Real problems of socialism and some answers

In the post Soviet Period the left lost confidence in socialism. This was partly a response to the immediate situation, but partly a realisation that socialist economies had real problems. Since socialists themselves had not come up with any real answers to these problems, and Western socialists never went beyond platitudes here, the arguments of Friedman and Hayek seemed to gain credibility. I will look at some of these real problems and what the potential solutions are.

 Coordination

The main criticism levelled at the socialist economies was that a planned economy was inherently less efficient than a market one, due to the sheer scale of the bureaucratic task involved with planning a major economy. If there are hundreds of thousands, or perhaps millions, of distinct products, no central planning authority could hope to keep track of them all. Instead they were forced to set gross targets for the outputs of different industries. For some industries like gas or electric power, this was not a problem. Electricity and gas are undifferentiated, a kilowatt is a kilowatt – no argument. But even for another bulk industry like steel, there was a wide variety of different rolled plate and bars, different grades of steel with different tensile strength etc. If the planners could not keep track of all these different varieties and just set rolling mills targets in tons, the mills would maximize their tonnage of whatever variety was easiest to produce.

The steel example is a little forced, that degree of differentiation was still fairly readily handled by conventional administrative means. Tonnage targets could still be set in terms of distinct types of steel. But when you turn to consumer goods: clothes, crockery etc the range of products was too big and targets were started to be set in terms of monetary output.

The plan would specify a growth in the value of output of clothing, furniture etc. What this translated into then depended on the price structure. In order to prevent other forms of gaming the plan by enterprises it was important the the prices were economically realistic. If the price for chairs is set too high compared to tables, it becomes rational for factories to concentrate on chair production.

By resorting to monetary targets, the socialist economies were already conceding part of Mises’s argument. They were resorting to the monetary calculation that he had declared to be vital to any economic rationality. Liberal economists argue that it was impossible for planners to come up with a rational set of prices, only the competitive market could do so. Planning required aggregation. Aggregation implied monetary targets. Monetary targets required rational prices. Rational prices required the market. But if you had the market you could dispense with planning. Planning dialectically implied the super-cession of planning.

It is worth noting that this is a largely theoretical argument. It was, in late Soviet days backed up with lots of anecdotal evidence, but empirical evidence for the greater macro-economic efficiency of markets even when compared to classical Soviet planning is much thinner on the ground. As Allen, [2003] shows, the only capitalist economy whose long term growth rate exceeded that of the USSR was Japan, whose own model was some way from unplanned capitalism. Compared to other countries starting out at the same economic level in the 1920s, the USSR grew considerably faster. One could argue that this was due to marcro-economic advantages of planning: that, by removing uncertainty about future market demand, it encouraged a higher level of investment. It is possible that this macro-economic advantage outweighed any micro-economic inefficiency associated with plans.

The strongest evidence that markets may perform better than plans would come from China, and that certainly the orthodox Chinese view. Their claim is that a socialist market economy avoids the macro-economic instability of capitalism whilst harnessing the micro-economic efficiency of the market. As evidence they cite a higher rate of growth after Deng’s restructuring. But China since Deng has followed a mercantilist road. It has the effect of relatively beggaring the workers of China whose products are exported to the US in return for US paper. The latter is of no benefit for the Chinese workers, though it does enable private Chinese companies to buy up assets in the US. From the standpoint of the Chinese state it is a more nuanced issue. On the one hand Chinese state companies too, can buy up overseas firms, but whether this is a long term advantage is a moot point since real goods which could have been used to improve the Chinese economy and living standards have been sacrificed.

Historically the process of having an export led economy allowed China to avoid the technology bans that the West imposed on the USSR, allowing rapid catch-up in manufacturing techniques. Now that China is overtaking the US in some areas of mass production, that advantage is less clear, and a shift towards higher domestic consumption and higher wages makes sense, and is indeed being followed in China unlike Germany. It could be that the growth advantage that China experienced post-Deng owed a lot to a new ability to import the latest productive techniques instead of micro-economic efficiency. But what is abundantly clear is that the pro-market restructuring had the effect of drastically widening economic inequalities and giving rise to a new domestic billionaire class. This in turn produces political pressure to extend private ownership and undermine the still dominant position of state industry.

So the question arises, could a planning system work in a modern economy with a highly diversified product range, and how would it overcome the socialist calculation argument of Mises. I and others have since the late 80s1 been arguing that the answer is yes.

The Mises critique of socialism focused on the need to compare the costs of alternative ways of making things. Unless you can do that you can not chose the most efficient. Our response has been not only that labour time in principle an alternative, which Mises conceded, but that with modern computer technology it is perfectly possible to maintain up to date figures for the labour cost of each input to the production process. Using these, workplaces will have data that are as good as prices for choosing between techniques.

There are limitations to labour values as there are to any scalar measure like price, since the constraints on production are multifactorial. Not only labour power, but also natural resources and ecological considerations constrain what we can make. No single scalar measure can handle this. But the problem of how to deal with multiple constraints like this was already solved by socialist economics way back in the 30s. Kantorovich came up with a completely general technique for how to meet a socialist plan subject to constraints additional to labour time2. Kantorovich’s method is an form of calculation in-kind, ie non-monetary. It was not practical to use it at the level of the whole Soviet economy during his lifetime as the computing resources were too poor, but by the 1990s computers were up to the job. You can get a good lay-person’s introduction to it in the novel Red Plenty by Francis Spufford.

So the basic problem of socialist economic calculation without money had been solved since Mises wrote. It was impractical in the USSR for two reasons: a) the computer technology was not there; b) it would have involved replacing money calculation and payment with non transferable labour accounts. This would have been a radical step towards greater social equality.

Equality

Labour time accounting demystifies or de-fetishizes social relations. Rather than relations appearing to be between people and an objective `thing’ called money, they make it evident that what is involved are people’s lives. If I get with 1 hour of social credit for each hour I work, and can for this credit acquire goods which themselves took an hour to make, then it is clear that I am participating as an equal in social exchange. If, instead, I am only credited with 40mins time for working an hour, it is clear that there is something odd going on. If the difference is made of a 33% income tax that I had a chance to vote on, that is one thing. If instead I see that someone else is getting credited with more than an hour for each hour that they work, I am going to be asking some hard questions.

Labour time accounting has a presumption of equality and equity. If one person gets credited more than they actually work, the a-priori implication is that there is something dodgy about it. Its adoption would thus involve a big pressure towards levelling. Levelling between different categories of work, and levelling between men and women. It of course eliminates completely the possibility of unearned capital income. It makes the moral presumption that labour is the only legitimate source of income. Any other income, to the old, the sick, to families with children has to be an explicit voluntary deduction from the incomes of those who work.

The significance of labour tokens is that they establish the obligation on all to work by abolishing unearned incomes; they make the economic relations between people transparently obvious; and they are egalitarian, ensuring that all labour is counted as equal. It is the last point that ensured that they were never adopted under the bureaucratic state socialisms of the twentieth century. What ruler or manager was willing to see his work as equal to that of a mere labourer?

There is nothing terribly original in this scheme: set out briefly here, but in much more detail in our other articles. It is simply a detailed and literal elaboration of the proposals Marx made in his comments on the draft of the 1875 program of the German Socialists.

The assumption is that people would have electronic labour credit cards whose credits could only be cancelled out not circulated3. You could not pay credits into somebody else’s account but you could get things form communal stores. This completely eliminates the possibility of a black market.

It is absolutely essential that distribution labour values of goods be realistic. A socialist government must avoid the temptation to undervalue necessities in the communal stores. If they are undervalued, there will be excess purchasing power in terms of labour credits. If bread used 300 million person hours to make but was sold for 100 million hours, an excess of 200 million credits would have been issued to the bakers, millers, farmers etc. Such undervaluation, we know from bitter experience, just leads to queues and apparent shortages.

If prices are equal to labour content, then deviations of sales from actual production can be used to adjust plan targets on a real time basis, reallocating labour from products whose demand falls short of production to those that are selling out.

Deviations from of distribution price from labour content would, however, still occur in a planned economy for environmental reasons. If the planning system had a constraint that total production of fossil fuel had to decline by 2% a year, then the planning authorities would be forced either to raise the distribution price of fuel above its labour content, or to ration petrol. If petrol was distributed at a premium, goods which did not contain fossil fuels would have to be distributed to consumers at a discount. There might be a case for the environmental premiums or discounts being displayed on the label.

Free communist distribution of goods and services is only viable for those goods or services for which certain special conditions are met:

  1. The actual allocation can be rationed by deliberate decisions or by queues – this is how the NHS is able to function. You can get free treatment but only if a doctor decides you need it, and you are willing to wait your turn. This rules out, for example, resources being wasted on penis or breast enlargement surgery.
  2. Where the actual usage is easily pre-calculable. We know that demand for primary schooling is set by the number of children reaching school age. Making schools free increased demand up to this limit and no further.
  3. The resources being used would otherwise go to waste. Examples are the free district heating provided in the USSR from waste heat of power stations; providing free travel to pensioners outside of rush hours; free use of Internet once the basic infrastructure has been installed.

Surplus

Socialist planned economy has a distinct form of surplus extraction. The magnitude of the surplus is determined by the planned allocation of labour between that devoted to the reproduction of the working population versus other activities. This is the inverse of the mechanism that operates under capitalism where the monetary division of the value added between wages and profits comes first. In a capitalist economy the allocation of labour between reproduction and other activities occurs as a second order effect when the wages and profits are spent. In a socialist economy it is the allocation of labour that comes first.

If the socialist country retains money, but delivers many services free, has to balance the monetary demand in the hands of workers from their wages with the amount of social labour going into consumer commodities. Since a part of the social working day had been allocated to producing free goods and services, and another part to the accumulation of new buildings, infrastructure and machinery, the disposable income of the working class had to be limited to the money equivalent of the number of hours spent making consumer commodities.

There are a number of ways this could in principle be done:

  1. By selling consumer goods at a mark-up or profit. This profit, since it accrues to state factories, can then become government revenue and be used to fund free services, accumulation etc. In the USSR this was formalized as a turnover tax levied on all government factories.
  2. By levying a sales tax, ie, one that is raised as a percentage of the selling price like VAT4. Both this and the turnover tax are indirect taxation, they differ in where they are collected: at production or at sale.
  3. By levying an income tax or poll tax on employees. This was the consistent policy advocated by Marx5.

I think that there are strong arguments to favour the last option. It may initially have been politically popular to claim that under socialism there was no need for income tax, but that is dishonest, since indirect taxation remained. Wages were still held down to a level that would allow the turnover tax to fund government services, so in terms of take home pay people were no better off. A direct deduction of income tax is more visible, but the converse of that is that something visible is easier to understand, and as a result easier to make open democratic decisions about6.

But more serious than this, the policy of holding down wages and funding public services out of profits had adverse effects on economic efficiency. Suppose that 40% of labour goes on accumulation, 30% on free services and 30% on consumer goods. It follows that the wage has to be only 30% of the real value of labour. The average wage for a 40hr week would only be the monetary equivalent of 12 hours. This made labour appear to be artificially cheap. If machinery was priced at full value, a rational factory management would use 4 workers instead of one machine and 1 worker if the depreciation of the machine amounted to 40 hours a week.

Mechanized production cost mis-valued at : 40 for machine + 12 for labour = 52

Manual production cost mis-valued at : 48 for labour

but the true relative costs of the techniques are reversed

Mechanized production true value : 40 for machine + 40 direct labour = 80

Manual production cost 4 x 40 hrs = 160 hours

So a manual process that was really twice as costly to society would be preferred to a mechanized one. Use of direct labour time calculation would of course have revealed the right answer.

The Soviet solution of a turnover tax was short term populism that hampered efficiency.

References

[Allen 2003]
Robert Allen. Farm to factory: A reinterpretation of the Soviet industrial revolution. Princeton University Press, 2003.

[Cockshott and Cottrell 1989]
Paul Cockshott and Allin Cottrell. Labour value and socialist economic calculation. Economy and Society, 18 (1): 71-99, 1989.

[Cockshott and Renaud 2010]
Paul Cockshott and Karen Renaud. Extending handivote to handle digital economic decisions. In Proceedings of the 2010 ACM-BCS Visions of Computer Science Conference, page 5. British Computer Society, 2010.

[Cockshott 2006]
W Paul Cockshott. Von mises, kantorovich and in-natura calculation. Intervention. European Journal of Economics and Economic Policies, 7 (1): 167-199, 2006.

[Cockshott and Zachriah 2012]
W Paul Cockshott and D Zachriah. Arguments for socialism. 2012.

[Cockshott 2011]
William Paul Cockshott. Comments on the “China model”. International Critical Thought, 1 (2): 148-157, 2011.

[Cottrell and Cockshott 1993a]
AF Cottrell and WP Cockshott. Towards a new socialism. Spokesman Books, 1993a.

[Cottrell and Cockshott 1993b]
Allin Cottrell and W Paul Cockshott. Socialist planning after the collapse of the Soviet Union. Revue européenne des sciences sociales, pages 167-185, 1993b.

[Cottrell et al. 2009]
Allin Cottrell, WP Cockshott, and Greg Michaelson. Cantor diagononlalisation and planning. Journal of Unconventional Computing, 5 (3-4): 223-236, 2009.

[Jones et al. 1979]
Terry Jones, Graham Chapman, John Cleese, Terry Gilliam, Eric Idle, and Michael Palin. Monty Python’s life of Brian. Hand Made Films, 1979.

[Kantorovich 1960]
L.V. Kantorovich. Mathematical Methods of Organizing and Planning Production. Management Science, 6 (4): 366-422, 1960.

[Marx 1970]
K. Marx. Marginal Notes to the Programme of the German Workers’ Party [Critique of the Gotha Programme]. Marx and Engels Selected Works, 3, 1970.

[Marx and Engels 1977]
Karl Marx and Friederick Engels. Manifesto of the Communist Party, trans. S. Moore. Moscow: Progress.(First published 1848.), 1977.

[Marx and Guesde 1880]
Karl Marx and Jules Guesde. The programme of the parti ouvrier. tomado de: http://www.marxists.org/archive/marx/works/1880/05/parti-ouvrier.htm, revisado el, 2, 1880.

[Peters 2000]
A. Peters. Computersozialismus:Gespräche mit Konrad Zuse. Vaduz, 2000.

[Renaud and Cockshott 2009]
Karen Renaud and Paul Cockshott. Handivote: simple, anonymous, and auditable electronic voting. Journal of Information Technology & Politics, 6 (1): 60-80, 2009.

[Renaud and Cockshott 2007]
Karen Renaud and WP Cockshott. Electronic plebiscites. 2007.

[Surowiecki et al. 2007]
J. Surowiecki, M.P. Silverman, et al. The wisdom of crowds. American Journal of Physics, 75: 190, 2007.

Footnotes:

Cockshott and Cottrell [1989], Cottrell and Cockshott [1993b], Cottrell et al. [2009], Cottrell and Cockshott [1993a],Peters [2000].

2 The original paper was Kantorovich [1960], I explained for a modern readership how his technique worked in Cockshott [2006].
3 For a rather old fashioned idea of how this might work read Bellamy’s utopian socialist novel Looking Backward(1888). He invented the whole idea of credit cards. His cards were based on good 19th century punched card technology. You got a new card each month, and for each purchase from a social store an appropriate number of credits were punched out from your card. The store was envisaged as a cross between Argos and Amazon.
You selected goods from a catalogue at the store, and then they were delivered direct to your house by a system of pneumatic tubes.

4 Note that the EU mandated VAT is in German mehrwertsteuer, literally surplus value tax.
5 See Marx and Engels [1977], Marx [1970], Marx and Guesde [1880]
6 How to carry out such democratic budgeting is beyond the scope of this paper but is a topic of our book- Cockshott and Zachriah [2012] and of papers including Cockshott and Renaud [2010].
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What is wrong with the idea of basic income

The left movement is still stuck in a post-Soviet conjuncture. For the last 25 years it has been in an ideological hiatus, lacking any clear conception of what an actual socialist economy would be. The defeat of hitherto existing socialism in Europe obviously paralyzed the communist and social democratic parties. Each abandoned their visions of socialism and one way or another adapted to capitalism.

That fatalism seemed in the 1990s or early 2000s to have history on its side. Then came 2008, discrediting such accommodation in the eyes of a new generation. Such left revivals as have arisen since then Occupy, Podemos, Syriza the left turn in the Labour Party are, if anything, even more disoriented by the continuing post-Soviet ideological conjuncture, than the Blairites were.

Successful politics needs political economy for guidance. The old social democratic movement had Marxist economics, and then from the 40s Keynesian theory. Gordon Brown at least had his post neoclassical endogenous growth theory. What has the contemporary left got?

Academic Marxism has not been much help. Only a minority of them focus on political economy. Within that minority the focus is more on `critique’ than political economy. At best they study contemporary capitalism, but have nothing positive to say about what should replace it.

Instead we either have a series of regressions: back to Keynesianism, to a nostalgic Stalinism, or going even further back to to Trotsky, Kautsky, Marx. Even worse, we see the adoption of Hayekian doctrines like the citizen’s income.

Value form theory

I wrote earlier that academic Marxism has been of little use to the political left since it has concerned itself little with political economy. Whilst empirical economic research has been undertaken, it mainly stays at the level of interpreting the capitalist economy rather than explaining how to change it into a socialist one. If you are going to seek change, you need to study not only the institutions of capitalism but also to try and learn lessons from previous struggles to replace it. It is all well and good to have theories about capitalist price systems and the rate of profit, but if you have no theory of socialist political economy you are restricted to protest politics rather than putting forward programmes for economic change.

There is a relapse into an entirely academic ‘Marxology’, becoming expert in interpreting what Marx meant. By itself this would be a harmless, if useless, pursuit, having no more impact on politics than a life devoted to the study of Hegel or Kant. What makes it postively noxious, is that the interpretations channel as Marx by way of Hayek. The German New Marx Reading, explicitly attempts to wrench Marxist theory from its position as an ideology of the Communist movement. A key part of these positions has been a critique of what they describe as the objectivist interpretation of value, and the theory that there is a general tendency for the rate of profit to fall1. They argue that value can not exist indepently of money, that there is no value without prices, and that abstract labour is something specific to capitalist society2.

They accept on the surface, Marx’s idea that value is abstract labour time, but divorce this from the actual division of labour in production. Instead labour becomes abstract by being represented as money when a commodity is sold. In effect this removes the worker and the labour process from being the cause of value, and makes the market the cause. Abstract social labour is brought into being, in this interpretation, by the act of sale. This has certain logical consequences:

  • Labour values can never be known or determined outside of the market.
  • There is no abstract labour without a market.
  • There is therefore no abstract labour in socialist society.

This is all nice and critical, but critically it leaves value theorists theoretically defenceless if faced with the von Mises critique of socialism. He had argued that without money it was impossible to make any rational economic choices, and, in consequence a socialist economy which abolished money would degenerate into a morass of inefficiency. The only alternative to money he said, was the use of labour time, since, like money, that would allow the relative cost of two alternative ways of making something to be compared.

the labor theory of value is inherently necessary for the supporters of socialist production in a sense other than that usually intended. In the main socialist production might only appear rationally realizable, if it provided an objectively recognizable unit of value, which would permit of economic calculation in an economy where neither money nor exchange were present. And only labor can conceivably be considered as such. (von Mises, [1935] )

But labour time, Mises argued suffered from two fatal defects. On the one hand it fails to take into account natural resources, on the other it faces insuperable problems with reducing complex labour to simple labour. As such Mises rules out labour time as a basis for calculation. Let us for now ignore Mises first argument about natural resources, since we know that in practice the market economy he championed, itself leads to wholesale destruction of natural resources. If we focus on the second we see that leading value form theorists argue that only in market exchange can complex labour be reduced to simple labourHeinrich and Locascio, [2012, page 52]. So the logic of Heinrich’s position too, is that without a commodity market, there is no reduction to a single scalar measure of effort, and thus no rational economic calculation. Even the most eminent Marxist commentator implicitly lines up behind the Thatcher’s old TINA slogan ( There Is No Alternative – to the market).

Citizens income theory

Abandoning the idea of radical change in property relations, some on the left are picking up an old right wing idea that the state should pay everyone a basic survival allowance. When I was an economics student at Manchester University in the early 70s we were taught this doctrine by the monetarist Professor Laidler. The idea was popular with people like Hayek and Friedman. The argument for it was that the existing welfare state, by paying means tested benefits created a disincentive to take up low paid jobs. The answer they said, was to abolish all welfare benefits, abolish free education, and instead pay a small state stipend to everyone to enable them to survive at a bare minimum level. Parents would be given either additional cash or vouchers to pay for educating their children in privatised schools.

As far as I know, the first Marxist to endorse this approach, was another Manchester professor Dianne Elson3 (Elson, [1988,Elson, [2009]). It has subsequently been widely discussed. But from a socialist standpoint basic income is a poor policy. We will start by giving some concrete figures for what a citizen or basic income would involve today in the UK. Then we will go on to look at its effect on the class distribution of income. Finally we will contrast this neo-liberal policy to the historic aim of the socialist movement.

I make the starting assumption that the basic citizen income could not be lower than the state pension. It is proposed to abolish all other benefits including the state pension, so to prevent a deterioration in pensioners living standards this sets a floor of £150 per week. We need to work out what this would imply for tax rates.

Our initial assumption is that for a person on an average salary there should be no change to their take home pay as a result of the citizen income, that what they gained in citizen income they would pay in extra tax, whilst those on below average salary would be better off. We also assume that the threshold of £11,000 at which people start paying income tax does not change, and the £43,000 threshold at which they pay higher rate tax also stays the same.

In addition to paying income tax people have to

income tax Nat ins
First estimate Calc Calc
Average UK salary in 2016 £27,500.00
threshold £11,000.00 £8060
high rate threshold £43,000.00
Taxable £16,500.00 £19,440.00
Base rate 20% 12%
Current tax or NI paid £3,300.00 £2,332.80
Citizens income per week £150.00
per year £7,800.00
New pre tax income £35,300.00
New taxable income £24,300.00

Assume that average earner just breaks even on the citizens income. They are getting an additional £7,800 and must pay an equivalent in extra tax. We have to work out by how much the income tax rate would have to go up to take an additional £7,800 out of their new taxable pay of £24,000. They currently pay £3,300 income tax, afterwards they will have to pay £11,100.

Tax NI
Additional tax £7,800.00
Total income tax £11,100.00
New base rate of tax 46% 12%
New higher rate 66% 12%

The base rate of income tax has to go up from 20% to 46%. If we include the effect of national insurance, someone on average wages would be paying a marginal rate of income tax plus national insurance of 58%, if you add in the national average rate of occupational pension deduction of 5% you find that the marginal deduction rate on average pay would be 63%.

But what we have up to now is only a rough estimate. It is an underestimate since it fails to account for those in the working age population who are economically inactive due to child care, sickness or unemployment. I leave out pensioners here, since their £150 a week pension is already being met out of exisiting National Insurance. Currently 21.7% of working age adults are not in employment, 78.3% are in employment. So each working age adult will have to meet the citizens income of [21.7/78.3]=0.28 of an inactive person’s citizen income.

We can scale this down due to the effect of Employment Support Allowance, which is already paid to the ill or disabled, and the Job Seekers Allowance going to the unemployed. Advocates of citizen income assume that these would be abolished. So the average employed person will have to pay the difference between ESA and the new citizen income for these people.

Total employed 31500000
Total on ESA 1320000
Economically inactive 8729885
% inactive on ESA 15.12 %
% inactive who get new money 84.88 %

Adjusting for the effects of ESA and JSA gives us :

Tax NI
Inactive per worker 0.28
Fraction that is new money due to ESA 0.2352344463
which is £1,834.83
% unemployed 0.048
JSA 78
increase for each unemployed £3,744.00
Number of unemployed per employed 0.061
Cost per employed £229.52
So total additional tax £9,864.35
Total tax £13,164.35
New Tax rate 54.2% 12%
total marginal tax+ni 66.2%
Allowing for 5% occupational pension 71.2%
New upper tax rate 77.2% 12%
New upper marginal rate tax +NI 89.2%
Allowing for 5% occupational pension 94.2%

Using this we can compute the breakeven point for who will gain or loose from the scheme. Anyone with an income above £26,000 would loose.

Note that the upper deduction rate of 94% will cut in at a salary of £35,200.00. This amounts to what is effectively a confiscatory tax rate above £35K. It is clearly not worth calculating the effect of the Additional Rate which is currently at 45% on income over £150K. This would rise to 94.2% and allowing for pension deductions, deduction would be effectively 100% on salary income over £142,200. So a side effect of the citizen income is to introduce a maximum salary of around this level.

This may well be desirable on grounds of equity and social justice. It is the effects on people lower in the class structure that are more significant.

The take home pay now of a single person on average wage is £20,492. After introducing the citizen income the take home pay with citizens income and higher tax will be £17,052; clearly a substantial reduction.

A couple with both partners earning average wages would also loose out by about £6,000 a year. On the other hand, for a husband and wife in a rather traditional family arrangement, with only one partner working, there would be a £4,360 improvement in real income. It is debateable whether an income structure that incentivises women to stay at home would be a good thing.

Whilst the average wage earner will be worse off, the median wage earner will be slightly better off, by £16 a week. Recall that 50% earn below the median wage is the wage; a slight majority of wage earners would be better off.

But the political acceptability of the program is debatable. Consider pensioners first, the largest group currently relying on state benefits. The important point to recognize is the for them the citizen income simply replaces the pension on a £ for £ basis. They may well feel that having contributed National Insurance all their life, they are implicitly loosing out if every adult under retirement age gets the equivalent of their pension. It will do nothing to benefit somebody on the existing state pension, and will disadvantage all those pensioners with an occupational pension above £3,200 who will be paying the new much higher rate of income tax on their pension. Whereas a wage earner on median income £22K would be slightly better off, any pensioner whose state pension plus occupational pension was more than £11K, half median income, would be worse of. So pensioners, a group with very high voter turnout, have no reason to favor it, and a good reason to vote against it.

Next consider the impact on workers in full time employment. With a break even threshold of £26K or £500 a week, we need to see what fraction of employees would benefit and what fraction loose. We know that the median worker will benefit slightly, so that means at least 50% will gain. The latest Annual Earnings Survey for 2016 indicates that 40% of employees earn more than £516 a week, so slightly over 40% of employees will loose out. At best, it would be in the interest of a bare majority of those at work to support the measure.

The group who would clearly stand to gain are those who are of working age, but not employed. They would see a clear improvement in their income. This includes the unemployed, the disabled, and those, in the main women, who are at home looking after children.

There are 9.2 million pensioners who would be against, 9.4 million economically inactive who stand to gain and 33.6 million workers who might split something like 55/45 for versus against. On simple calculations of economic self interest a small majority 27.9 million against 24.3 million would be winners. But if one takes the differences in voter turnout – higher for pensioners than for the economically inactive, higher for the better paid than the lower paid, it is doubtful that the proposers of such a measure could pass it even in a referendum. In June last year, a considerably more generous citizens income proposal of more than £400 a week was overwhelmingly voted down in a Swiss referendum, with only 23% voting yes.

This overwhelming rejection must in part be attributed to the strong moral feeling that most workers feel against people getting something for nothing. Even if they might gain marginally, they will oppose the idea that people who do nothing will gain much more. This is a sentiment that, in the past, the socialist movement cultivated. Socialists argued that it was unjust that a few idle rich shareholders, should be paid out of the work done by others. They argued that there should be special benefits for those in need – child benefits, sickness benefit, free treatment for the sick. These arguments chimed with existing moral sentiments.

The original philosophy behind basic income proposals was the complete reverse. It came from neo-liberal economists who where absolutely fine with people getting unearned income. Their entire system of economics was a justification for unearned interest, profit and rent. They were also dead against people getting needs based benefits. The basic income proposal was a wedge to be used to destroy the existing welfare state, and the moral principles on which it stood. Once it was in place, they would go ahead with charging for all sorts of things which were now distributed according to need, and cancel existing needs based benefits. Give people enough cash to barely survive, and then leave the rest to the magic of the market. Minimum wage legislation would go, as would unemployment benefits. Since people would not loose any benefits by going to work, and since their survival was already largely subsidized by the state they would be willing to take on work for lower wages. It would be the ideal support for the gig economy of micro-jobs.

There would be a downward pressure on the lower end of the labour market. The net effect on the class distribution of income would be that those on slightly above average wages subsidize low wages, whilst low wage employers reap the benefit, something which already happened with Gordon Brown’s tax credit scheme.

There would also be a downward pressure on production, since the very high marginal rate of wage taxation needed to fund the citizen income creates a strong incentive to work shorter hours. People on part time work generally benefit, but a lot of people in full time work loose out, so they are incentivized to work part time. Combine this with economic backwardness and inefficiency that always accompany low pay rates, and you have a structure of incentives that penalizes economic growth and efficiency. Hours worked will fall, whilst productivity stagnates. Remember, it is high wages that incentivize firms to improve labour productivity. Any measure that holds down wages slows down productivity growth.

It may be objected that my entire costing has been based on two assumptions:

  1. That the cost of the citizen income must be fully funded by taxation.
  2. That the tax will be raised in the form of income tax.

Were the first criterion not met, the result would be seriously inflationary, so that is not controversial. But could the cost not be met, at least in part, out of taxes on companies, or taxes on property?

In principle yes, but in practice no. Taxes are paid by the working class, the middle class and the modestly rich, but not the super-rich. Men like Trump do not pay tax. As the evidence collected by Winters, [2011] and Piketty, [2014] make clear, in a capitalist economy wealth flows to the top, and the oligarchs are able to so write the tax rules that they pay little or no tax. They can afford to hire sufficient tax advisors, accountants and lawyers to avoid any tax net that the state tries to throw over them. Only wars and revolutions threaten their wealth.

There is a striking contrast between the basic income proposal, which aims to retain the capitalist economy, simply streamlining the welfare system, and the traditional aims of socialists:

The liberation of labor demands the transformation of the means of production into the common property of society and the associative regulation of the collective labor with general employment and just distribution of the proceeds of labor.4

The private ownership of the means of production, once the means for securing for the producer the ownership of his product, has today become the means for expropriating farmers, artisans, and small merchants, and for putting the non-workers capitalists, large landowners into possession of the product of the workers. Only the transformation of the capitalist private ownership of the means of production land and soil, pits and mines, raw materials, tools, machines, means of transportation into social property and the transformation of the production of goods into socialist production carried on by and for society can cause the large enterprise and the constantly growing productivity of social labor to change for the hitherto exploited classes from a source of misery and oppression into a source of the greatest welfare and universal, harmonious perfection. 5

The UK left are all familiar with :

To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.6

which expressed, more concisely, basically the same goals as German Socialism. The key goal was the abolition of exploitation by the abolition of the capitalist system of private ownership. Rather than redistributing income within the working classes, they aimed to abolish all property income so that the whole net product would go to the working classes.

References

[Cockshott 2013]
Paul Cockshott. Heinrich’s idea of abstract labour. Critique, 41 (2): 287-297, 2013.

[Elson 1979]
Diane Elson. Value: The Representation of Labour in Capitalim. CSE Books, 1979.

[Elson 1988]
Diane Elson. Market socialism or socialization of the market? New Left Review, (172): 3, 1988.

[Elson 2009]
Diane Elson. Socialized markets, not market socialism. Socialist register, 36 (36), 2009.

[Heinrich and Locascio 2012]
Michael Heinrich and Alex Locascio. An introduction to the three volumes of Karl Marx’s Capital. NYU Press, 2012.

[Piketty 2014]
Thomas Piketty. Capital in the 21st century. 2014.

[von Mises 1935]
L. von Mises. Economic calculation in the socialist commonwealth. In F A Hayek, editor, Collectivist Economic Planning. Routledge and Kegan Paul, London, 1935.

[Winters 2011]
Jeffrey A Winters. Oligarchy. Wiley Online Library, 2011.

Footnotes:

1Michael Roberts has a good rebutal of the argument on the rate of profit here : https://critiqueofcrisistheory.wordpress.com/michael-heinrichs-new-reading-of-marx-a-critique-pt-1/

2For an argument against their idea of abstract labour see Cockshott, [2013].

3Also a early value form theorist : Elson, [1979].

4Socialist Workers’ Party of Germany, Program,1875.

5Minutes of the Party Congress of the Social Democratic Party of Germany,1891.

6British Labour Party Constitution, 1918.


File translated from TEX by TTH, version 4.08.

Trump not German chancellor circa 1933

I do not think that the comparison with Germany in 1933 is helpful.

In terms of class, Trump is not a trumped up corporal but a bonafide member of the super-rich. If there is any historical comparison to be made it is with populist members of the Roman senatorial order like the Gracchi or Ceasar. In terms of nation, what we are dealing with here is not a second rank imperialist power aiming to be the top imperialist power, but the already top imperialist power. The politics of the German government in the 1930s were the outcome of an already long existing imperialist strategy going back many decades(see Fischer). The USA is the super power with  only two rivals, Russia and China both of which are  inferior to it in military power. Neither is able to threaten it. The long term strategy of the US bourgeois state has been to break up first the USSR and then Russia as its most serious military rival.
They have aimed to use Islamic radicalism and Ukrainian fascism as part of this long term strategy: Islamic radicalism being aimed at the states on the southern border and Ukrainian fascism on the western border. The aim is the breakup of Russia into a number of smaller states which can be easily dominated by the USA and by US companies.

In the context of this long term strategy of US imperialism, Clinton was the war candidate, the most aggressively anti-Russian of the two. Trump was the peace candidate with respect to Russia.

What we have is a split within the US Oligarchy between the Trump faction and the existing military intelligence apparatus. This split within the ruling class produces splits within the state apparatus, with the CIA aligning with Clinton and a significant fraction of the military and part of the FBI ( New York office in particular ) aligning with Trump.

This is a period of real instability in the ruling class, unprecedented for different sections of the intelligence community to intervene on different sides in an election.

The question is why Trump has a different strategy?

You only have to listen to his speeches to see: his section of the bourgoisie – real estate, energy see that the internal productive base of the US has been undermined by the policy of outsourcing production to China that has been followed by many manufacturing companies: hence the emphasis on restoring the infrastructure and domestic manufacturing and energy production. The energy sector also stands to gain from good relations with Russia in being able to get concessions on oil extraction there.

The large number of Generals backing him, reflects I think the realisation that whilst the US armed forces have the power to easily subdue minor powers, an actual invasion of Russia would be very foolhardy and that was where the policy of the Democrats was leading.

The instability of the ruling class should, in principle, open up opportunities for the left in the US, but they are so split and alienated from the mass of the working classes there that they have little chance.  Indeed the Republicans are making a convincing move to gain working class support:

(WASHINGTON) – The following is a statement from Teamsters General President James P. Hoffa on President Donald Trump signing an executive order to formally withdraw the United States from the Trans Pacific Partnership. 
“Today, President Trump made good on his campaign promise to withdraw the United States from the Trans-Pacific Partnership. With this decision, the president has taken the first step toward fixing 30 years of bad trade policies that have cost working Americans millions of good-paying jobs.
“The Teamsters Union has been on the frontline of the fight to stop destructive trade deals like the TPP, China PNTR, CAFTA and NAFTA for decades. Millions of working men and women saw their jobs leave the country as free trade policies undermined our manufacturing industry. We hope that President Trump’s meeting with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto on Jan. 31 opens a real dialogue about fixing the flawed NAFTA.
“We take this development as a positive sign that President Trump will continue to fulfill his campaign promises in regard to trade policy reform and instruct the USTR to negotiate future agreements that protect American workers and industry.”
Founded in 1903, the International Brotherhood of Teamsters represents 1.4 million hardworking men and women throughout the United States, Canada and Puerto Rico. Visit www.teamster.org for more information. Follow us on Twitter @Teamsters and “like” us on Facebook at www.facebook.com/teamsters.
You have to take into account that the left/right positioning of these bourgeois parties is contingent on historical circumstances. For a long time the Republicans were the Left and the Democrats the Right – hence the confusing use of red and blue in the US which is the opposite of Europe. In the 19th century the Republicans were the reds aligned with the commune in France and the war against the confederacy. It is quite possible that we are seeing another reversal of the positions of the parties as occurred in the 30s with Roosevelt II, it is only since him that the democrats took up the position of favouring the working class interest. Remember that under Roosevelt I the Republicans were the progressive party.