BRITAIN'S decision to enter the Exchange Rate Mechanism
(ERM) of the European Monetary System on Monday
October 8 represents a radical attempt at a sharply recessionary solution to the British economy's problems - notwithstanding enthusiastic support from sections of the left.
The government has all but lost control of the economy, with inflation hovering at 10% despite interest rates of over 15% and a balance of payments deficit nearing £19b.
ALAN FREEMAN of an article protecting the "rights of the unborn child".
This amendment would be followed by a "law for the protection of life" - which would contain a whole battery of bureaucratic, social and material rules aimed to prevent abortion, as well as state regulation of organ transplants, euthanasia for the old and the handicapped and so on. With regard to this last point, it should be noted that recently figures from German universities have been reviving racist theories concerning the selection of "undignified life" using the theories of the Australian academic Peter Singer.
This proposal for a "law to protect life" based on a change in the constitution dangerously blurs the issues.
On the one hand, the elevation of the "unborn life" to the status of a legal subject deserving special constitutional protection gives it the same legal status as living men and women. In this case, abortion becomes murder.
On the other hand, Rita Süssmuth wants women who have had an abortion not to be subject to criminal charges. They would not cease to be persecuted, however; they would remain subject to charges under the civil code if the husband or father complained.
The Christian Democrats have announced an offensive for "a law to protect life" after the December elections. The next two years are going to be very tough for the German women's movement.
Both the right-wing offensive and the approach of 1992 require an urgent rebuilding and re-organizations of the women's movement on the abortion issue.
The relatively weak mobilization on September 29 was an expression of the fragmentation of the movement in the West and also the growing resignation in the East, where daily problems are dominating women's concerns. 22 The east-west coordination of women will be working to meet this challenge. *
HE timing was political. The Tory Party, as the Financial Times explained earlier, had arrived at "a new definition of when the time will be ripe for ERM entry. One deducts the six months believed to be the honeymoon period of lower interest rates from the election date one first thought of - and there is the magic date."
The Labour Party leadership's endorsement of ERM entry earlier this year was politically vital. The Tories calculate as follows: there will be a honeymoon period, because the ERM provides a much larger currency pool - notably German D-marks — to defend the British pound. The recessionary effects of ERM entry will come into play as the medium term effects of Britain's trade situation are felt. Either the Tories get a new electoral mandate for "the painful measures needed to correct the economy" — or a weak, rightwing Labour Government will be saddled with responsibility.
By seeking to defend a fixed exchange rate for the pound, ERM entry pits the government against a hundred-year trend. The pound has continuously fallen against the currency of every country whose productivity is rising faster than that of the UK.
During this century the pound has fallen an average of 1.1% against the US dollar, 2.1% against the DM and 3.1% against the Yen since World War 2. Since 1948 it has fallen an average of 3.6% per year against the DM — since 1973, 4.5% against the DM and 5.2% against the Yen. Just before flotation in 1972 it stood at 8.75DM and 850 Yen. It is now around 3DM and 280 Yen.
The underlying issue, which ERM membership in fact exacerbates, is the structural weakness of the UK economy, for more than a century orientated to imperial domination. All aspects of the economy concerned with Britain's overseas role have been strengthened at the expense of domestic manufacture — the UK's defence industry, its overblown financial and commercial sector and the large ex-colonial importers.
UK falls behind competitors
This is explained in a research paper from the Socialist Economic Bulletin ', a regular information service for the left sponsored among others by Labour MPs
Ken Livingstone and Diane Abbott: "Exchange rate stability between major members of the ERM is founded in the last analysis on common rates of growth of productivity" it says, "But the UK, despite temporary gains in 1981-87, has failed to sustain improvements in productivity in line with European competitors" (see graph).
Productivity is critical to exchange rate stability. A rise in productivity is equivalent to a relative price reduction, because the same thing is being produced for less input. If, therefore, UK productivity lags behind its rivals it must either lose market share because its goods are over-priced, or cut its prices for which only lower wages or lower profits can compensate.
Exchange rate stability therefore depends on convergent rates of productivity growth. Postwar growth rates average out to 6.6% for Japan, 4.1% for France, 4.3% for West Germany and 4.4% for Italy. The last three very similar rates are the real basis for the stable exchange rate in the EMS currency snake.
Until 1979, Britain's productivity growth rate in this period averaged out to 1. The Socialist Economic Bulletin is available for a subscription of £12.50 for six issues and £5 for a single issue. A £25 subscription also covers 10 briefings, including briefings on the Tokyo Stock Exchange crash, on the ERM and on the economic implications of German unification. Subscriptions to Socialist Economic Bulletin, Ken Livingstone MP, House of Commons, London SW1, Great Britain.
International Viewpoint #193 • October 29, 1990
BRITAIN to £45bn in cur-
Growth of output per head 1950-1989 prices.
rent
Since 1979 the
1950=100 surplus on services has fallen from 1.9% of
GDP to 0.8%, with the surplus from profits
500 abroad now only
0.6% of GDP and every indication that matters are getting
300 worse.
The basic factor is the system-
200 atic failure to invest in manucurrency stability and be happily released from the need for high interest rates doesn't really hold water. For while those huge trade deficits last, we're going to need high interest rates to pull those cash deposits in."
Thatcher herself explained this at the Dublin summit in May when she first began to hint at ERM membership: "I think we must be very wary in assuming that by going into the ERM interest rates will come down." Since the pound will be permanently overvalued - which means that export prices for UK manufactures will be artificially high — UK manufacture will only be able to compete by crushing attacks on the wage rate. Again financial commentators are perfectly aware of this — thus Victor Kepdan in
100
1950 1955 1960 1965 1970 1975 Year US Jopon \West Germany Germany France
Source: OECD, Maddison, Phases of Capitalist
Development
Semi Log Scale 2.4% per year. Since 1987 this pattern of slow growth has continued. Productivity growth for the economy as a whole has been negative for the last four quarters.
The major exception to this generally low rate was the increase in 1979-81. But this relied on unique circumstances: a once for all gain during a very intense recession, made possible only by sustained increases in the relative price of oil, which removed balance of payments constraints. During this period, 15-20% of Britain's productive capacity was destroyed, while the oil balance moved from -0.6% of GDP to +2.5% of GDP -an improvement of over f16bn in 1990 prices. Without this, the balance of payments problems would have been insurmountable — as, in fact, they are now becoming.
Oil bonus runs out
Even with the rise in oil prices brought about by the Gulf crisis, this bonus is unlikely to be available to UK capital in future. The oil surplus has fallen to 0.25% of GDP — a fall of £12bn in 1990 prices. Output has declined substantially. Moreover even $30 per barrel — 65% of the July 1990 level - only takes the real price back to its 1978 level. So bad is the UK's balance of payments situation that not only visible, but invisible trade is going into the red.The balance of trade in manufactures has declined from 6% surplus in 1970 to minus 3.2% in 1989 - equivalent invest in manufacturing. The UK is the only Western country which simultaneously maintains a negative balance of trade 1980 1985 1990 and exports long-term capital. The result is UK Italy a systematic bias against investment in manufacturing which further cripples British capital's rate of productivity growth. By the beginning of 1990, UK GDP's growth rate had fallen to under 2% and its manufacturing growth rate to 0.6%.
Walter Eltis, the Director General of the National Economic Development Council, noted in a paper at this body's last meeting that "Manufacturing industry continues to be the key to our overseas trade, yet, between 1979 and 1989, investment in new plant and machinery by financial services grew by 30% and investment in construction rose by 126%...[but] investment in manufacturing was just 8% higher — investment was barely positive."
ERM entry is a fundamental turnaround. It removes the government's most basic instrument — its monetary policy. As the IMF itself puts it: "The EMS faces the well-known dictum in international economics that it is possible to achieve simultaneously only one of the following three objectives: fixed exchange rates, independent monetary policy and open capital markets. " But in no sense does this mean lower interest rates. On the contrary, where before governments had the option to loosen monetary constraints and devalue, this is no longer an option. Any future government will be obliged to set the interest rate at whatever level is necessary to attract enough capital to offset trade losses and defend the exchange rate.
This is understood by all serious commentators. As one remarked "the notion that if we enter the ERM we will achieve aware of this — thus Victor Keegan in The Guardian on April 23: "Britain urgently needs the economic equivalent of ECT which is sometimes used as a last resort in the treatment of psychiatric disorders...in the case of the UK this would take the form of immediate entry into the ERM... accompanied by a freeze on wages for a year." Or Samuel Brittan in the Financial Times on June 14, 1990: "No serious proponent of ERM membership has ever seen it as a quick fix. Membership works by squeezing severely the profits of companies engaged in international trade if they attempt to raise prices faster than their European competitors."
Pound overvalued within
EMS
This is all the more imminent in view of the extremely high rate at which the pound has gone into the EMS. The general consensus even among pro-EMS financial authorities was for a rate of at most DM 2.60. The pound is in fact overvalued by about 25% in terms of relative productivity. All previous attempts to defend a high exchange rate have brought a crash in their wake: 1925-31, 1964-67 and 197981.
Britain is locked in a spiral of decline from which the only way out is a radical break with its imperial past. Such an alternative, outlined in the Socialist Economic Bulletin, would involve the expansion of the economy and above all manufacturing. Some 80% of all past changes in output per head in the UK is explained by changes in manufacturing output. But British capital, dominated by the financial, commercial and military sectors on which Thatcher bases herself, and which the Labour leadership under Neil Kinnock is absolutely unwilling to confront, is resolutely opposed to any attack on the only resources which could fund such an expansion - the defence budget and the City of London profits. What is therefore posed is a sharp rise in unemployment provoked by an intense recession, a prolonged and brutal attack on wages and yet further cuts in an already ravaged state 23 budget. *
BRITAIN Scottish nationalists turn left THE crisis of British capitalism has for some years been reflected in a constitutional crisis of the British state. Leaving aside the case of Northern Ireland, there has since the 1960s been growing support for nationalist movements in Scotland and Wales (for information on the Welsh language and nationalist movement, see /V 182).
Scotland united with England under a single monarch in 1603, but retained its own parliament until 1707. It continues to have a separate local government, legal and educational system from England, as well as its own established church.
The ravages of Thatcherism have tended to strengthen both socialist and nationalist sentiment in Scotland. This was translated into an overwhelming anti-Tory vote at the 1987 general election, when Scotland returned 50 Labour MPs to the Westminster parliament (these were quickly to be dubbed the "feeble fifty" because of their loyalty to the Labour leadership's right-wing line). Disillusionment with Labour, combined with hostility to the hated Poll Tax (see IV 182 and 183)which was introduced in Scotland in 1989, before its introduction in England and Wales, has led to increasing support for the Scottish National Party (SP), which has tion. The SNP by contrast developed in isolation from the labour movement -from its inception it remained wedded to the concept of a separate bourgeois state, no matter how limited the prospects for this.
In the mid 1960s the SNP achieved a major breakthrough and by 1974 it had 13 MPs. Its leadership until now was shaped in this period and they continued the attempt to be a party for all classes. The Labour Party meanwhile had been forced to adapt to Nationalist demands and hadtentatively revived the idea of a devolved assembly in Scotland with limited powers and, explicitly, no powers of taxation. The Labour government put this to a referendum in 1979.
During the referendum of 1979, the SNP took an equivocal attitude to the proposed Scottish assembly which they saw as an attempt to block independence. When Labour failed to deliver an Assembly despite majority support in the referendum, the SP withdrew from any further cooperation with Labour. Many felt the then SNP leadership had disastrously cut themselves off from political realities. A "79 group" was formed consisting of most of the youth and the ex -Labour members who had joined the SNP.
The 1970s saw the steady decline of the Tory party in Scotland, a trend which shows no sign of changing. Many of the SNP votes in the early 1970s had been anti-Tory votes which subsequently went to Labour, which became the dominant narty in Sentland party in Scotland.
The '79 group became the left of the SNP and quickly gathered support from around a third of party members. SNP conferences became increasingly divided. Leading members of the group were Jim Sillars, an ex -Labour MP and Alex Salmond. The "79 group attempted to get involved in industrial struggles, much to the annoyance of many Labour activists who distrusted the SNP. Councillors from the SNP, who were largely traditionalist, invariably voted with the Conservatives. A protest vote against Labour monoliths
The '79 group showed the potential of a left nationalist programme. SNP votes were highest in the Highlands (where Labour was weak) and, by contrast, in housing schemes with monolithic Labour councils. The SNP was effectively a left protest vote in the cities and radical policies tended to increase that vote.
The traditionalist leadership became concerned that the "79 group was diluting their policy of pure nationalism so they disbanded the group for factional activities and suspended its leadership. Time, however, was not on the traditionalists' side. New members supported the left, and by 1987 a clear majority supported Sillars as senior vice convenor.
recently taken a left turn. GORDON MORGAN roDr ON MODAA T HE SCOTTISH National Party elected Alex Salmond, declared socialist, as their leader at their September 1990 conference. Salmond's strategy is to portray the SNP as being a left alternative to Labour as well as a Nationalist party.
He will attack the Labour Party in Scotland for failing to defend Scottish interests despite having two thirds of Scotland's MPs and control of most of its cities. The SNP will continue to attack Labour on the Poll Tax - some Labour councils are instigating forced "warrant" sales of goods from people's homes to meet their Poll Tax debts. Salmond has criticized Labour's about turn on the Trident submarine which is being built by the Tories - Labour now says it will retain those which have been completed, whereas the SNP is opposed to nuclear weapons.
Finally Salmond will attack Labour on the Scottish economy, in particular the prospect of the Ravenscraig steel plant being shut as part of a "rationalisation" by British Steel. This raises the immediate prospect of the loss of the remainder of Scottish heavy industry and up to a 24 quarter of manufacturing jobs.
Whilst such attacks are not new, Salmond intends to sharpen the edge of SNP criticism, which has recently been portrayed as carping from the sidelines. He seeks to transform public perception of the SNP by associating it with labour movement struggles and rejoining the mainstream of Scottish politics.
These tasks show signs of being achieved. Latest opinion polls show the SNP up 4% at 24% and Labour down to 42% from a height of 55% last year. The Tories remain in third place in Scotland at 19%.
Senior Labour figures, while publicly denouncing the SNP, privately admit the new Salmond leadership to be a serious threat.
Although a radical change in style from the SNP leadership can be expected, the change from traditional petty bourgeois nationalist to left nationalist leadership has not been unexpected. Nationalism rises with class struggle
Scottish national struggles have historically combined with rises in class struggle. Until the 1920s Labour was in favour of Home Rule, and the ILP and the Communist Party continued the tradi-
International Viewpoint #193 • October 29, 1990
The Poll Tax changed the SN's prospects. From the start the SNP condemned the tax and it rapidly adopted support for non-payment. Sillars was elected MP for Glasgow Govan in a huge swing immediately after Labour voted to implement the Poll Tax. Everyone anticipated a major turnaround with the SNP threatening to overtake Labour in the polls.
Following the fiasco of the 1979 referendum, an all party campaign for a Scottish assembly was set up. This has been influential in keeping this demand at the centre of Scottish politics. Labour has gradually strengthened its commitment to the Assembly and extended its proposed powers. In 1988 the CSA published a Claim of Right for Scotland which argued that the Scottish people had the right to determine their own form of government, irrespective of whether Westminster or any other body legislated for such a change. It proposed the setting up of an assembly of representatives of Scotland to determine the form of government for Scotland - a Constitutional Convention.
It was expected the SNP would back the proposed Scottish Constitional Convention. It was equally felt Labour would not support it, particularly as the claim was in many ways revolutionary — "sovereignty resides in the people, not parliament" Scottish convention a tactical victory for Labour
Labour did, however, participate and quickly wrong footed the SNP. The SN withdrew from the Convention, claiming amongst other things that the Convention had rejected independence as an option. In fact although the consensual proposals of the remaining members of the Convention are for a federal relationship with Westminster, the proposed powers of the Assembly are greatly increased over the proposals of even three years ago - the Assembly would have tax raising powers and possibly powers to nationalize. The only powers residing at Westminster would be defence, central economic policy and foreign policy.
However, even the extended powers of the Assembly would prove unable to solve the structural crisis of the Scottish economy and would be seen as inadequate. Clearly the Assembly if established would be a major stepping stone towards independence.
For withdrawing, the SNP were portrayed by the media as sectarian and acting against Scottish interests. Labour had a major boost. Sillars compounded matters by silly predictions and unfounded claims. SNP support collapsed to preGovan levels.
As the SNP Convenor Gordon Wilson was retiring, it had been thought by many that Sillars would take over. Instead he put up a stalking horse by backing Margaret Ewing, an arch traditionalist. Salmond stood to challenge the perceived continua-
BRITAIN tion of the old failed leadership.
Salmond gained the support of the left, those concerned with the policy errors and a considerable anti-Sillars group including many traditionalists. His victory was substantial. More surprisingly, the main Poll Tax spokesperson, Kenny Mcaskill, a Sillars supporter, was defeated narrowly by a Salmond supporter. These personality and tactical differences are not too deep, however, and Salmond is by far the best spokesperson the SNP has.
The SNP conference meanwhile reaffirmed its opposition to payment of the Poll Tax, maintained its denunciation of the proposed Assembly and retained its opposition to nuclear weapons. On the Poll Tax, a very few delegates wished to end support for mass non paymentthey were roundly denounced. Non payment was reaffirmed by acclamation.
Referendum on independence supported
On the Assembly, the SNP overwhelmingly voted to participate in elections to it and argue within for independence. This, of course, was only if an Assembly was set up, which in turn assumed Labour were elected to government in Westminster - both these were thought unlikely. Nevertheless this was a major step forward in policy. Conference also voted to push for the independence option to be included in any referendum. This woul make the referendum a three way choice — status quo, assembly or independence.
With this change the SNP and Salmond put Labour on the spot. The last thing Labour want is a referendum and particularly not one which could vote for independence. Yet senior Labour figures such as Bob Gray, the leader of Strathclyde Region, have suggested that local authorities organize exactly this referendum. Scotland has now had the SNP executive unanimously back Gray's call for the local authorities to organize the referendum. Under the old leadership a similar suggestion was defeated. Clearly changes have occurred.
The SNP's central policy is "Independence in Europe". This means that an independent Scotland would seek membership of the EEC. The SNP claim that as Britain is an existing member, Scotland would automatically be granted membership.
The Tories point out that a precedent would be set for the Basques and other nations and that France and other countries would block membership. Debate continues as to why having achieved independence, it should be surrendered to Brussels. The SNP seems likely to oppose full economic and political union.
It may appear that such concerns are fantasy when clearly Thatcher will not grant independence. Nevertheless the
Scottish press endlessly discusses possible scenarios for devolution or independence. Senior investment analysts predict Scotland could prosper given its energy resources the Scottish Trade Union Congress (STUC) and the Convention of Local Authorities are setting up quasinational representation at Brussels, while the Economist suggests the Tories grant devolution and cut Scottish representatives at Westminster, thus ensuring a Conservative government whilst cutting Scottish "subsidies".
Meanwhile the Government is acting,as if Scotland had been written off its political map, as it effectively is. Guarantees for retaining industry are ignored, headquarters are moved to London, rail and road link improvement schemes shelved to concentrate investment in the South East, distinctive education and legal procedures are made uniform, and nuclear waste dumping is to be located in Scotland.
Energy supplies rerouted south
Even Scotland's most obvious asset, energy, is being downrated - Scotland's surplus energy will receive only marginal prices in the denationalized electricity grid, North Sea gas is being rerouted at huge extra cost to England so as to make chemical and steel production cheaper there, and in the process undermine the present cost advantage of Scottish production. Clearly the government is not attempting to win votes. Even a third of the dwindling band of Scottish Conservatives favour devolution if not independence.
The next election is critical. Labour has retained its support by promising an assembly. If Labour win the assembly must be delivered in the first session. The powers, structures and forms of government have been agreed by Labour's leaders on the Constitutional Convention.
If Labour lose nationally and as expected the Tories hold only five out of 72 seats in Scotland, we again enter the scenario where Labour are called upon to take action. This time they have supported the Claim of Right which could be construed as committing them to setting up a Parliament in defiance of Westminster. This will be utilized by the SNP.