose role is to suppress and regiment workers — not only through its bodies of armed men, but also through countless petty acts of authority at schools, dole offices, public service counters, and even hospitals. It is run by arrogant mandarins drawn from top ruling-class circles and exudes an atmosphere of petty officialdom. It defends the rich against the poor. Far from generating working-class enthusiasm, making use of the state is far more likely to demoralize and divide workers who want to take their future into their own hands.
Indeed, it is just this sentiment that lies behind the unpopularity of 'dogmatic nationalization', which is why Thatcher made such mileage with her calls for tax and spending cuts. Tom Forester makes the final, ironic judgement when he writes that Labour's industrial strategy came to be seen 'simply as the old leftwing "nationalization" campaign writ anew.' (What Went Wrong, p. 89.) State intervention, and not so much nationalization, is the millstone around Labour's neck; it is the central barrier between the workers and workers' democracy.
But the most damning objection is that the state is the instrument of the capitalists. It has played an even remotely autonomous role only when the working class was thoroughly smashed, as in Germany under Hitler, and then only because the capitalists were compelled to pay this price to extract themselves from the mess they were in. At all other times the interests of the state are tightly linked to those of capital, for running the country is a closed, hierarchical profession. The top civil servants, carefully screened by the institutions of the ruling class, hold the careers of their subordinates hostage. Their privileges and livelihood are bound up with preserving their monopoly of administration. They can hardly make a move without recourse to the country's money-lenders. They see every challenge to smooth capitalist functioning or to their divine right to administer as a slight and a threat to be put down by any means necessary. This is not an article of Marxist dogma, but a plain fact freely admitted by the Labour left themselves, now that their noses have been well and truly rubbed in it.
Imperialism and internationalism
The second problem lies with the international aspects of the AES. Holland himself does not advocate import controls, and has elaborated a quite sophisticated scheme of international labour solidarity for defending the AES against 'foreign sabotage' of 'national sovereignty'. But despite his odd description of this process as 'building socialism in one country', what he actually proposes is to rebuild capitalism in one country. Britain will 'go it alone' against all capital, and all its shibboleths, by overcoming all the historic weaknesses of its own capitalists — their refusal to invest in domestic industry, rejection of new technology, and so on. He shares the vision of other AES supporters who gaze longingly at countries like Germany and Japan, whose 'economic miracles' were based on a major national reconstruction after the war.
Let us leave aside the fact that Holland confuses genuine socialist national sovereignty (the self-determination of a people, which is possible only through popular sovereignty) with the 'sovereignty' of state and Parliament. Even so, he utterly fails to understand that the obstacle to national and popular sovereignty is private capital, and not just multinational private capital. As long as the capitalists of a country have the right to say what goods, and titles to resources will be [illegible], where, the people of that country cannot truly control their destiny. This is the central political reason why nationalization is forced on any government that challenges international capital. Only when it has secured full control of all capital — which requires expropriation of the capitalists — can any government hope to initiate a serious national plan.
In any transitional period of workers' control, it is only if the workers have the right to enforce the nationalization of an enterprise violating the public interest that the capitalists will be compelled to accept that they have no chance of recovering control or cutting their losses by means of capital transfers.
Equally misguided is the notion that the British capitalist class can somehow be induced to participate in a process of national reconstruction. In the last analysis the British capitalist class is part of international capital and will choose to flee to its foreign boltholes before it will let workers anywhere near its property.
Holland forgets that even if a course of action is logical for capital, it does not mean that capital can take it. The conflict between the interests of individual capitalists and those of capital as a whole often prevents resolution of capitalist crises by any but the most violent means.
In the particular case of Britain, the [illegible] capitalist class is wedded to imperialism. The network of bankers, financiers, colonialists, foreign investors and entrepreneurs — reinforced by big British MNC directors and shareholders — is the backbone of public life: Whitehall, the Tory Party, and the boardrooms. Even when it hurts, the remaining capitalists will not break with them, because the cost of the break would be far greater than the price of submission. It is only the strength of these layers of the ruling class, and the effectiveness of their government machine, that can account for the seemingly illogical features of British political life. For example, [what] bourgeois logic lies behind the tenacious war in Ireland? Why should such an anachronism as the Queen provoke such universal outbursts of chauvinism and jingoism? Why is it that the Lords not only continue to pass judgement over the 'mother of parliaments', but had their [way in defiance of the] government of a party that voted 6,248,000 to 91,000 to abolish the institution and to organize a 'great campaign through the country'; why was the economy forced, against all logic, onto the gold standard in 1924; why are interest rates now running at rates freely admitted to be ruinous to whole sections of the industrial bourgeoisie; and why is it that in its hour of greatest economic crisis, the bourgeoisie wheels out a government dedicated to restoring the City of London, restoring imperial glory, restoring foreign investors to the economic throne?
The reasons are transparent. The City of London is the only thing that stands between the British economy and capitalist international bankruptcy. Trade in manufactures has long ceased to pay the import bill. The conquest of Zimbabwe for London investors was a rich plum indeed. And what industrialist would not think twice about fighting the system that was able to promote Michael Edwardes from the heartland of apartheid to the management of a nationalized car company, and under a Labour government yet?
Germany and Japan are in no sense living proof of the utility of AES. Their ruling classes had no choice, because their military-imperialist might had been smashed by the combined onslaught of the other world powers.
Social Democrats often protest that they are opposed to the dominance of the British military-imperialist tradition. The facts show otherwise. From Singapore to Sandy Row, from Delhi to Durban, there is not a people in the world who can thank Labour for anything but the odd kind word years too late. In the whole of Holland's works there is not a mention of Ireland or Zimbabwe. Denouncing the House of Lords is now an annual ritual that has lost all practical meaning, for a very good reason. Once inside the corridors of power, generations of Labour leaders have been taught which goose lays the golden eggs.
Let us be absolutely clear: to take on international capital, we start with our own capitalist class, and all the rot of ages that surrounds it.
Capitalist goodwill and workers' control
This brings us to the problem of capitalist goodwill. Holland assumes that there is a solution to capitalism's problems that the capitalists themselves cannot carry out. The brilliance of Keynes, he says, was to show how workers could meet their own needs within a system under which 'capitalism could really come into its own'. This exercise must be repeated. The workers will become a decisive factor in the running of the economy without actually owning it. They will come to manage capitalism better than the capitalists. The crisis of capitalism will be solved by the workers, who will be able to dictate the terms of the solution to their own advantage. Better still, they can win the confidence of the nation in their ability to [move towards] an eventual fully socialist society.
But if the capitalists refuse to let the workers play this role, Holland has no real [answer]. Workers' democracy will enforce planning agreements; workers' democracy will be set up ... by planning agreements. Holland's greatest threat is that the government will 'decisively characterize' firms if they reject workers' democracy. He is therefore forced to fall back on the argument that capitalists will be worse off if they reject planning agreements, and better off if they accept them.
The argument is weak. His whole case ultimately depends on whether there is a capitalist solution to the crisis that allows for working-class advance. If there is not, why should any firm benefit from a planning agreement? Worse still, what is to stop firms behaving like Chrysler UK, using the threat of withdrawal to dictate their own terms to the government before signing an agreement? Chrysler screwed £37 million of taxpayers' money from the government and sold out to Peugeot two years later. With no effective means of coercion, firms will dictate to the government, and not vice versa. But Holland renounces the only effective means of coercion — the organized power of the workers' movement — because he rejects the idea of any challenge to the state.
Reliance on the state and on capitalist goodwill is not abstract. The AES proposals make a series of concessions the effect of which is to negate the stated aims of the strategy. In practice they posit neither genuine workers' democracy, nor genuine workers' control, nor genuine planning. Why, for example, why should planning agreements be voluntary? Why should capitalists not be obliged to conform? And why should management be left 'free to initiate its own programmes'? Why should planning not be 'wholly imperative'?
Second, why is Holland concerned about 'legitimate state security' and 'commercial security'? These twin catch-phrases are the traditional excuse for barring workers from any worth-while information. What was the ABC trial wrapped in? 'State security'. What is the prime reason for keeping redundancy plans secret? 'Commercial security'. The entire apparatus of capitalist deception is built round these two little phrases.
But AES concessions are most glaring in the proposals for running enterprises that do sign planning agreements. The classical, Bennite idea is to run these firms by tripartite boards representing workers, government, and management. There are about 18 million active workers in Britain, about 300,000 high-level managers, and perhaps 16,000 top state officials. The average firm has about sixty times as many workers as managers. Where is the democracy in giving mere equal representation? This interpretation proposal reaches the acme of absurdity in the case of the nationalized industries, where [the] formula still applies; these are to be re-[organized in the same way].
Many socialists have come to question the record of the Labour left, especially after its dismal showing under the 1974-79 government. We agree with Holland that this showing was the result of errors of strategy, and not merely personal weakness. But I have tried to demonstrate here that similar errors of strategy run right through the AES itself.
AES theorists have replied that there is no alternative to their strategy, and that the far left has no developed strategy of its own. At least, they maintain, the AES has reawakened interest in planning and workers' control, exactly because it places these demands in the context of a realistic strategy.
We do not deny the need to fight for workers' control and planning. On the contrary, the revival of interest in these two demands amongst stewards and ordinary workers is a healthy and welcome response to the crisis of perspectives in the labour movement. But this interest can unfold in two different directions. It can be sidetracked into the old impasse of compromise, half-measures, demoralization, and defeat. Or it can become the basis for a genuine socialist revival, and an understanding that these things can be won only through the struggle of the workers, in the teeth of capitalist and state opposition. Our sights must be set on nothing short of a democratic state of workers' councils through which the ordinary people of this country will at last take their destiny in their own hands.