What Thomas Piketty and Matthew Hooton (don’t) tell us about the NZ Labour Coalition Government

Jacinda Ardern speaks to the press alongside members of her party after Andrew Little stepped down in Wellington, New Zealand

The New Zealand Labour Party leadership elected to lead new coalition government

Thomas Piketty has discovered that all post-war elections in France, UK and US have been won by one of two political parties with a small margin of victory in all cases. He has worked out that both two main rivals represent the 1% leaving the 99% unrepresented. He predicts that these twin capitalist parties will be replaced by two parties that essentially represent Wall St and Main St. He calls them “multiple elite parties”.

For Marxists this is nothing new, the ruling class dominates politics and steers it into a parliamentary talk-shop cum circus. This means the proletariat (all those who work for a wage or salary) as a class is broken up into individual bourgeois citizens who swing about between various ‘elite’ parties, or abstain, on the basis of small promises that are seldom kept.

Piketty implies that this system will work until the 99% get fed up and build their own mass parties. Neither elite parties of ‘left’ and ‘right’ will survive as such. When the 99% get tired of being conned they will form their own mass party up against whatever party the ruling class puts up.

NZ is no different. The clear class differences that separated Labour from National between the wars became less and less evident after WW2. Today, the two main parties under MMP are still separated by a small margin and need other parties to form governments. But none of the small parties show any sign of becoming bigger after spending time in coalitions. In most cases they disappear.

What will happen to make the working majority (most estimates of the broad working class in NZ put it at around 80%). Piketty’s book Capital in the 21st Century, argued that the widening gap between rich and poor would be the main disrupter of the status quo. So, we can assume that both main capitalist parties must exhaust their capacity to con the working majority so that frustration and anger builds to a point where a break with the elite parties becomes inevitable.

Marxists agree, but say that frustration and anger are not sufficient. That can lead to isolated protests and populist politics that risks the rise of fascism as a reactionary solution to the crisis. To make a break towards a mass workers’ party that can fight for their class interests a revolutionary perspective is needed to steer the masses towards anti-capitalism. Not an anti-capitalism that preaches faith in making capitalism work equitably, but an anti-capitalism that fights to end capitalism.

This means that the ruling class ideology of both main parties which defend capitalism ‘because there is no alternative’ has to be critiqued and exposed. Workers have to be won to the Marxist standpoint that bourgeois democracy is no more than a mask covering the naked rule of capital over the majority. We can start by proving that the present Labour Coalition is committed to putting the interests of international finance capital first, and those of the working majority a distant second.

Hooton offers Robertson some advice

In Friday April 6th NZH business section, right-wing pundit Matthew Hooten offered some advice to Grant Robertson on Labour’s conservative approach to debt. Robertson should drop his debt reduction target, i.e. “his promise to reduce government debt to 20 per cent by 2022…”

He asks, why commit to this promise when it will make it almost impossible for Labour to meet its election spending promises? Finance Minister Robertson is clear: to placate the “business community and financial markets”.

the better course is for Robertson and Ardern to more confidently own Labour’s commitment to higher spending and begin the process of gently stretching out the debt reduction target. If they manage that process well there will be not the slightest blip in either the dollar, the NZX or investor or business confidence, but a necessary protection of Labour’s ratings at the polls.

Why would ‘right’ conservative Hooten be so concerned as to advise ‘left’ progressive Robertson to spend more to keep Labour’s election promises and not worry so much about debt? You can be sure it’s not to see Labour retain its working-class voter base. So, what’s is in it for Hooton?

The real game is to steer the Government towards meeting the current interests of capital which globally is in big trouble and needs more state intervention to boost investment in the production of new value. New debt is a normal part of investing in new production, but for that to happen Capital needs a guarantee that it will not pay this debt out of future profits, but that it will be paid out of the future wages of working families.  For this reason productive capital wants to push its burden of debt onto the state but at the same time make the working class pay for it.

This is the logic of the flat tax and its ‘social’ twin the UBI (Universal Basic Income). Taxes on profits, interest, rents and wages that are not hidden away in tax havens, are ‘flattened’ to the same rate as the tax on wages, say 20%. The UBI is a negative tax for those who are pushed out of work by capital’s tendency to destroy labour.

Productive capital can live with increased state debt so long as it doesn’t have to pay for it. Banking capital is overjoyed because debt-financed investment in production of goods and services will always create more interest on bank loans and hence bank profits.

So Hooten is advising Labour to drop the neo-liberal fetish of balancing the budget for fear that debt will cause inflation, devalue the currency, and destroy investor confidence. Neo-liberalism in the 80s and 90s restructured global capitalist production by cheapening inputs of both raw materials and labour-power. But at the same time, it ran down the infrastructure and necessary services to offset the fall in profits.

But even this restructuring and the fall of the Soviet bloc did not revive capitalist profits to their post-war level. And since the long depression began in 2008, neo-liberal policies have been overtaken by massive state bailouts of bankrupt banks and corporates. Today, unless the state intervenes to subsidise both these inputs for Capital, there will be no incentive to invest in new production. What Capital needs now is neo-interventionism.

Robertson is the heir of Rogernomics and the neo-liberal monetary framework of ‘fiscal responsibility’ – balancing the budget by reducing taxes on profits and cutting social spending. Taxes that finance state spending that does produce profits are a drain on profits. And while the Keynesian ‘multiplier’ may increase demand it cannot overcome the limits to profit.

Hooten is aware that the Labour Coalition is reluctant to run up debt to do this job because it has to prove itself as reliable to business before it can distribute some dividends to its worker voters. But says Hooten, you can do both with no fear. In this period of global instability, Labour does not need to push at an open door. And there is no risk of the heirs of Rogernomics reverting to the failed Keynesian printing of money to stimulate production. Hooten knows that he and Robertson as ‘elitists’ both take for granted that the working class will pay for Government subsidies to business to restore profitability.

After all, since the 1980s labour adopted the Blairite philosophy of neither conservatism nor socialism, but rather the ‘middle way’. Robertson is Mr Middle Way. If we dig into this doctrine we find forerunners like onetime CTU boss Ken Douglas in the early 1990s stating he could work with both National and Labour, and that the role of unions was to ensure that labour productivity increased as the basis for ‘fair’ shares of wages as well as profits.

So as long as the Government’s social spending supports capital expansion by building new infrastructure and efficient services that lower the costs of production including that of wage labour, a budget deficit financed by debt will be paid for by increased taxes in a growing economy. And Labour will not tax profits or capital gain, but further shift the burden onto consumption taxes. Labour would then prove that is was able to manage capitalist growth better than National and even please the ‘business community and finance capital’.

The difference between the National and Labour Governments has always been about how best to manage capitalism. National’s ‘zero-sum’ politics runs down the social wage and frees the market to drive down wages to boost profits. Labour ‘win-win’ politics is committed to spend on increasing labour productivity so that wages and profits can both get ‘fair’ shares of the national income. So, spending on new roads, rail, housing, health and education will boost labour productivity allowing labour to claim a ‘fair’ share provided that profits get their ‘fair’ share first.  

“Win-win” is actually “zero-sum”

Ostensibly ‘win-win’ state management of the market results in increased productivity and capital growth. Debt can be financed out of more goods and services sold on the global market. The rewards for increased productivity can be fairly shared by both labour and capital. Here is the holy grail of bourgeois economics, that wages and profit shares can be ‘win-win’ and not ‘zero-sum’.

But the holy grail is unattainable because the relation between wage-labour and capital is necessarily ‘zero-sum’. ‘Win-win’ is the bourgeois myth that the distribution of income can be shared ‘fairly’ between wage-labour and capital. ‘Zero-sum’ is the bourgeois reality that Labour is zero and Capital is sum. Labour is ‘zero’ because it alone creates value and as a result pays for the value of its own wage. You cannot have win-win distributional shares when productive relations are zero-sum!

Labour creates value, both as wage-labour, and indirectly as domestic labour and the paid labour of state workers who provide the social wage. Wage-labour produces commodities by selling its labour-power, the only commodity that produces more value than its own value. The difference is surplus-value. But the market value of labour-power does not include unpaid domestic labour, or state paid labour that contributes to its reproduction, both of which reduce the value of labour-power.

Capital does not create value. It pays the wage in advance expecting to be paid back out of the surplus-value it expropriates from workers. Unpaid domestic labour that contributes to the reproduction of labour-power remains unpaid as a subsidy to capital. Nor does capital pay for the subsidy of state workers to the reproduction of labour-power. Therefore, Capital is the sum of accumulated value created by Labour both in the form of wage labour, unpaid domestic labour, and state reproductive labour.

To facilitate the fate of workers who produce value but retain zero value, debt originates as money borrowed to pay wages in advance of their repayment out of new value created. Interest paid on borrowed money is deducted from surplus value before profit. So it is entirely consistent that wage-labour (and domestic labour) should pay all capitalist debt, including the public debt, to avoid a drain on profits.

That is why Marxists call for the cancellation of debt. Instead of tying workers to capitalist parties that promise to redistribute income, we say that all income is derived from value created by workers. Debt incurred in producing, reproducing and accumulating that value is part of the value appropriated from labour and should therefore be expropriated back by labour.

The Labour Coalition Government is part of the problem since it operates as part of the capitalist state to reproduce capitalism. But instead of managing capitalism to provide a ‘human face’ it reproduces Capital at the expense of Labour. Hooten has shown that Capital can take different forms depending on the conditions. In the 1930s Labour adopted a national capitalist policy to protect its infant industry. By the 1980s the deregulation of NZ’s state insulated economy was necessary to restructure NZ capital to face the globalised world market. Today, the survival of capital requires the return of state intervention, but of the sort that serves the interests of Capital, not Labour.

The only economies that are growing significantly today are those where the state takes a key role in steering and managing the market. China is the best example. It has restored capitalism after decades as a bureaucratically managed state and powered its way to a world-beating dynamic economic expansion on the basis of its state-owned capital.

Neo-liberalism is bankrupt and Capital now requires a return to strong state intervention to survive. But we need to be clear that state intervention to spend more money on infrastructure and social services is not about ‘fair shares’ or reducing inequality. It is about creating the conditions for capitalism to survive facing a dual existential crisis – a global bust and climate catastrophe.

Their crisis is our opportunity

Marxists see the existential crisis of capitalism as an opportunity to convince workers that capitalism has reached the end of its shelf-life. We need to break from the Labour Party and build a mass workers party committed to ending capitalism and building socialism. As Marx pointed out in 1868, the “vulgar economists” take all appearances to be true. So, says Marx, “Why then have any science at all”.

The vulgar economist has not the faintest idea that the actual everyday exchange relations cannot be directly identical with the magnitudes of value. The essence of bourgeois society consists precisely in this, that a priori there is no conscious social regulation of production. The rational and naturally necessary asserts itself only as a blindly working average. And then the vulgar economist thinks he has made a great discovery when, as against the revelation of the inner interconnection, he proudly claims that in appearance things look different. In fact, he boasts that he holds fast to appearance, and takes it for the ultimate. Why, then, have any science at all?

Yet it is science, the critique of political economy, that dispenses with the “sycophantic babblers” to prove that “existing conditions” will collapse well before workers rise up and prove it in practice.

But the matter has also another background. Once the interconnection is grasped, all theoretical belief in the permanent necessity of existing conditions collapses before their collapse in practice. Here, therefore, it is absolutely in the interest of the ruling classes to perpetuate a senseless confusion. And for what other purpose are the sycophantic babblers paid, who have no other scientific trump to play save that in political economy one should not think at all?

Marx’s Letter to Kugelmann, July 11, 1868