A Historical Perspective
We all know that when a glass of tea is three quarters full, it is also one quarter empty. I would like to dismiss the empty part of this dialectic first, the history that pertains to the self, to me, and then to talk a bit more of the history concerning the problems we face today — the history that concerns our society, the substantive portion, the tea.
I grew up in a colonial society. I was one of the privileged few who were able to study at the local higher educational institutions, set up essentially to train locals so that the exploitative colonial system could be facilitated and perpetuated. Knowledge however has its unforeseen effects. I studied medicine and as a medical student saw patients with beri-beri. We were taught the cure was to administer vitamins. The question that arose was: is vitamin a drug, a medicine, like antibiotics, the administration of which cures the disease, or should it be regarded and classified as food, the lack of which causes the disease? I regarded vitamins as food, and when one took this view, other questions arose, like why was there a shortage of food, why should there be such poverty? Thus I began a step forwards on the socialist road.
A Bit More on the Substantive Part of the Dialectic
I came of age at the end of the Second World War, a time of political ferment. Oppressed peoples the world over were struggling and fighting for independence, struggling to get rid of foreign masters and for a better life. I joined the anti-colonial struggle. In any fight you would like to know your opponent, what it is you are facing and fighting against. You would also want to be clear what it is you are fighting for and sacrificing for. For some it was just Malayanisation — the replacement of the foreigner with the native. But for others, the basic undemocratic exploitative system has to be changed, changed to a system that works for the interests of the people as a whole, and not just for the interests of the few. Colonial exploitation is just a manifestation of capitalism.
Anti-colonial days presented one advantage. In industrial disputes it was easier to relate the exploitative colonial system with the struggle for better wages and conditions of work. The state machinery, the police that broke up the strikes, the riot police that clubbed your children, the judiciary that sent protesters to prison were rightly and easily identified with the colonial regime and thus with capitalism. Today, it is easier to separate the political and economic aspects in a dispute. Thus instillation of political consciousness among your supporters would be more difficult for you.
The Legacy of Colonialism
Fifty years of merdeka [independence] is a good time to talk of the legacy of colonialism. Apart from the perpetuation of the capitalist system, there are three key political areas which need attention and solution. They are communalism (or ethnic problems); the Internal Security Act (ISA); and the unity of Malaya (or Malaysia) and Singapore.
After the war, the political scene was dominated by radical nationalists, people who demanded independence and also the uplift of society as a whole. There was consensus that economic growth for the people can only come about with the termination of colonialism. They had a vision of a nation, a nation united in this effort, and not split up into ethnic groups struggling against each other. Compromise was necessary.
The political expression of this strong movement was the AMCJA-PUTERA [All-Malaya Council of Joint Action-Pusat Tenaga Raayat] coalition. The trade union movement, the Federation of Trade Unions, representing estate workers, railway workers, and urban workers, was a major force in this coalition. It was demanding better wages, better working conditions, and freedom to organize.
Nationalizing foreign investments so that the country’s wealth could be directed to local development was in the air. Ethnic problems, problems left by history, were played down for the common good. Compromises were reached, and the People’s Constitution drafted by lawyers in the Malayan Democratic Union (MDU) — part of the coalition — setting out the guidelines for a future Malayan State was proposed. It had widespread support as evidenced by the success of the ‘hartal’ [general strike].
The British needed the earnings from their investments in the colony. More importantly, the British needed the US dollar earnings from the sale of tin and rubber, which had to be sold through London. In other words, the US dollars (‘hard currency’ in those days) we earned from these sales were kept in London, and in exchange we were given the British pound, a devaluing paper note. The bottom line was that our blood and sweat was used to prop up the value of the pound, as the U.K. was spending more than it could earn from the USA.
The radical nationalists were therefore regarded as a grave threat to Britain, and the movement had to be crushed. Preparations were made. Ferguson in his address as chairman of the Chamber of Commerce in late 1947, unaware of the preparations being made, in all innocence criticized the colonial government for pouring money into military installations, money sorely needed for productive enterprises. The so-called “Emergency” was declared, the PPSO [Preservation of Public Security Order] introduced, and hundreds of activists from all ethnic groups — Malays, Chinese and Indians — were detained.
The political vacuum created was filled by communal parties, encouraged, if not fostered by the British. The rationale was that if the leaders of these communal parties got along well, there will be harmony in the society. The British colonialists know very well that creating vertical social structures cannot result in harmony, it only creates disharmony, but this was in their immediate interests. History has shown that such schemes cannot bring harmony. They cannot work. As socialists we say that building vertical structures, not horizontal class-based structures, can only lead to more disharmony. Greater disharmony is what we are today facing.
Communal problems and an ethnic divide will exist. It is an antagonistic contradiction in a capitalist society. When emphasis is placed on working-class interests, on interests of the poor and downtrodden, there is more identity of interests. With solidarity, misunderstandings and tensions can be blunted or prevented, and the evil motives of communalists can be exposed. It is only in a society where the relations of production are socialist, where the imperative of the system is not the profit motive but the welfare of the people of all ethnic groups, that it is transformed into a non-antagonistic contradiction and the communal problems fade off in time.
In solving problems, we should pay particular attention to the relationship between the general and the specific. General principles should be considered in the specific concrete context. General principles made at international conferences, principles mouthed by Non Government Organizations (NGOs), should be scrutinized carefully and not blindly followed. An example will illustrate my point. We all agree that people have the right to self determination. When India obtained independence from the British Raj, politicians in the tiny Portuguese colony of Goa, on the west coast of peninsular India, wanted to petition the UN for the exercise of this right. Wisely, the Congress party under Mahatma Gandhi and Nehru rejected this call. It is not because of any fear of balkanization by big powers though this may be a factor. Problems left over by history can with sincerity be solved. Nobody now doubts that Goa is part of India.
In the same vein, I do not think that the principle of equality of all languages is an absolute. The People’s Constitution accepted Malay as the national language. This in no way means the suppression of other languages. In Canada, English and French are official languages, but not Italian or Spanish, Hindi or Mandarin.
Specific principles obtained from experiences in specific historical circumstances, e.g. the national question in the former USSR, should also be studied carefully, but never blindly followed. Nothing is absolute. Only death is absolute.
The Internal Security Act ( ISA )
The PPSO was modified into the ISA in 1960. Therefore I regard the ISA as a legacy of colonialism. This Act removes whatever democratic measures the Constitution provides. It makes the country a police state. It keeps a group in power, consolidates communalism, and is a foundation that sustains corruption, cronyism, and all the major ills of the society. It suppresses all dissent. It is a cancerous growth that simply has to go — if the society is not to remain distorted and its economic growth stunted.
The Problem of Unity
When I studied at the University of Malaya in Singapore, I lived, studied, worked and quarrelled with students from Malaya. We never felt we belonged to two different and separate nations. It was the needs of the changing British imperial interest that kept Singapore out, in and out again.
Since separation, our two territories have drifted far apart. There are now no overriding imperial interests. If communalism can be restricted on both sides, if the ISA were abolished, then as the Barisan Sosialis [Socialist Front] had said years ago, with goodwill and sincerity, problems left over by history can be overcome. If there is a vision, then the way can be found. Perhaps with this economic crisis the idea should resurface for discussion. I believe that it will occur sooner or later.
Crisis of Capitalism
The present economic crisis is a crisis of capitalism, and capitalism is our colonial legacy.
A lot has been said and written about the present economic crisis. The Parti Sosialis Malaysia has printed educational pamphlets for its members on this subject. I would like to talk a little on points which I found useful to my understanding of the subject.
The crisis started off as a crisis in the sub-prime housing mortgage. It became a financial crisis and now an economic crisis. Let us start from the reverse order, from the root upwards.
Capitalism as an economic system unlike feudalism is highly efficient and productive. Economists tell us that an annual GDP growth rate of 6-7% doubles a country’s wealth in a decade. So if a country starts off with $100, it will have $400 in 2 decades, $1,600 in 4 decades, and $3,200 in 50 years. Has your income grown by this rate or even close to this rate? If not, where then has the wealth produced gone? Obviously to the top earners. If your real income rises slowly or not at all, the demand for products cannot increase by very much. There is thus a lack of demand relative to supply.
In the phase of monopoly capitalism that we are in today, lack of demand does not mean competition in pricing and a lowering of prices of goods. This price competition results in companies earning very much less and some may go bankrupt. Monopoly capitalism deals with the lack of demand by reducing output, by cutting down capacity. This means a reduction in the work force and thus more unemployment. This helps to press wages down. It also results in further reduction in demand. As prices are kept steady with reduced output, the profit of the firms remains high. This keeps its share prices up, and there is a bull market. There exists a disconnect between the real economy and the stock market, often attributed to psychological factors.
Now what can be done with the profit, the money earned? No one keeps money under their mattresses anymore. Money must earn more money, that is capitalism. It cannot be left idle. But since the demand is slack, there exists overcapacity. So apart from capital spent to replace older machinery, no new capital is required to expand the enterprise, when expansion means further increase in productivity and capacity which will not bring in extra profit. The market is already saturated. This capital, which cannot be invested as industrial capital, is often referred to as “capital overhang”.
Capitalist economists hold that the capitalist system’s norm is growth, recession is brought about by problems of supply and demand. When the unseen hand equalizes this disconnect, the economy returns to its normal buoyant self. By contrast, Paul Sweezy and Harry Magdoff point out that the norm of the mature capitalist system is stagnation not growth. Growth occurs only in presence of stimulating factors like war and reconstruction, major scientific discovery such as electricity, motor industry and roads, etc. The lack of these major stimulants leads inevitably to stagnation. That is what we have today.
In a period of stagnation with high corporate profits, the one way to earn more money is to “invest” in the stock market. And leverage helps to earn more with limited capital. A variety of new financial instruments were introduced. There is more liquidity in the market, helped by the US Federal Reserve in its attempts to forestall crashes. Financial capital became more important than industrial capital. And economic froth became the mainstream, not side-stream, of a country’s economic activity. The productive, wealth-producing base is now much smaller than the financial structure it supports. Money becomes more money without going through the surplus-value-producing commodity phase. Thus rather miraculously money grows when it is transferred from one pocket to the other. This results in a bubble. When the stock market bubble burst, money flowed into the property sector.
In the property market, financial institutions flush with liquidity — banks’ lending level raised by sale of varieties of instruments — pushed loans to customers, first to relatively safe customers, then to risky customers. When there was easy cheap money, property prices zoomed upwards. A 100% mortgage becomes only 80% when the price of the property balloons out. Past records therefore justified the banks in giving the loans.
Banks packaged these mortgage (asset)-backed securities and sold them to investors, in the US, the EU, East Asia and the oil rich Arab sheikdoms, making their commissions in the transactions. The money from the sale of these securities was swallowed up by the US sub-prime markets, helping to further finance the purchase of homes and enabling the growth of consumption spending. Often the banks were tempted to sell a part of these packages to their own investment divisions. These asset-backed securities were regarded as safe to keep, as they were backed by land and buildings — physical assets. Interest earned was tempting. The picture was rosy; executives earned astronomical rewards.
In a rising market, customers hoped to flip over and make a quick buck, making money without risk and without taking a cent out of their pockets. They were further tempted to take a second mortgage and enjoy the profit made from the first. Consumer goods sold well.
The inevitable rise in interest rates caused people to sell, to cut loss, to give up their properties. This further depressed the price of properties, and the sub-prime mortgage crisis started. Financial institutions that had invested in the mortgage-backed securities found the mortgages worth little, the securities “toxic”. Creditors were worried they would not get their money back. Credit dried up. Thus the financial crisis followed, leading to the economic crisis
Marx’s paradoxical truth that “capital is the impediment to capitalism” now becomes understandable.
Many financial institutions and sovereign funds in developing countries have bought into these “toxic” securities. It would be interesting to speculate that they may even have carried the loss made by private holding companies, as little to no transparency in developing countries is one of their features. The economic crisis spreads globally.
The crisis affects us, the third world, because we are plugged into the US power grid. There is a power shortage. There is no demand for our goods, a demand founded on the ability to go into debt and spend on credit, a function of the US dollar hegemony.
Developing countries followed the advice of the World Bank and the IMF. The formula for development was to invite foreign direct investment (FDI). We were told that these big multinationals would bring their own captured markets with them, thus are recession-proof. We subsidized them with tax breaks, and allowed them to bring in already fully depreciated machinery as capital — machinery that could still be profitably used for a period, in regions with cheap labour and lax environmental laws. Interest rates were kept low, lower than in the developed countries, so that they could tap into the local capital market. For a while, unemployment was reduced until new machinery made it unnecessary to employ so many cheap workers.
The big boys crowd out the smaller local boys. Economic development became export-orientated. Cheap labour does not encourage an internal market. Profits earned cannot be repatriated without causing severe economic disruption. Whatever portion repatriated goes into property and finance, producing high inflation and bubbles. Reserves kept in US dollars devalue constantly. The end result of such expert advice is workers sweat, receiving low wages in poor working conditions, to produce cheap goods for the developed West and at the same time subsidize their debt due to the devaluation of profits held in a devaluing US dollar. This system inevitably results in greater and greater economic disparities in the country’s population and between the few oasis-like cities and the vast countryside. And in any economic crisis it is the poor masses that suffer from unemployment, insecurity, poor health, poor education, and hunger.
This type of development strategy has been shown to be unsustainable. Pinning one’s development on FDI, judging one’s growth solely on the growth of the GDP, which is distorted by FDI and not a good index for development is, to say the least, not wise. A better index of growth should be the increase in real wages of workers and increase in the income of the peasants. Growth is meant for people, not people for growth. A socialist alternative system has to be advocated.
The Socialist Alternative
Today the capitalist system has exposed its feet of clay. Public money is now used to rescue the masters of finance. The press has stopped singing the praises of the efficiency of free enterprise. TINA — there is no alternative — now means no alternative to pumping public cash into private enterprises. The formula is privatize when there is profit to be made, nationalize when public money is required to help the big private firms.
We have reached a crisis. Recovery will be slow and painful. The burden will of course be borne by the poor. When and how deep will the next recession be after the recovery? It is time to reconsider conventional thinking. Has the development been sustainable? Sustainable both economically and ecologically? Should we just consider tinkering with the system, with regulations, more regulations or deregulations, with Keynesian first aid, or should we not explore alternatives to the failed system, capitalism?
And any alternative system should not have profit motive as the imperative; the imperative should be people’s needs and welfare. Profit is important, but interests of the people should be foremost. This is what is meant by the slogan: politics, not economics to the fore.
As with capitalism, there is no blueprint for socialism. Capitalism’s evolution and development is determined by its imperative of profit motive. Socialism’s evolution will be determined by the imperative of serving the needs of the people. The road comes into existence when mankind walks along it. The direction is important. But one must also bear in mind there is two-way traffic. Lessons have to be learnt, and mistakes recognized. Nationalization of the commanding heights of the economy espoused by the (old) British Labour Party in its early days, thought to be an important step to a new society and changing people’s social values in the process, entrenched state capitalism and ended in neoliberalism. Nationalization, and its varieties, are steps forward, but can, as in pre-war Italy, ended in fascism, or in control by bureaucratic elites, bent on enriching themselves.
Socialists should focus on the non-tangible economic relations. The capitalist relations of production and distribution have to be changed. Control of enterprises should be decentralized, with only the broad objectives planned by the center.
We are also faced with an ecological crisis — pollution and climate change. Capital, to make more profit, always seek to produce and sell as much as possible. It would be interesting to know how much of its ever-expanding production went to goods and services that are useless, unnecessary and destructive. Clothing is not meant to be worn out. It is discarded when fashion changes. Neither are cars and other consumer goods. Wasteful production and unnecessary pollution is built into the system.
Biofuels replacing fossil fuels does not help the greening of the environment if the total energy consumption remains the same. The market cannot offer cutbacks in consumption on the basis of any rational assessment of human needs. The rationing and auctioning of carbon points is farcical. Further, private profit dictates the cost of environmental pollution be pushed onto the public expenditure. This process makes pollution difficult to control. The capitalist system is inherently unable to control pollution.
There is debate on whether the warming of the earth’s climate is not a cyclical phenomenon. There is no doubt that capitalism has contributed to the hothouse effect that exacerbates this natural phenomenon. Have we reached the “tipping point”? The point of no return? Today we are noticing changes in everyday weather, the reduction in snowfall, the retreat of the glaciers, the reduction in river flows, the impending shortage of fresh water supply, and the rising of the sea level, with all the adverse consequences. What will face the human species in 30-50 years’ time? From the ecological perspective an alternative socialist social system becomes imperative.