Capital & Class. - 1988. - Issue 35 issue 35

r

Mike Hall

The international debt crisis : recent developments

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The Crisis Continues Five years after its maturation in 1982, the international debt crisis continues to act as a deflationary influence on the international economy and haunts the capitalist world with the possibility of a major international dislocation - the bankruptcy of international banks and the incapacitation of the international financial system . In such an event, trade finance, investment flows, and, indeed, the international payments system would be more or less disrupted, making international depression inevitable . While these eventualities are still possibilities rather than probabilities, the fact that the stakes are so high makes the debt crisis remain one of the central problems of the international economy .

Creditors' Strategy Since 1982, when the debt crisis began to boil over, the creditor establishment,

7

Capital& Class 8 comprising the international commercial banks, governments and international agencies 1 have attempted to manage it on an ad hoc basis . Their central objectives were, first, to avoid open default by a major debtor, and, second, to prevent any alliance of debtors forming to face creditors with common demands. The first objective was to be achieved by rescheduling debts, advancing further loans, and obliging the debtor to follow an International Monetary Fund (IMF) `adjustment' programme designed, among other things, to reduce imports by cutting public and private consumption in the debtor country ; the second, by divide and rule through negotiating reschedulings one case only at a time . Recently, the banks have elaborated on this strategy. Once a country has reached agreement with the IMF, the banks approach the problem of managing its debt armed with a so-called `menu' of financing alternatives including the exchange of debt for equity investments, and `exit' bonds which allow banks to escape from being repeatedly asked for new money by replacing their loans with low interest securities . Exit bonds, which enable the banks to cut their ties with a country at the cost of lower interest rates, are, in fact, a complicated type of refusal to lend any more, or even to reschedule . However, the banks can also actually make money through such arrangements . Thus, in November, Mexico suspended its debt-for-equity swap programme for two weeks, in part because banks can buy a Mexican debt in the secondary market `at just over half its face value and then exchange it with the Mexican government for as much as 90 cents on the dollar [albeit] . . . redeemed in pesos linked to agreed investment programmes . . . in export sectors'

(The Financial Times, 6th November 1987). It must also be said that the creditor establishment, whilst not actually welcoming the debt crisis, has made the best of a bad job by using it as an opportunity - via the IMF and the World Bank - to force governments to implement 1980s' style free market policies in the debtor countries . Thus, `a senior us official' speaking in the name of the us government at the recent meeting of the IMF's policy-making Interim Committee, voiced `implacable opposition to proposals that the IMF and World Bank establish a new facility to "buy up" the debts of heavilyindebted nations' on the grounds that `[such proposals] . . . would completely undermine efforts to persuade debtor nations that major economic adjustment programmes were the key to the eventual resolution of their problems .' (The Financial Times, 12th April 1988) It must be remembered that these `major' adjustment programmes have the aims, on the one hand, of promoting the indigenous usually comprador - capitalist class, and on the other, of integrating the industry and agriculture of the countries concerned firmly into the international circuitry of capital, or in the worlds of the Baker plan [see below, p . 4] `encouraging the private sector and allowing market forces a larger role in the allocation of resources .' The creditors have had little option but to pursue their strategy of crisis management and damage limitation for they have little influence over the fundamental causes of the debt crisis which lie in the slowing of international capital accumulation which began in the mid-1970s . The us Senate's Church Report of 1977 noted that commercial banks began to lend to Third World countries as early as 1970 in response to the paucity of demand for finance from corporate capital, and that

International debt

some

had built up large debts even they were obliged to borrow again in order to finance worsened external deficits caused by OPEC's oil price rises of the later 1970s (us Senate, 1977) . The recession of the early 1980s and the tight money policies pursued by the USA and the leading imperialist countries as the latter abandoned their Keynesianwelfare state concensuses brought the debt crisis to a head . Interest rates and the dollar rose, increasing debt servicing burdens quite dramatically, while at the same time, Third World countries hard currency earnings were squeezed as demand for their exports fell and commodity prices dropped with the slowing of accumulation in the imperialist countries . The growth of protectionism directed `LDCs'

before

against Third World goods further exacer- 9 bated the problem .

The Baker Plan In October 1985 the us Secretary of State, James Baker attempted to move the creditors a small step beyond the case-bycase approach with his so-called Baker plan . The plan had three elements, first, debtor countries would, as previously, be required to implement austere 'adjustment' policies, but with greater stress on 'longer-term structural reform, encouraging the private sector and allowing market forces a larger role in the allocation of resources .' (House of Commons, 1986-7, p .xxxii) ; second, an increase in lending by commercial banks of $20bn . over three

Table 1 : Leading banks' lending to Mexico, Brazil, Argentina and Venezuela at end December 1984 and the impact of the special provisions of 1987 1

NatWest Barclays Lloyds Midland Citicorp Bank of America Chase Manhattan Manufactures Hanover J P Morgan Chemical NY Bankers Trust First Chicago Sources: American

2 of

3 % of

Lending

capital2

capital'

(UK £m . ; US $m .) 2253 2309 3676 4712

(end-1984) 73 62 165 204

(mid-1987) 62 52 112 159

10300 7420 6705 6769 4427 4022 2818 2287

140 122 142 173 103 134 114 103

100 100 104 118 86 96 90 80

Banks from Salomon Bros ; UK banks from City estimates ; The Banker, September 1987, p .31 . The first two columns are taken from C Huhne, Debt time-bomb under the banks The Guardian, 15th August 1985 .

Capital & Class 10 years - the decision to lend, however, was to remain a matter for the banks' commercial judgement ; and, third, a continued central role for the IMF and an enhanced role for the multilateral development banks, involving an increase from $6bn to $9bn annually in loans from the World Bank and the Inter-American Development Bank to the principal debtors over the next three years . The key element of the Baker plan was also its weakest, namely the $20bn voluntary increase in lending to the principal debtors on the part of the commercial banks . Not only was this sum regarded by many - not only the debtors - as inadequate, but leaving the decision to lend to the commercial judgement of the bankers could mean only one thing : a failure to meet even the conservative target of the plan . In fact, bank lending fell rather than rose in 1986, with the World Bank and the development banks, as well as the commercial banks, failing to increase their lending in line with the Baker suggestions . Indeed, the naivety of calling for increased commercial bank lending when it had been falling for four years led critics of Baker's initiative to conclude that `it was too much of a political initiative geared to defuse resistance amongst debtors to debt servicing .' (Griffith-Jones, p . 29, 1987)

The banks make a move In February 1987, Brazil, the largest single debtor country, together with other smaller debtors declared a moratorium on interest payments . In May, largely in response to Brazil's action, Citicorp, the parent corporation of the largest and most influential money-centre bank, Citibank, added $3bn to its loan loss reserve and, as a result, took the largest loss in the history of international banking . Despite

worries that Citicorp's action would expose the inability of other us and UK banks to follow suit, by the end of the summer of 1987, twenty-two of the thirty us banks with assets of more than $20bn ., together with all the UK clearing banks had made special provisions against their largest Third World debts . The total losses resulting from these actions amounted to $10 .7bn . (see The Banker, September 1987, p .31). Table 1 gives an estimate of the banks' exposure to just four major Latin American debtors before and after their allocations of special provisions . Other estimates of the banks' exposure in the Third World suggest that us and UK banks have now set aside loan loss provisions of 25-30% against the debts of 25-30 debtor countries . (The Banker, September 1987, p . 31) . In general, the allocation of special provisions mean that the major creditor banks now have reserves which provide cover against the default of any single major debtor country - even Brazil . They are, nevertheless, still vulnerable to an alliance of major debtors . Thus, for example, in Britain, Lloyds' and Midlands' special provisions cover only 50% and 42% respectively of their aggregate lending to Brazil, Mexico and Argentina . These bare figures, however, do not give a complete picture of the banks' collective vulnerability. For, firstly, banks are exposed domestically as well as internationally : the UK Treasury and Civil Service Committee notes that the us banks' dubious international loans are complemented by seriously deteriorated domestic loans in real estate and energy. Moreover, `In a number of countries, including both the us and the UK, banks are worried about their loans to certain branches of manufacturing industry.' (House of Commons, pp . xxi-xxii, 1986-7) . Secondly, the

International debt profusion of international interbank lending means that that the banking system of one country cannot be insulated from the risks borne by those of others . In particular, the UK banks' Latin American exposure is compounded by' . . . their extensive lending to other banks, particularly in the USA, which themselves are at risk in Latin America .' (ibid .) . Through the medium of interbank lending, then, the fortunes of UK high street clearing banks are connected via a chain of links to those of us regional banks with their uncertain real estate and energy assets . It is through such linkages that international financial crisis would spread in the event of major debt defaults .

Implications of the banks' provisions The banks' reinforcement of their loanloss provisions is, at first sight, profoundly ambiguous . On the one hand, it could mean, as Kaletsky of The Financial Times puts it, that the banks are facing the facts at last, and are able and willing to `make sizeable concessions to the debtors .' (The Financial Times, 21st May 1987). On the other hand, the banks' move has been interpreted as a hardening of their stance, and the first step towards their disengagement from the Third World, a view brutally expressed as follows ; `If Citicorp can get to the stage of having written off or provisioned most of its bad debt, then when the rescheduling begging bowl [sic!] comes round again, it can shake its head, fold its tents and steal away.' (Boolney, 1987) Indeed, it is difficult to imagine why banks, which have taken large losses in order to provide insurance against their loans to Third World countries should want to re-expose themselves to these same countries . It is far more likely that, while the loan-loss provisions will enable

the banks to entertain concessions to de- 11 btors, actual concessions will be made only as the price of disengagement4. Where disengagement is not advantageous or possible, then the banks will continue to insist on repayment and servicing at full face value s .

Disengagement and the official point of view There is no doubt that the banks are keen progressively to reduce their exposure in the Third World, and the increased loan-loss provisions should be seen in this context . The banks are insisting that alternatives to bank loans should be used to finance the Third World ; a recent report from the Washington-based Institute of International Finance sets out guidelines which ' . . . specifically exclude the banks from filling gaps in LDCS' financing needs . It demands that debtor countries and the IMF/World Bank replace general purpose lending with lending for specific purposes (trade and investment), and create better conditions for banks to exchange loans into equity.' (The Financial Times, 24th June 1987) . Nevertheless, the sheer scale of the banks' exposure in the Third World will make it impossible for them to disengage in the foreseeable future by means of measures such as debt-equity swaps alone 6 . In the meantime, the creditor governments and the multilateral financial institutions must consider the debt crisis from a broader perspective than the banks . At stake is the legitimacy in the Third World of the free-market capitalist strategy of the 1980s, and, ultimately the capitalist system itself as a credible future for the debtor countries From this point of view, it is important for the official side of the creditor establishment to keep the banks `filling gaps in LDCS' financing needs'

Capital & Class 12 (which are far too great to be filled by the IMF and the World Bank) and to retain them as allies in a strategy for the Third World - this is the import of the foundering Baker plan, which would be publicly buried by disengagement on the part of the bankss . The banks' strategic alternative to the Baker plan is to demand that bank finance be replaced by official loans tied to policies intended to attract private direct and portfolio investment by obliging the Third World to grow capitalistically. The banks would then either gradually securitise their outstanding loans by means of debt-equity swaps, or sell them to official or private investors . However, since, Third World growth depends on demand from the `North', the banks' alternative amounts to a demand that the industrialised capitalist world expands faster than it appears willing or able to do, and to reduce its trade barriers against Third World exports more than it is willing to do . The rational kernel of such demands is their implicit recognition that the roots of the debt crisis lie in the limping growth of international capital accumulation since the 1980s .

The Third World squeezed During 1986, Third World countries were squeezed by a series of adverse developments : a worsening of debt service ratios (the result of meagre international growth and low commodity prices) ; an increase in protectionist pressures in the industralised countries ; and a tendency for interest rates to rise - thereby offsetting the lower interest margins negotiated during rescheduling. The situation has been exacerbated by the increasing reluctance on the part of the banks to lend more to the debtors - despite the rhetoric of the Baker plan . In fact, since 1981, there has

been a steep decline in bank lending to the Third World . In 1981, before the debt crisis had matured, Third World countries received $87bn . from this source . By 1985 bank lending had fallen to only $19bn ., and reached a new low of $10bn . in 1986 . The bulk of this $10bn . is not new lending, but funding for outstanding interest payments as part of rescheduling deals . Moreover, most of the decline is accounted for by the reduction in lending to countries having difficulty in servicing their debts (IMF, Annual Report, 1987, p . 28) . New lending is now only partially offsetting the payments of interest to the banks . Thus, `debtor countries, instead of receiving money to help them (and the international economy, Mx) grow out of their problems, have suffered huge outflows of resources in order to pay interest on their debts' (The Financial Times, 2nd October 1987). The net transfer from the debtors to the bankers is becoming very large . Thus, the World Bank reports that longterm net disbursements to all developing countries totalled about $36bn . in 1985, while interest payments on long-term debt reached almost $58bn. If medium term debt servicing is added, the picture worsens dramatically : net disbursements in 1985 remain at `around $36bn .' ($35 .6bn . to be precise) while total service payments rise to a staggering $114 .9bn . (The World Bank, Annual Report, 1986, p . 44 and Table 2-5). The debt ratio for all Third World countries steadily increased from 82% in 1980 to 169% in 1986, while their debt service ratio9 increased over the same period from 13% to 25% . As is often the case, these averages disguise significant deviations, notably in Latin America with the largest debtors and in Africa with the poorest countries . In Latin America, debt ratios increased from 183% in 1980 to 349% in

International debt 1986, and debt service ratios from 34% to 50% (all figures from the IMF, Annual Report, 1987, Table 10 p . 30) . In subSaharan Africa, the debt burden has doubled since 1982, and now represents 54% Of GDP, or almost 400% of 1986 export earnings . Individual country debt ratios now exceed 50% on average, and are much higher for many of the poorer countries (The Financial Times, 30th November 1987). It is worth stating bluntly just what these figures mean : in Latin America, and sub-Saharan Africa, debtor countries are, on average, being required to use 50% of their total (not net) export earnings to service their debts .

Debtors revolt in Latin America? Not surprisingly, the burden of debt servicing is making the working classes, the peasantry, and even sections of the bourgeoisie of the debtor countries increasingly unwilling to service the debts . As a result, it is becoming much more difficult for governments, especially in Latin America, to implement the procapitalist austerity policies imposed by the creditor establishment . Thus, President Raul Alfonsin of Argentina, who, in 1987, negotiated an IMF agreement, a Paris Club rescheduling and a new bank loan and rescheduling, has suffered electorally to the extent that the opposition now has a majority in the two houses of the Congress, and holds 20 out of the 22 provincial governorships . The Argentinians are already missing some of the economic targets in their IMF programme and to date have faced eleven well-supported one-day general strikes in protest against the government's IMF-directed economic policies . The dilemma facing Alfonsin is stated bluntly by The Financial Times: `To accomodate the trade unions means a rupture with the banks . To muddle

through with his present economic team 13 or to strike a deal with Mr Alsogaray [leader of the right-wing Centre democratic Union], however, implies all-out war with the unions' (The Financial Times, 6th November 1987). Thus, despite some optimistic developments (from the creditors' viewpoint) in oil-producing Mexico and Venezuela, and in Chile, it is becoming more and more difficult for creditors, and compliant governments to impose their policy of rescheduling and austere economic adjustment in Latin America . During 1987 a growing number of Latin American debtors joined the revolt against their creditors with Brazil halting interest payments in February, and Peru almost completely isolating itself from international finance capital . This development recently reached what The Financial Times called an `historic' turning point, when the `Group of Eight' (Brazil, Mexico, Argentina, Venezuela, Peru, Columbia, Uruguay, and Panama), meeting for the first time independently of the us-dominated Organisation of American States ' . . . threaten[ed] - in a conciliatory tone, but with unmistakeable intent - to take unilateral action against creditors if they do not obtain what they want' (ibid .) . The Group of Eight's total debts represent some 30% of total Third World debt . What they want is a cut in interest rates to the real levels of the 1970s (about half the present rate), and a debt service level calculated on the secondary market value of their debts, which is, in all cases, less than half of their face value . Such terms, threaten the more overexposed banks with insolvency, even after their allocation of special loan-loss provisions for, as noted above (see pp . 7-8), while the special provisions have insured the major creditor banks against loss of value or even default in the case of one

Capital & Class 14 major debtor, they are insufficient to cover the united action of an alliance of the biggest debtors, such as the Group of Eight . Fortunately for the banks, the Group of Eight seem not to have followed through their threat since their `historic' meeting . Indeed, of the biggest debtors in the Group, Brazil, after the withdrawal of trade credits by the banks, has ended its interest payments moratorium and is about to negotiate with the IMF ; Mexico has attempted (without much success) to induce the banks to swap part of its debt for equity ; Argentina has reached agreement with the IMF, and Venezuela has resumed borrowing with a $100m . Eurobond offer. Not without reason does the financial press talk of a new spirit of cooperation in Latin America, and a return to the tradition of 'muddle-through' (see The Financial Times, 16th February and 15th March 1988) . The apparent failure of debtors to repudiate their debts - whether unilaterally, or in alliance with one another - is an indication of the great international power of multinational finance capital . Sir Kit McMahon, chairperson of Midland Bank noted recently, `For sovereign states to disavow their debts [requires] them to be willing and able to sustain themselves while indefinitely divorced from commercial and financial relations with the rest of the world .' (The Financial Times, 14th April 1988). This is a prospect which no country bent on a capitalist future can afford to contemplate .

A ring fence around Africa The squeeze experienced by the poor African countries also resulted in limited revolts during 1987, notably in Zambia . The desperate situation of these countries has prompted an initiative from the credi-

tor governments, proposed by Lawson, the British Chancellor in April 1987, and adopted `in principle' by the Paris Club of creditor governments . The Lawson proposals had three elements : loans in bilateral aid programmes should be converted into grants ; other official loans should be rescheduled with new maturities of up to twenty years and longer grade periods for capital repayments ; and finally, interest rates on loans should be set at concessional rates . In order to qualify for the proposals, ` . . . countries would have to be among the poorest and the most heavily indebted, and have set in train satisfactory programmes to overhaul their economies .' (The Financial Times, 9th April 1987). The Lawson proposals are extremely limited . Firstly, they affect only the official debts of the poorest African countries - a total of something less than $70bn . of debt - and do not go far enough for the debtors, who are asking for rescheduling over 50 years . Secondly, the proposals are, to a great extent, an acceptance of the inevitable . As Lawson himself recognised `there is no realistic prospect of actually securing anything like full repayment if rates are not reduced' (The Financial Times, 23rd July 1987) . In addition, of course, the proposals provide yet another opportunity for the creditor establishment to insist upon pro-capital `adjustment' programmes . While the Lawson plan affects official debt only, it is not, on this count, without potential benefit to Africa's private creditors . In reducing the burden of servicing the continent's $200bn . of external debt, the majority of which is official, the plan makes default and interest payment moratoriums less likely on the minority private component of that debt . At the same time, the policy concessions to be wrung from the debtors will include - implicitly, if not explicitly - the continued servicing

International debt of private debt . Despite these advantages for the creditors, however, the Lawson proposals, with their element of debt write-off, go against one of the dearest principles of the banks - that no debts should be forgiven . Nevertheless, the premise underlying the proposals is recognised as realistic : the debts of the poorer African countries cannot be serviced or repaid in full under present conditions . However, the creditors fear that the proposals will be taken as a precedent by wealthier [sic] debtors in Africa and elsewhere . Hence, for the creditors, if the Lawson proposals are to be implemented, ` . . . a `ring fence' should be placed around the hopeless cases, allowing them to be granted special relief without thereby compromising negotiations with richer, but relatively intransigent debtors such as Brazil .' (The Financial Times, 7th April, 1987). 'Thus far, the creditors' fears have proven groundless : Lawson-style agreements have been implemented only in Mozambique, Zaire, Mauretania and Uganda, and these countries have benefited only from extended maturities . Even in Africa, then, debts have not yet been officially written off . The final judgement as to the success or failure of the Lawson proposals must remain in abeyance : at the moment it is too early to say whether the creditor establishment is accepting an international strategy which differentiates between the poorest debtors and the rest, although the fate of the Lawson plan thus far suggests only the most grudging of acceptance on the part of governments that their African debts need to be written down .

Contradictions and Dilemmas The international debt crisis is not simply a `problem' for debtors and creditors this term implies that there is some

straightforward solution to be found . The 15 debt crisis is more accurately described as a complex of contradictions and dilemmas . Firstly, the creditor establishment's policy of obliging debtor countries to increase their trade surpluses at almost any cost is, on the one hand, clearly necessary if the debtors are to be able to service their debts . However, in the context of sluggish international growth, the creditors' policy - if it were to succeed - would exacerbate another of the world's central problems : the massive trade imbalances, and, in particular, the payments deficit of the USA . The fact is that the largest debtors are the Latin American countries, that the Latin Americans are substantial trading partners of the us, and that a large proportion of their exports include precisely the manufactures that the us needs to export in order to reduce its trade deficit . Even the World Bank analyses this situation in terms of contradiction and potential explosion lo Secondly, the austerity policies embodied in the IMF's `adjustment' programmes, currently imposed upon some 50 countries, may be rational from the point of view of an individual debtor (and its creditors) who require, as a matter of priority, the largest possible trade surplus as soon as possible in a single country. Quite apart from their disastrous effects on the workers and peasants of the country in question, they are contradictory and self-defeating from the global economic viewpoint in that they initiate a deflationary spiral within the international economy : while an individual country may temporarily generate a series of surpluses through domestic austerity, other debtor countries will be obliged to follow suit with similar policies which negate the advantage of the first country, and reduce demand domestically and internationally

Capital & Class 16 still further. In the 1930s, such policies were recognised as attempts to 'beggarthy-neighbour' . Today, the overall effect is to make it progressively more difficult for debtor countries, as a whole, to earn the trade surpluses they need to service their debts - in short, to beggar them all . Thirdly, the banks face the dilemma of whether to lend or not to lend . Should the banks continue to refuse to lend to the Third World, then their inaction will, of itself, add a further depressant to world economic growth, and, in doing so, exacerbate the difficulties debtors face in earning sufficient foreign exchange to service their existing debts . More significantly, a refusal to make new loans will make the austere policies required to generate temporary trade surpluses in individual countries even more severe in their effects on the peoples of those countries . This will make their implementation even less politically feasible . Yet without such policies, individual debtor countries will not earn the foreign exchange with which, to service their debts - even temporarily. The banks' refusal to lend, then, would make defaults, and therefore the insolvency of banks, more likely. Alternatively, should the banks continue to lend, then they face a different set of unacceptable eventualities . New loans to the debtors will not be sufficient to offset slow international growth resulting from the policies of Japan, West Germany and (in the future) the us . In this context, there is little chance that borrowers will be able to earn sufficient foreign exchange from trade to service increasing debts . There is even less chance that debtor governments will find it politically possible to adopt the economic policies which would enable them (temporarily) to do so . In this situation, new loans would be used (as they are already) to service old debts . This process could not continue for much

longer without these debts being recognised - formally or informally - as defaulted . The banks are determind to avoid this scenario which they regard as a `generalised slide into forgiveness' (The Financial Times, 2nd October 1987) and which could bankrupt the more exposed of them . The World Bank describes this very dilemma, albeit from a different point of view, when it notes that `The duration of the [debt] crisis has also increased the dilemma facing regulatory agencies . Increased bank exposure to problem countries is clearly necessary to prevent a major disruption to the financial system and to safeguard banks' assets . Yet, traditional rules (and equal treatment with domestic loans) require increased provisioning against banks' assets in developing countries . That, in turn, discourages increased exposure' (The World Bank, Annual Report 1986, p . 45). In short, banking prudence dictates that banks should, at the same time, both increase and decrease their exposure in the Third World! It appears, then, that whether the banks lend more to the debtors, or whether they refuse to do so, they cannot avoid three brute facts of the debt crisis : firstly, the inability of Third World debtors, in the context of low rates of capital accumulation internationally, to earn sufficient amounts of foreign exchange to service their debts - without the implementation of austere economic policies" ; secondly, the growing political unacceptability in debtor countries of these very economic policies, and of the transfer, year after year, of a significant proportion of their GNP to banks in the rich capitalist countries of the `Northi12 ; thirdly, the global contradictions stemming from their own policies of imposing trade surpluses with austerity policies on the debtor countries .

International debt Notes 1 Notably the International Monetary Fund (IMF), the World Bank and the multilateral development banks, the `Paris Club' of creditor governments, and the Organisation of Economic Cooperation and Development's `Group of Seven' : USA, West Germany, Japan, France, Italy, Canada, and the UK . 2 There is no single accepted definition of banks' capital . Table 1 attempts to estimate it on the American regulators' definition . This makes the situation look marginally worse than British ratios, because no allowance is made for the revaluation of banks' fixed assets and provision must be made for deferred taxes . 3 Column three is calculated from columns 1 and 2, plus figures given in The Banker, September 1987, p . 31, and the interim results of the four UK clearing banks, end-June 1987 4 John Reed, chairperson of Citicorp, asserts, `We want to . . . trade out and liquefy our loan portfolio . In the next two to three years we will engage in debt-equity swaps, debt sales and other approaches . The effect will be to take charges against the new reserves' (The Financial Times, 21st May 1987). In other words, Citibank is willing to take losses in order progressively to disengage . 5 The President of Citibank Argentina : `there is no question at all of taking a loss on Argentina's debt, or indeed of any country's debt . There will be no write-down of loans and we intend to continue negotiating solutions that will help to stimulate growth in these countries . We are willing to continue refinancing within the Baker context .' (ibid .) 6 `Even if the present amount of debt-equity swaps . . . were multiplied many times, it would have little impact on a debt mountain several billion dollars high .' (The Financial Times, editorial 24th June 1987) . 7 `For many Africans, the IMF and its austerity measures have become synonymous with bread riots, cuts in social services and the evils of capitalism .' (The Financial Times, 5th March 1988). 8 `Mr Norman Bailey . . . a former member of the [us] National Security Council staff, describes Citicorp's action as marking the final `coup de grace for the so-called Baker initiaC&C 35-B

tive.' (The Financial Times, 16th June 1987) 17 9 A `debt ratio' is a country's debt as a percentage of its exports of goods and services ; a `debt service ratio' is annual servicing payments as a percentage of exports of goods and services . 10 `The contradiction between the capital markets' demand that debtor countries generate trade surpluses and the frictions the surpluses have created with trade partners remains a potentially explosive issue .' (The World Bank, Annual Report, 1986 p . 38) . 11 But note that during 1985, even appropriate policies, were unable to maintain high rates of export growth in the face of stagnant demand .' (The World Bank, Annual Report 1986, p . 41) 12 The Financial Times (30th September 1987) reports that even under optimistic assumptions, the servicing of the Brazilian debt would require the transfer of' . . . 2 .5% of GNP in debt service payments, year after year, for many years .'



Capital &a Class 18

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Donna Pankhurst Hunger in Western Sudan In June, July and most of August 1987, many in Western Sudan feared to utter what people dreaded : that the early rains which had been so heavy as to excite hopes of a rainy season `like the old days' were in fact going to be all the rain they would get for the whole wet season . In El Obeid, the regional capital of Kordofan Region, the townspeople are still connected to the plight of whose who live in the arid countryside . Many still have relatives who work the land and/or tend animals for a living, but even those who are members of families long-established in town still suffer from El Obeid's bad and short water-supplies . In 1984, water was brought in tanks from further east . In August 1987, a two-week deadline was 19 estimated when once again the water would run out . At the end of the month, however, the heavens opened, bringing the welcome sight of . flooded roads being traversed by ample merchants deftly holding up their jellabia above the mud .

Capital& Class 20

All the same, these powerful merchants may come to be targets of abuse once more, as the heavy rains came at the wrong time for many farmers and pastoralists, forcing people to rely even more heavily on other means of getting food . Grain prices, if determined solely by `market forces', will almost inevitably rise, in spite of there being large stocks of dura (sorghum) within the country. The spells of heavy rains which fell in most of the region (there were further heavy rains as late as October in some parts) have lessened the burden of finding drinking water, but their timing and uneven spread means that for some people, problems are likely to become as great as those caused by the disastrous drought of 1982-4 . Meanwhile, the majority of people in Kordofan live with this situation . In the last twenty years many of them have had to change their lifestyle completely . In North Kordofan particularly, where the changes in the rainfall patterns have been most acutely felt, many people have changed from being predominantly dependent upon livestock to being much more dependent on working the land . They either work as peasant cultivators, or labourers for richer members of the community, or often a combination of both . Wage labour generally has become much more important and takes many forms ; it can be done locally, or in the mechanised rainfed sector in South Kordofan or further afield in Sudan, and by individuals or whole family units . Besides agricultural labour, many seek work in Omdurman, Khartoum and El Obeid itself, as well as in Libya and the Gulf states . During the bad years of 1982-5, many did this for the first time . Some who felt they had nothing to go back to have not returned home, although exact numbers are not known . So how did this situation arise? The

article by John Markakis (Capital and Class, Spring, 1987) was useful in identifying the inadequacies of the Derg and the Nimeiri regimes in alleviating the difficulties of the poorest people in the Horn . Doing this in the absence of careful analysis of the specific nature of those difficulties, however, can facilitate a slide into mere posturing . There are several areas in which this is possible in a reading of the Markakis piece, which takes as a general explanation of famine in the Horn a combination of drought, population increase (of people and animals) and state policies, as do other commentaries on the famine in Sudan . I argue below that in seeking an explanation of famine it is necessary to consider more than this . In particular, the task is one of striving to uncover the ways in which people have lost their ability to feed themselves (which may not have been simply through cultivation). This requires a historical perspective on socioeconomic and environmental change . I have used the Region of Kordofan, in the west of Sudan, as a case study, because it is often ignored . More international attention was paid to Darfur (the other western Region) than to the other Regions which suffered in Sudan, perhaps because it was the most remote and thus attracted foreign journalists (and Bob Geldof) . Neighbouring Kordofan suffered to a similar degree (although the response from the local state and logistics of the relief operation were different) and the problems of the Sudanese in the Eastern Region were neglected for much longer than those in the West . What happened in Kordofan Region and the way it has been analysed and presented also illustrates wider issues . The first relates to conceptualisations of the environment and drought, which inhibit an understanding of their significance in the famine . The

Famine second concerns a mistaken assumption that it is the actions of only urban-based groups and the state per se which are responsible for the plight of those who are sufficiently impoverished to be vulnerable to famine . Conceptions of drought and the environment In the aftermath of the Sahel famine of the 1970s there was a revolution in the conceptualisation of its causes, which revealed the importance of examining the social causes of famine, rather than attributing it solely to drought - the natural versus man-made debate . The legacy of this challenge to the inevitability of famines in arid lands was a denial that drought, or changes in the environment more generally, could explain the occurrence of famine . The extreme nature of such changes in the 1980s, in Ethiopia, Eritrea, Tigre and Sudan in particular, has forced a reconsideration of this position . Exactly how one should conceive the importance of the environment remains a problem . Most commonly drought is thought of as a trigger event, on a par with war, but often, as in this case, the problem is actually more complex . The drought itself was different in the 1980s from that of the 1970s . The difference lies as much in the uniformity with which it affected the West of Sudan, however, as in the intensity ; parts of this region experienced drought of comparable intensity to that of the Sahel in the 1970s and to the most intensely affected areas of the 1980s . For the Region as a whole, the dryness of the wet season in 1983 was unprecedented this century, only to be over-taken by that of 1984, which remains the worst on record . The option of migration elsewhere, in order to continue the same mixes of cultivation, pastoralism and employment as before, was certainly

curtailed to a far greater degree in the 21 1980s because of the wide area affected by the drought . Having said that, it is very difficult to assess the real significance of drought, and often the temptation to fall back on other explanations of the famine win out . Stereotypically these are often either direct exploitation by the state and capital on the one hand, or the backwardness and inefficiency of peasants and pastoralists on the other. The reason why drought is still all too often not integrated in explanations of famine is that we are still extremely ignorant about the past, current and likely future patterns of rainfall . It is important that we acknowledge the range of different scenarios, rather than simply adopting an alternative posture to those who cite backward peasants as the explanation . This means that it is necessary to keep an open mind about some things until further research sheds more light . None of the views say droughts will not occur again in the near future, but their likely intensity, and views of the situation in the long-run are different . Given the great effect that small changes in the weather can have on people's ability to survive, planning intervention without better knowledge of the future climate is a risky business . Pessimistic predictions about the chances of good rain in the future make it necessary to analyse the implications of people trying to continue the same relationship with their physical environment . This consideration leads people to assume, as does Markakis, that environmental change itself can largely be explained by the actions of people, whether they be capitalist farmers (ultimately acting with the support of the state and Saudi capital) or too many local inhabitants . All too easily, the importance of drought is lost here . When the importance of drought is underplayed, it is a

Capital & Class 22 small step to saying that there are too many people, or that they need to be moved . There may well be too many people, given that form of production and a certain pattern of rain, but of these two variables, the former often gets ignored completely. There is contradictory evidence to suggest that in the absence of drought the environment will recover, given the same form of production . This is usually ignored, probably because it appears as an anomaly. The issue then becomes how must social scientists and planners evaluate the evidence of environmentalists (whether there are contradictory theses or not)? The question may seem rather obscure to those seeking simple and immediate explanations to the famine, but it is at the very heart of the matter . If an alternative approach were adopted which took as its focus the chances of survival of certain factors within an ecosystem, rather than the status quo of the ecosystem before any change occurred, the information could be quite different, and potentially of much more use . Clearly such an analysis requires far more than the scientific skills of the environmentalist, and actually puts centre stage the issues of concern to social scientists . There then has to be a conscious choice about what the main concern should be . Such an approach should also make it easier to avoid a pre-occupation with the preservation of a physical environment, at the expense of its connections to the people who rely on it for their survival . OXFAM were recently confronted with a situation which cried out for such analysis when Kababish nomads described the state of the pastures in North Kordofan . They said that although there had been quite dramatic change in the last twenty years (generally described by others as degradation, i .e . narrowing of tree and

grass species, scarcity of wild animals etc), they had noticed grass species that had previously flourished in the remote grazing areas in the drier reaches of the far northern desert fringe were beginning to establish themselves much further south . If they continued to do so they would provide valuable grazing resources in the areas which have aroused so much concern because of their degradation . Using such an analysis in this area would still leave the problem of how to evaluate the significance of drought, but it would facilitate making more meanngful observations about the environmental change which is occurring.

Blaming the state It is true that the political imperatives of the Nimeiri government prevented effective international action being taken until many people had died and many others suffered . This focus points towards agrarian strategy as a cause of the problem . Indeed, the agricultural strategy promoted under Nimeiri has caused enormous problems for members of some communities who have lost rights to land, and in the long term has been shown to undermine small-scale (peasant) agriculture in a number of ways . It is also true that in recent years mechanised farming has increased in the southern (wetter) provinces of Darfur and Kordofan . The consequent loss of land has caused considerable problems for those who have been relying on access to that land now, or will be relying on access to the land in the future, for their survival . However, those in the Southern Provinces of Kordofan and Darfur survived far better during the drought than those in the Northern Provinces . Moreover, the mechanised rainfed sector, which formed the centre-piece of the `breadbasket strategy' islargely to be

Famine

found in the Central Region, not in the West . Hence the connection between these strategies and the famine cannot be a simple one of the direct loss of land, if they are directly connected at all . This connection has been documented for some communities and has been important in showing up the ways in which impoverishment has taken place . These communities are not on the whole those which suffered most between 1981-5 . Recent research suggests that it was not those who had been employed on these enterprises who were the victims who struggled to the camps . Moreover, employment in this sector (in the Central, Darfur and Kordofan Regions) was in fact an important strategy of survival for many people . It may seem rather contradictory to talk of increased employment in agriculture during a drought, and it is true that production, and therefore employment, on the big farms was apparently lower in 1988 than the previous two years . However, this should be seen in the context of the fact that 1981/2 was a bumper year (3 times the previous 5 year average) and 1982/3 and 1983/4 were normal when considered against the previous 5-year average . Moreover, during the whole of this period, production remained above the best years of the 1970s . Moreover, in a famine, the high price of grain makes increased production attractive to farmers, as well as merchants (although they are also often the same people in Sudan) and make the risk of expanding production seem worth it . Thus the irrigated schemes were turned over from castor to dura and some research suggests that more dura was planted by those who could afford it . Also, 1985 was a good year for cotton, which employs many people at harvest time . It is likely that for the people in the Western Regions, employ-

ment in the Southern Provinces was more 23 important than in the Central Regions, nonetheless, it is important to see such employment as a survival strategy for some people at certain times, rather than simply as a means through which impoverishment takes place . In the 1970s what distinguished Sudan from other Sahelian countries was its comparatively large national production of food in the capitalist sector, and it seems that this was very important in enabling people to survive . Their 'entitlements' to food were through purchasing grain in times of drought (pastoralists did this every year in any case) with income generated through the sale of crops, animals and labour. In the 1980s many of those who travelled in desperation to Omdurman were either nomads who had no history of this kind of employment, or settled people who, for various reasons, were unable to gain access to such employment . I do not dispute the problems with the state agricultural policy in Sudan and the capialist production of grain outlined by Markakis, but suggest that these did not lead directly to the hunger and social breakdown which resulted in famine . In addition to the severity and uniformity of drought, social change which has roots both within the Western communities themselves, as well as links to the national class structure were highly significant, as considered below Roots of social change It is not the case, as is implied by an analysis which focuses on agrarian strategy as a principal cause of famine, that the victims of famine were in 'subsistence' sectors which were cut off from the rest of the economy, producing only use values . As in many African countries, a process of commoditisation amongst

Capital & Class 24 rural populations in Sudan began under colonial rule . During this time, the needs of capital and the state (for labour and crops) were the driving force behind many government actions which encouraged the intensification of commoditisation and integration of rural populations into world markets . Even geographically remote communities were not cut off, but were integrated into markets locally, nationally and internationally before the colonial period, and their integration intensified under colonial rule . The general trends have continued since independence (although recent research shows some of the ways in which these trends have been resisted by sections of rural communities . The following crops are all now grown on a commercial basis in the so-called `traditional peasant sector', and some have been since pre-colonial times : groundnuts, sesame, sorghum, kerkedeh, melons, tobacco and vegetables . All these are sold through local merchants and/or the state . Groundnuts and sesame are sold through the Sudan Oilseed Company . Until the 1960s, Kordofan was also the largest producer of gum arabic and still produces a considerable proportion of world supply. This has always come entirely from the peasant sector, and is sold through the Gum Arabic Corporation, which is owned jointly by the state and private capital . The difference between the international price and that paid to farmers for these crops has largely accrued to the state and private capital . In addition, for most of its history, Kordofan has been a net exporter of romoted k rearers alone were responsible for up to 20% of GDP, and the traditional sector as a whole for producing about 40% oflivestock . (In the early 1980s it was estimated that from this sector, livestoc export revenues) . Crops and animals have always been

sold from this sector in order to meet basic needs, such as clothing, utensils and certain food items, but two things have made this become a greater imperative . Firstly, more and more basic needs are purchased, rather than produced directly or obtained through some other kind of reciprocal exchange or kin relationship . (Elsewhere this has been termed the commodification of reproductive needs .)Secondly, the terms of trade between their products and those commodities needed for reproduction have declined internationally . These effects have been felt more extremely by the pastoralists in North Kordofan as they have always purchased most of their staple grain and the terms of trade between animals and grain specifically have declined (as they have elsewhere) . Hence there has been a decline in the value of the products of these communities, both in terms of the price they receive for their products, and in terms of the amount of labour which is necessary to meet their reproductive needs . Such changes have not been experienced in a uniform way within these communities . There has been very little research done which shows the ways in which these changes have had differential effects within pastoralist groups, but several things may be inferred from what is known . It is not true that the whole of these groups now have no stock and it is certainly true that some were able to survive better than others because they had more animals . The poorest groups sold animals when they were desperate and it is likely that they sold to others within their communities . Sections of the pastoralist population have been dropping out of pastoralism, being unable to maintain viable herds, at least since the early 1970s, but at a much faster rate in the early 1980s . Those who dropped out earlier went as destitutes to

Famine towns ; sold their labour as herders in Sudan or Libya, or as agricultural labourers elsewhere in Sudan ; or were able to change their lifestyle to undertake cultivation on a more permanent basis, perhaps managing to keep what few animals they had left . In any case there is no evidence to suggest that they were able to take advantage of any `traditional' redistributive mechanisms to help them restock . This could be simply because the whole community has become so impoverished that no one is in a position to fulfil `traditional' obligations . It could also be that such relations have themselves become commodified (as happens elsewhere) and hence the poorest would not be able to take up any opportunities to borrow or buy animals . Glib suggestions are often made about pastoralists and the size of animal populations, as though this were unproblematic (as does Markakis) . It is important to remember that it is not an inherent quality of pastoralists across all societies to increase their herd size beyond that which allows regeneration of grazing land : such a dynamic arises from particular conditions . Theoretically these most commonly occur when the value of their product is declining (both in terms of what they can buy for it and what it costs them in terms of labour to produce). An important way in which differentiation has taken place in communities more reliant on cultivation is through their access to labour. In most of Kordofan, access to land is not difficult for a household to obtain (although access to land of a particular quality can in places be an important distinction). Migration to work outside Sudan has provided many with the capital to employ labour locally. Also there have always been richer members of rural communities, either being recognised as local leaders / religious figures, or known

as merchants . In effect this strata behaves 25 like classic kulaks, in that they invest in the most profitable areas of production, which are not always simply production . They often own the only local forms of mechanised transport, are the only local source of consumer goods, the only outlet to sell crops, own the only processing equipment (eg camel-driven sesame presses) and sometimes even sell the only local sources of water. In addition, many people have been made more dependent upon cultivation than they once were, as they used to have far more animals than they have now . Some communities have changed lifestyle completely from being highly dependent on livestock to adopting a settled way of life . Animals remain essential for survival in many areas in the Northern Provinces, being vital beasts of burden and means of travel (camels and donkeys) as well as for savings and actual production (also goats, sheep and poultry). Given the official concern about the absolute numbers of livestock in these areas which has continued without break from early colonial days to the present, it may seem odd to be describing the loss of animals as a major problem . The explanation is at least partly to do with the increase in the total number of people, but also with the unequal concentration of animal wealth within communities . In other countries, increased concentration in fewer hands has coincided with an increase in the frequency with which practices which are thought to damage or destroy grazing are used . The loss of animals for some has been compensated for, to some extent, by the sale of labour, as well as increased cultivation, but not everyone has been able to do this successfully and others retain a strong dependence on cultivation . This in turn has made people much more vulner-

Capital & Class 26 able to drought - both because they are settled and because it is such a precarious activity in the arid northern part of the region . Hence it is not simply the effects of employment in the rainfed mechanised farming sector which has made them vulnerable to drought . Nor is it simply their incorporation into different systems of exchange . The effects of a decline in the value of their products, and of the differentiation within communities has meant for some people an increased dependence on cultivation over time, a decrease in the ability to produce use-values and hence also an increased vulnerability to drought . Pastoralists who have become impoverished have found even fewer ways to adapt successfully to new means of surviving and enter social relations in the agricultural sector on an even more disadvantageous footing. These processes all occurred generally in the context of a disarticulated economy, where the capital invested in the rainfed mechanised farming sector has no long term interest in ensuring the spending power of people as they are not essential as a market . The national state does have this interest, but is not powerful enough to counteract the effects of international capital . The intense drought brought these things into perspective and exposed the vulnerability of the poorest sections of the population . The current situation Many people found new ways to survive during the drought and its aftermath, and these are being taken up at much earlier stages of crops and grazing land failure than before . This is partly because they have more knowledge of opportunities, but also because they have fewer reserves of grain, animals, or any resources which can be sold . Jobs which were seen before

as being too unattractive are now being taken up . In a sense the crisis is over, in that there are now no longer many people in immediate danger of dyingthrough lack of food and water, but the relationships which helped to create such vulnerability continue to exist . Debts have to be repaid, and local merchants often remain the only outlets for transport, goods and credit . The legacy of the drought and famine for most has been trying to start again with no or fewer animals and no reserves . Many people have found new ways of coping, but they are in new, even more precarious positions . Although it is very difficult to say anything definite about the rain, people still have to live with this unpredictability, often in situations which make them even more vulnerable to the vagaries of the weather. Moreover, there is certainly no guarantee that there will not be another drought, or that the rain that does come will come at the right time . If anything, the experience of the last few years has made people more worried that it might happen again . Many will be in no better position to survive than they were last time, and many are in a worse position . In the climate of crisis, greater intervention from outside was desired by those who were suffering and by those who were to be held accountable for their plight . Such intervention was eventually forthcoming, but at a cost of making similar action, ie food distribution, seem more likely in the future. Indeed, piecemeal free food has been distributed each year since then . The enormity of the problems makes the imperative to act so great that to counsel waiting and analysing further is often not politically feasible . On the other hand a lesson was learned in some sense in Kordofan in that food aid at its `best' caused many problems, and even

Famine is not keen to repeat that particular experience . This has paved the way at least for dialogue about alternative types of intervention, such as public works programmes in times of bad rains, like those which operate in India . The problems at the macro level in Sudan remain enormous :the difficulties of massive debt, an unresolved war and political crisis were daunting enough to dissuade the army from taking over on recent occasions when it was thought likely that they would . At present those who are in danger of not even managing to survive the year are hidden from view, within communities, camps outside towns and within households . The vast majority in Western Sudan somehow struggle on, with great resilience and a bitter acceptance of the different place in society this crisis has shaken them out at . USAID

Notes 1 Data about previous patterns is notoriously patchy, but even when extrapolations are made, the caution expressed by authors is often ignored by other people . The same applies to theories and models about the causes of Africa's changes in climate, where people choose those which suit their own purposes best . For instance, models which suggest that pollution from the West may well be responsible for a reduction in rainfall in parts of Africa are rarely mentioned alongside those which suggest that the removal of vegetation in situ is an important cause of drought . 2 Ulf Helldon, `A Remote Sensing Study of Desertification in Kordofan, Sudan', Lund University, research paper no 61, 1983 (also published by Khartoum University) . 3 OXFAM, El Obeid, were conducting research as to the state of the pastoralists in the northern part of North Kordofan . 4 For instance, see Jay O'Brien, 'Formation of the Agricultural Labour Force', Review of African Political Economy, no 26, 1983, pp 15-34 ; and `Sowing the Seeds of Famine', Review of African Political Economy, no . 33, 1985, pp 23-32 . 5 The term `mechanised farming' is used in Sudan to refer to farming which uses mechanisation at any stage of production, and generally still requires a great deal of labour. 6 See O'Brien, op cit . 7 This was shown in data gathered during fieldwork in 1987, and in the statistics of the Kordofan Regional Government and various agencies . 8 Migration away from the `home' area by many settled people caused overcounting of those in need in Kordofan itself, many of whom sought employment elsewhere .

27

Capital & Class 28

9 In interviews, big farmers from South Kordofan complained in 1987 that the price had been much lower that year and they could no longer enjoy the benefits they had during the drought . 10 See Jay O'Brien, `The Calculus of Profit and Labour-Time in Sudanese Peasant Agriculture', Journal of Peasant Studies, 1987 11 Sidgi Awad Kaballo, `The Supply Response of Traditional Oilseed Producers in Kordofan', Economic and Social Research Council, Bulletin no 117, Khartoum, 1984; and Abdel Aziz Mohammed Farah and El Rasoul Hag El Saeed, Agricultural Prices in Sudan ; A Historical Review and Analysis 19790-1984, Ministry of Agriculture and Natural Resources, Khartoum, 1985 . 12 Part of the reason for this is that for part of the year groups split up, enabling some to travel great distances in search of grazing and leaving others with no anim-

als . However, the staple food is grain at almost all times of the year . 13 Animal ownership is normally by no means egalitarian in most pastroalist societies .(See ILO, Rural Labour Markets and Employment Policies, ILO, Geneva, 1983, p 7 14 See Jay O'Brien, `Formation of the Agricultural Labour Force', Review of African Political Economy, no 26, 1983, pp 15-34 . 15 Many of the problems were related to an inability to assess need accurately . Logistical difficulties added to the problem and made successful targetting of food impossible . It is thought that perhaps those in most need of the food never received any . 16 In August 1987 there was a period of no legal government in Sudan and, by this time, there was growing dissent from many quarters about the government's performance .

M N Paul Corrigan

Gerbil : The Education Reform Bill Market mechanisisms and social engineering

ME

ca

The Government's belief in the efficacy of the market system as a major tool for social change is not a new phenomenon . Its passion for privatisation in both central and local government has attempted to reintroduce a much purer cash nexus to the social relations of what used to be the public sector . Within the shrinking public sector itself there are various attempts to introduce profit oriented systems of organisation into every aspect of our work . In the health service this leads to some tragic decisions about life and death, while in local government it can often lead to farcical decisions, but generally organ- 29 isations such as the Audit Commission will give you strong advice on introducing markets to everything from maternity services to crematoria . Of course, even the wets in the Tory Party have pointed out that with a lot of

Capital& Class 30 this privatisation, the reality of competition is very far from happening . For example, the creation of Mercury in the telecommunications world will not suddenly transform British Telecom into the petite bourgeoisie's image of the market place so central to Thatcherism . All Cecil Parkinson's clever wheezes from the Dept of Energy will not make the market sparks fly in the electricity industry . We know that this has much more to do with large scale finance capital and its progress and size as a sector of the economy than it has with an aspect of social engineering through the market place . Are we then facing the usual relationship between the petit bourgeois ideology of the market being used to mask a rapacious growth of monopoly whose main aim is to drive out the competition posed by the `little person'? Is the reality of record petit bourgeois bankruptcies during Mrs Thatcher's second term alongside massive finance capital growth to be repeated, and can the Left rest easy with its past analysis about reality and illusions of the market place? Apart from the enforced reality of the enterprise culture on large numbers of people in the `informal economy' (the nervous laughter at Harry Enfield's `Loadsamoney'* from the Left is caused by a recognition of his power and our weakness), it looks as if it is in the Education Reform Bill that we will find the most powerful intervention of a market mechanism as an essentially social and economic mechanism . Compared to the crude way in which most `socialist' educators think about the relationship between ideology and educational policy, the Education Reform Bill contains a brilliant transposing of a market mechanism into the core of the education system . A transposition that Ministers, in introducing the Bill, have

been crystal clear about . In the committee state of the bill we could begin to have realistic discussions about `bankrupt schools' and `training for heads to package and sell' their institution . Crucially the transposition takes place because the importance of markets for capitalism is not just about money. Other activities can become commodified and can be put into competition one with another if some form of `currency' can be created . It is the social relationships of this commodification and competition that are so vital, and not necessarily the money profit that is produced on each occasion . It is the creation of new forms of exchange value and the eradication of simple use values external to any exchange commodification that is important and not the simple `cutting' of capital or revenue budgets in local government . How does the Education Bill achieve this? What will be its effects and how can we deal with it? Firstly, the underlining of the market mechanism in education only has any real chance of practical success if it takes place in the ideological context of present parent-child relationships . Put in its extreme form, a further commodification of education will only work because, for a significant section of parents their children represent commodities through which they realise themselves . My apologies if this infusion of what may appear psychoanalytical language into a political article may appear odd, but it is at the bedrock of the government policy. Many middle class parents' interest in their children's education and future seems to go beyond the straightforward `wanting what's best for their children' to a passionate drive for their children to `succeed' beyond all notion of `care' or `parental love' . Many parents who say `they will do anything for their children' (let's be hon-

GERBIL est some of whom may well be readers of Capital and Class) seem to see their children's successful future as a final vindication of their own lives . It is as if, for some people dealing with a mid life feeling of failure, `their' Tara's successful A levels makes it all worthwhile . If many parents had a more relaxed attitude to their children and their education, the passion with which Minister for Education Angela Rumbold sees schools fighting each other in the market lace would be a stupid ideological vision . As it is, she and the government can depend upon a powerful deep ideological relationship to drive their market model . A relationship they do have to intervene in it is true, (making parents who put care before competition in their children's lives feel guilty for being bad parents for example), but one that can be depended upon for a section of the population . This is a useful lesson for the Left to learn in its social and economic policy considerations . Before coming up with a state mechanism, first ensure that the mechanism interacts correctly with a mass hegemonic movement . When it does the reality of the mechanism and its effect disappears under a welter of `normal social relationships' . In this case the market mechanism becomes subsumed within the `reality' of parental `choice' and parental `power' . Secondly, the Bill enhances the ability of parents to `choose' which school to send their children . Of course, this is nothing new . Like all clever changes it too relies upon its continuity with the past . Parents have been choosing schools for their children for many years so it is not something so radical . The Bill though changes this relationship by extending the effects of this `choice' . At the moment the power of choice is guided by the experiences of a local education authority that can influence that choice in a

number of ideological ways . It is true that 31 since 1986 if a parent wants to hold out against this they have considerable rights . The 1988 Act will enforce those . But the main change in the nature and form of choice for the parent is in the size of schools that will exist . Now the unwary may believe that the size of the school is something which is in some way determined by some set of objective material circumstances . But like all simple beliefs in objectivity, you would be wrong . The size of an entry into a school has been negotiated by three major factors. Most significantly, the local authority has been able to change the size of the entry in relationship to their planning for local authority secondary education . With the radical changes in the birthrate a local authority with a duty to provide education for both the present and future generations in their area, need to make sure that not only are there sufficient schools in their locality for the existing pupils but for the rise in the number of 11 year olds they know are coming. In Tower Hamlets in East London, for example, the number of primary school pupils has more than doubled in five years - an equivalent change in secondary school pupils is likely. Consequently, whilst it may be advantageous at one moment for a local education authority to close a secondary school, in the long run they may know the school will be necessary . In the meantime it will be in their interests to reduce the entry to other schools to provide sufficient pupils for all the schools . Under these circumstances, given the existence of any form of `consumer choice' it is the `unpopular' school which has the smallest entry that is perceived as being `kept going' and it is the `popular schools' to which entry is seen as being denied by some parents `in order to keep a bad school going' . Under

Capital & Class 32 other circumstances, the more progressive local education authorities may decide that it is important not to allow all the `middle class' children in one area to congregate in that school and produce either a one class, or in many urban areas a `one race school' . There is considerable evidence that local authorities have tried to `guide' the market of parental choice away from the creation of single race schools . There are however many thousands of schools that are `all white' and over 200 where 90% or more of the children are from one minority ethnic group . (The former is not seen as any real problem but the latter is seen as a `matter of concern'). There are then local education authorities that have used their power over student numbers to ensure some form of distribution of education on other than simple class or ethnic lines . The Dept of Education and Science has played a role in the definition of standard pupil numbers in a different way. They have tried to limit the power of local education authoriies to renegotiate their secondary education offers, particularly when they attempted to close down a `popular school' . The Bill, as in so many other areas settles this struggle . From the moment the Bill is enacted, the standard entry for every school will be the number of pupils that that school accepted for entry in 1979 . (An important date, but Ministers were very coy about why they choose that particular year) Governors can appeal to the Dept of Education and Science to have that number reduced, and can also appeal to have it increased . But the Secretary of State sets the student number and the local education authority is to have no power over that at all . Consequently, there can be no `artificial' lowering of those numbers . The school can recruit until it is full .

Having created an engine for the market force, ie parent `choice', and having increased capacity in as many of the organisations that are to be marketed as possible, the Bill completes its powerful mechanism by giving power to those organisations over their own production and marketing capacity. More significant than the radical 'optout proposals', the provision of local financial management for schools ensures that each school will survive and grow as an independent institution, providing there are more than 200 pupils in the school . Such an institution is not `tied' to any local authority financial, curriculum or equal opportunity policy. It exists as a separate institution whose `success' and `failure' depends totally upon its ability to attract students in the market . Each school, in order fully to play a role in that market, must publish its results . The local education authority must then publish them in a league table . The final part of this whole mechanism is to be found in the testing procedures at 7, 11, 13 and 16 years of age . These tests provide the currency which will allow the market mechanism of parental choice have the form of a set of equivalences . School x is better than school y because of these results . School x gets the pupils, school y does not and closes . If school z wants to teach something different, outside the `national curriculum', it has every right to do so . But if its pupils do worse in the National Curriculum tests then it may not be able to keep open if the currency of examination results is universally accepted . All of this is a very powerful set of reforms which are aimed at turning schools into institutions dominated by the fear of closure, or `bankruptcy', if they cannot gain enough currency to attract sufficient cusomers . The long run effect of this to anyone

GERBIL who understands class and race relations in contemporary society is obvious . Indeed, as Lady Hooper, the Government's educational spokesperson in the House of Lords, who obviously does understand, said `If parental choice leads to racially segregated schools then so be it' . Most importantly, with this market mechanism as with every other, not all individuals who are a part of society have an equal part in the mechanism . But, as Thatcher would be the first to say, they do have formal equality. Each parent can chose this or that school . If there are more pupils fighting for a place than there are places available, then the Head and the governors can decide whether they are the `right sort of person' for the school ; we know on what criterion this decision will be made . More importantly the nature of this market depends upon a middle class power that is almost though not totally white . This Bill was constructed with a particular view of `parents' in mind . Parents who will make the mechanism work through power, knowledge and a belief in their children shaping the future of society . The rest will get shaped . Yet to return to an earlier point, this mechanism only works if there is a powerful ideology within civil society to make it work . The mechanism remains impotent without the efficacious power of parentchild ambition that is also expressed in directly competitive terms . Whilst there are many legislative and directly `political' things that must be done to reduce the engineering aspects of this Bill, and whilst it is true that we must find ways of endorsing the local authorities' powers to intervene, in essence the attack on this mechanism must take place with parents and their children . The reduction of education to a kind of futures market on the floor of life C&C 35-C

is not something that meets with the 33 agreement of vast numbers of parents . We need to provide a different form of education that people want, one that contains more elements of social co-operation . But if we can't make it popular it just won't happen .

* For the benefit of overseas readers, 'Loadsamoney' is a satirical TV character, young, has loads of money from being a self-employed building worker which he happily flaunts, and above all a reader of Mr Rupert Murdoch's popular reactionary Sun `newspaper' .

"it N Jonathan Nea le Afghanistan : the horse changes riders

s

34

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ONE The Russo-Afghan War is over . The killing has not finished yet . Tens of thousands will still die, a few of the sons of Kiev and Tashkent, many of the sons and daughters of Herat and Kandahar . That is always the way with Geneva settlements . But the issue has been decided . The Soviet army has been defeated . The Mujahedin have won . For forty years the USSR and the USA have policed the world . This is Russia's Vietnam : a major defeat for imperialism . As such it is more than welcome . It increases the space for popular movements in Poland and Hungary, in Armenia and in Moscow. But if this is a defeat for helicopter gunship `socialism', it is also a victory for the mullahs and the landlords . The Mujahedin are an authentic mass movement : the Afghan peasantry in arms . But the leadership and the politics of that movement are reactionary. Whichever faction

Afghanistan of the resistance finally consolidates power in Kabul, they will lead a brutally repressive right-wing government . How did this happen? Why? What is likely to happen next? These are the questions this article will tackle .

TWO A small demonstration on the dusty main street of the town of Lashkaragah, in southwestern Afghanistan, during the autumn of 1971 . It is the fast of Ramadan, and teeth are on edge . About fifty secondary school students are gathered around an upturned box . The bravest among them take turns mounting it to deliver speeches . The speeches are simple : no more than a few shouted slogans . But it takes courage to give those speeches . The most common slogan is `Death to the Khans .' This is not an abstract political statement . The students have in mind a small number of men they have known all their lives . They are declaring their intention to build a political movement large enough to kill these men . The khans are the large landlords who hold power in the villages . In other parts of Afghanistan they may go under the title of arbab or malik or pasha . Everywhere they are the ruling class . A khan may own much of the land in one village, or in several villages . In some villages two khans compete for power. Sharecroppers work their land, and the khan takes between two thirds and four fifths of the crop . Their power is brutal : if a poor man stands in their way they have him killed . They hold their land rights partly by inheritance and partly by the legal theft of the land of weaker men . It takes courage for these boys to defy the khans . There are secret policemen in the watching crowd, and the Afghan state

in 1971 is based on the khans. There is a 35 King in Kabul and even a sort of parliament . But in every constituency outside Kabul the Mo is either the most powerful local khan or one of his relatives or henchmen . The King rules through the khans, and does not challenge their power . It's a brutal state . As one Communist teacher puts it : `In the fifties we had dictatorship, and they took a man away and all his brothers and killed them all . Now we have democracy. They take only one man and they only put out his eyes .' The boys are not all Communists . But the bravest of them are . And they are part of a national student movement that looks to the Communist parties and hopes for revolution . They have good reason to want revolution . In 1972 I visited a friend, a poor yoghurt peddler, in the TB sanitarium in Kabul . It had taken a bribe to get him into the hospital . Once he was in, it took a bribe to get the hospital workers to give him his food . It took a bribe to get the prescribed medicines actually given to him . When he needed an operation, his mother had to go beforehand to the bazaar to buy the blood in case a transfusion was needed . The hospital workers had sold the blood . I asked him why there were so many bribes . Afghanistan, Zulumistan', another patient said . `The Land of the Afghans, the Land of Tyranny.' All the patients smiled . A few years before there had been a robbery and murder near the camp of tents where the yoghurt peddler lived . The police had taken one of his uncles away for questioning . The next day they brought him back . The body was black from beating and his stomach torn open . They dumped him on the ground in front of his widow, told her he had eaten a bad watermelon at the police station, and laughed .

Capital& Class 36

There is a small crowd watching the boys demonstrate on the streets of Lashkargah . They are the peasants and sharecroppers of the surrounding villages . Their faces are shut : showing nothing . Like the boys, they hate the khans . But they also fear the state . In the evening, they will warn their sons of their folly, but some will be secretly proud . It is these peasants and sharecroppers who will determine the fate of Afghanistan in the next seventeen years . The tragedy of those brave boys in Laskargah is that they will end up making war upon that crowd .

THREE In 1971 there were roughly fifteen million people in Afghanistan . (All Afghan figures are rough guesses : there has never been a census .) Something like twelve million of them lived on the land, two million were nomadic shepherds, and a million lived in towns and cities . It was an arid country, with about two per cent of the land under cultivation . In the countryside there were three main classes, the khans, the middle peasants and the sharecroppers . The middle peasants owned enough land to feed themselves and might employ one or two sharecroppers or own a shop . They hated the khans and hung onto their land . The khans were always a small minority. In the high mountains there were usually a lot of middle peasants and in the irrigated plains there were usually more sharecroppers . But on a national scale the sharecroppers were probably the majority. Among the nomads the class structure was the same . A few powerful khans owned large flocks . Many nomad families owned their own small flocks and might employ one or two shepherds . And many worked only as shepherds for a share of the lambs each year or for a wage .

In the cities there were very few industrial workers, perhaps less than 20,000 . There were more construction workers and casual porters and labourers, pehaps 200,000 . The industrial workers went on strike : the others did not . Workers, sharecroppers and shepherds lived at subsistence level . A man's income was enough to buy bread for himself, a wife and two children, and almost nothing else . Afghanistan was a country of many nationalities . The Pushtuns (Pathans) lived in the south and east and were about half the population . All the kings but one and all the Communist Presidents have been Pushtuns . In the central mountains were the Hazaras, speakin Farsi (Persian) and claiming descent from Ghengiz Khans . In the East and around Kabul the majority were Persian speaking peasants called Tajiks . In the north the Turkish groups predominated, particularly Uzbeks . But in most areas there was a mixture of ethnic groups, divided by a history of warfare and disputes over land and water . And there were many other smaller nationalities : the Aimaq, the Turkoman, the Kirghiz, the Pashai, the Nuristani, the Baluchi, the Brahui, the Wakhi and so on .

FOUR In 1971 the Afghan state was in crisis . The roots of the crisis lay in fiscal problems of the monarchy. Afghanistan was a poor country, mostly desert . The good lands to the north had been seized by Tsarism, to the east by British India and to the west by Persia . Since about 1800 the Afghan king had always depended upon the support of the more powerful khans to hold his throne . This meant that while he might at times

Afghanistan have the power to bring most of the country under his military control, he did not have the power to extract a sufficient surplus from the countryside, because he did not have the power to extract it from the khans . So until 1838 there was an almost continuous civil war between the barons, rather like the Wars of the Roses . In that year the British invaded and were defeated by a mass popular uprising . So from 1842 onwards they settled upon the King enough of a subsidy and enough arms for him to run the state without breaking the khans . In 1878 they invaded again and were again defeated by an uprising . From then on until 1919 they gave enough money and arms to Abdur Rahman and his son Habibullah to enble them to consolidate the state without breaking the khans . In 1919 Habibullah's third son Amanullah killed him and declared war on the British . They conceded formal independence to Afghanistan and withdrew their subsidy. Amanullah tried to raise a surplus by taxing the countryside and breaking the khans . Another popular uprising deposed him . By the next year Nadir Khan had taken the throne with the help of British arms and money. His son, Zani-Shah, ruled from 1934 to 1973 . After Indian and Pakistani independence the Afghan monarchy looked around for new sources of subsidy. They found them in the Cold War .

FIVE Throughout the fifties and sixties the USSR and the USA competed for influence by pouring military aid and money into Afghanistan . The Americans gave more, but the Afghan monarchy used Russian aid as a counter weight . The sums involved were not large from

the point of view of the superpowers, but 37 they revolutionised the position of the Afghan state . Reliable figures are impossible to come by, but aid provided probably more than half the budget of the Afghan state . The chronic financial instability of the state was solved . Finally they could build a large standing army and bring most of the country under central control . But they had a problem spending the money. The King and the khans did not want to develop the economy. To do so would have created a bourgoisie and a proletariat : two classes that would have challenged their power. So the government spent the money on the army, on education and on the government bureaucracy. By doing so they created the class that destroyed the old state . There were suddenly thousands of univesity students and tents of thousands of secondary school students . The government pacified them each year by hiring the university graduates to man an expanding state bureaucracy, as teachers, civil servants and police and army officers . In a more developed economy these students could have been drawn from established urban classes and the children of landowners . But the expansion in Afghanistan was so rapid that the majority of students came from the families of the middle peasants in the countryside . They brought with them their parents' hatred of the state and the khans . To this they added their own frustrations . As in many third world countries, this new class saw its historical task as the modernization and development of the state . But in feudal Afghanistan this is precisely what they were forbidden to do . So their jobs were often meaningless . Many civil servants had nothing at all to do . All were ashamed of the corruption of

Capital & Class 38 the state . And their wages were low, even by Asian standards . A teacher earned twice as much as a poor shepherd or sharecropper. A University lecturer earned three times that, no more than his father the poor peasant . From the 1960s on two political forces competed for the allegiance of the students and the new middle class . One were the two Communist parties . The Khalk (People's) Party was led by Taraki . It was the larger of the two, more radical, at the base more Pushtun, more rural and poorer. The Parcham (Flag) Party of Babrak Karmal was somewhat smaller, more moderate, with a better base among more affluent Kabulis and in the non-Pushtun areas . Both parties were orthodox Communist parties who looked to the USSR as a model for socialism . (There was also a Maoist Party which was important until 1973 and strongly anti-Pushtun .) The other political force were the Muslim fundamentalists, whose stronghold was the Theology Faculty at the University of Kabul . They learned their politics from Al-Azhar University in Cairo and were much influenced by the Muslim Brotherhood . In the early seventies they fought each other at Kabul University and in the streets and secondary schoolds of the capital . They used fists, axes and guns . But above all they argued for the minds of the uncommitted students . In Kabul the Communists won the argument among the new middle class . In the villages they lost it . As some villagers near Kabul put it to me, they had at first supported Babrak Karmal as their MP . But then the mullahs had mounted a campaign to prove he was no Muslim, and they realized the mullahs were right . Both the Communists and the Muslims hated the state . The King attempted to

balance between them . But in the early seventies two things weakened the state decisively . One was structural . After 1968 the American state began to withdraw its aid . The Vietnamese defeat and economic weakness led them to decide it was not worth such a massive direct investment . This threw the state into fiscal crisis . How were they to employ all these students? How were they to pay the army? How were they to raise revenue? Tax the Khans? Then there was a famine in the north and east . The local officials and the khans stockpiled aid grain and sold it off at ten times the going rate . Hundreds of thousands starved . A journalist asked them why they did not storm the grain stocks . The peasants said the Air Force planes would bomb them . The planes were Russian MIGS flown by American trained pilots . Fury over the famine and fiscal crisis meant the writing was on the wall for King Zahir. In 1973 Kabul was full of rumours of coup and countre-coup . While the King was abroad, Mohammed Daoud struck first with a military coup .

SIX Daoud's project was an attempt to square the circle . He was brought to power by a conspiracy of younger army officers, many of them influenced by the Communists . He himself was a former Prime Minister and the King's first cousin . He announced the end of the monarchy and the introduction of 'Islamic Socialism' . This meant that in foreign affairs he would lean towards the Soviet Union and attempt to get more aid that way. In domestic affairs he would preserve the power of the old ruling class through a harsher and more military dictatorship . The Parcham communists made the

Afghanistan classic mistake and supported Daoud until he didn't need them any more . Then he turned on them and drove them underground . The Khalq communists, more radical, went underground from the first . So did the Islamic fundamentalists . In 1975 they attempted to lead an insurrection and were smashed . Their leaders fled to Pakistan, and are now the leadership of the fundamentalist wing of the Mujahedin . Daoud ruled from 1973 to 1978, but could only postpone the crisis . The Parcham and the Khalq united underground (probably at Russian insistence) into the People's Democratic Party of Afghanistan, the PDPA . One thing they had learned from Daoud was the importance of building underground among army officers . They began to prepare a coup . In April 1978 Daoud arrested the entire Central Committee of the PDPA. It was probable they would kill him . The army officers who supported the PDPA knew they would be next, and soon . They launced a coup, killed Daoud and gave power to the PDPA . SEVEN At first the April Revolution' seemed successful . There was fighting in Jallabad, but little elsewhere . This was because the PDPA had a real social base : the educated middle class . The army officers supported the PDPA because they were part of that class . The Daoud regime had a base only in the old ruling class, and that was by now a small and isolated force . So almost nobody fought for him . And from the point of view of the PDPA, it seemed there was no choice . If they had not staged the coup, they would have been killed . But they had one decisive weakness . Their support was among the officers, not the soldiers . In the sixties and early seven-

ties they had tried to win the political 39 argument in the countryside and they had comprehensively failed . So now they had to attempt to make a revolution from above . They set about doing so . They were not reformists or time-servers or believers in class compromise or the parliamentary road . They were the flower of their generation . They hated the society they had grown up under. They meant to change it . Almost immediately they passed two important sets of decrees . One was on land reform : all holdings over 15 acres were to be broken up and the land given to poor peasants and sharecroppers . This was a full scale assault on the khans . The second set of decrees announced more education for girls and reduced brideprice to a token amount . These may not seem like revolutionary measures . But in the Afghan context they were a declaration of support for women's liberation and an attack on Islam . Feudal Afghanistan was deeply sexist . Brides were bought, and the price ranged from three years wages for a poor man to ten years wages. A man without sons could not defend his land against larger families . A really poor man could never marry. And because each family's hand was turned against the other in chronic disputes over land and water, no poor man could easily defend his marriage . Divorce was illegal, women worked from before dawn to after dusk, and were beaten if they refused to work . If somebody stole a man's wife, he shot him if he was powerful and ate great shame if the other man was a powerful khan he dare not challenge . The oppression of women was central to the tradition of Afghan Islam . Mullahs preached the veil and threw acid at the legs of unveiled women in Kabul . Most

Capital & Class 40 poor women had to work in the fields and their husbands could not seclude them . But the richer families in each village could, and the poorer men aspired to be like them. For the sharecropper lucky enough to marry or the poorer peasant with little land, his wife was all he could control . If he lost her he lost all love, all possibility of children, all support in old age . In an unequal and corrupt society, Islam preached equality and honesty. The Law would be obeyed . All orders of men prayed together in the mosque, all equal before God . And if only the rich could protect the modesty of their women in reality, Islam said that the community as a whole would punish adulterers in the name of God . The Afghan communists had grown up in these families . They knew the oppression, the personal bitterness, the sexual pain . And many of them were women . For them, as for the Muslim right, the position of women was a fundamental issue . But to push through land reform and bring women's equality, they had to make their revolution from the top down. That meant doing it through the Afghan state . And the Afghan peasants hated the state . In the non-Pushtun areas they regarded the state as a form of Pushtun conquest . But in most Pushtun areas too people had memories of local wars against the state . Everywhere there were more recent memories of the secret police . And for Afghans anarchy was not a utopia . In most areas people remembered when they had been independent of the state. Along the Pakistani border hundreds of thousands still lived in effective independence . The mullahs began to organize . They said that the communists were infidels (mostly true) and tools of the Russians

(not true) . And there was a long history of rebellion against the state and imperialism under the banner of Islam . The Afghans had fought two successful Jihads against the British in the nineteenth century and an insurrectionary Jihad in 1928 had brought down King Amanullah . This tradition was remembered . The PDPA had to win the arguement against the mullahs in the countryside . If they had had a real base in the countryside and among the conscript soldiers, they could have fought for their reforms from the bottom up . They didn't . So they sent in jeeps full of men in Western suits protected by ambivalent conscript soldiers . The peasants looked at them, and saw the enemy coming.

EIGHT The first risings were in the traditional centres of rebellion against the state : Nuristan and Pakhtia . But everywhere the mullahs and their followers tried demonstrations and isolated shootings at government officers from behind the rocks . Without a local base, the PDPA could only react with arrests and torture : police terror. And in fact their politics fitted with this . They looked to the Soviet Union as a model, and there too an enlightened minority ruled with police terror . But Afghanistan in 1978 was not Stalin's Russia in 1928 . The arrests only fueled the resistance . The families of those who died in custody looked for revenge . And as the local resistane grew stronger, the PDPA turned to helicopter gunships to bomb the peasantry into submission . But while police action can be a selective form of terror, napalm could only be a form of class war against the peasantry . And so it united the peasants behind the mullahs and fed the resistance .

Afghanistan Of course, the resistance had nothing like the scale of popular support it now enjoys . But the PDPA's base was a weak one simply because the urban middle class was a weak class in an overwhelmingly peasant country. And as the repression increased that base began to splinter. Under these pressures the PDPA itself began to splinter. The old Parcham activists said that they were going too far too fast and should hold off the reforms to win the peasants . The old Khalkis said that only repression could keep them in power and push through the reforms . Both were wrong . Neither repression nor moderation could win over the peasantry now. So the communists began to kill each other. The Khalk faction took control of the state and filled the jails with Parchamis . The Khalk itself began to break, and in the autumn of 1978 its leader, President Taraki was killed by the radical Mohammed Amin . None of this stopped the collapse . The prisons and the graves filled as the government lost control of the countryside . Then, in December 1979, the Russian army invaded .

NINE The Russians had not planned the April Revolution' . (Whatever the American right may say.) Daoud's was a friendly government, and the Russians are not in the habit of orgnaizing social revolution against friendly governments . The PDPA saw itself as a communist party, but not as a tool of the interests of the Russian state . Their revolution was home grown . But when they seemed to succeed the USSR treated them as effectively part of the Soviet bloc . But the deep social conservatism of the cPSU meant that they were appalled that the Khalk was risking

everything on a program of real reform . 41 They argued strongly with the PDPA for calling off the reforms and building a `Fatherland Front', a coalition with the khans and the mullahs . They saw Mohammed Amin, the effective leader of the Khalk, as the main opposition to this . And indeed Amin was the leader of those communists who were not prepared to become Russian puppets . First the Russians supported the Parchamis . After they were arrested or went into exile in the Soviet bloc, the Russians persuaded the Khalqi President Taraki to kill Amin . In the ensuring gun battle Amin killed Taraki instead and took over as head of state . The Russians tried another assasination attempt and failed . Then they invaded . It is difficult to be absolutely sure why. (Kremlinology, like Contragatology, is an opaque science .) But it looks like there were several reasons . Firstly, it looked like the Afghan government would fall . No part of the Soviet block had ever fallen to a popular insurrection . And this was a state on the Russian border with a Muslim fundamentalist opposition . It was just after the Iranian revolution, and the Russians must have been worried about reverberations in the Muslim south of the USSR . But secondly, they probably thought they could do it . The Red Army did not expect to lose a war to a bunch of bandits in the hills. And thirdly, they seemed to have believed that if they could remove Amin and implement a sensible moderate strategy, they could win over the peasants So they killed Amin and put Karmal, the leader of the Parchamis, in his place . Karmal proceeded to call off the reforms, pray ostentatiously on television and promise to call off the repression . The Russian strategy failed . Nobody believed Karmal . But even if they had,

Capital & Class 42 there were now over 100,000 foreign troops in Afghanistan . The mullahs had been saying the PDPA were Russian tools . Amin had not been . Karmal was . This was a nation with a living tradition of successful Jihad against imperialist infidel invaders . The tradition was revived . The Afghan peasants swung solidly behind the Islamic resistance . So did the urban middle class, the old base of the PDPA . The students demonstrated in Kabul, led by the girl's school that had been the centre of agitation against the veil under King Zahir. The civil servants went on strike and joined the demonstration . Some of the Khalk led sections of the army mutinies . The peasants took up arms .

TEN And so began eight years of war . But if Afghanistan is Russia's Vietnam, the Mujahedin are unlike every other national liberation movement . They are not united, they are not led by one party, and they are deeply reactionary . Classic guerillas are a disciplined force relying on popular support . the Mujahedin are not an army swimming in the sea of the people : they are the people themselves in arms . The Russian strategy since 1980 has been to hold the cities and towns . In rural areas they have relied on sending in tanks and armoured infantry supported by helicopter gunships and bombing . With this strategy they can kill a lot of people . Several hundred thousand have died . They can also drive out most of the farming population and the nomads in the areas they choose to make free fire zones . Of about 15 million Afghans, over 3 million are now in refugee camps in Pakistan, 2 million scrap a living in the slums of Iranian cities, and a million

refugees live in Kabul . But this strategy cannot defeat rural guerillas . The russians have clearly found the cost of leaving the shelter of their tanks too high . So they send in the planes and armour, the Mujahedin melt away, the russians return to base and so do the Mujahedin . In most rural areas there is a sort of stand off. Both sides shoot at each other. The local garrisons of the conscript Afghan army have an informal agreement not to fight . If the Mujahedin attack the cities, the Russian army will come to the villages and massacre . So the killing goes on and the battle lines do not change much . The building blocks of the Mujahedin are the `base units . Each base is the old `gaum', the old local units in arms . In some areas each small village is a base . In some villages which were split in the old days between two factions each faction is now a base . In valleys with more than one nationality or sect each one will have it's own base . so, quite typically, a small valley with six villages may have ten bases . Each base has an operational and military independence . There is no overall commander. Bases in the same area may combine for a raid on a nearby army post . But they may not . People fight in or near their homes . If they can, they farm their land . If it is a free fire zone, the women and children and old men go to the camps in Pakistan . The men take turns going back into Afghanistan to fight . When they can, they keep an eye out for planes and continue farming their land . And they farm the land of the absent khan. For the old ruling class are conspicuous by their absence from the struggle on the ground . They sit in Peshawar and Paris and New York . They have abdicated

Afghanistan their power. With the partial exception of the strategic Panjshir Valley, no commander controls a mobile army he can order into battle where it is needed . Several base units may combine from the Pakistani camps to the home village . But they try to avoid fighting on the way. And they pay cash for food on the way.

ELEVEN Each base is affiliated to one of the seven parties of the Mujahedin in Peshawar. Different bases in the same valley often belong to different parties . The choice may be ideological, but it also reflects old rivalries between villages, nationalities, factions and clans . The leader of a base will often take his men to another party . `I was with the Harakat, but my enemy kept saying bad things about me, so I went over to the Hezb .' The parties are the conduit for money and guns . The Americans and the Saudis supply the most money, and the Chinese some . The Pakistanis supply little money, but without their base in Pakistan the resistance would probably have collapsed . A lot of the money and guns never reach the fighters on the ground . Various Americans and Saudis doubtless skim . But the bulk of the theft is by Pakistani bureaucrats and the national and local leaders of the Afghan parties . This combines with the corruption produced by the hugely profitable drug trade . In many areas of Afghanistan opium is the cash crop best adapted to local conditions, and no central authority has an interest in closing it down . Nor do the pious Americans, for the Mujahedin have to eat . The effect has been to slowly rot the Pakistani state and army. But if many resistance leaders are individually corrupt, they are very serious

about their politics . And they are deeply 43 divided . The main political division is between the `traditionalists' and the 'Islamists' . The traditionalists are based on the old ruling class and the mullahs . One (Gailani's) looks to the old King, Zahir, now waiting in Italy. One (Mujaddidi's) is more frankly secular and one (Muhammadi's) is based on the network of traditional Pushtun mullahs . But the traditionalist wing is the weaker. The mullahs have been active on the ground : the khans have not . The traditionalists have tried for some time to organize a 'loe jirga', a traditional national tribal council of the ruling class inside Afghanistan, to call for the return of the King . They have failed . The CIA tends to favour them as a relatively moderate force . But when Professor Majrooh, a leading traditionalist, was recently assasinated in Peshawar, everybody knew the Isamists had done so . Yet none of the traditionalists had the courage to say so . They complain in private about the Islamists; they do not feel strong enough to argue publicly. There are four Islamist parties ; two of them are important . One is the relatively `moderate Jamiyyati Islami . They are led by Rabbani, a former Professor of Theology in Kabul University. Their cadre are University students and mullahs, and most of them are Farsi speaking Tajiks from the North . Like all the Mujahedin parties they want to install a truly Muslim state in Kabul . Unlike the traditionalists, they mean it . They continue the tradition of looking to Al-Azhar and the Muslim Brotherhood . The radicals are the Hizbi Islam of Hekmatyar, the Party of Islam . Hekmatyar himself was an engineering student at Kabul University in the 60s and a leader of the Muslim right then . Even more than

Capital & Class 44 Rabbani's, this is the party of that part of the new middle class that hated the King and the State but looked to an Islamic revolution . The Party is much more organized and disciplined than the other organizations . They definitely see themselves as the future government of Afghanistan, and all other parties complain that the Party attacks their base units and assasinates their militants . Rabbani is to some extent an Islamic utopian . Hekmatyar is completely so . He looks forward to an Islamic state without oppression, without wasteful riches, without injustice, without indecent women and without an opposition . And with private property, of course . It is a dream of a bourgoisie state without greed . But it is not a dream of a return to the old feudal ruling class . They are firm that there should be no return to the King and his ways . Hekmatyar's Party talks abstractly of social justice and means an end to the power of the khans . Both parties, and particularly Hekmatyar's, are the political expression of the right wing of the new middle class created by education . In class terms, they are the same people as the communists . Their leading cadre is not the product of the Russian invasion . Masood, Rabbani's commander in Panjshir, for instance, is often represented as a heroic nationalist . But he was a student militant of the Muslim right in the early seventies, like Hekmatyar and Rabbani, and had to flee to Pakistan after the Islamic insurrection of 1975 was crushed . The political goal of this cadre remains what it was then : to take control of the Afghan state and build a centralised bourgeois dictatorship . TWELVE Are the resistance party simply tools of the CIA? No . The Mujahedin would have

collapsed without American, Saudi and Pakistani support . But the relationship is not simply one of master and puppet . Nothing illustrates this more clearly than the debate in the American government over Stinger missiles . Since 1980 the Mujahedin have been loudly demanding surface to air missiles . They felt that these would immobilize the Russian helicopters and air cover, and make a decisive shift in the military situation . The Jesse Helms wing of the Reagan administration supported them . The CIA has been against it . Helms is an ideologue: the CIA has the actual job of managing the American empire, and a much clearer idea of what is happening on the ground . They were more than happy to supply the Afghans with enough money and arms to be a thorn in the flesh for the Russians, and a continuing propaganda plus in the Muslim world. But a victory for the Mujahedin would be something else again . The two great enemies in American domestic propaganda in the 80s have been the drug peddler and the Islamic fundamentalists . A Mujahedin victory could well bring to power a regime that was to the right of the Ayatollahs . That regime would preside over a state faced with the choice of tolerating a massive drug trade or trying to deprive millions of poor peasants of their livelihood . If Noriega has been embarrassing, that could well be far worse . Moreover, it would be a regime the Americans supported and were in some sense responsible for. But it would not be a malleable client state . Hekmatyar's Party in particular would be a nightmare . When the Mujahedin leaders went to the UN, Reagan invited them to Washington for a photo call . They had to refuse, because Hekmatyar refused to shake

Afghanistan Reagan's hand . He holds that both super powers are imperialist and anti-Islamic . Two yeas ago the CIA lost the argument in Washington . They stalled for months on actually delivering the Stinger missiles . But in the end they had to do so . The military consequences have been dramatic . For the last two years the Russians have been losing one helicopter or plane a day, on average . That costs them a lot of money.

THIRTEEN The Stingers have been one element in the Russian defeat . Of course, the Russian withdrawal is part of a much larger project . The USSR faces an economic crisis . On the domestic front, the Gorbachev wing of the cpsu sees no alternative to rationalization of industry (perestroika) . On the international front, the cost of military competition with the USA has become too high . This is at the heart of Gorbachev's worries over Star Wars and his desire for a deal on limiting missile expenditure . It has also led to serious attempts to negotiate settlements with the South Africans over Angola and Namibia and with Pol Pot, Sihanouk and the Americans over Kampuchea . The Afghan withdrawal is part of this . The cost of the war has been too much . Of course the main cost has been half a million to a million Afghan dead . Only some 10,000 to 20,000 Russian troops have died . But for the Russian state the economic bill has been more important . Precise figures are unavailable, but the best guess is that for the last three years the cost has been running between four billion and twelve billion dollars a year. It is, in Gorbachev's words, a `bleeding soe . And they have not won the military battle . The countryside is in the hands of

the resistance . For years now the Mujahe- 45 din have held the suburbs of Kandahar, the second city, and been able to operate in the city centre at night . The Russians hold Kabul, but the Mujahedin can regularly bring down Soviet planes landing at Kabul airport, two miles from the city cente . The strategy of junking reforms and winning over the tribal leaders to a `Fatherland Front' has also failed . In a last attempt the Russians deposed Karmal and replaced him with Najibullah, supposedly a more moderate and acceptable negotiator. As he was for years the head of the secret police, it is not surprising that the Afghan masses have not flocked to his banner. So the Russians have lost the political battle and the military battle . Of course, they have not suffered total defeat . They could hang on indefinitely. They could even win if they were prepared to commit two million men and suffer ten times the casualties . But the Americans could have stayed in Vietnam if they had been prepared to commit five million men . The French could have stayed in Algeria on the same terms . But in both cases the resistance meant that the political and economic cost was too high for the occupying power . And in a situation short of total war, like 1939-45, that is what defeat means .

FOURTEEN Within a year, the Russian army will be gone . Without Russian support, the Afghan army will not fight . Diplomats in Kabul now debate whether the regime will collapse in three months or two years . Rumour says that the leading cadres of the PDPA are sending their families abroad . The Mujahedin will take power . But

Capital & Class 46 which Mujahedin? There is no one disciplined army. For the moment the Peshawar parties have cobbled together a provisional government . But the political and personal differences are too large for that government to hold together. And the Afghan peasantry is armed . They are still organized along the traditional ethnic, tribal and factional cleavages . They have fought for their freedom . They will be happy to see an Islamic government in Kabul, but not happy to submit to the real authority of that state . There are the makings of a hundred local land wars . The khans preserved their landholdings by force and their links with the old state . Now they will come back to claim that land . But force and legitimacy will lie with those who remained to fight the war . For the moment there has been a labour shortage on the land with so many men in the refugee camps . But when they return there will be pressure on the land . That pressure will be exacerbated because so many of the irrigation works and chains of wells have been destroyed during the war. If everybody returns to the land at once, they face ecological disaster and starvation . But anybody who does not return risks losing the control of their fields . At first the state will have no repressive apparatus independent of the base units . And many of those base units will be tempted to fight each other for control of land rights and water rights they have sullenly disputed for generations . If these feuding base units join up with opposing parties, there could be the makings of a civil war. And there is the national question . The Jammayati Islami is majority Tajik : the Party of Islam is majority Pushtun . And in the central mountains the Hazara people have been independent for eight years .

The Hazaras, fifteen per pcent of the population, are Farsi speaking mounain people claiming Mongol descent . They have always been the lowest and most despised ethnic group . They return that hatred for the Afghan state and the Pushtuns . From the the first the Russians decided it was not worth the effort of conquering their montain region . At first the old ruling class set up the shura, the committee, to run the Hazarajat in the old way. But unlike the other Afghans, the Hazaras are Shiahs . Those who hated the old ruling class looked to the Iranian example . The Peshawar parties are all resolutely Sunni . They have been influenced by the Iranian example, but they have contempt for the Iranian regime . This is because the Ayatollahs have done nothing to help the Afghan resistance . They have provided no arms, no money, and no refugee camps . They consider the USA the larger threat and do not wish to cross the USSR . But the more militant ex students and middle peasants in the Hazarajat had always hated the khans who made up the Committee . They organized into two parties, both modelled on the Iranian example . The first was Nasr, a fundamentalist party that began to attack the Committee . They were joined by the Sepah, a direct client of the Iranian Pasandaran (Revolutionary Guards, a sort of Freikorps .) An alliance between the Sepah and the Nasr drove the Committee and the Khans from the Hazarajat. The base units of the Sunni Peshawar parties now cross the Hazarajat to their homes in the north . The Nasr and Sepah extort money and guns from them . The Peshawar parties say they must not fight the Hazaras now : the current need is for unity against the Russians . But they say that when the Russians go they will settle with the Nasr and Sepah . They will, and

Afghanistan it will be bloody. The Hazaras have tasted independence, and they have their arms .

FIFTEEN There will be many small land wars . These may or may not combine into a civil war. The new state will certainly move to crush the independent power of the bases . It will not be easy. Who will win? One of the Peshawar parties . It is impossible to say which one, but the fundamentalist parties have the best chance . The traditionalists stand for a discredited class . The fundamentalists have the enormous advantage of focusing on control of the state. In a fragmented and shifting political situation, that concentration of effort will probably be decisive . As the new middle class won in the Hazarajat, one fundammentalist party or another is likely to win on a national scale . The resulting regime will be extremely right wing . It will be the enemy of women, of sharecroppers, peasants and workers . And that is the tragedy of the Afghan communists . In 1978 when Daoud moved to kill them, it seemed to them as if they had little choice. But because they tried to make a revolution through the officers rather than the enlisted men, through the state from the top down rather than from the bottom up, they have met with a fate far more shameful than death . They chose the path of helicopter gunship socialism . Napalm and electrodes have destroyed any possibility of socialist organization in Afghanistan for a generation . Those boys in that street in Lashkargah in 1971 will now be men in their thirties . Some will have been killed by other communists, and some by the Mujahedin . Some will have gone over to the resistance . But as the last Russian helicopters leave

their base at Lashkargah, one may scram- 47 ble for safety. As the Americans did in Vietnam, the Russians will push him back . This time he will not face a reeducation camp . He will face death . Those boys who appealed to that peasant crowd against the state went on to use the state against the peasants . Now that crowd will be coming for them .

SIXTEEN On a world level, the Russian defeat is a blow against imperialism . The American defeat in Vietnam opened up the space for mass movements in Nicaragua, Iran, the Philippines, Haiti and Korea . The Russian defeat is not on the same scale, but it will be felt . The Russian army and the Russian state have not suffered a defeat for sixty years . Their grip on the Soviet bloc has much to do with the feeling that the state is invulnerable . In 1980-81 the Polish activists were always looking over their shoulder for the tanks . Now in Warsaw and in Budapest and Prague the militants can say, maybe the tanks will not come . Maybe they can be defeated . The Russian army in Afghanistan was a conscript army on tours of duty, like the Americans in Vietnam . Perhaps 600,000 citizens of the USSR have lived through a defeat of the Russian state . Some of them will have been on the streets of Armenia . Since 1945 the world has been policed by the us Marines, the Sixth Fleet and the Russian tanks . Now that grip is breaking on both sides . In the space that opens up, there will be a place for mass movements such as has not existed for forty years . The Mujahedin victory is welcome for creating part of that space . After 1979, there was never any way forward for a democratic and socialist movement in

Capital & Class

48 Afghanistan than support for the Mujahedin . But whatever part of the Mujahedin wins power, they will not be a regime any socialist can support . In Afghanistan, it is time to welcome peace after long years of war. It is time to recognize that as the TB patients said, the land of the Afghans will still be the land of tyranny. It is time to weep for the tragedy of Afghan communism .

Further Reading

The three essential things are Jonathan Neale, `The Afghan Tragedy', International Socialism, 2 :12, 1981, also available in German as Der Afghanische Tragodie, translated by Kurt Stronski, Aurora Verlag, Hamburg, 1982 ; M . Nazif Shahrani, `State Building and Social Fragmentation in Afghanistan : A Historical Perspective, in Ali Banuazizi and Myron Weiner, editors, The State, Religion and Ethnic Politics : Afghanistan, Iran, and Pakistan, Syracuse University Press, 1986 ; and Olivier Roy, Islam and Resistance in Afghanistan, Cambridge University Press, 1986, available in French as LAfghanistan : Islam et Moderne Politique .

In addition : the best book on Afghan communism, from the point of view of the American state, is Henry S . Bradsher, Afghanistan and the Soviet Union, Duke University Press, 1985 edition . Most journalistic books on the Mujahedin are Boy's Own or Girl's Own adventures : the exception is Arthur Bonner, Among the Afghans, Duke Universit Press, 1987. I have condensed a very complex history : for the detail see my 1981 artice and Shahrani . There are several excellent ethnographies : Robert Canfield, Faction and Conversion in a Plural Society : Religious Alignments in the Hindu Kush, University of Michigan Museum of Anthropology. Papers, No . 50, 1973 ; Thomas J . Barfield, The Central Asian Arabs of Afghanistan : Pastoral Nomadism in Transition, University of Texas Press, 1981; M . Nazif Shahrani, The Kirghiz and Wakhi of Afghanistan : Adaptation to Closed Frontiers, University of Washingto Press, 1979 ; Veronica Doubleday, Three Women of Herat, London, 1988 ; and Nancy Tapper's 1979 London Ph .D . thesis, `Marriage and Social Organization among Durrani Pushtuns in Northern Afghanistan', which should be published immediately.

LO H John Pickles Jeff Woods

C

s CO

Reorientating South Africa's international links `. . . dis my soort mense ( . . . they are my kind of people) S A Prime Minister about the Taiwanese'

Introduction The 1980s have been a period of great paradox and pain for South Africans . The reform policies of Botha have developed under a system of increasing centralization of power and militarization of government at all levels . South Africa in the 1980s is a state in crisis, challenged first and foremost internally on the ground by a crisis of control and legitimacy arising out of its thoroughgoing policies of oppression and inequality, and second by an external challenge which has ariseab02n 49 from the changing geo-politics of the southern African region and the increasing pressure for sanctions in Europe and the us . As a result the fortunes of the South African state are tied closely to those of the South African economy : eco-

Capital & Class 50 nomic growth is vital to continued political control, if not to stability. The heated and angry debates in South Africa over the sanctions and disinvestment movements in the us and Europe further reflect the pressure on the already sluggish South African economy, and on the ability of the state to maintain control and effect reforms . The apparent outcome is a state in disarray, operating in incoherent and often seemingly contradictory ways . It is against this background that the recent debate about Botha's reform policy should be seen, involving a far reaching restructuring of all aspects of the South African system and its external relations . Chris Heunis, Minister of Constitutional Development and Planning, suggests that `The response of the P W Botha government to these challenges is reflected to a

large extent in its national strategy, which is a unique plan . . . that adresses itself to domestic, regional and international issues simultaneously. i 2 Much has been written about this restructuring in the context of regional, urban, military, social, or industrial policy, but little attention has yet been given to South Africa's restructuring of its international links . The death of 30 Taiwanese in the crash in the sea off Mauritius of a South African Airways jumbo jet on its way from Taipei to Johannesburg in December 1987 serves to focus atention on this reorientation in South Africa's international links . During the 1980s South Africa has shifted its emphasis in diplomatic and trade contacts from its historically dominant connections with Western Europe and North America, by broadening those interna-

Table 1 .

South Africa's imports and exports to selected countries (main components as % of total trade in each direction - excluding gold)

Country

Exports to SA

Imports from SA

Taiwan

Textiles (27%) Machinery (22%)

Minerals (29%) Metals (40%)

Hong Kong (1985) :

Cotton fabrics (9%) Telecommunications (5%) Watches and clocks (16%) Toys and sports eq (12%)

Coal (3 1%) Iron and steel (22%) Precious stones (6%) Paper (5%) Vegetable oils (4%)

S . Korea (1985) :

Chemical products (42%)

Animal products (14%) Chemical products (12%) Paper (11%) Metals (17%)

Source : p . 297

(1985) :

Hanlon, J . and Ormond, R . The Sanctions Handbook . Harmondsworth : Penguin,

1987,

tional contacts to include other nations, particularly those in the Indian Ocean and Asia : Taiwan, Hong Kong and South Korea . Not only are the former markets drying up as pressures to impose sanctions on South African trade begin to take effect, but also it is these Asian markets which ave experienced some of the fastest economic growth in the 1980s . Moreover, as us corporations withdrew from South Africa under pressur at home, and as average annual after-tax returns on investments for us corporations dropped from 31 per cent in 1980 to 7 per cent in 1983, new investment capital was needed to replace that being lost . South African trade with Asian economies has risen rapidly in the 1980s, from 19 per cent of South Africa's exports in 1980 to 31 per cent in 1987 Imports from Asia have also grown . With the imposition of sanctions and the threat of further boycotts and withdrawals by Western interests, trade with the fast-growing Asian and Pacific Rim countries takes on a new significance, particularly because in many ways the economies of south Africa and East Asia are complementary. South Africa is a source of temperate agricultural products and raw materials for the Asian Newly Industrialising Countries (ANics), and serves as a market for manufactured goods and investment from those countries . (Table 1)

Taiwan : Trade and cultural links Among the ANICS, Taiwan has expanded its South African ties in the 1980s most markedly. In part this reflects both countries' increasing diplomatic isolation . South African Prime Minister (now President) P W Botha visited Taiwan in 1980 and South Africa is one of the few countries to host a Taiwanese Embassy. South Africa increasingly emphasizes its connec-

tions with Taiwan : it held a memorial 51 service for the late President Chiang Ching Kuo in 1988 at which the main speaker was foreign Minister R F Botha, and sent a contingent of government officials to the funeral in Taipei . Recently, South Africa revised its immigration laws relating to Taiwanese Chinese, and in late 1987 the two countries signed an extradition treaty for economic crimes, including debt and fraudulent foreign investment . The Vice President of Taiwan attended the ceremonies to mark the inauguration of the new Constitution of South Africa in 1984, and General Johann Coetzee, the Commissioner of the South African Police was awarded the Taiwanese Medal of Yun Hai for promoting the `traditional friendship and military cooperation' between the two countries . This `traditional friendship' would be made more concrete by the academic exchange program of lecturers and students of South African and Taiwanese universities announced in 1987, and the visit of a South African admiral to Taiwan would firm up the `long-standing' ties between these two nations! Underpinning the changed cultural and political relations between these states is a strengthening of economic ties . Bilateral trade has increased rapidly from $546 million in 1986 to $911 million in 1987, a 67 per cent increase, and Mr C C Kan the Taiwanese economic counsellor in South Africa predicts trade at $3 billion by 1990 with a potential of $8 billion in the long term . Unlike many countries who wish to keep South African contacts at arms length . . . `We are not satisfied with present levels . . .' said Mr Kan . 3 Bilateral conferences and Ministerial discussions have addressed trade, business, investment and joint projects, South Africa has a permanent display at the Taipei world Trade Centre to broaden its presence in

Capital & Class 52 the burgeoning Pacific Basin markets, about 1000 visas a month have been issued to Taiwanese businessmen to visit South Africa and a similar number issued for South African businessmen to visit Taiwan, shipping services between the two countries have been increased, and an increase in the number of flights is under consideration . Taiwan is the main, but not the only, country in Asia involved in this reorientation. Others include Hong Kong, South Korea, and the Philippines, but Taiwan appears to be taking the lead .

Taiwanese investment in South Africa South Africa's interest in the far East is not just to increase exports but also to promote new sources of foreign investment to make up for the drying up of investment from its traditional sources . Taiwan, with its regular annual surplus on world trade ($19 billion in 1987) and healthy foreign exchange reserves, currently standing at $75 billion, is worth wooing especially since Taiwanese residents can now invest overseas up to $5 million per person . Investment in South Africa is very attractive for Taiwanese investors . High levels of government financial incentives and cheap labour permit a high return on a small investment . The bulk of Taiwanese investment has gone to the `Homelands', where approximately 120 factories have been established by Taiwanese investors . Generally speaking the investments have been relatively small amounting to about $100 million in total (compared, for example to over $500 milion by Taiwanese investors in Thailand), but their significance for the Homelands far outweighs this . Homeland leaders are keen to encourage investors to their territories . Prime Ministers Mpephu of Venda and Phatudi of Lebowa both vi-

sited Taiwan in 1983 and President Sebe of Ciskei travelled there in 1984 . Sebe later commented that 'Ciskei will ned much stronger promotion overseas', and that ' . . . a large proportion of present investment in Ciskei is from abroad and it is vital that this trend be maintained . i 4 The KwaNdebele National Development Corporation has a full-time office on the island . Investors are attracted by munificent financial incentives available through the South African industrial decentralisation policy. Companies investing in a range of government designated `industrial development points' and 'deconcentration points' (many of which are in the homelands) receive subsidies of up to 95 percent of the wage bill, 80 percent of rental costs of factories, and 60 percent rebate on transport costs . One Taiwanese investor went so far as to describe them as `the best incentives in the world' . The companies also benefit from cheap labour due to staggering levels of unemployment, and the absence of trade unions due to repressive homeland government labour legislation . As a result wage levels can be half the rate of those in the `white parts of South Africa . A further attraction, seemingly paradoxical, is the ability to use South African Certificates of origin, at a time when producers might otherwise shy away from such a status in face of possible embargoes on South African made products . However, these certificates enable ANICS to get around trade restrictions imposed on exports from their home bases by the United States and European Community. This is particularly the case for textiles which form a high percentage of investment from ANIC sources, and which are restricted under the MultiFibres Agreement . South Africa's exporters had not achieved the limits of their quota, offering an opening for new expor-

ters . By mid 1986 approximately 85 per cent of South African textile exports were coming from Taiwanese concerns . 5

Indian Ocean Basin realignment policy The importance of this reorientation of trade and investment ties with Taiwan and other Asian countries is underlined by South Africa's attempts to strengthen diplomatic and economic ties with the governments of Indian Ocean islands, especially those with large airstrips to accommodate long distance flights . South African attention has been focussed on the Comoros, the Seychelles and Mauritius . A coup in the Seychelles in 1977 deprived South Africa of its landing rights at Mahe airport . Flights were rerouted through Mauritius, an island which has taken on a key position in South Africa's overseas links . It already serves as a break of service point for flights between South Africa and Australia since the Australian

government withdrew South African Air- 53 ways' landing rights there . Hong Kong, Singapore and Taiwan provide a similar break of service function for South African flights . In February 1988 it was announced that Air Mauritius would increase the number of its flights on the 1500 mile flight between the island and Johannesburg after purchasing a newly developed Boeing 767-300 extended range jetliner. The extended range version would not be needed particularly for this route . However, in April 1988 a -200 version of one of these planes flew nonstop the 8,700 miles from Canada to Mauritius opening up the possibility of direct flights to North America if certain international safety regulations were altered . Significantly, the bulk of the route was over the sea . The flight was met by the Prime Minister and the entire Cabinet of Mauritius on landing for the official handing over of the airplan to the Mauritian airline. South African influence has not always

Table 2 .

South Africa ; approvals for foreign investors in decentralisation and deconcentration points (selected NICS). Applications

Capital investment

Employment opportunities

Apr 182Mar 31 85 Taiwan Israel Hong Kong Philippines

63 23 10 1

94 .7 44 .8 10.8 5 .3

16,293 5,020 2,580 1,410

Total ANICS

97

155 .6

25,303

Total all foreign inv.

159

312 .1

34,183

Reports, Board for the Decentralisation of Industry . Data on the source of foreign investment is no longer provided by the Decentralisation Boards . The information is now considered `confidential' . Approximately half of all approvals result in actual investment . Source: Annual

Capital & Class 54 been established in a benign way. In 1978 a coup in the Comoros by mercenaries led by Robert Denard (of Congo `fame') resulted in the installation of a pro South African regime . It is reported that South Africa currently pays the operating costs of the Presidential Guard, the real power behind the throne, although the South African government denies its `aid' is used in such a way. In 1981, another ex Congo mercenary leader, `Mad' Mike Hoare led an abortive coup in the Seychelles to overthrow the left-leaning government . Among thoe captured was a member of the South African National Intelligence Service . Hoare later claimed that the South African military had provided logistical support . South Africa has attempted to consolidate its position with friendly governments through doses of foreign aid and investment to boost the local economies, ranging from hotel development in the Comoros to assistance and investment in agricultural projects in Mauritius to help that islands' economic diversification program . Some 16 per cent of Mauritius' foreign tourists in 1987 came from South Africa . It is not just the Indian Ocean islands which are the recipients of South Africa's attention and largesse - similar stroking is going on with the governments of Equatorial Guinea and Madeira . South Africa was also reportedly involved in a failed coup attempt on the island of Sao Tome in March 1988 . These moves may be seen as part of a broader strategy for developing sanctions-busting transshipment points and avoiding landing rights embargoes on South African airlines .

Restructuring and total strategy In total the levels of new investment from the ANICS are not very large, and

certainly have not yet reached the levels withdrawn by American and European companies in recent years . However, when seen in the light of the broader reorientation sketched above they are significant . Moreover, they are part of a wider strategy - `total strategy' - which seeks to restructure South Africa's internal and international relations in a fundamental way, and in parallel with the restructuring of South Africa's role in the sub-continent . The restructuring of the 1980s is on a scale as large as was the apartheid project in its time . To adapt to change while still maintaining control, to `adapt or die in P W Botha's words, is the principal aim and the real dimension of `total strategy' . As under Apartheid the location and control of the black population remains central to the issue . But, whereas under apartheid, coercion and the bureaucracy were the chosen methods, the ultimate failure of these has led to a turn to cooptation and the market . Economic growth is a vital element in this scenario in order to provide sufficient economic surplus to broaden distribution . However, the seemingly more benign means of the current period are belied by the levels of violence necessary in the townships and the homelands to enable the restructuring to proceed . Two key elements remain : externally, international links and access to foreign capital, and internally the legitimation of the homelands . One of the aims of the industrial decentralisation policy is to create an environment which will be sufficiently attractive to foreign investors and which will keep blacks from moving to the white areas by providing jobs and housing in the homelands . Growth in the economy as a whole is necessary to finance this policy, and increased investment in the homelands in particular. However, the traditional sources of foreign investment

have exhibited extreme reluctance to commit funds by locating in South Africa . The turn to Taiwan and the Pacific Rim takes on its significance in this light, and intermediate points between South Africa and the Far East become involved in global realpolitik . Notes 1 . D . Colborne, `South Africa and East Asia', South Africa International, XIII, 3 (1983), p . 469 . 2 . Financial Mail, 18 July 1986, p . 36 . 3 . Africa Research bulletin (Economic Series), 31 March 1988, p. 9026-27 4 . Financial Mail, 11 July 1986, p . 44

5 . Ibid . 7. The Times, 27 April 1988, p. 11 .

55

Andrew Kliman Ted McGlone The transformation non-problem and the non-transformation problem I have thrown overboard the whole doctrine of profit up till now . By mere accident . . . I leafed through Hegel's Logic again and found much to assist me in the method of analysis . (Marx, 1983a : 50) Most criticisms of Marx's attempt to solve the transformation problem focus on his failure to separate value and price calculations . It is argued here that there is nothing wrong with Marx's approach once it is construed as an exercise in dialectics rather than some attempt to map mathematically values on to prices . Consequently, much of the debate over values and the 56 transformation of values has been wrongly directed at matters of mathematical technique when the real issue concerns one of method .

• Marx's theory of value continues to be a subject of controversy, as recent debates on abstract labour (Gleicher, 1983, 1985 ; Eldred, 1984) and joint production (Roberts, 1987 ; Rankin, 1987) in this journal show . Through such debates, radical economists' views on value theory have seemingly crystallised into two main approaches, characterised by de Vroey (1982) as the `technological' and `social' paradigms . As students of a third, humanist problematic, we hope in this paper to create a dialogue with proponents of other approaches by re-examining the key unresolved question of post-Marx Marxist' value theory - the `transformation problem' . Within the `technological' paradigm, both adherents to the labour theory of value (e .g . Meek, 1956) and those who reject value categories as redundant or worse (e .g . Steedman, 1978) confer upon technological relations a crucial role in the valuation process . Most of those working within the `social' paradigm hold to what Elson (1979) called the `value theory of labour' ; in this theory, `value refers to the validation of private labour through the exchange of commodities against money' (de Vroey, 1982 : 40) . Our own view is neither 'technicist' nor market-oriented, but a production-centred value theory of labour . In short, we take capitalist technological relations themselves to be social relations, class relations of dead to living labour in production . `[L]abour is expressed in value' because `the process of produc-

The transformation non problem

tion has mastery over man, instead of the opposite' (Marx, 1977 : 174-75) . We do not de-emphasise the quantitative aspect of Marx's value theory, however; this paper, for instance, attaches great importance to the aggregate equalities which obtain in Marx's transformation procedure . This unorthodox interpretation of Marx's theory of value arises out of the new problematic raised since the 1950s, by mass movements and intellectuals alike, in their call for new human relations . us coal miners fighting automation asked `what kind of labour should human beings do?' (Phillips & Dunayevskaya, 1984) ; East German workers and masses struggling against a new totalitarianism called for `Bread and Freedom' ; radical intellectuals in the `East', `West' and `South' returned to Marx's humanism, rooted in the Hegelian dialectic, as a philosophic-economic totality in need of re-concretisation (see, for instance, Fromm, 1965 ; Dunayevskaya, 1958 ; Fanon, 1961) . We argue below that because they view Marx's Capital as a narrowly `economic' work, post-Marx Marxists and others misread his transformation procedure in Volume III, Chapter 9, and consequently reject it as logically inconsistent . Both anti-Marxist and Marxist economists view Marx's `failure' to separate valueand price-calculation as a logical error . Yet, whereas the former see this `failure' as a sufficient reason to reject his analysis of the capitalist economy, the latter set out to resuscitate him . They hold that he himself was aware of the error ; only his lack of mathematical sophistication and/or failure to complete Volume III prevented him from presenting the `correct solution' . 2 Despite the near-universal rejection of Marx's procedure, the debate has not resolved the question of the relation of values to prices of production . Rather, it has reached an impasse and degenerated into chronic indeterminacy . The constantly expanding multiplicity of `solutions' to the `transformation problem' has itself become part of the problem . Since each new `solution' is necessarily opposed to all others, none of them can resolve the debate . 3 To help break through the apparent endlessness of this debate, we undertake here a defence of Marx's own procedure and a critique of `transformation problem' `solutions' . Ours is, admittedly, not the first recent work to defend Marx's procedure . 4 We believe, however, that previous responses adhere too closely to the ground of Marx's critics . All sides in the debate focus on the questions of `logic' and the internal (in)consistency of the labour theory of value . What is downplayed or even ignored 5 is the issue of method : the abstract, analytical method of formal logic versus concrete, dialectical self-development . The nondialectical understanding perceives each object as isolated,

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uniquely itself, a whole unto itself . Thus, for instance, separate `systems' of value- and price-calculation are demanded, `systems' in which value equals value, price of production equals price of production . Conversely, dialectic comprehends a judgement such as `value is price of production' because this judgement, like every other proposition taken singly, is inadequate . It must therefore continue to be developed until the original statement has undergone so much differentiation that we now fully comprehend how value becomes price of production . 6 Though little attention has been paid to this issue, rejection of the dialectical method was an inseparable part of BoehmBawerk's (1949) critique of Capital, a critique which has set the ground for the subsequent `transformation problem' debate . Boehm's accusation of inconsistency has been quoted widely in discussions which take the controversy to be a purely analytic one . Yet, what has been overlooked is his stipulation that `every logical thinker' will agree with him (Boehm, 1949 : 30, emphasis added), and his concomitant desire to distance his own view of logic from Marx's dialectical logic . Marx has not deduced from facts the fundamental principles of his system, either by means of sound empiricism or a solid economical-psychological analysis : he founds it on no firmer ground than a formal dialectic . This is the great radical fault of the Marxian system at its birth : from it all the rest necessarily springs . (101, emphasis added)

In his critique, Boehm thus recognised both the centrality of the dialectic to Capital and the methodological gulf which separated him from Marx . In contrast to other participants in the debate on the `transformation problem' we, too, view the question of the `internal consistency' of Marx's procedure to be inseparable from his method . In Section II, we first examine Marx's transformation procedure within the context of his critique of political economy as a whole . We argue that his illustration appropriately kept values and prices unseparated, though distinct, within a dialectical totality - the single `system' of capitalist production and circulation . The transformation of values into prices of production is but one of many `transformations into opposite', successive developments of the reification of labour and the fetishism of commodities, discussed in Capital. Conversely, we then argue, `transformation problem' `solutions' are expressions of antidialectical methodology and a divergent view of capitalist economic relations . These general equilibrium `solutions', however, neither compel rejection of Marx's view of the value-price relationship nor actually demonstrate any relationship themselves .

The transformation non problem Finally, we present a multiperiod continuation of Marx's one-period transformation procedure . Where Section I defends the `failure' to separate values and prices into two systems as methodologically apposite, Section III seeks to demonstrate that it is logically consistent as well . Retaining values and prices in a single `system', we illustrate the `transformation of input prices' in the context of simple reproduction .? The three aggregate equalities which result from Marx's procedure - the equalities of total value and total price, of total surplus-value and total profit ' s and the equal magnitudes of the `value' and `price of production' rates of profit - hold in each period and even in general equilibrium . A summary and conclusions follow in Section IV . . . . the material, the opposed determinations in one relation, is already posited and at hand for thought . But formal thinking makes identity its law, and allows the contradictory content before it to sink into the sphere of ordinary conception . . . in which the contradictories are held asunder . . . and so come before consciousness without reciprocal contact . (Hegel, 1969 : 835) `Come before consciousness without mutual contact' (the object) - that is the essence of anti-dialectics . . . thought must apprehend the whole `representation' in its movement . . . (Lenin, 1961 : 228)9 A single charge has dominated the criticism of Marx's transformation procedure : `it fails to keep separate rigorously enough the two principles of value- and price-calculation' (Bortkiewicz, 1952 : 8) . To correct this `failure', understood to be an error in logic, `solutions' to the `transformation problem' hold values and prices `asunder', `without reciprocal contact', in two opposed systems of calculation . We believe, however, that the demanded separation of value- and price-calculation is not a simple matter of `logic' . It reveals, on the contrary, the critics' methodological opposition to Marx's procedure as well as their divergent view of what a transformation procedure must illustrate . We turn now to these issues, first by examining Marx's transformation procedure in the context of his critique of political economy as a whole, and then by contrasting it to the host of `solutions' . The meaning and method of Marx's transformation procedure It is well-known that classical political economy adhered to two opposing principles which it was unable to reconcile and that, in Marx's view, this failure led to its disintegration . On the one hand, it discovered that labour is the substance of value and

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One `system' or two? : the transformation of values into prices of production vs the `transformation problem'

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that the magnitude of a commodity's value is determined by the labour-time needed for its production . On the other hand, it adhered to the prima facie contradictory view that profit rates tend toward equality and that a commodity's price therefore tends to be equal to the costs of its production plus an average profit . Even Ricardo failed to account for the determination of the level of the profit rate and held the disproportionality of prices and values to be an `exception' to the law of value . It is also well-known that Marx insisted that, rather than attempting to `rescue' the law of value by means of a `violent abstraction' of this sort, the existence of prices of production and a general rate of profit `have to be explained through a number of intermediate stages' (Marx, 1977 : 421 ;1968 : 174) . However, this stipulation is often interpreted as a call for successive relaxation of assumptions, for an even stricter adherence to Ricardo's method - the analytic method rooted in formal logic . In this view, the law of value is a `first approximation' based on assumptions, such as equal compositions of capital, which do not hold in the real world and which must be dropped as the model becomes more realistic . We view Marx's stipulation, instead, as an indication of his dialectical method. In Capital, Volume I, he sharply distinguishes this method from that of the `abstract materialists' whose `materialism . . . excludes the historical process' : Even a history of religion that is written in abstraction from [its] material basis is uncritical. It is, in reality, much easier to discover by analysis the earthly kernel of the misty creations of religion than to do the opposite, i .e . to develop from the actual, given relations of life the forms in which these have been apotheosized . The latter method is the only materialist, and therefore the only scientific one . (Marx, 1977 : 493-94n)' O What Feuerbach had done in the analysis of religion, 10 Ricardo and the classicists had done in the analysis of economic life . They 'discover[ed] by analysis' the earthly kernel - labour of the mystery of commodity-value . The manifold phenomena of price relations were reduced abstractly, without mediation, to this undifferentiated substance, labour. Yet, the starting-point in reality (prices) persisted in contradistinction to the startingpoint in theory (labour) . The gulf between the `real world' and the theoretical world, between appearance and essence, was not overcome . 11 Marx's approach was `to do the opposite, i .e . to develop from the actual, given relations of life the forms in which these have been apotheosized' . The difference is not only that Marx

The transformation non problem

maintained a consistent starting-point whereas the classicals vacillated between two inconsistent principles . Rather, instead of being a method of reconciliation, Marx's method is one of development through contradiction . His starting-point thus contains within itself a duality - the dual character of labour revealed within its product, the commodity . The duality between the concrete potentiality of the living workers and the abstract, value-producing character of their actual activity, i .e . alienated labour, is ever-present in capitalist production . It is as isolated, independent individuals that the workers `enter into relations with the capitalist . . . Their co-operation only begins with the labour process, but by then they have ceased to belong to themselves' (Marx, 1977 : 451) . Their activity is not their own, but is subjected to the domination of dead labour . The social relations between persons at work have been transformed into thing-like relations (Marx, 1977 : 166) . Through a succession of `intermediate stages', Marx traced the development of the fetishised forms in which this reification of labour manifests itself . The first of these forms is the commodity-product, the materialisation of the labour which is an `objective' factor of production rather than the workers' selfexpression . Each subsequent `stage' is still another transformation, an inversion in which the worker's subjectivity takes on yet another form of a false `objectivity', a `social relation between things' (Marx, 1977 : 166) . 12 However, capitalism manifests itself not only in industrial relations, but in the market and in the categories of even `scientific' political economy. Thus, in these realms which Marx examines in Volume III, still more transformations are revealed . As he writes in Chapter 2 : the way that surplus-value is transformed into the form of profit, by way of the rate of profit, is only a further extension of that inversion of subject and object which already occurs in the course of the production process itself. We saw in that case how all the subjective productive forces of labour present themselves as productive forces of capital . On the one hand, value, i .e . the past labour that dominates living labour, is personified into the capitalist ; on the other hand, the worker conversely appears as mere objectified labourpower, as a commodity . This inverted relationship necessarily gives rise, even in the simple relation of production itself, to a correspondingly inverted conception of the situation, a transposed consciousness, which is further developed by the transformations and modifications of the circulation process proper . (Marx, 1981b : 136)

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Thus, in Chapter 9 of Volume III, Marx argued that the consciousness of capitalists and bourgeois economists, though `transposed', is grounded in reality's appearance . 13 Even in the form of price of production (in which considerations of disequilibrium of supply and demand, interest, rent, etc . are excluded), price and profit for an individual capital differ quantitatively as well as qualitatively from value and surplusvalue . Because price appears to be determined by (not only equal to) the costs of production plus profit, and profit appears as a pure mark-up over costs, the law of value/surplus-value seems false . Nevertheless, the alien reality of capitalist production relations remains the essential determinant of these new forms and makes its presence felt. By making the total social capital the object of analysis, viewing capital as if it 'belong[ed] to one and the same person', 14 Marx was able once again to see the capitallabour relationship through the appearance of `many capitals' . Total value and surplus-value are proportional to total price and profit, respectively ; the general rate of profit is the ratio of total surplus-value to total capital advanced . Throughout Volume III, rather than analysing market phenomena as self-subsistent, in their seeming independence from the sphere of production, these phenomena are developed as transformed forms of production relations . Thus, in Marx's illustration of the `transformation ofcommodity values into prices of production', 15 value and price are conceived of as contradictory terms in one relation. Value takes on a transformed form of appearance, a form of appearance which differs from itself . The dialectical meaning of the term `transformation' thus differs from its use as a synonym for a mathematical mapping . Many, if not most, of Marx's critics view his transformation procedure precisely as a failed attempt to map a self-contained set of values onto another, self-contained set of prices of production (or general equilibrium prices) . Curiously, however, what goes unrecognised is that this transformation is but one of many transformations of the same sort discussed throughout the three volumes of Capital, none of which are mappings . Were this fact better understood, perhaps this particular transformation would not have been singled-out for criticism . Moreover, the failure to recognise that many transformations have preceded the transformation of values into prices of production is one factor that leads critics to charge Marx with logical inconsistency . Lacking this recognition, their misconceptions regarding the latter transformation's starting-point are significant . Firstly, some critics of Marx's procedure still interpret Volume III's reference to `value' as a reference solely to labour and labour-time, and thus claim that the dimensionality of

The transformation non problem values and prices of production are inconsistent (see, for example, Abraham-Frois & Berrebi, 1979 : 26-27) . Actually, after tracing the development of the value-form into the price-form in Volume I, Chapter I, Marx regularly (albeit confusingly) referred to sums of money as `values' .' 6 Moreover, in a letter to Engels explaining the transformation of `value' into price of production, Marx explicitly equates 'cost-price' with the `price of constant part of capital + wages' and notes that this transformation `presupposes' that various value magnitudes appear as sums of money (Marx, 1983a : 109 ; emphases added) . The development of the form of value is not our present concern . However, inasmuch as the relationship between the value- and price-forms will play a crucial role in Section III of this paper, let us briefly indicate what is involved . The value congealed in a commodity is always expressed as a money price, a sum of money, because it is always related to the value of the universal measure of value, money . Conversely, of course, a sum of money always represents a sum of value . As the universal measure of value, money is ever-present, even in the absence of an exchange, since it `serves only in an imaginary or ideal capacity' (Marx, 1977 : 190) . Hence, the initial input `values' in Marx's illustration of the transformation of `value' into price of production are actually sums of money which, through the ideal presence of money, implicitly represent sums of value . Therefore, both before and after the transformation of magnitudes, the valueand price-forms are related through a unique, necessary numeraire ; inputs and outputs have the same, dual, dimensionality . Secondly and relatedly, in Volume III `commodities are not exchanged simply as commodities, but as the products of capitals', as results of capital's process of production (Marx, 1981b : 275) . Capital-values, not the value of means of production and labourpower, constitute the starting-point of Marx's illustration . In circulation, capital is a sum of money which purchases means of production and labour-power . As Yaffe (1975 : 45-46) has noted, the value of the capital is the value represented by that sum of money, not the combined value of the means of production and labourpower. Clearly, the capital advanced to production does not cease to be a sum of value merely because it differs from the values of its material elements . At the beginning of Volume III, in discussing the transformation of value into cost-price plus profit, Marx did assume that cost-price equalled the combined values of the labour-power and means of production used up in producing the commodity . This assumption was made in order to grasp the qualitative transformation in its `purity', independently of any quantitative disproportionality . On the other hand, when he discussed the

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quantitative transformation of Chapter 9, Marx dropped this assumption, noting that `if the cost price of a commodity is equated with the value of the means of production used up in producing it, it is always possible to go wrong' (1981b : 265, emphasis added) . Because they interpret his procedure as having wrongly equated the two, his critics universally view this stipulation as an admission of error which, to be rectified, requires that values and prices be held apart in two `systems' . The passage, however, continues : ` . . . The cost-price of the commodity is a given precondition, independent of his, the capitalist's, production . . .' Marx thereby indicated that he took the cost-price as a datum, a given magnitude of value represented by a given price, without assuming that this magnitude equals the value of the means of production (and labour-power) used up . Hence, neither his transformation procedure nor its resulting aggregate equalities depend on this assumption, as is often supposed . As we shall see in Section III, this procedure accounts for prices of production and the aggregate equalities obtain even when inputs are purchased at their prices of production . That the initial magnitudes of value and price are data, established in the immediate past, implies that Marx's illustration was not a `system' which abstracted from time . Rather, it depicted one particular period of capitalist production and circulation within the process of history . History as a process contains and releases two aspects of time . Time is always complete at this point, a continuously moving `here and now', in human development . And it is simultaneously differentiated : past and future are sharply discontinuous within the `here and now' . The present is therefore different from both the past and the potential for a totally different future . [W]hen the limited bourgeois form is stripped away, what is wealth other than the [situation in which the human being] does not reproduce himself in one specificity, but produces his totality? Strives not to remain something he has become, but is in the absolute movement of becoming? (Marx, 1973 : 488) The non-transformation problem Marx's transformation procedure retains values and prices in one relation ; `solutions' to the `transformation problem' separate them into two opposed equational systems . We have defended the former procedure as the one appropriate to Marx's purpose illustration of the dialectical transformation of value into its opposite, price of production . Are not, however, the various `solutions' merely different means of achieving the same end

The transformation non-problem which Marx sought? To answer this question, we now examine their method, what they set out to demonstrate, and what they actually demonstrate . There is no doubt that these `solutions' correctly calculate general equilibrium relative prices and the general equilibrium profit rate . Were that their only purpose, they would be unobjectionable . Yet, insofar as they attempt also to disclose the relationship of equilibrium prices to values, it must be asked whether they do, in fact, achieve this additional goal . The very form of the `solutions', i .e . the separation of values and prices into two `systems', is not without its implications . We turn first to the value `system' . Values appear here as a set of price relations ('value prices') opposed to equilibrium price relations . Rather than conceiving of price as a form of value, value becomes another form of price . The question to be answered thus becomes : in what way are these two pricing systems related? While there is nothing `wrong' with this question, its source is Boehm-Bawerk's (1949) misconception of Marx's value theory rather than that theory itself. Boehm, as is well-known, misinterpreted Volumes I and III as advancing two contradictory theories of exchange ratios . In response to this critique, `solutions' to the `transformation problem' attempt to affirm that these two systems of exchange are indeed related . But, unlike Ricardo, Marx did not advance a labour theory of exchange ratios . The `value price' system therefore has no basis in Marx's theory and the question of its relation to equilibrium prices is, from this standpoint, moot . In contrast to all schools of bourgeois economics, Marx refused to look at the market as a world unto itself, possessing its own reality, distinct from and unaffected by the underworld of production relations . Instead, value relations, the thing-like relations which distinguish the capitalist mode of production, are so essential to it that they pervade all realms, assert themselves through all appearances . Circulation is but one moment of capital's process of production and reproduction, the means through which value relations continually re-create themselves . The question Marx (1983a : 148) asked, therefore, was precisely how value relations assert themselves ; his transformation procedure was part of the answer to this question . When value is conceived of as a form of price and isolated into a separate `system', this question cannot be answered . The market and the factory never come into contact ; the unity of production and circulation is broken, a priori ; the analysis becomes focussed on different market forms alone . Moreover, since `value prices' are abstracted from real prices, there has arisen a tendency to view value relations as abstractions from price CaC 35-s

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relations, rather than as the reality of the factory . For instance, constant capital may indeed be mathematically equivalent to past wage outlays plus compound interest . But the economic significance of the former in production - the specific manner in which, as a use-value, it confronts the workers and its impact on their fate as a class - evaporates when reduced to the latter . 17 Marx's analysis of capital's process of production becomes an overly elaborate statement that workers do not receive the full product of their labour, for which Morishima's (1973) 'Fundamental Marxian Theorem' serves as an elegant substitute . We now turn to the price system . `Solutions' which begin with two sets of simultaneous equations formulate the price system as a set of n equations and n+ 1 unknowns - the prices of the n commodities (which appear on both sides of each equation) and the equilibrium profit rate . Though the magnitudes of these variables are unknown, the variables themselves are taken as given, postulated . In other words, the existence of general equilibrium prices and the general equilibrium profit rate is assumed . This procedure is legitimate if one wishes only to calculate the magnitudes of these variables . If, however, the objective is to show these variables to be forms of value - to show, in other words, how they come into existence through the operation of the law of value - then, in this context, their existence cannot be postulated . To do so is tantamount to assuming what must be demonstrated . The meaning of these variables can only be revealed through the conceptualisation of the real process of their determination . Mathematical 'determination'- i .e . calculation of magnitudes - not only differs from the real process of determination (Shaikh, 1982) ; by its nature, it cannot investigate the meaning of the variables which it assumes . The manner in which simultaneous `solutions' obtain prices and the equilibrium rate of profit provides additional evidence of this conflation of mathematical and conceptual questions . All relative prices are `determined' within the price system, without reference to the value `system' which lies beside it . And, since prices appear on both sides of the equations, the system is circular : prices determine prices . 18 Again, no fault can be found with this procedure on grounds of mathematics or logic . Yet what does it offer as economic theory, as inquiry into the meaning of prices and their relation to values? Secondly, the conception of the rate of profit as an unknown, to be solved within the price system, differs markedly from Marx's conception . That the latter's transformation procedure leaves the rate of profit unaltered has received little notice, as if this result were a mere 'by-product' of that procedure . However, its significance for Volume III of Capital is crucial . At

The transformation non-problem pains to dispel the illusions which competition creates, Marx sought to demonstrate that, given a certain advance of capital, the level of the profit rate depends only on the degree to which capital succeeds in pumping-out surplus-labour . It is therefore determinable upon the completion of the production process, before commodities go to market . Competition merely effects the equalisation of profit rates at this previously determined level . The mathematical results of simultaneous `solutions' seem to discredit these contentions . The rate of profit appears to be `determined' by the price system itself - that is, either by competitively determined prices or by planning which utilises shadow prices . Since this rate differs from the profit rate obtained through the value `system', its appearance as a magnitude relatively independent of production relations is reinforced . However, inasmuch as the value `system' is an irrelevancy, so too is the discrepancy between its profit rate and the equilibrium profit rate . As we seek to demonstrate in the next section, when the value of the capital advanced is not confused with the value of its material elements, the (theoretical) existence of the general equilibrium profit rate no longer implies its determination outside of production relations . Calculation, then, cannot replace the `power of abstraction' (Marx, 1977 : 90) which is needed to comprehend the value-price relationship . The claim that Marx could not `solve' the 'transformation problem' because he lacked the mathematical tools overlooks the difference between the two . Though Marx was not familiar with simultaneous equations, his Mathematical Manuscripts (Marx, 1983b) reveal not only his mathematical sophistication, but his critique of mathematicians' method . Newton, for example, discovered the differential operation . Though he used it to obtain correct results, Marx criticised his lack of rigour in working out the process of its derivation . 19 Furthermore, even the equations of the relative and equivalent forms of value, which Marx employs at the beginning of Capital, are not abstract identities . They are, rather, asymmetrical and imply a specific direction of movement . 20 Our present critique of `transformation problem"solutions' must be judged on its own, independently of any `appeal to authority' . But this evidence of Marx's mathematical practice is relevant to the history of thought : it indicates that he would not have considered the use of simultaneous equations as either the necessary corrective to, or an adequate substitute for, his own transformation procedure . Even if they are of the iterative form instead of the simultaneous form,21 `solutions' to the `transformation problem' must employ one or another `normalisation condition' or `invariance postulate' . Because the value and price `systems' are in them-

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selves unrelated and the dimensionalities of values and relative prices are inconsistent, 22 only the adoption of a normalisation condition can create some relation between the two . It is generally recognised that, since `there does not seem to be an objective basis for choosing any particular invariance postulate in preference to all the others . . . the transformation problem may be said to fall short of complete determinacy' (Seton, 1957 : 153, emphasis omitted) . This indeterminacy indeed turns the `transformation problem' into an endless exercise . The number of possible normalisation conditions (and therefore `solutions') is limitless and each is, objectively, as good as any other . 23 Even in principle, then, the `transformation problem' cannot resolve the question of the relation of values to prices . Perhaps even more significant is the fact that none of the `solutions' actually demonstrates any relation of values to prices . Whereas Marx's procedure obtains aggregate equalities on the basis of the given data, the value-price relationships which result from `transformation problem' `solutions' come from the theorists' heads alone . Because normalisation conditions are asserted a priori and imposed externally on the otherwise unrelated value and price `systems', 24 the resulting relationships are only assumed ones . In short, first the theorists negate the internal relation of values to prices, then they substitute whatever arbitrary relation they choose . Marx characterised this `tendency to form arbitrary unmediated connections between things that belong together in an organic union' as `[c]rudeness and conceptual nullity' . 25 In the `transformation problem', the theorist is the `external mediator' who comes from outside of the problem bearing a normalisation condition that dictates how values will be reconciled with prices . The external mediator in actual life, however, must be some social force, `independent' of both capitalists and workers, that can dictate a reconciliation of production with the market - in other words, the `classless technical intelligentsia' responsible for planning the economy and establishing social equilibrium . Indeed, use of input-output models and equilibrium shadow-pricing form the foundation of the state planning of our day . Are not `solutions' to the `transformation problem' therefore the ideological representations of a harmonious, state-planned economy? Yet, in production itself, there has been no reconciliation . To those who remain inside the factory, the plan is not classless but represents a `social formation in which the process of production has mastery over man, instead of the opposite . . . production by freely associated men, [which] stands under their conscious and planned control' (Marx, 1977 : 175, 173, emphasis added) . There is only the domination of labour by capital or the internal trans-



The transformation non-problem 69

formation of this reality, by those who live under it, into its opposite . [Ricardo's Principles] gives rise to weariness and boredom . As the work proceeds, there is no further development . Where it does not consist of monotonous formal application of the same principles to various extraneous matters, or of polemical vindication of these principles, there is only repetition or amplification . . . (Marx, 1968 : 169) The foregoing discussion has indicated that Marx's concern was to show the transformation of values into prices of production to be only a `further extension' of the transformation of workers' subjectivity into an antagonistic economic `objectivity' . Comprehending this process of `transformation into opposite' requires that values and prices be retained in a single relationship, not separated into different `systems' of calculation . The charge of logical inconsistency, which derives from Marx's `failure' to keep values and prices separate, is therefore misplaced . While we reject this central criticism of Marx's transformation procedure, so often referred to as his failure to `transform input prices', in another - quite real - sense the issue of `input price transformation' remains . One capital's output does become the other's input and, in this interchange, the commodity's price generally does diverge from its value . Our defence of Marx's procedure can, admittedly, only retain its force if we can account for this process without separating value and prices into separate `systems' . We therefore show presently that a simple continuation of Marx's own procedure, as interpreted above, can illustrate both the transformation of input prices and the transformation of values into prices of production . In a general sense, then, our illustration does constitute a response to the criticism that Marx `failed' to account for the transformation of input prices . Like many `solutions', moreover, it will depict the transformation of input prices as occurring within the context of simple reproduction (without fixed capital or joint production) . 26 We, however, will adopt Marx's conception of simple reproduction, not the conception formalised in the general equilibrium, input-output pricing models utilised by `transformation problem' `solutions' . Some marked differences exist . Space does not permit full discussion of this issue, which will be taken up in a future paper . We must nonetheless briefly digress in order to outline the following conceptual distinctions between `transformation problem"solutions' and our illustration : (1) `Buying back vs advance of capital . Were Marx to have assumed technologically inter-related departments in his illustra-

The transformation of input prices : an illustration

Capital & Class 70

tion of the transformation of values into prices of production, the aggregate output price of any component of social production (e .g. wage goods) generally would not have equalled the aggregate input price of that same component (e .g . the total wage bill) . This fact, originally noted by Bortkiewicz (1952), is taken as `proof of logical inconsistency and all such inequalities are indeed absent from `transformation problem"solutions' . Actually, these sort of inequalities entail disruption of social reproduction only if one accepts the implicit underconsumptionist premise that the components of social output must be `bought back' . For Marx, conversely, social reproduction is a question of the advance of capital, of `investment' . Money advanced for means of production and subsistence enables the previous period's outputs both to be sold and to serve as inputs (directly or indirectly) in the upcoming period . There is thus no reason why the input price of either means of production or means of subsistence in any period must equal its output price in that same period. (2) General equilibrium prices vs prices of production . `Solutions' to the `transformation problem' look for a set of unique, equilibrium (relative) prices as the means of achieving the necessary interdependence of the various industries . These prices alone are called `prices of production' . In contrast, we do not regard the prices of production to which Marx refers as general equilibrium prices . 27 They are indeed the prices that (a) obtain when supplies and demands are equal, (b) permit each capital to receive the same profit rate, and (c) form the `centre' around which market prices oscillate . As will be seen, however, many different sets of prices can at different times fulfill conditions (a) and (b), even when technology and real wages remain unchanged . (Abstracting from the process of competition, we will show no market price oscillations .) (3) Reproduction of prices vs reproduction of use-values . As unique, general equilibrium magnitudes, the relative prices obtained in `transformation problem' `solutions' are continually reproduced in a timeless fashion . Implicitly, these `solutions' assume either that material reproduction cannot occur under other prices or that this sort of `price stability' constitutes an additional condition which must be fulfilled if the system is to be truly in balance . When Marx discussed reproduction, on the other hand, he was concerned with a prior question : in what specific quantities and proportions must the system produce two distinct use-values, means of production and articles of consumption, if it is to materially reproduce itself at a certain level? The technical relations of production were thereby considered as a class relation - the relation of dead to living labour in production - irreducible to exchange relations among capitalists . Marx

The transformation non problem (1981a : 469-70) explicitly abstracted away from changes in values and deviations of prices from values, regarding them as irrelevant to the question at hand, and therefore held values fixed . In principle, the simple reproduction of material relations can take place at any set of prices . Moreover, if all profit rates are equal at the prevailing prices - whether or not they are general equilibrium prices - it is reasonable to suppose that no further incentives for capital flows exist and that supplies and demands should therefore actually equilibrate at these prices . Other than assuming simple reproduction, in the above sense, we modify Marx's own illustration in one substantive respect alone : we continue his one-period illustration into successive periods . This is necessary because, whereas the transformation of values into prices of production can be depicted in a single period, the transformation of outputs into inputs and thus the `transformation' of output prices into input prices takes place between one period of production and the next . It is clear that Marx (1977 : 711, 716) regarded simple reproduction as a continuously renewed process taking place in real time . And, though he did not illustrate the transformation of input prices mathematically, his verbal discussions indicate that he viewed it similarly: [E]ven if a commodity's cost price may diverge from the value of the means of production consumed in it, this error in the past is a matter of indifference to the capitalist . The cost price . . . is a given pre-condition, independent of his, the capitalist's, production, while the result of his production is a commodity that contains surplus-value . . . (1981b : 265, emphasis added) [E]very commodity which enters into another commodity as constant capital, itself emerges as the result, the product, of another production process . And so the commodity appears alternately as a pre-condition . . . and as the result of a process . . . In agriculture (cattle-breeding), the same commodity appears at one point of time as a product and at another as a condition of production . (1971 : 167-68, emphases added) These passages conceive of input price transformation as part of a real process : commodity prices are not simultaneously the preconditions and results of the same period of production, but alternately the results of one period and the pre-conditions for the next . Hence, cost-price is always a given pre-condition in each period - inputs cannot be retroactively re priced. Each period therefore has new pre-conditions which enable it to emerge as a new period, distinct from those in the past .

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To illustrate this process, we must therefore begin (and indeed begin again in each new period) with given input prices . These prices are money prices, sums of money . As we noted in Section II A, the appearance of values as sums of money and hence the existence of money (which possesses a definite value) are necessarily presupposed . We assume that the value of money equals 1 ; every number in our illustration therefore signifies both a price and an amount of value . Table 1 presents a specific two-department illustration . 28 We assume that, in every period, each department obtains half of the means of production that have been produced by Department I, and that the consumption goods produced by Department II are allocated as follows : one sixth and one third go to the workers in Departments I and II, respectively ; half are consumed by the capitalists who represent the two departments . The definitions of the symbols used in Table 1(opposite) are : m capitalists' personal revenue M money-capital before production C commodity-capital before production MP price of means of production L price of labour-power P productive-capital : process of production LL (price expression of) hours of living labour added ; generation of new value (not shown in table) s (price expression of) surplus-value C' commodity-capital after production M' price of production; money-capital after production 7T profit e rate of exploitation ; rate of surplus-value r general rate of profit Beginning with money (M), the collective capitalists of Departments I and II each purchase two commodities (C), means of production (MP) and labour-power (L), at given prices which represent given sums of value . (Solely in order to facilitate comparison with `transformation problem"solutions', we begin without any 'error[s] in the past ; i .e . initial values are equal to the values of means of production and labour-power .) In production (P), the means ofproduction become constant capital and labour-power becomes labour, the labourers' activity as variable capital . Upon entrance into the sphere of production, no change in material or value occurs . But production results in new outputs of greater value (C+s), due to the extraction of surplus-value (s) - labour for which no equivalent has been paid . These outputs are priced, not at their value, but at their price of production (C'-M'), which equals their cost-price (C) plus an

Table I MP . . . P

M-C

s . .

C + s

C'-M'