From Socialist Worker Review, No.133, July 1990, p.9.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
WRITERS IN the posh papers were besides themselves with indignation early last month. A survey showed that three-quarters of academic economists were critical of the ‘free market’ policies followed by the Thatcher government and now so popular in Eastern Europe.
A typical reaction was that of Michael Prowse in the Financial Times. He saw the survey as a damning indictment of the way economics is taught: ‘it becomes possible to be a proficient technical economist and yet be wholly opposed to the practical application of market forces.’ This, ‘leads to paradoxes such as the lecturer who grinds away all day at equations that flow, ultimately, from Adam Smith yet happily spends his evenings selling Socialist Worker.’ The same indignation was contained in a report by Sir William Ryrie, head of the International Finance Corporation. After noting that ‘living standards fell by an average of 1.2 percent annually in sub-Saharan Africa between 1980 and 1988’ he blamed the tendency of their governments to intervene in the economy.
He was resorting to a long established technique on the part of those enamoured by the market: to blame everything which goes wrong with capitalism on ‘interference’ with its workings by the state.
But occasionally they let slip some comment which gives their whole game away.
Prowse’s article appeared as the news broke of the sudden and unexpected collapse of the financial group British and Commonwealth Holdings. Later that week Coloroll – run by ‘Mrs Thatcher’s favourite businessman’ – went bust.
The same papers which had condemned the economists were forced to comment on these events. The Independent said:
‘The principal message must surely be that excessive expansion of the economy ... causes structural damage to companies by giving the wrong economic signals; it makes them, or at least some of them, behave in a self destructive way.’
‘Excessive expansion’ is what economists usually refer to as ‘the boom’, something that has plagued industrial capitalism at recurrent intervals throughout its history. And, invariably, it has given rise to pressures which, if unchecked, lead to a recession or a slump.
The alternation of booms and slumps is no accident. Under a ‘free market’ system there is no control over what individual firms do except their own need to make profits. When it seems that such profits can easily be made they will all expand their output as rapidly as possible by buying up raw materials, taking on new labour and borrowing as much as they can from each other. The whole system expands at breakneck speed as the prices system sends ‘signals’ to firms to make money while the going is good.
But all the time the very frenzy of the boom hides imbalances within it. Price rises tell individual firms that there are shortages of particular goods at any particular moment in time. They do not, and cannot, tell whether such shortages will still exist once rival firms have built up vast new production facilities in competition with each other to provide these goods.
They cannot stop all these new goods coming onto the market at once, forcing down prices and suddenly making production unprofitable. They cannot prevent banks which lend enormous sums to firms producing the goods that were rising in price suddenly finding the firms cannot pay back these sums.
The enthusiasts for the market would have us believe that it serves to maintain a stable balance between supply and demand, between output and human need. In fact, it leads to repeated imbalances between them which are only restored when vast firms, employing many thousands of people, are thrown out of business.
Those who run chunks of the system know they will get hurt if this happens, and so try to protect themselves by impeding the operation of market forces – by trying to reduce ‘excessive competition.’
Firms try to build up a monopoly position, in which they are not subject to real competition from other firms in key markets. And if they cannot do so simply by relying on their own strength, they will turn to the state for help. Monopolisation and state intervention may contradict pure market principles, but they are themselves a reaction by parts of the system to the chaos created by competition. They enable some parts of the system to gain at the expense of other parts.
A graphic example of how this happens is provided by a study in of all places the International Monetary Fund publication Finance and Development. This shows how giant Western firms have been able over a 25 year period to charge African countries 24 percent above the usual price for iron and steel. They have been helped in this by the way Western governments tie ‘aid’ to expenditure on the products of their own industries.
The cumulative cost to the African countries of this excessive pricing, exceeds their total long term debt. And interest payments on the debt are directly to blame for falling African living standards.
State intervention is often seen as intrinsically left wing. But there is nothing left wing about intervention by a capitalist state to help some capitalists survive the crisis of their system at the expense of other capitalists – and still less at the expense of the mass of the people of some foreign country.
That is why the great majority of the economists who distrust pure market forces are never going to sell Socialist Worker. They are distrustful of Thatcherism because they have a dim awareness that the present system needs the state if it is not going to be wrecked by its own inbuilt destructiveness.
Today such ideas have fallen from favour because they cannot steer the system away from crisis. But the failure of state capitalist methods does not mean that the system will prosper without such methods. It shows that what we really need is a new and completely different system.
Last updated on 29 May 2010