Is Cuba Done With Equality? — Not So!

Fred Feldman

July 14, 2008

Cuba’s June 11 announcement of modifications to its wage structure to introduce productivity incentives has aroused a great deal of critical comment among radicals and socialists. The issues are sharply posed in “Of Pay and Productivity: Is Cuba Done With Equality?” an article by Moshe Adler in Counterpunch, a radical U.S.-based webzine.

The debate is influenced by misrepresentation by the capitalist media.

Thus, the New York Times began its initial report on the new wage incentive by saying this was the first radical change in the Cuban wage structure since 1959, when Castro decreed that all Cuban workers would receive the same wage. This is a complete fantasy. No such decree was ever issued, and there have been many changes in the wage structure as significant as this one.

An Agence France Presse article claimed, “For years the pay for street sweepers and brain surgeons has been separated by just a few dollars a month.” An urban legend, pure and simple.

Pro-capitalist course in Cuba?
In contrast to the bourgeois media, Adler is genuinely sorrowful about the sad fate awaiting the Cubans as a result of this wage reform.

As for myself, I have learned to value the opinions of the leaders of revolutionary Cuba who have managed with considerable skill and thoughtfulness overall in a wide variety of challenging situations. As a result the revolution has survived longer than any of this kind in history. So I approach their actions with a certain respect.

Adler begins with a ringing proclamation: “The Communist Party of Cuba … has just announced that from now on wages in Cuba will not be determined by the government, which kept them nearly equal, but by workers’ productivity.” Exciting, no? But he doesn’t stop there:

“Of course, since it was the Party itself that made this change, ideologically this is as momentous as the fall of the Berlin Wall.” Hot puppies!

This proclamation of a world-historic shift is based on a statement that is factually inaccurate.

The Cuban government has not surrendered control of wages to the market, to productivity statistics, or to anything else. The Cuban government proclaimed the new wage incentive for increasing production. If they concluded this was not was called for, they could rescind it tomorrow.

This measure does not abandon government direction in regard to wages and can be modified by the government as and when it thinks best. In almost any capitalist country today, this wage decree by a government would be considered as intolerable micromanagement, not the surrender of all control.

End of equality as social goal?
“That this is an ideological defeat for equality and for communism there can be no doubt,” writes Adler.

Does the measure overturn a condition of near-complete equality which existed up till now? No. Nor does it reverse the long-term course toward equality in Cuba, which continues to advance in some rather important areas such as women’s and gay rights? Again, no.

The issue is complicated by negative references in Cuban economic debates to what is called “equalitarianism.” The term is not new there. It refers to efforts to prioritize the creation of immediate simon-pure equality above everything else that is needful, regardless of the real practical social or economic consequences. This can actually have destructive and demoralizing consequences in a transitional (still far from fully socialist or communist) society.

Che and material incentives
Che Guevara also used the term, in that sense, contrary to the portrayals of him in the capitalist media and sometimes on the left as a simon-pure utopian “equalitarian.”

In a letter to the Guardian, Helen Yaffe neatly punctures the myth of wage equality in Cuba, as well as the misrepresentation of Che Guevara that identifies him with this fictional utopia. She points out that the real revolutionary Cuba was different and had to be:

“In reality, there has never been an ‘egalitarian wage system’ (i.e. one where every worker was paid the same): Che Guevara himself devised a new salary scale, introduced in 1964, with 24 different basic wage levels, plus a 15% bonus for over-completion. This scale … linked wages to qualifications, creating an incentive to training, which was vital given the exodus of professionals and low educational level of Cuba’s workers….
“The new pay regulations were introduced to standardize salary policy across the economy as part of the general implementation of the economic management system operating in army enterprises since 1987. Capped or not, bonus payments in Cuba are awarded for outperforming the national plan in the production of physical goods or services. Your article did not mention the fact that these payments remain capped at 30% of salary for various bureaucrats, technicians and economists — a measure to prevent the emergence of a technocratic elite.
“The new salary incentives — to increase internal production and productivity, particularly in agriculture and exports — reflect Cuba’s push to reduce vulnerability to the global food price crisis, rather than a return to capitalism.”

Cuba is still on road to greater equality. The incentive pay increase need not mark, in and of itself, a radical expansion of the current wage differentiations in the working class, nor make stratification of the working class in particular or the society in general radically wider and more explosive. The trend may well be toward a general increase in wages and living standards, stemming in part from a rise in productivity.

There is no necessary tendency of the wage incentive to divide the working class along hostile lines, as incentives to intensified and more efficient labor can and do entail in the United States. In Cuba, increased production and relative prosperity has consistently tended to strengthen the oppressed, not the oppressor.

Whether fundamental inequality will deepen or decrease in the next period will depend ultimately on whether the benefits of a rise in productivity, if the Cubans achieve this, are socially shared rather than concentrated in the hands of individuals.

The wage incentive decreed by the Cuban government seems likely to be considerably less stratifying in its effects by far than the tourist industry and remittances from the United States, not to mention the period of “dollarization,” have been. (I leave aside here the significant political advantages of tourism for the Cuban revolution internationally.)

Why workers need material incentives
The purpose of the new incentive is an elementary but perfectly legitimate one — to inspire workers to intensify their labor, take better care of their machines, and so on.

This is an attempt to move the working class, the agricultural workers, and the society as a whole (not just individual model workers) away from the truly demoralizing and corrupting “they pretend to pay us, we pretend to work” mentality. This approach has social roots in the conservative and bureaucratic administration of factories, and became the norm in the former Soviet and East European post-capitalist societies. But it also affects revolutionary societies like Cuba which for long periods have had to grind away at a relatively low subsistence level, which can pass for “equality” when viewed from the outside. To yield to it is to accept the perspective of eternal stagnation.

This present “incentive” is linked organically to the perspective that work can better the conditions of all; that it can make their country stronger relative to the imperialist enemies; and that it will make Cuba a more effective contributor to progress and unification in Latin America.

Have the Cubans become bourgeois economists?
Adler insists that the Cuban leadership has “fallen for the fallacy that the wages in market economies are determined by productivity.” There are two unexamined givens here for the price of one. First, that the wage incentive demonstrates a decision to imitate the methods of “market economies.” Despite Adler’s insistence on the world-shaking significance of the adoption of this wage incentive, no evidence is provided.

The other unexamined given in Adler’s assertion is that the Cuban leaders believe that wages in capitalist societies are determined by productivity. No evidence beyond the mere fact of the wage incentive is presented to support this.

But Raul and other Cuban leaders are quite insistent that they are Marxists. And Marx explained that wages are determined in capitalist societies by the cost of reproduction of labor power (that is, of workers), as affected by such factors as the relationship of forces in the class struggle, and (in imperialist countries) the added flexibility the ruling classes gain by raking in super-profits from around the world.

There is plenty of evidence that the Cuban leaders take Marx’s analysis seriously.

Labor productivity exists and is measurable. (Adler disagrees here; see appendix.) Today in capitalist countries it gets measured in the interests of the capitalists, and workers find the time and motion man standing over their shoulder, looking for ways to squeeze more out of them to enrich the boss.

But after a socialist revolution, the productivity of labor remains a key guideline of how far forward the new society has gone and can go. The increase in the productivity of labor is one of the central material forces for progress.

Cuba’s grim future, according to Adler
Adler concludes that the Cuban leaders will probably observe the pay differentials that exist in the West and implement them at home. “What’s in store for Cuba is the standard menu that comes with wage inequality, including poor public education but first-rate private schools, insufficient or no health care for the majority but excellent medical care for CEOs and government officials, a substantial increase in the length of the working day, with fewer vacations and job insecurity to boot.”

Wow! Talk about how great oaks from little acorns grow! The alleged acorn in this case being the proffering of a modest wage increase to encourage increases in labor productivity. And the great oak being the destruction of public education, the elimination of universal medical care, growing illiteracy, a declining life span for the people, mass poverty and so on! And no need to show how any of this comes about, let alone why it must come about!

But I think the matter can be presented more accurately in the opposite way. The advanced and still advancing systems of medical care and universal public education in Cuba require a growing productivity of labor. Socialist good will on the part of the leaders or the masses is not enough, and stagnation will not do. If the conditions of the “special period” had gone on indefinitely these revolutionary social institutions would have begun to fray and disintegrate along with the revolution itself. But Cuba survived the special period. Events — particularly in Latin America — have sharply reduced the relative isolation that affected Cuba after the fall of the Soviet bloc, and opened up new prospects and perspectives for the revolution.

It takes more than positive ideals and ethics to create a socialist society. The possibility of a socialist future for the world was opened up in part by the increase in the productivity of labor represented by the creation and rise of the modern working class. And worldwide, further increases in the productivity of labor, oriented in a quite different social direction, are needed if socialism is to be won.

Gorbachev’s Soviet Union and Raulista Cuba
Gorbachev took some measures similar to those in Cuba at the beginning of his regime. I didn’t find the measures at that initial point wildly objectionable either.

But the context proved to be all-important. The Russian revolution was one in which the forward drive of the workers and peasants as governing classes was decisively pushed back from the mid-1920s to the 1930s. A caste of officials took command of the state, and the party leadership was purged of all revolutionary-minded elements. The noncapitalist state survived with sharp ups and downs, but beginning in the late 1960s, stagnation and decay became the norm in the government and economy and profound demoralization took hold among the people.

By the time Gorbachev took power, matters had come to a pass where neither moral nor material nor social incentives could move things forward. Could you imagine appealing to the workers to produce more based on ideals or the future of socialism in those years?

In Cuba, however, the revolution is alive, a tribute to the capacities and revolutionary dedication of the leaders as well as the masses. The people are different. The leadership is different. The morale is different. In Cuba, a combination of material, moral, and social and political incentives has the potential to continue the forward motion. In some respects, it was one such combination that brought them through the very difficult “special period” after the collapse of their Soviet bloc allies.

Cuba not turning away from socialism
The Cuban revolution is socialist in the national-class-social character of the revolution, the government, and in the aspirations and goals of much of the population. The nationalization of the factories and other industries and resources has given the people an important weapon for defending and advancing their interests and their perspective. I see no sign that this is being abandoned.

Is Cuba abandoning moral and social incentives? Are the internationalist missions of Cuban doctors, teachers, and others being abandoned? Is there any evidence that Cuban doctors and teachers routinely demand bribes for their services, as happened in the Soviet bloc? Or is Cuba giving up on internationalist support to countries that stand up to imperialism, especially those that undertake progressive social changes as well?

The army, though substantially draftee, remains from all reports highly motivated politically and socially, and internationalist in outlook. The officers and ranks are not concerned only about their own material benefits.

Cuba, though no communist utopia by any means, remains a long, long way from a dog-eat-dog society, including with the new organization of wages.

But Cuba cannot and will not reach socialism under present world circumstances. The revolution must hold the fort and gain more ground as best the Cubans can until more allies and participating countries can be won for the cause. That is the context of these changes, which seem moderate and reasonable to me, and seem to have been greeted favorably by the working people of the country.

Of course, whether these moves will have the desired results is another question. That involves many questions, not least the parlous condition of the world capitalist economy and the fate of the national salvation, anti-imperialist, and social transformations being attempted in a growing number of Latin American countries. Cuba is capable of standing alone for a long time. But things will surely be much better if they are less and less isolated instead.

If the new measures turn out to be flawed or imperfect, well, they can be corrected, adjusted, reversed, or extended — whatever is needed for the preservation of Cuba as a revolutionary state and society in an imperialist-dominated world. I tend to think that the masses can make themselves heard in Cuba through many formal and informal channels (more formal channels would be good, in my opinion). And I am convinced that their leadership has the revolutionary conviction and capacity to correct errors if that proves to be needed.

Fred Feldman, a factory worker who lives in Newark, New Jersey, is a contributing editor of Socialist Voice,. He has been an activist, beginning in the U.S. civil rights movement, for 47 years.


Moshe Adler, “Of Pay and Productivity: Is Cuba Done With Equality?” http://www.counterpunch.org/adler06202008.html

Helen Yaffe, “Cuba’s Wage Changes,” www.guardian.co.uk/commentisfree/2008/jun/20/cuba?gusrc=rss&feed=fromtheguardian

Appendix: Adler vs. Marx on workers as producers

Adler believes that the whole idea that the productivity of labor can be increased is a fallacy, and that attempting this in Cuba must lead to catastrophe:

“As economist David Ricardo explained some two hundred years ago, the very idea of ‘worker productivity’ is a hollow concept. Not only can a worker’s productivity not be measured, it cannot even be defined.
“Ricardo pointed out that production is normally performed by workers who work not with their bare hands but with machines, producing not a whole product but instead performing only one step in a production process that has many. Therefore, Ricardo explained, a worker’s productivity cannot be separated either from the productivity of the machine that she works with, or from the productivity of the rest of the workers in the production process. When a skyscraper goes up, how much of a building would there be with only a crane operator but no crane, or with only crane and operator but no workers to pour the concrete? The workers and machines together form a team, and measuring the productivity of the team is easy.”

I doubt the accuracy of Adler’s version of Ricardo’s theory.

Adler argues essentially that worker productivity cannot be measured because in production, human beings work as team members with other beings called machines. Who can tell what the human produces and what the machine produces? As the King of Siam says in The King and I, “Tis a puzzlement!”

Except in Marx, of course. He explains it almost from the get-go.

And his argument, in this case, is readily comprehensible from the standpoint elementary common sense and natural materialism — unlike other arguments of Marx’s, which, though equally correct, run counter to the ordinary appearance of things.

Human labour produces machines. Machines are not beings, but simply products of human labor– in many ways the central, most indispensable products of human labor today. They are produced by workers, laboring farmers, and artisans. Everything that is not produced by nature (including by non-human animals) is produced by human beings.

Machines produce nothing, except as tools created and utilized by human beings for the purpose of enabling human beings to produce more with less effort. A part of the machine’s power is expended in producing each product, and as a result a portion of the cost of production of the machine enters into the cost of production of each item produced by the human laborer utilizing the machine.

And that’s that. The machine has no productivity as such, only as an instrument for use in human production. It is created by human production to serve human purposes.

Of course, if the point ever comes where machines become producers and creators in their own right, I will be all for welcoming R2D2 and C3PO into unions, explaining to them socialist views on everything from the Cuban revolution to McKinney and Obama. I will be glad to enroll them in a revolutionary international movement, and fight side by side with them against the Dark Side.

But until that actually happens, I think that Marx’s approach works better than Adler’s. Working people, not machines, are the producers of goods, including machines. The power of machines to contribute to production is a human product, as are the goods that human beings produce with machines as their tools.

***** ***** *****


1) Richard Fidler , 14/07/2008

    A. It is not really pure “urban legend” to say that the pay for street sweepers and brain surgeons differs by only a few dollars a month. The key words here are “pay” and “dollars”. Wage differentials have traditionally, since the early years of the revolution, varied a bit (the scales being set by the government, albeit in consultation with the CTC), but figures I have seen indicate a ratio of highest to lowest in the range of 5:1. For example, if the highest wage were 1000 pesos a month, the lowest would be 200 pesos – figures that are within the current range I believe. But if these amounts are converted from pesos (the internal Cuban currency) to “dollars” (including CUCs, basically the U.S. dollar discounted by 10%), we have to adjust for the value of the peso in CUCs, which is 24 pesos to the CUC dollar. So 1000 pesos is, in dollar terms approximately, 40 dollars, while 200 pesos is 8 dollars, which yields a differential of 32 dollars a month. Not much, in buying power. Our hypothetical brain surgeon will take some time before she or he can purchase a personal computer, which goes for about $1500 (CUCs) in Cuba.

    Cubans are well aware of these differences. On the first day of my most recent visit to Cuba this last March, I was in a farmers’ market in Vedado, Havana. A woman was selling ice cream for a posted price of $1. I gave her one CUC (the only currency tourists are supposed to use). At first she refused to take it, then reconsidered and laboriously counted out 23 pesos in change (and then refused my proffered tip!). I found that the pesos were handy later on for purchasing newspapers, at 1 peso each, for example.

    As to “pay”, the obvious point is that “incomes” in Cuba can’t validly be measured by individual wages; the social wage includes free health care and education, low-cost housing, etc. And the major contradiction in Cuba, the major source of disparities, is of course the contrast between the CUC economy, to which only half the Cubans have access to any degree, and the peso economy. The new permission to buy cellphones and computers will only be exercisible by those with access to CUCs, and lots of them. This has implications for proletarian democracy that go beyond the important precondition that workers need to be relieved of basic survival exigencies if they are to be able to play any decision-making role.

    B. In the appendix, comrade Feldman addresses Adler’s Ricardian point about “productivity of machines”, but it seems to me that productivity is in fact already measured in Cuba according to enterprises and industries, that is, in collective production environments, and those productivity differences are reflected to some degree in the wage scales set by the government (with CTC consultation). My understanding is that the government is now to increase the weight of the productivity factor in wage determination, just as it did earlier in factoring in education, age and other considerations in order to manage income distribution, employment patterns, etc.

    2) Fred Feldman, 17/07/2008

    I want to thank Richard Fidler for his critical comments, just the kind of concrete information we need. I submitted Richard’s comments to the Marxism List, and Walter Lippmann submitted the following comment:

    There’s no such rule that the convertibles (CUC) are the only currency tourists are supposed to use. Any person can use either currency when whichever is appropriate. In this case, the vendor was simply giving the correct change, since the ice cream at that location was being sold in moneda nacional, regular Cuban pesos. Offering to pay for an item which is sold in moneda nacional with CUC simply means that an honest vendor - of whom there are more than a few, has to calculate and give the proper change. No biggie.

    Regular and convertible pesos are exchanged at the exising rate in places (CADECAS), or by vendors.

    By the way, most newspapers, like Granma and Juventud Rebelde, which are eight-page tabloids, have a cover price of twenty CENTAVOS, which is less than one single penny U.S. Or Canadian. That is the price one is supposed to pay for it at a kiosk. What really happens is that the individual vendors buy bundles at forty centavos per copy from the kiosk workers, and then resell them at one peso, making a “profit” of sixty centavos per copy. All of this in moneda nacional. This is one way that older people who have no other incomes supplement their meager pensions.

    3) Ian Beeching 20/07/2008

    I would like to challenge the idea that “after a socialist revolution, the productivity of labour remains a key guideline of how far forward the new society has gone and can go. The increase in the productivity of labour is one of the central material forces for progress.”

    In an advanced industrialized country like Canada I do not believe the main task would be of increasing productivity but rather reorganizing industry and redistributing what is produced. Productivity is key in underdeveloped countries but in advanced industrialized countries productivity of labour is less met by increasing education and more by forcing workers to work harder and breaking unions.

    I believe one of the leading struggles of a socialist revolution in Canada would be to shift production away from rampant consumerism towards environmentally sustainable goods, and towards cleaning the environment.

    It would also be a key point for Canada to share its wealth with underdeveloped countries. In this respect I think a redistribution of wealth with an emphasis on providing technical and material assistance to third world countries outranks the need to increase production at home.

    4) Fred Feldman 29/07/2008

    I agree, in full or substantially, with much of what Ian writes.

    The differences concentrate in this paragraph:

    “In an advanced industrialized country like Canada I do not believe the main task would be of increasing productivity but rather reorganizing industry and redistributing what is produced. Productivity is key in underdeveloped countries but in advanced industrialized countries productivity of labour is less met by increasing education and more by forcing workers to work harder and breaking unions.”

    Here I think matters get confused by the dissolving different class and social relations into over-generalizations about “industrial” and “under-developed” countries. Better to consider class relations in the state and on the job, and the difference between imperialist states and oppressed nations.

    The fact is that in every capitalist country, where capitalist social relations and capitalist production has become dominant, whether industial or undeveloped. the need for increased productivity of labor is “less met by increasing education and more by forcing workers to work harder and breaking unions.” In ALL such situations, not just the most industrialized, the drive for a higher productivity of labor stems not from meeting human needs but from the drive to reduce the value of labor power and claim larger shares of the surplus value being produced by the working people.

    But the tendency to continually increase the productivity of labor is the key to capitalism’s relatively progressive role at one time. Without this accomplishment, the capacity to solve the problems and undo the devastation brought about by capitalism on a high level of culture would be excluded. In the end, whatever has been gained cannot be preserved and whatever has been damaged or wrecked cannot be corrected without continuing growth in the productivity of WORLD labor.

    Note that I did not say that the increase in the productivity of labor will be the “main” task after the overthrow of capitalism in either former imperialist or oppressed nations. But other tasks will not be accomplished without or completely separable from further advances along that line, as Cuba has learned over the years. Note Raul Castro’s July 26 speech and Fidel’s Castro’s recent comments on education for examples of this kind of thinking, so distant both from dreams of the obsolescence of labor or from profit rather than human needs as the motive force of labor.

    I agree with Ian about the tasks he lays out, and not just for former imperialist countries: reorganizing industry, environmental health, aiding the development and equalizing conditions of oppressed nations with those of the former imperialists. I think, though, that he places them in too purely a redistributive rather than productive framework. For instance he says socialist Canada must “share our wealth.” No workers in Canada, in their own class interests as well as out of human solidarity, must labor more to help end the inequality of the oppressed nations and peoples, internal and external.

    We must LABOR. not just share the wealth, for the world, not just for ourselves.

    Canadian working people will have to work to reconstruct not just industry, but the world on new foundations.

    I think that not only a greater degree of energy austerity (to give just one example) will be needed — affirmative action measures to redistribute energy in favor of the energy needs of the great majority of the world’s population. But I think this will also be a need to recast energy supplies for a needy world that will allow for increased access and use of energy safely. How will we deal, for instance, with the current growing dependence of oppressed nations on nuclear power for their energy supplies.

    In my opinion, environmental needs will call for pretty much the complete reconstruction of modern industry on the basis of human needs, including the elementary human need for the preservation of the natural environment of which we are a part, but which we have been trained to treat as an obstacle to be gotten out of the way.

    In some areas, with agriculture being likely one, this may require steps back in terms of productivity toward previous or slower productive metbods — which of course may also mean more as well as more intense labor by working people. But working people will also seek to get on the road of increasing productivity safely, the key to security, leisure, and much else.

    All in all I think workers in Canada will be very busy after a revolution and will be working pretty hard if more healthily and comfortably. They won’t be ready to retire and spend their leisure time redistributing their accumulated wealth. They will be about as busy as workers anywhere else, I predict, and in many cases they will be working to create a new world for working people and the oppressed everywhere.

    I am largely leaving aside a discussion of another central point — that is LABOR AS A HUMAN NEED, the source of all human intellectual and material creativity. This was central to Marx’s communist vision — that human beings need to break the fetters of class society and build anew in order to labor as free people. That, at least as much or even more than the need for rest and leisure, is at the heart of Marxism as a vision of a human society.

    Thanks for your thought-provoking comment

(source http://www.socialistvoice.ca/?p=307)

Is Cuba abandoning socialism?

Marce Cameron

Since Raul Castro became Cuba's president, the Cuban government has announced a range of reforms to the country’s post-capitalist economic system. This has resulted in much speculation in the Western corporate media that under Raul’s leadership Cuba is abandoning its commitment to socialism.

Raul Castro, who had served as Cuba’s vice-president since 1976, assumed the responsibilities of president in July 2006, when his elder brother, Fidel, who had served as president since 1976, was suffering from an undisclosed digestive illness. On February 19 this year, five days before his mandate was to expire, Fidel announced he would neither seek nor accept a new term as Cuba’s president.

On February 24, Cuba’s National Assembly elected Raul to succeed Fidel as the country’s president. Since then, the Cuban government has put electrical goods such as mobile phones, personal computers, microwave ovens electric scooters on sale in state stores, now that the electricity generation and distribution system has been upgraded and millions of energy-efficient appliances have been distributed to Cuban households in an “energy revolution”.

The government has also lifted the ban on Cubans staying in tourist hotels and has given state enterprises until August to implement a new wages system that ties payment to productivity and eliminates the upper limit on what workers can earn.

The most far-reaching changes are being felt in the countryside. Cuba has more than enough arable land to feed its 11 million inhabitants and the two million tourists who visit the Caribbean island each year. Despite its flourishing urban organic farms, Cuba still imports some 80% of the food sold to the population at heavily subsidised prices, at a time of soaring oil and food prices on the world market. Meanwhile, half the country's farmland lies idle or under-utilised, much of it overrun with the farmer's nightmare, a thorny tropical weed known as the marabu bush that is very difficult to eradicate.

Now, the most productive agricultural cooperatives and private farmers are being allowed to grow crops and raise livestock on idle state-owned farmland. In an effort to boost production, the state has more than doubled the price it pays farmers for milk and meat, and is encouraging dairy farmers to sell milk directly to schools, hospitals and work centres in the country's 169 municipalities. Previously, farmers had to sell to a centralised, and inefficient, state distribution network. Farmers can now buy seed, tools and supplies directly from state stores rather than being assigned these goods centrally by the state.

In another move towards administrative decentralisation of Cuba's highly centralised planned economy, decisions about which crops are grown where will no longer be made at the agriculture ministry's head office in Havana, but at the municipal level in consultation with local farmers and municpal authorities. Cuba will also seek more foreign investment in agriculture through joint ventures between the Cuban socialist state and foreign investors.

An article on these reforms in the June 13 London Independent was headlined: “The end of Communism? Cuba sweeps away egalitarian wages”. Writing from Washington, DC, former Independent foreign editor Leonard Doyle noted that the decision to scrap what he termed “one of the fundamental pillars of socialism” was announced in an article in the June 12 Granma, the daily paper of the Communist Party of Cuba (PCC). Granma reported that deputy labour minister Carlos Mateu Pereira had announced a new wages policy that would enable Cuba to conform to “the socialist principle of distribution will be achieved wherein everyone earns in accordance with his contribution, in other words, pay in accordance with quality and quantity”.

Mateu said the new “salary system should be seen as a tool to help obtain better results in output and services. Generally, there has been a tendency for people to earn the same, and that egalitarianism is not helpful. That is something that we have to fix ... because if it is harmful to pay workers less than they deserve, it also is harmful to pay them what they have not earned.”

Reporting these remarks, Doyle wrote that the new salary system “will be astonishing to generations who have grown up on a diet of hardline Communist Party doctrine” because marks a move away from “Fidel Castro’s creaky egalitarian model” that has “kept surgeons and taxi drivers on much the same salaries for the past 50 years”.

However it is Doyle, not the PCC leadership, who equates socialism with the attempt to administratively suppress social inequalities in a society that has abolished capitalism but is still very far from having created a socialist society of shared wealth and social equality amid material plenty.

The British Guardian daily made similar false claims in a June 13 article headed “Cuban workers to get bonuses for extra effort”, followed by the kickers “Government abandons egalitarian wage system” and “Pillar of socialism ditched in a bid to revive economy”. In a letter to the Guardian published on June 20, Dr Helen Yaffe — a postdoctoral fellow at the University of London’s Institute for the Study of the Americas and author of Ernesto Che Guevara: The Economics of Revolution — pointed out that there has never been an “egalitarian” wages system (where every worker is paid the same amount) in Cuba.

Yaffe wrote: “Che Guevara himself devised a new salary scale, introduced in 1964, with 24 different basic wage levels, plus a 15% bonus for over-completion. This scale — which I studied during my research in Cuba on Che’s work as minister of industries — linked wages to qualifications, creating an incentive to training, which was vital given the exodus of professionals and low educational level of Cuba’s workers.”

Yaffe notes that, like Karl Marx, Guevara recognised that during the period of transition from capitalism to socialism every able-bodied adult is obliged to work, and those who contribute more to society should receive more from society. “Cuba”, Yaffe noted, “has never claimed to be communist and therefore has never embraced the principle 'from each according to his ability, to each according to his needs’, which expresses the attainment of communist society.”

Building socialism
In his 1875 Critique of the Gotha Program, Marx explained that while the ultimate goal of the socialist revolution is to do away with “work for money” and “the compulsion to work for wages” and thus the “rationing” of goods and services according to each person’s contribution to social labour, these are unavoidable in a society that is at the beginning of the transition from capitalism to communism. Such a post-capitalist transitional society, Marx wrote, will be “in every respect, economically, morally, and intellectually, still stamped with the birthmark of the old society from whose womb it emerges”.

While the socialist revolution establishes social ownership of the key economic resources and abolishes or severely curtails capitalist exploitation, society is not yet rich enough to liberate the working people from the compulsion to work for wages. Most consumer goods are still commodities, available only to those with the money to pay for them.

During the transition to socialism, the direct allocation of resources according state plans to meet social needs expands at the expense of commodity production, i.e., the production of goods for sale. Beginning with social services such as health care and education and basic goods such as food and clothing, the free distribution of goods and services according to people’s rational needs (not the irrational wants stimulated by capitalist advertising and profit-seeking) gradually displaces money wages as social wealth grows.

Ever-higher levels of labour productivity allow for a steady reduction in required working hours, making it possible for everyone to have greater amounts of non-working time, including time to voluntarily participate in discussions and decision-making in the management of their workplaces and in the public administration in general. Full socialism (communism) is achieved when, on the one hand, society is so rich that it is no longer necessary to “ration” the goods people need according to the individual’s labour contribution to society and, on the other hand, work is no longer a social compulsion but has become the voluntary creative practice of free men and women imbued with a communist consciousness.

Che’s contribution
In his famous essay “Socialism and Man in Cuba”, penned in March 1965 when he was minister of industry in Cuba’s revolutionary government, Che Guevara grappled with the difficult problem of how to achieve higher levels of productivity while simultaneously cultivating communist consciousness.

Guevara contrasts this communist consciousness with the selfish individualism of capitalist society. The convulsive forces which drive capitalism “are blind and are invisible to ordinary people, act[ing] upon the individual without he or she being aware of it. One sees only the vastness of a seemingly infinite horizon ahead... The reward is seen in the distance; the way is lonely. Furthermore, it is a contest among wolves. One can win only at the cost of the failure of others.”

To forge a communist consciousness, “on the one hand [the revolutionary] society acts through direct and indirect education; on the other, the individual submits to a conscious process of self-education. The new society in formation has to compete fiercely with the past. This past makes itself felt not only in one’s consciousness — in which the residue of an education systematically oriented toward isolating the individual still weighs heavily — but also through the very character of this transition period in which commodity relations [i.e., money, wages] still persist. The commodity is the economic cell of capitalist society. So long as it exists its effects will make themselves felt in the organization of production and, consequently, in consciousness.”

Che warned that, confronted with the misery and backwardness inherited from centuries of colonial rule and six decades of imperialist exploitation, in underdeveloped countries, “the temptation is very great to follow the beaten track of material interest as the lever with which to accelerate development. There is the danger that the forest will not be seen for the trees. The pipe dream that socialism can be achieved with the help of the dull instruments left to us by capitalism (the commodity as the economic cell, profitability, individual material interest as a lever, etc.) can lead into a blind alley.

“Meanwhile, the economic foundation that has been laid has done its work of undermining the development of consciousness. To build communism it is necessary, simultaneous with the new material foundations, to build the new man and woman.”

While Guevera is often dismissed as a romantic idealist, he did not reject the use of material incentives (higher monetary remuneration for producing more and better goods). While he emphasised the importance of cultivating a communist consciousness through the use of moral incentives (such as social recognition for outstanding effort and volunteer work brigades), he believed that moral incentives must be used “without neglecting, however, a correct use of the material incentive — especially of a social [i.e., collective] character”. In essence, Che called for a balanced combination of moral and material incentives.

The ‘Special Period’
The collapse of the Soviet Union at the beginning of the 1990s plunged Cuba into a profound economic crisis known as the Special Period. The government’s top priority was to avoid mass starvation and to ensure that the hardships caused by the loss of trade with and aid from the Soviet Union were shared as equitably as possible. It did this by extending the ration book system first introduced in the early 1960s at the beginning of the US economic blockade, which is still in place almost 50 years later.

Through the ration book system Cubans purchased a monthly quota of basic goods at highly subsidised prices. In the early ’90s this system was expanded to cover almost all available consumer goods.

Faced with the loss of 80% of its imports and a 35% decline in its GDP, instead of throwing millions out of work, the Cuban state continued to pay people 60% of their wages while factories lay idle for lack of fuel or raw materials. As supplies of imported goods slowed to a trickle and the stores selling non-rationed goods emptied, the Cuban peso became almost worthless, declining from a black market rate of seven pesos to the US dollar in 1989-90 to a low of 120 pesos in 1994.

The material incentive to work had collapsed, yet the great majority of Cubans heeded the PCC leadership’s appeals to keep working. No schools or hospitals were closed and no-one was left destitute. The sense of solidarity with which most Cubans responded to the crisis revealed that the political awareness and ethical values sown by three decades of socialist revolution had taken deep root in Cuban society.

Cuba had no choice but to reintroduce elements of capitalism and concessions to market mechanisms — more joint ventures between the Cuban socialist state and foreign investors, legalising the possession of US dollars, a free market in agricultural products, the expansion of self-employment, self-financing of state enterprises and a tourism-led recovery — in order to save the socialist revolution.

The building of socialism would have to be put on hold for the duration of the Special Period, and the revolution would have to walk a precarious tightrope between economic stagnation and the tendency of the market forces to lead to growing social inequality, the corrosion of socialist values and the restoration of capitalism.

While the expansion of market mechanisms had the desired effect of stimulating economic output — leading to a gradual recovery during the second half of the 1990s — it also led to a sharp rise in income inequality as a “new rich” sector emerged among the more successful self-employed entrepreneurs. Others amassed small fortunes by plundering state property to sell on the thriving black market, while still others received substantial dollar remittances from relatives living in the US.

A social divide opened up between the minority who had access to US dollars and those who didn’t, undermining the ethical foundations of the socialist project. The social pyramid was inverted. That a hotel waiter could earn more in tips from Western tourists in a single night than a state-employed heart surgeon earned in a month became an insoluble ethical dilemma.

Linking income to work
As Cuba emerges from the Special Period, it must reassert the principle that those who contribute more to society should receive more from society, as explained by Central Bank president and PCC central committee member Francisco Soberon in a speech to the National Assembly in December 2005. “Under capitalism”, Soberon noted, “absolute insecurity about the future and the threat of being literally crushed by that fierce and inhuman system forces persons to use all their physical and intellectual resources not only to obtain a daily survival but also to try to create a monetary reserve that could free them, at least partially, from this distressing insecurity.

“In our socialist system, this climate of uncertainty disappears and man is guaranteed a large part of his basic necessities, regardless of his contribution to society. Comrade Fidel once said that the Revolution would not achieve its highest moral values until we are capable of producing more as free men than as slaves. I believe that ... we have not yet achieved those high values. Under these circumstances, it is of utmost importance that the distribution of goods and services is clearly and directly linked to the standard of living with the effort of each from the position he occupies in our economic structure.”

Soberon explained that with the emergence of a “new rich” sector during the Special Period, the rationing system and other state subsidies were subsidising the “new rich”, allowing them to pay next to nothing for food, housing, utilities and transportation.

“Paradoxically”, Soberon said, “the present system of highly subsidised distribution aimed at guaranteeing the basic needs to those who live from their salary ... also benefits a rather large number of persons who receive incomes in foreign currency or higher salaries in national currency to such an extent that they can cover the subsidized products and services for a year for a fraction of their incomes.” This situation is not only economically untenable, “it is ethically and morally unacceptable that someone of working age can live comfortably without the need to work”.

The worker who relies solely on his wage, salary or pension “finds himself in a difficult situation because the money he earns may be more than he needs for” rationed products, said Soberon. “However, it is not enough to buy products that are also necessary but which are sold at market prices” in the convertible currency stores.

All these factors contributed to a situation “where the salary no longer truly motivates” a person to work. He or she may keep working “for a number of reasons, some honourable ones such as self-esteem and a sentiment of revolutionary duty; but others do not feel the same things”. But some kept their jobs as cover “for criminal activities”, and this was particularly harmful when a worker “has authority over important material wealth, becoming a primary factor [in] corruption and fraud”.

Soberon gave the example of “a thief who has stolen ten sacks of sugar, taking advantage of his position in the distribution chain of [rationed] products for his criminal purposes”.

The solution, according to Soberon, was to raise prices (as has been done with electricity) and increase wages and salaries “according to the social importance of each person in his work”. This would, he argued, gradually close the income inequality divide that opened up during the Special Period and re-establish the correspondence between income and the labour individuals contributed to society.

This is the solution that is today being implemented by the Cuban revolutiona ries. It will undoubtedly pose new challenges. Anticipating these, in his July 26 speech last year, Raul Castro observed that it “is the duty of each and every one of us, of party cadres especially, not to allow ourselves be overwhelmed by any difficulty, no matter how great or insurmountable it may seem to us at a given moment. We must remember how, despite the initial confusion and discouragement, we managed to face up to the first, harsh years of the Special Period early the last decade, and how we managed to move forward. What we said then we can more justifiably repeat today: Yes, we can do it!

“In response to bigger problems or challenges, more organisation, more systematic and effective work, more studies and predictions on the basis of plans where our priorities are clearly established and no one attempts to solve their problems at any cost or at the expense of others. We must also work with a critical and creative spirit, avoiding stagnation and schematics. We must never fall prey to the idea that what we do is perfect but rather examine it again. The one thing a Cuban revolutionary will never question is our unwavering decision to build socialism.”

[Marce Cameron is a member of the national executive of the Revolutionary Socialist Party and an activist in the Sydney branch of the Australia-Cuba Friendship Society.]

(source: http://www.directaction.org.au/?q=node/117)


Hedge funds, speculation and capitalism

Mick Brooks

Hedge funds are in the news again. They don’t much like being in the public gaze. We wonder why. Does their speculation cause prices to go up? Do they drive firms into bankruptcy so workers lose their jobs? These are the questions being asked. Let’s see what they get up to.

Where does the name ‘hedge fund’ come from? It has a bucolic feel to it, and that’s the way they want us to think of them. ‘Hedging your bets’ means trying to minimise risk. If a farmer wants to know where he stands, he may sell his 2009 crop, which he hasn’t planted yet, on the futures market. This will give him the money to buy the seedcorn up front and a feeling of security about the future. He’ll get a known price whether the harvest turns out to be good or bad. He hasn’t eliminated risk, just let someone else take it on. If you’ve sent a cheque in for the ‘Reformism or revolution’ book (which is still being printed) you’re playing the futures market! Futures are the simplest form of derivative. The derivatives market is called this because the instrument is derived from another transaction. It is contrasted to the spot market, where goods and money change hands at the same time.

This ‘everyday story of country folk’ is a long way from the reality of what modern-day hedge funds get up to. Some of the derivatives they deal in are so complicated that they need a bank of linked computers to work out the odds. Nobel prize-winning mathematicians have been sucked into the City to feed this tide of ‘financial innovation.’ And the sums of money that they deal with are awesome. Hedge funds are already playing with $2 trillion of other people’s money. There are $600trn of derivatives floating around the globe. They are a form of what Marx called fictitious capital. By way of comparison, the world produces less than $50trn in new goods and services each year. (See Wishful thinking by Michael Roberts)

The scale of operation is bigger but the principle is the same as before. The farmer didn’t want to bet on whether the 2009 harvest will be good or bad. But that meant somebody else did take a bet – the hedge fund. That’s what hedge funds do – bet with other people’s money. And bets can get more and more complicated. Ever heard of forecasts, trifectas, jackpots, placepots or pool bets? These are all ways of betting on horses. Usually they make it possible to win more money for a smaller stake. (This is called leverage in the financial markets.) Provided...always provided the horse you pick runs a bit faster than the others. And, as we shall see, leverage makes it possible to augment losses in the same way.

The attraction for rich people in ‘investing’ in hedge funds is that they promise, and deliver, returns of 30% a year. How is this possible? It’s a grisly story. Recently hedge funds have been betting on banks failing. After all you can win money betting on which horse comes last the same as which horse comes in first. Everyone knows the banks have been leaking profits since the credit crunch started last year.

Bradford and Bingley, for instance, declared a loss of £8m for the first four months of 2008, compared with £108m profits over the same period last year. The main reason for this was because they had to write down £89m in assets, discovering that it was actually bad debt. B & B decided they needed more money in the vaults. They chose to recapitalise by offering a rights issue. This means that they ask existing shareholders to stump up money for extra shares. B & B wants £400m. (Don’t we all?) Shareholders don’t like rights issues. They want to be left in peace with their money. So B & B shares went down in price.

The hedge funds have been on the case like jackals spotting a sick wildebeest on the veld. At one time they held 10% of B & B shares. A firm called GLG still holds 4.1% stake in B & B shares. But Texas-based TPG Capital has pulled out of the hunt. In fact B & B shares have now dipped so low they are said to be ‘virtually worthless.’

Other banks are still being stalked. Hedge funds have been buying up shares in Northern Rock since its collapse last year. They actually brought the bank to its knees in the first place by short-selling its shares (see below). They are punting on the prospect that Gordon Brown and his hapless Chancellor Darling will hurl more money at the shareholders, thinking that they’re all little old Geordie ladies with votes.

In the USA Lehman Brothers bank claims rumours are maliciously being circulated that they are virtually bankrupt and will soon be pulled to pieces like Bear Stearns was a few months ago. The fall of Bear Stearns Bank became a self-fulfilling prophecy once enough money got on the story. Is the threat to Lehman really just a case of incompetent managers blaming others for their firm’s misfortunes? Or are the hedge funds really up to something? Your guess is as good as mine.

So are hedge funds the bad guys? There is a different point of view, given by headlines such as ‘Hedge funds bail out ailing corporate world.’ (Financial Times 02.07.08) The article shows hedge funds rallying round Barclays in its search for funds and underwriting, not sabotaging, HBOS’ rights issue. Angels or assassins? Hedge funds are just capitalists. They will tear a firm to pieces if it makes money and then put it back together again if it makes more money.

But hedge funds work in the dark. And they’re now so mighty that, if they shout ‘fire’ in a crowded theatre, they can create a panic and amuse themselves later by looting the dead bodies of those caught in the crush. A wall of money can make things happen.

So what? Bear Stearns went belly up because of the financial crisis, not because of the machinations of hedge funds. Banks’ shares are going down because of the financial crisis, not because of manipulation. The financial crisis is part of a crisis of capitalism, not the product of evil minds. But, by golly, capitalism certainly produces plenty of evil minds. Capitalism is a dog-eat-dog world where only the nastiest and most ruthless survive. That’s just the way it is.

The Financial Services Authority has recently demanded that the shadowy people ‘short-selling’ company shares should be identified. It’s the hedge funds. Short-selling is a practice where a capitalist borrows 10 shares worth £100, for instance, on the expectation that they are going down, so that if he is right he can buy them back for £80 and keep the other £20 as profit. This is the opposite of ‘going long,’ when a capitalist buys a security in the expectation that its price will rise, and can keep the extra as profit if he is right.

Will Hutton fingers the hedge funds in an article ‘As we suffer, City speculators are moving in for the kill.’ (Observer 29.06.08) “The hedge funds weren’t even buying back the shares, they were ‘borrowing’ them from pension funds to manipulate the market,” he complains.

He goes on. “A spotlight has been shone on some very murky corners of the financial markets. There practices occur that challenge the very conception of what we consider a company to be, and the accompanying obligations of ownership. A multi-billion pound business has emerged in which shareholders lend their shares to hedge funds to be played with. For a tiny fee, a hedge fund will arrange to borrow shares from a great insurance company or pension fund which it proceeds to sell. Share-loans are believed to exceed a stunning £7.5 trillion.

“What then happens is the opposite of a bubble, a kind of financial black hole. The hedge funds sell the shares simultaneously, and the downward movement becomes self-reinforcing, with companies raising money during a rights issue particularly vulnerable. This is why the government forced disclosure. The hedgies reacted as if they were in Stalin's Russia; their freedom to kill a company stone dead was being challenged. Let's not mince words, that is the aim, and it gets ugly and personal. A senior official told me that in one case some hedge funds had allegedly warned the banks underwriting one rights issue to abandon it or face speculative attack - mafia practice.”

Will Hutton is an intelligent commentator, and his apocalyptic article raises important issues. Hutton’s basic mistake through all his writings is his search for a decent, humane long term form of capitalism as opposed to the rapacious bunch of spivs who actually dominate our economy. We have to ask, why should pension funds lend their shares to hedge funds, who then short-sell the shares in order to make the pension funds’ holdings worth less? And, if the pension fund managers really are that stupid, shouldn’t the funds be nationalised right away just to safeguard people’s pensions?

What is wrong with short-selling? Is it unethical? Under capitalism prices go up and down. They do so because people buy and sell, often with the aim of making money from the transaction. Is Hutton going to ban short-selling, so prices can only go up and never down?

The core of Hutton’s argument, and it has been raised by others, is that the wall of money moved by modern hedge funds can actually make things happen. Share prices go down because hedge funds sell, and not for any other reason, he argues. In that case they are just parasitic plunderers. But Marxists believe that capitalism is an inherently unstable system, and the operations of hedge funds and other speculators are merely the executors of the market forces through which the laws of capitalist anarchy work.

This point is at the heart of a controversy among capitalists and capitalist economists. Milton Friedman asserted that destabilising speculation was impossible. This was supposed to be the case because speculators who ‘got it wrong’ would be buying dear and selling cheap. They would lose money and soon disappear. Friedman, a notorious apologist for capitalism whose disciples advised General Pinochet’s regime of torturers in Chile, assumed that capitalism is a stable system. In that case the market just nudges people and things in the ‘right’ direction. But what is the ‘right’ direction?

Friedman totally ignores the fact that markets can systematically move in ‘wrong’ direction’ - the opposite directions to the economic ‘fundamentals.’ (Whatever they are and whether or not they exist.) This is proved by the existence of financial bubbles. Bubbles have been a feature of capitalism since its inception. For instance during the 1630s Holland was seizes by a mania for tulips. Tulips passed from hand to hand at ever-increasing prices. A rare tulip could sell for more than a farm. Why? Because each speculator assumed that, since prices were going up, they would be able to get more for the bulb than they paid for it. And why were prices going up? Because people were buying bulbs. The whole thing was a classic bubble, based not on ‘market fundamentals’ but on speculative mania.

Charles Kindleberger defines a bubble as “A sharp rise in the price of an asset or a range of assets in a continuous process, with the initial rise generating expectations of further rises and attracting new buyers – generally speculators interests in profits from trading in the asset rather than its use or earning capacity.” His book ‘Manias, panics and crashes’ is a cracking good read and an expose of the follies and villainies of capitalists over hundreds of years. Manias, panics and crashes have all been constant features of capitalism since its dawn – from the South Sea bubble that popped in 1720 to the housing bubble in the USA, Britain, Spain and Ireland that has just been pricked over the past year.

In 1953 Friedman wrote an article called ‘An essay on the methodology of positive economics’ in which he denied that the assumptions behind economic theories need be realistic. Indeed he applauded theories consciously built on unrealistic assumptions. “A theory is to be judged by its predictive power,” he asserts. Marxists deny this. We believe a theory is to be judged by its explanatory power, though we note in passing that Marxist political economy has vastly superior predictive power to the ravings of Milton Friedman.

He goes on, “To be important...a hypothesis must be descriptively false in its assumption.” And by Jiminy does he follow his own advice! He postulates a stable crisis-free capitalism, He ‘abstracts from,’ that is to say he ignores the existence of bubbles, of panics and manias, and of crises. Friedman has an infinite capacity to ‘forget’ about the shambles of real capitalism and instead sings us lullabies about the ‘rationality’ of the market.

But this is not the real market at all. Friedman is conjuring up the ‘invisible hand’ of Adam Smith, the hand of a wise man in the sky with a beard - god. Actually what we call market forces are the unconscious resultant of decisions taken by millions of individuals. These market processes are not willed or planned by any of the participants. Naturally markets are anarchic and can look chaotic.

Can speculators make money by putting up prices or destroying the livelihood of firms? Some argue that it’s all a zero sum game. If one speculator buys a piece of paper and makes money, then somebody else must have sold and lost money. Certainly society as a whole is not made one penny richer from speculation, a parasitic activity that burns up wealth. But if there are a group of people with inside information such as hedge funds, then they can profit at the expense of the savings of widows, orphans and others not in the know.

Secondly, hedge funds are not just gamblers. They are also the bookies. In addition to a share of the winnings, (made with other people’s money) they charge a management fee. As we know, whichever horse comes in first, the bookies always take their cut.

George Soros believes that markets can get it wrong and that bubbles can be blown up by speculative activity. He believes a wall of speculative money is partly responsible for the ever-rising price of oil. There is a difference between Friedman and Soros. Soros has played the markets and won – big time. He’s not just someone who has spent their life telling fairy stories about the delights of capitalism. He knows what it’s really like.

This is what Soros has to say about the fantasy of stable, self-correcting capitalism. "Unfortunately, we have an idea of market fundamentalism, which is now the dominant ideology, holding that markets are self correcting; and this is false because it's generally the intervention of the authorities that saves the markets when they get into trouble. Since 1980, we have had about five or six crises: the international banking crisis in 1982, the bankruptcy of Continental Illinois in 1984, and the failure of Long Term Capital Management in 1998, to name only three. Each time, it's the authorities that bail out the market, or organize companies to do so. So the regulators have precedents they should be aware of. But somehow this idea that markets tend to equilibrium and that deviations are random has gained acceptance and all of these fancy instruments for investment have been built on them."

Soros’ big coup was when, as hedge fund manager, he bet against the pound remaining within the European Exchange Rate Mechanism in 1992. As sterling was being squeezed out of the ERM the Tory government spent billions of our money, in effect throwing schools and hospitals at the foreign exchange markets. To no avail. Soros is believed to have made a billion dollars in a few days. Many economists argue that Soros did us a favour. The Tories had lodged sterling in the ERM at an overvalued rate. The pound was in effect suspended in mid air with no visible means of support and exports were hurting. It was only because of the Tories’ mistake that speculators such as Soros could make money.

Soros argues that a wall of money ($200 billion at last count) is powering up the future price of oil in particular. "The institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash,” he warned the US Senate.

As we argued earlier (see Why are so many people going hungry?), for Marxists speculation does not cause shortages, though shortages can lead to speculation – which makes the shortages worse. Ted Grant once compared the role of speculation to loose ballast in a ship’s hold. If the sea were calm, there wouldn’t be a problem. The storm is the cause of the problem. But in a storm the ballast can punch a hole in the ship’s hull and cause disaster. A wall of money can make things happen, but only when they’re prone to happen anyway.

To coin it in, speculators have to go with the grain of economic processes. Hutton goes on about oil prices, “One witness, hedge fund manager Michael Masters, argued that there were two identifiable sources of new demand over the past five years - from China and from speculation - both around the same scale. Without the speculation the oil price would still be below $100 a barrel.” Masters knows that, if capitalism hadn’t given us a shortage of oil, he wouldn’t be able to make money out of it.

But speculation in petroleum is profitable because demand is outstripping supply. Ten years ago oil stood at $10 a barrel. Oil companies could not be bothered to search for new sources of supply, and the western world guzzled petrol on the grand scale. Nobody knew how much oil the world would want in 2008. Now it’s panic stations.

So the problem is capitalism, not speculation. Prices go up anyway because capitalism is unplanned. Capitalism inevitably creates shortages at some points and gluts elsewhere. Firms go bust and workers lose their jobs because that’s how capitalist ‘competition’ works. Let’s kill it.

(source : http://www.marxist.com/hedge-funds-speculation-and-capitalism.htm)

See also:

* The dollar down the pan – monetary chaos to follow? by Mick Brooks (May 1, 2008)

* Capitalism beared by Michael Roberts (March 27, 2008)

* US slides into recession - who's next? by Mick Brooks (March 17, 2008)

* Financial meltdown: another day, another finance house bites the dust by Mick Brooks (March 17, 2008)

* 1929: Can it happen again? by Mick Brooks (March 17, 2008)