How Ed Balls (and the unions) got it right – and wrong


by Guest    
8:57 am - January 20th 2012

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contribution by Laura Nelson

Ed Balls thought he was being ballsy when he spoke of his proposed public sector pay freeze at the Fabian conference on Saturday. And he was.

There’s no point in promising something we can’t deliver, he thought and – with no alternative clearly worked out – the most sensible option is to stay put, hold on tight to the status quo.

But not quite. The Tories are going too hard, too fast, he keeps saying. So he thinks the cuts should take place at a slower rate (this is right) and should be better thought out (right too).

The trouble is this is only half of a plan. What’s starkly obvious is what’s missing. What is Labour’s alternative? Balls came out with his announcement as if it’s the boldest thing he’s said in months. See this Newsnight clip.

It’s only common sense, nothing more, and only a short term solution. It’s not good enough. It’s not the answer the nation wants and needs.

His error was two-fold. First, in his communication – telling the world as if he came up with something original and as if it’s the solution. Second, for not being more imaginative. People want a long term solution. We need to be radical.

And what of the unions? They have reacted angrily to his proposal and are threatening to withdraw their support – these are the unions who got Ed Miliband elected.

The unions are right to protest. They represent the workers who are severely badly hit in this recession and especially as a result of public sector cuts and bad management of them.

But they are right for another reason they may not even be aware of. This reason is innovation. A pay freeze may protect job numbers, but it angers and disincentivises the work force. The result? A stagnant, unproductive public sector.

What is much better, much braver and much more radical is to cut or reorganise the areas that are inefficient and provide an alternative. The Coalition has attempted the first half of this, but not the second. Their attempts at restoring the economy have failed, their cuts are reckless and they certainly don’t care about equality.

Innovation is the magic word.
People need hope – we have lost that. We must grow and develop – innovation will do this.

To transform the country and win back support, Labour needs to:
1. redistribute wealth, radically
2. stimulate growth in all sectors
3. reorganise and improve efficiency of state

How do we do this?
1. Take money off very wealthy and redistribute. Under this government, the rich are getting richer and the poor are getting poorer. Increase inheritance tax for amounts over a certain threshold, tax wealthy corporations more, enforce pay transparency and stricter regulation of wealthy landlords.

2. Provide opportunities, encourage innovation and growth. Identify young leaders in all sectors, give them start-up grants from the state, support and guidance to develop businesses and charities in their communities. Encourage young people to be entrepreneurs. Set up apprenticeships, and ensure there are pathways into jobs at the end of them. Capitalise on the innovative nature of the voluntary sector.

Provide universal childcare with money raised from increased taxes (see 1) and enforce a culture of flexible working.

3. Reorganise the public sector and resources. Good example is health and social care. Health reforms are needed, but not so that profit takes precedence over patient benefit (the risk and reality of the Coalition’s reforms).

Overhaul social care system. Tackle housing issue: many people are without homes, many others are crowded into homes that are too small. At the same time, private properties sit empty. Tax landlords more (see 1) and use money to build more Council homes and increase efficiency and fairness of the system.


Laura Nelson, aka ‘Delilah’, is a writer, blogger and a campaigner for equality, and has a background in neuroscience. She blogs here and tweets from here.

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Reader comments


html fix please.

Aside from that, I note that the great innovation that will solve Labour’s and the nation’s problems appears to be to tax more and spend more. Something about this plan seems familiar.

“How do we do this?
1. Take money off very wealthy and redistribute”

How do you tax more than 50% of somones money?

“Innovation is the magic word.
People need hope – we have lost that. We must grow and develop – innovation will do this. ”

Absolutely. Innovation is what leads to increases in total factor productivity and increases in tfp are what lead to increases in standards of living.

So, excellent, yes, let’s increase innnovation.

Except, umm, it is market based systems that increase tfp faster than planned or centrally directed ones. We actually tried this out during the 20th century.

Note please that it’s not capitalist or socialist, it’s market versus non-market. The Soviet Union managed, according to one Nobel Laureate (Krugman, P) to not increase tfp at all during it’s entire existence. While 80% of the growth in the market economies came from tfp improvements.

So, let’s increase innovation, yes. But this means bringing the market (note, not capitalism, but markets!) into health care, education and so on, all those areas that are currently centrally planned and directed.

Which is, err, pretty much what the current government is doing and my aren’t you all screaming about it?

“Under this government, the rich are getting richer and the poor are getting poorer.”

Really? I think you’ll find that inequality has fallen in hte last couple of years. Tends to happen in recessions as the incomes of thr rich are more variable than those of the poor.

“Which is, err, pretty much what the current government is doing ”

*hits head against wall

No it isn’t. In health they are replacing one set of bureacrats responsible for comissioning healthcare with another set to be directly employed by GP consortia – probably about 3 times as many bureacrats invovled, and reduce some of the barriers private companies have to compete for some of the resulting contracts. Nothing to do with markets whatsoever.

It seems all you have to do is use the word ‘market’ and ‘choice’ in your strategy document and regardless of the detail, you’ll get support from market enthusiasts who can;t be arsed to look at what the proposals mean.

And in Education we’ve had something far closer to a market simulation than central control (except in the curriculum becuase Thatcher hated uppity teachers telling kids not to hate homosexuals) since 1988 when parents were given the right to choose schools for their kids. Pay attention.

5. Leon Wolfeson

That IS the plan. There’s no “half”. There IS no alternative from Labour.

We need a party of the left to do that.

Also, Landlords will just raise their rates if you tax them. Rent caps, on the other hand…

@2 – By increasing the tax rate. Just like any adjustment to that. Of course, people DON’T pay 50% here. That’s what they pay in the Nordic countries…

@3 – The market and capitalism are different things. You’re conflating them to defend your own position, of course. And, further more, no, it does NOT mean denying healthcare and education to the poor as you propose.

And “inequality”? Oh right, when the poorest die off…

“Soviet Union managed, according to one Nobel Laureate (Krugman, P) to not increase tfp at all during it’s entire existence.”

However you measure it ,the increase in the Soviet the standard of living between 1922 an 1990 was colossal.

So if this Nobel Laureate is correct then who needs to increase tfp?

Alternatively Krugman is wrong.

Given:
a) the inherent improbability of the statement and
b) the dubious nature of the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”

I think that the latter is more likely.

As Keynes said back in 1925, “It is extraordinarily difficult to be fair-minded about Russia.”

“However you measure it ,the increase in the Soviet the standard of living between 1922 an 1990 was colossal.

So if this Nobel Laureate is correct then who needs to increase tfp? ”

They did it by increasing inputs into the economy. You know, the thing we cannot do any more for we’ve reached environmental limits to growth?

And a question for you. Was the increase in the Soviet standard of living 1922 to 1990 larger or smaller than the increase in other, market, economies?

Recall, in 1990, beetroots were still rationed: something the market economies had rather managed to solve by that time.

Just for the record, I’m lucky enough to have just tripped into Supertax (by being successful and earning commission through working 18 hour days for a year and flying both East and West – obviously at weekends).

My commission is nw taxed at 50% + 12% NI = 62%. Plus 20% VAT on anything I might spend what’s left on = effective rate of 74.4%.

How’s that for redistributive?

@2 – By increasing the tax rate. Just like any adjustment to that.

Not quite, eventally people say ” no ” – you have had every resource in the world and revenue streams without effort that multinationals dream of, you still stuffed it up and need more to maintain a standing position, so quite frankly, piss off.

“They did it by increasing inputs into the economy. You know, the thing we cannot do any more for we’ve reached environmental limits to growth?”

Good, you acknowledge that there was a colossal growth in the Soviet standard of living between 1922 and 1990.

The question you need to answer is “was this increase achieved without any change in tfp?”

“And a question for you. Was the increase in the Soviet standard of living 1922 to 1990 larger or smaller than the increase in other, market, economies?”

Do you know what you are trying to measure?

There are lots of market, economies in the world and they all have different standards of living.

However, taken by and large, the answer is that the increase in the Soviet standard of living between 1922 to 1990 was probably much larger than the increase in market economies.

11. Leon Wolfeson

@9 – …And you’re moving the goalposts again.

@8 – Your income is taxed at NOTHING like that. Moreover, the higher NI rate is capped.

“, I’m lucky enough to have just tripped into Supertax ”

Everything you earn before that is at a lower rate so the idea you are paying a 74% tax rate is frankly bollocks. And with those 18 hour days and weekends spent flying east and west, the NHS bill for treating you when you get burned out will be quite substantial I’d imagine.

“Good, you acknowledge that there was a colossal growth in the Soviet standard of living between 1922 and 1990.”

Sure why wouldn’t I? Russia in 1922 was at about the standard of living of the UK in 1700. By 1990 they were at the level of the UK in 1940.

Japan managed that same growth between 1946 and 1966. By 1986 Japan was richer than the UK.

The Soviet Union definitely had economic growth and growth in living standards. Just pretty shit such growth by the standards of alternative systems.

“By 1990 they were at the level of the UK in 1940″

Which is close enough to the 1950s – the decade every daily mail reader longs for apparently.

In brief, this is a great article, succinct and to the point.

One of the factors I felt added to how badly Balls’ interview and speech were received had to do with The Guardian. Over Christmas it was quite clear that the political editorial line – under I think Patrick Wintour – was to attack Ed Miliband, call him ineffectual and unable to properly lead the party.

The way in which they presented this interview extends from that – it was they who produced the eye-opening headline the next day, and consequently they who made it look like it was something unique – which you point out in your article.

However, though Balls is correct in not promising things he may not be able to deliver on, if he sets the budget after the 2014 election, he might have been more careful not to seem as though he was comfortable or complacent about the way in which the Tories are cutting.

I can’t for the life of me think why he chose to be interviewed by the Guardian, given their recent over-the-top crticisms of Labour, only to be ambiguous about his approach.

I would suggest that in order to appear coherent and credible, Balls makes some concessions to fiscal conservatism, or qualify it by saying progressive politics is achievable in hard-up times. Ed Miliband actually did this perfectly well with his soundbite Labour for all times. That the Guardian didn’t sound off more on this is very telling.

Balls would also do well to make it clear the Tories are being reckless and their interventions are as good as irreversible, but that we offer a way to deliver the country from hard times.

As a Keynesian, Balls should be shouting from the rooftops that Labour is the party of growth, not saying we are (merely) the party of fair capitalism; not simply because historically we are not the party of fair capitalism, but because that is vacuous and leaves open an easy challenge for the Tories to say well no, *we* are the party of fair capitalism (in fact David Cameron did just that today).

I think your 3 pointers are precisely right, but before that Balls must sort out the image problem. The thinking is there, and we saw that in the Bloomberg speech, but nailing the Tories will not be done if he is seen to be complacent with their current agenda.

It is common sense that we have to accept the cuts, but our economic credibility will come from challenging the damage the Tories are applying right now.

“The Soviet Union definitely had economic growth and growth in living standards.”

I am glad you recognise that fact.

“Just pretty shit such growth by the standards of alternative systems.”

Yet you say:

“Russia in 1922 was at about the standard of living of the UK in 1700. By 1990 they were at the level of the UK in 1940.”

I see, the soviet system took 68 years to reach a level that took the UK 240 years.

There seems to be a conflict here.

I did warn you that you should be aware of what you were comparing.

“I see, the soviet system took 68 years to reach a level that took the UK 240 years.

There seems to be a conflict here.”

Sure. Catching up to the technological frontier is easier than trying to develop at that frontier. Note that Japan managed it in 20 years.

Japan not having a socialist hell hole of an economy…..

18. James from Durham

Leon

You are absolutely right. The higher NI rate is capped much lower thatn £150K. Also, can this guy really be spending more than £150K per annum on vatable goods. If he is really consuming that much he is daft. The reality is that at that level of income, the income is accumulated or invested and not spent. Anyway, working an 18 hour day, he doesn’t have the time to spend the money, unless he is spending the other 6 hours doing online shopping for luxury goods!

@17 “Sure. Catching up to the technological frontier is easier than trying to develop at that frontier. Note that Japan managed it in 20 years. ”

Ah, the Japanese. I hear that they haven’t been doing that well over the last 20 years.

But you seem to be shifting your ground again. Now you’re going on about the “technological frontier”.

Surely, what you were originally talking about was the relative performance of economic systems, not individual countries. You know – market versus non-market.

Then your specific question to me was “Was the increase in the Soviet standard of living 1922 to 1990 larger or smaller than the increase in other, market, economies?”

Of course there are lots of market economies in the world.

Picking on a single example doesn’t prove much, one way or the other.

Though, come to think of it as far as the “technological frontier”in concerned, Japan is not a very good example for you to choose.

The Soviets made a much bigger contribution to science and technology than ever the Japanese did.

@17 “Sure. Catching up to the technological frontier is easier than trying to develop at that frontier. Note that Japan managed it in 20 years. ”

Ah, the Japanese. For the purpose of this discussion Japan is a typical example of a market economy. I have feeling that in the context of another discussion this would not be the case.

But this is a distraction. The point is that you seem to be shifting your ground, again. Now you’re going on about the “technological frontier”.

Surely, what you were originally talking about was the relative performance of economic systems, not individual countries. You know; market versus non-market.

Then your specific question to me was: “Was the increase in the Soviet standard of living 1922 to 1990 larger or smaller than the increase in other, market, economies?”

Of course there are lots of market economies in the world.
Picking on a single example doesn’t prove much, one way or the other.

“But this is a distraction. The point is that you seem to be shifting your ground, again. Now you’re going on about the “technological frontier”.

Surely, what you were originally talking about was the relative performance of economic systems,”

Yes, quite. Different economic system perform differently. And there are two situations in which they will perform differently:
a) When you’re at the technological forntier and
b) When you’re not at the technological frontier.

The UK, certainly up until the 1880s, possibly until the 1920s and still in parts of the economy is right at the technological frontier. Any system of economic organisation will produce less economic growth precisely because it’s hard to produce growth at the technological frontier.

Tsarist Russia, Soviet Union, Russia today, is not at the technological frontier. Nor was Japan post WWII, nor is China now. Any system of economic organisation should find it easier to produce that catch up growth, that not at the technological frontier.

The Soviet Union had lower growth, despite being well behind the technological frontier, than the more free market Japanese approach. Than the more free market Chinese approach of today.

Quite my point.

As a system of economic organisation the Soviet Union’s was entirely shite.

The Krugman essay on Soviet Union growth rates is here. There is nothing surer than when we see nations from a low base experience catch-up growth that journalists and commentators will declare it an economic miracle. The inputs of labour and capital are always the same explanation for the apparent miracle. It is a mathematical reality that such inputs must run into diminishing returns unless the inputs are used more efficiently. Without a growth in efficiency stalling is not just likely, it is inevitable. Therefore, the middle-income trap awaits those who can’t get MFP.

http://media.ft.com/cms/b8268ffe-7572-11db-aea1-0000779e2340.pdf

There was no Soviet miracle in the past and there is no Asian miracle today. Progressing from a low-income economy to a middle-income economy is relatively straightforward if one follows certain economic policies. Some do not even manage that for numerous reasons. However, moving from middle-income to high-income is a huge leap and most do not manage it and get stuck in the middle-income trap. Since WW2, Japan and South Korea out of the major countries are exceptions and managed to progress all the way to high-income. There is no inherent reason why the current Asian catch-up economies can’t progress all the way, but the jury is still out whether they will. Just adding more capital will reach diminishing returns and the surplus of labour from agriculture will eventually be exhausted. Without multi factor productivity they will hit the wall on growth just like the Soviet Union.

@21 “The Soviet Union had lower growth,”

There you go again.

This statement needs to very heavily qualified and requires a lot of cherry-picking of examples for it to have any validity.
If the Soviet Union’s growth had really been low compared with market economies then, after seven decades, it would have been way, way behind the rest of the world.

This was not the case.

This is shown by the soviet’s ability to catch up in the arms race with the United States at the same time as improving the average standard of living.

Don’t forget living standards in the United States stalled in the early 1970′s and have only been sustained by a significant increase in women going into the labour market.

If the soviet system was as inefficient as you suggest then there would have been a vast potential for improved performance after 1991. This didn’t happen. Twenty years later it still hasn’t happened.

The New Russia and the other successor states have become market economies. More, they are no longer have the burden of competing in an arms race, they have access to international markets and fdi. Yet a significant proportion their populations are worse off now than they were in 1990-1. The same story of low growth and falling living standards can be told of Eastern Europe with the possible exception of Poland.

@22. “There is nothing surer than when we see nations from a low base experience catch-up growth ”

Then why doesn’t it happen everywhere?

See Angus Madison for the relative stability of global ranking of countries.

The indications are that starting from a low base is an enormous handicap, not a help.

“If the Soviet Union’s growth had really been low compared with market economies then, after seven decades, it would have been way, way behind the rest of the world.”

Sinc you mention Maddison, here are his numbers.

http://www.ggdc.net/MADDISON/oriindex.htm

$6894 per capita GDP SU for 1990

12 Western Europe, $16,790

Oz, NZ, US….$22,000 or so.

Israel, $13,000. Good God, that place was built from 1947 onwards and they’ve been to war what, three, four times?

Mauritius, $7,000 and change. The SU was poorer than Mauritius.

The SU was way behind the rest of the world. Just like E Germany was way behind West Germany. Because of an insane economic system.

26. Leon Wolfeson

@25 – Er… no, Israel didn’t mystically start in ’47, there was an infrastructure campaign going on since basically the start of the century… (Tel Aviv was founded in 1909, for instance).

Moreover, it has and retains substantial foreign support, more than the VAST majority of countries per capita (some of the small island nations have more…)

Not a good comparison.

22
There is nothing surer than newly industrializing nations using a planned-economy.
Glad to see new blood @George Hallam, taking up the comparative economic and social advancement in the USSR compared to capitalist countries. Too often we are told that laissez-faire and liberal/neo-liberal societies are the only way to achieve innovation.
And as for the reforming of capitalism thread, deckchairs and Titanic spring to mind.

24. George Hallam

” Then why doesn’t it happen everywhere?

See Angus Madison for the relative stability of global ranking of countries.

The indications are that starting from a low base is an enormous handicap, not a help. ”

I would say why it does not happen everywhere has no single explanation. It depends on the local circumstances. In no particular order geography, climate, local institutions and culture are very important. For example, if a country does not have property rights protecting the users of land and recognising their exclusive use claims. It will be very difficult for those same people to obtain capital, so they subsistence farming will likely dominate. They have nothing to use as collateral for finance without property rights. Not an insurmountable difficulty but problems nonetheless in many parts of the world.

The geography of being landlocked is a huge handicap for some. Moreover, it depends where one is landlocked and who are your neighbours. Switzerland is landlocked and are surrounded by wealthy friendly neighbours. Afghanistan is landlocked and the neighbours are not so good. Moreover, Afghanistan would also have to overcome the handicap of poor or non-existent institutions and a culture not conducive to growth. It would be incredibly difficult to be a low-income economy in Western Europe surrounded by high-income economies. In that part of Central Asia, it would be incredibly difficult to be a high-income economy no matter what economic policies were followed.

As I said I don’t think that there is one explanation why some countries never grow from being low-income to something higher, usually it is a combination of factors. Personally I believe institutions and a lack of corruption can overcome some of the geographical and climatic handicaps.

I didn’t mean that starting from a low base was a help per se. Starting from a low base will mean that they are poor and that is never a help. However, starting from a low base will mean that high growth rates are easier to achieve compared to advanced economies. The UK could not now achieve double digit Asian growth rates no matter what economic policies they followed. Adding extra units of capital would just not have the effect as the capital would in less developed economies.

@23

The same story of low growth and falling living standards can be told of Eastern Europe with the possible exception of Poland.

That’s probably because Poland received massive sustained cash injections when it switched, given that capitalism could not be allowed to fail at that juncture, what with the soviet union still existing at the time. Once it were gone though…

30. So Much For Subtlety

27. steveb

There is nothing surer than newly industrializing nations using a planned-economy.

I agree. Nothing surer not to work. We have one example where some limited economic growth took place. But planned economies were once common among developing nations – from China to Ghana. They did not work. China was as poor in 1980 as it was in 1950. Ghana was probably poorer.

Too often we are told that laissez-faire and liberal/neo-liberal societies are the only way to achieve innovation.

Because it is. Notice the Soviet Union did not innovate. They did not invent anything new in the way of technological progress. Well, not much anyway. They copied the West. No more.

As Tim W says, it is easier for someone like the Soviet Union to come along and copy what the West did than it is for the West to invent it in the first place. That is why places like China and Japan have grown so fast. But look at what a big problem Japan has had since trying to decide where to go next.

The best example I can think of here is the Soviet Union’s nuclear reactors. They came up with the RMBK design which followed the early American reactors designed to produce nuclear weapon material. Only much larger. When they did not work out, they copied the American LWR design. It is easier to steal the plans from the French than it is to design a reactor on your own. The Soviets also tried that – they built one of the first Fast Breeder Reactors (presumably with some help from their spies in the West). It caused an explosion so large it could be seen from space by the primitive spy satellites of the time. Then they stuck to copying the West.

@30 Copied the west eh? That’ll be why they got into space first then.

32. So Much For Subtlety

31. Cylux

Copied the west eh? That’ll be why they got into space first then.

America had no desire to drop nuclear weapons on Moscow. Thus they funded their Nazi scientists a lot less than Stalin funded his. Big deal.

http://en.wikipedia.org/wiki/Soviet_space_program#The_Germans

http://www.russianspaceweb.com/a4_team_moscow.html

33. George Hallam

“Notice the Soviet Union did not innovate. They did not invent anything new in the way of technological progress. Well, not much anyway. They copied the West. No more.”

This is a massive generalisation about a massive field. Unsuprisingly it does not stand examination.

Keynes said, “It is extraordinarily difficult to be fair-minded about Russia.”

He forgot to add that some people find it impossible.

“Notice the Soviet Union did not innovate. They did not invent anything new in the way of technological progress. Well, not much anyway. They copied the West. No more.”

This is a massive generalisation about a massive field. Unsuprisingly it does not stand examination.

Actually, the correct distinction is between invention and innovation. Invention is dreaming up new spiffy stuff. New alloys, just to take an example from my own working life. The Soviets did indeed invent some new alloys and I still make part of my living from selling said alloy.

However, innovation is another thing: that’s the people using these spiffy new things to do old tasks in a new and or more efficient manner, or using the spiffy new alloys to do spiffy new things. At that, at innovation, the SU was entirely crap.

And that’s why there was no tfp increases in Soviet times. Because it’s innovation, not invention, which brings them about.

35. George Hallam

“New alloys, just to take an example from my own working life. The Soviets did indeed invent some new alloys and I still make part of my living from selling said alloy.”

I see. In the one area where you have some actual experience you find that the societs were creative.

Oh, and would you mind moderating you languge. We don’t want to sound like football fans do we.

“In the one area where you have some actual experience you find that the societs were creative.”

George, I have a lot more experience of the Soviet way of doing things than you imagine. I lived over there for most of the 90s and saw the rubble of the economy.

And I’ve not said that they could not be creative. I’ve said they were terrible at innovation. These are not the same thing which is why the economics literature is very careful to distinguish between invention and innovation.

37. George Hallam

“George, I have a lot more experience of the Soviet way of doing things than you imagine. I lived over there for most of the 90s and saw the rubble of the economy.”

Perestroika was a slogan not a clear economic strategy. Gorbachev was guided by political expediency rather than any understanding of the Soviet economy. It was political manoeuvring, not economic problems, that led him to abandoned central planning. Hence the casual manner in which Gosplan was closed down in 1987. Thereafter the economy was rudderless. What you witnessed in the 90s were the consequences.

Back in 2009 the FT ran a piece on the 20th anniversary of the fall of the Berlin Wall which said that since 1989 the economies of Eastern Europe had been “transformed through a surge in trade and investment”,

The actual annual percentage rates of GDP growth for the period 1989 to 2008 were:
Poland 3.1
Slovakia 2.6
Czech rep 1.9
Hungary 1.6
Rumania 1.3
Bulgaria 0.7
Russia 0.6

“Under this government, the rich are getting richer and the poor are getting poorer.”

So much for being a campaigner for equality! I think you’ll find under the last goverment (Labour) the gap got even wider – but then hey, bit of Tory bashing never did any left leaning blogger any harm did it ;)

Some good ideas in there though and especially with regards to pay freezes – why would you want to contribute ideas if you can see nothing from it?

Surely better to give people an incentive for saving money and offer to put 10% of any savings achieved back into salaries. The people at the sharp end will know where money can be saved – offer an incentive.

39. Leon Wolfeson

@38 – Nope, I wouldn’t find that.

After a massive widening in the Thatcher years, Labour managed to hold the rate of widening down compared to other countries, and did a LOT for Child poverty (which is now being undone, of course).

Facts, thou has not them.

And I see, an incentive for the middle class to save, and for the rich to get more aid they don’t need. Because when you’re living pay-cheque to pay-cheque, you can’t afford to save.

40. So Much For Subtlety

33. George Hallam

This is a massive generalisation about a massive field. Unsuprisingly it does not stand examination.

Go on. List the areas. The Soviets were great in certain fields. Mathematics for instance. Cybernetics even. But applying that knowledge to improve people’s lives? Not so much. But if you think so, by all means, I would love to hear about their wonderfully efficient distribution system or whatever.

The thing to bear in mind is that after the collapse of the Berlin Wall, the World Bank had a look at the manufacture of East Germany’s Trabant cars. They found they were Value Negative – the raw materials were worth more than the finished car. And the Soviet system could never figure that out.

41. Leon Wolfeson

@40 – Ah, rather like “investment bankers” then.

42. George Hallam

“the collapse of the Berlin Wall, the World Bank had a look at the manufacture of East Germany’s Trabant cars. They found they were Value Negative – the raw materials were worth more than the finished car.”

This is genuinely interesting. I would be grateful if you could provide a reference for this study.

The way you put suggests that the East Germans’ were actually destroying value by producing any Trabants. If so this would says so much more about the World Bank’s economists than it would about the Trabant.

However, I suspect that what it actually says is that under conditions of a unified Germany the likely market price of a Trabant would be less than the cost of production.

Incidentally, in the 1960′s BMC mispriced the incomparable Mini for the first few years they lost money on every one they sold.

43. So Much For Subtlety

42. George Hallam

This is genuinely interesting. I would be grateful if you could provide a reference for this study.

As below.

The way you put suggests that the East Germans’ were actually destroying value by producing any Trabants. If so this would says so much more about the World Bank’s economists than it would about the Trabant.

Except it seems to be true. They were destroying value.

However, I suspect that what it actually says is that under conditions of a unified Germany the likely market price of a Trabant would be less than the cost of production.

Nope. Nothing to do with prices in a unified Germany – where Trabants are actually worth a bit because of the nostalgia value.

Incidentally, in the 1960?s BMC mispriced the incomparable Mini for the first few years they lost money on every one they sold.

As Amazon is doing with Kindle. Nope, nothing to do with that at all.

Here’s the passage:

With a view to corporate takeover, Volkswagen AG sent a Herr Heuss to Zwickau to find out how the Trabants (relatively cheap East German cars) were made there. He emerged shocked from the huge plant, babbling “My God. The Trabant operation was value-subtracting: valuable material, labor, and capital inputs went in at one end; shabby Trabies came out at the other, their bodies made from compacted trash. The final output was worth less than the sum of the inputs. What was not fully understood at the time was that East Germany’s whole economy was value-subtracting and cost-unconscious. In 1989, Hans Modrow, the last communist head of the GDR, put the East German economy’s net worth at 1.5 trillion West Germanmarks (DM). A year later, his Christian Democratic successor, ‘Lothar de Maiziere, slashed the figure to DM 800 billion. After unification, Detlev Rohwedder head of the privatization agency Treuhand, put the value of the assets on his agency’s books at a comparable DM 600 billion, but on second thought, a year later, lowered this assessment to zero assets and liabilities-just balancing each other out. In 1994 Birgit Bruel, Rohwedder’s successor, put the figure at minus DM 300 billion. By the end of1995 some DM 700 billion gross (more than $1 trillion) and DM500 billion net ($750 billion) of public money will have been spent on the “cure of Trabies.”

TRANSITION, a newsletter of the WORLD BANK, Number 5-6, May-June 1996, page 15

44. George Hallam

“TRANSITION, a newsletter of the WORLD BANK, Number 5-6, May-June 1996, page 15″

Thank you for the reference.

The reasoning is so confused and based on so many dubious assumptions that it should be easy to see why the World Bank has such a poor reputation.

45. George Hallam

For another view of the Trabant try this:

WANT ONE:// Small family cult cars of the 60s
“How about a Trabant P601 (1964 – 1991)…

“According to the period VEB Sachsenring commercial the Trabi 601 was a spacious, agile and fast, modern and robust motor: “your reliable travel companion . . . the all new Trabant 601”. Clever advertising, but there are one or two things to be said about that.

“On the upside, due to the unitary body, Trabi’s are quite spacious for small family cars. As for Robustness; no tin worm liked any of the plastic exterior and . . . although people feared the plastic shell in the event of a crash, it actually outperformed period Western motors. Was this the first (unintended) crumple zone?

“On the downside: the Trabi did turn corners and had a reverse gear and all that, but it didn’t have the engine to make it go. Talking about which; 0 to 60 mph . . . the poor smoky stone age engine barely made it to 60mph….

“..after the fall of the Berlin wall the Trabi became the epitome of all things bad in communist governments. Their popularity diminished and a Trabi’s changed hands for only some change. Nowadays Trabi’s have a whole new fan base and prices are back to normal.

“Buying one

“Trabant technology is simple and reliable and most parts of the body don’t rot. However, check for the floorpan which is steel and check for leakages round window seals. Prices hover around 2.000 euro’s for a real nice one.”

http://www.classiccarsmonthly.co.uk/magazine/want+one/small+family+cult+cars+of+the+60s/

I wonder if George Hallam, who likes to praise Soviet-style communism, can explain why communism collapsed in the Soviet Union? If it was so wonderful, you’d think it would have continued. But for some reason, best known by the people who lived under that regime, they wanted to throw it out. I suppose George thinks he knows better.

34
The USSR was determined by the conditions of Imperial Russia, in 1917 over 90% of its population were peasantry. Industrialization in eg the UK, began around 1750 so there was around 160 years of catch-up to do. As I’ve mentioned before, the USSR caught up with and overtook the USA with regard to scientific and technical staff, by 1970 It managed to put the first man into space. How more innovative can you get?
46
The collapse of communism (note, not socialism) happened because of the foundations it was initailly built-on and other complex global conditions, not least, that few countries would trade with the USSR.
Followers of Marx including Trotsky

Re 47
Sorry, I hit the wrong key,
Followers of Marx, including Trotsky, were quite clear of the impending failure of the Soviet system, because the conditions were not condusive for socialism. And, the rest, as they say, is history.

49. George Hallam

“Praise” as in: to glorify especially by the attribution of perfections?
Or the offering of grateful homage as an act of worship?

I don’t think so.

Reread my posts.

I’m just arguing for a bit of objectivity.

“The collapse of communism (note, not socialism)”

What’s the difference? Economically, it’s the same, and historically the words were interchangeable.

Honestly, what is the difference? Do you accept, as far as economics are concerned they are the same?

50
The word socialism has become interchangable with communism, however, if you read Lenin’s description of the Soviet economy you will see that he refers to it as ‘war communism’ on the basis that it would be temporary. And I suppose it was temporary, the USSR has now evolved into a capitalist economy. And, if you read Marx, you will see that he quite clearly states that socialism must evolve from mature capitalism, this is why Trotsky was against the economic structure which was implemented in the USSR.
Socialism has also evolved, although Marx died before he could develop a framework for a socialist economy, most modern socialist models are mix of socialism and liberalism, however, the macro-economic base is socialist as there is no private ownership of the means of production, however, there is no constraint about acquiring products outside of said economic base. Gorz is a good example of this.

52. So Much For Subtlety

44. George Hallam

Thank you for the reference.

De nada.

The reasoning is so confused and based on so many dubious assumptions that it should be easy to see why the World Bank has such a poor reputation.

Could you please list a few of those dubious assumptions for me? It does not seem confused to me. Perhaps you can explain what is confused about their argument? Either the East German economy generated value-added products or it did not. The World Bank seems to think they did not. Why do you think otherwise?

2:56 pm, January 22, 201245. George Hallam

For another view of the Trabant try this:

An interesting bit of special pleading, but dare I say not merely confused and riddled with dubious assumptions but irrelevant. As it does not really address the issue of whether they were adding value or not.

“According to the period VEB Sachsenring commercial the Trabi 601 was a spacious, agile and fast, modern and robust motor: “your reliable travel companion . . . the all new Trabant 601”. Clever advertising, but there are one or two things to be said about that.

Sure, like you would be a fool to believe a word of it.

“On the upside, due to the unitary body, Trabi’s are quite spacious for small family cars. As for Robustness; no tin worm liked any of the plastic exterior and . . . although people feared the plastic shell in the event of a crash, it actually outperformed period Western motors. Was this the first (unintended) crumple zone?

Unintended. Untested as well. We have no idea of whether their plastic body acted as a crumple zone or not because they did not test for it. No one I know of has done so. So this is verging close to a bare-faced lie. Sure, they are quite spacious (as opposed to spacious) for a small car because their engines were so small. It is true that their bodies did not rust, but so what? Plastic degrades.

“On the downside: the Trabi did turn corners and had a reverse gear and all that, but it didn’t have the engine to make it go. Talking about which; 0 to 60 mph . . . the poor smoky stone age engine barely made it to 60mph….

So basically it was powered by a lawn mower engine. Which is cute, but of course not remotely relevant to the question at hand.

“..after the fall of the Berlin wall the Trabi became the epitome of all things bad in communist governments. Their popularity diminished and a Trabi’s changed hands for only some change. Nowadays Trabi’s have a whole new fan base and prices are back to normal.

Likewise irrelevant. It does not say whether they added value or not.

“Trabant technology is simple and reliable and most parts of the body don’t rot. However, check for the floorpan which is steel and check for leakages round window seals. Prices hover around 2.000 euro’s for a real nice one.”

The technology is reliable but the cars were not noticably reliable. Most parts did not rust, but that simply means some parts did. 2000 euros for a nice one? What is that in real money? Go over to this site:

http://www.oldbug.com/sales.htm

A beat up 1960s VW Beetle in reasonable condition is worth somewhere between $10,000 and $20,000 by the looks of it. And it is not as if the Beetle was a great car or anything. I did like them though.

53. So Much For Subtlety

47. steveb

The USSR was determined by the conditions of Imperial Russia, in 1917 over 90% of its population were peasantry. Industrialization in eg the UK, began around 1750 so there was around 160 years of catch-up to do. As I’ve mentioned before, the USSR caught up with and overtook the USA with regard to scientific and technical staff, by 1970 It managed to put the first man into space. How more innovative can you get?

Not very. Because simply moving peasants from the countryside to the cities and putting them in factories designed and built by Ford or Fiat is not very innovative. It is just copying the West.

But of course you miss the point. Perhaps in 1917 Russia was as bad as you say. Even though it wasn’t. By 1979, as you say, it had caught up with the West. Allegedly. So having the material basis for socialism, as well as a socialist government committed to socialism, why didn’t it go on to achieve socialism in 1980?

The collapse of communism (note, not socialism) happened because of the foundations it was initailly built-on and other complex global conditions, not least, that few countries would trade with the USSR.

But we know that trade is exploitation. Why would the Soviet workers suffer from a lack of exploitation? Besides, no countries refused to trade with the USSR. At least post-1930 or so. Certainly America did. Japan did. Italy did. For instance, the ZiL factory started out as a purchase from Italy. In the 1920s it was redesigned and reequipped by the American company A.J. Brandt Co. AvtoVAZ, the manufacturer of Lada cars, was a joint-venture with Fiat in the 1960s. GAZ started out as a joint venture with Ford. The list goes on.

steveb

Followers of Marx, including Trotsky, were quite clear of the impending failure of the Soviet system, because the conditions were not condusive for socialism. And, the rest, as they say, is history.

Although Trotsky never managed to explain how the concrete reality of socialism that he devoted so much time to creating had managed to become something else. Something outside Marx’s scheme of things – history was supposed to progress from Capitalism to Socialism and yet along came Fascism and allegedly Stalinism.

George Hallam

I’m just arguing for a bit of objectivity.

You may think you are, but you’re not.

steveb

The word socialism has become interchangable with communism, however, if you read Lenin’s description of the Soviet economy you will see that he refers to it as ‘war communism’ on the basis that it would be temporary. And I suppose it was temporary, the USSR has now evolved into a capitalist economy.

Except Lenin only started using the term “War Communism” after the NEP. Because he did not want to admit that what they had tried and failed to achieve was Communism. At the time he referred to it as Communism. As did Trotsky. His wisdom only came in exile when he had lost the argument with Stalin. There is no evidence that Lenin thought Communism would be temporary.

But even so, Lenin, Trotsky et al were feeling their way forward. They knew what they wanted to create – socialism and then Communism. They knew how to get there – expropriate all the capitalists and peasants. Which they did. When it did not work, they accepted a temporary set back. But then they tried again. As did Stalin. This time all the capitalists and all the peasants were expropriated and often shot. Socialism was created. So why didn’t it work?

And, if you read Marx, you will see that he quite clearly states that socialism must evolve from mature capitalism, this is why Trotsky was against the economic structure which was implemented in the USSR.

Why Trotsky in exile was against the economic structure implemented in the USSR. However he really did not explain why it was not socialist except that he was not in charge any more. Marx did expect socialism to evolve from a mature form of capitalism. However he was not dogmatic about it. He was even willing to consider that China might become Communist before the West.

OK. You think the Soviet Union was a mature form of capitalism in 1979. Why did rebellion destroy the USSR and not create a better form of socialism? Why didn’t real Communism follow from the collapse of the Soviet Union?

Socialism has also evolved, although Marx died before he could develop a framework for a socialist economy

Marx wrote tons of crap. He lectured to one and all. If he did not develop a frame work for a socialist economy it was because he couldn’t or he thought it would be trivial and so not worth bothering with. A lot like Lenin who said that any illiterate worker could run the Soviet economy.

53
You’re misquoting again, where have I mentioned 1979 and in 1980, the USSR was hardly in a position of ‘mature capitalism’

Wiki always lets you down SMFS, you need to read primary sources not secondary.
All industrialization involves a movement of labour (usually from the countryside) into factories, the UK started in 1750 and it took another 130 years or so for the state to implement even basic education for the masses. It took the USSR less than 60years to educate a population of mainly illiterate peasantry to a standard which overtook the USA in numbers of educated scientific and technical staff.

As you state, history (according to Marx) was suppose to progress from capitalism to socialism, but it didn’t, because Imperial Russia was little more than a feudal system, and, that’s what went wrong, it seems Marx was right, or he hasn’t been proved wrong.
You are entitled to your own opinion about the merits of socialism, but not your own facts.

55. George Hallam

I am not interested in cars, but I am interested in economics.

The point at issue was whether the production of Trabants was “value-subtracting”.

That implies something that is pointless: like a chocholate teapot.

The evidence is that the Trabant was, as still is, functional car.

A number of European firms made small cars.

Can you guess from the specs which one was the Trabant? I couldn’t do it, but then I’m not interested in cars.

Length engine bhp top speed

3778 mm 14 bhp @ 3500 rpm 52 mph
2972 mm 21 bhp @ 4000 rpm 61 mph
3835 mm 26 bhp @ 5500 rpm 68 mph
3555 mm 30 bhp @ 4200 rpm 62 mph
3048 mm 33bhp @ 5300rpm 72 mph

Clue: theTrabant wasn’t the fastest.

Given their economic situation it seems to me that their decision to produce the Trabant, rather than import a similar car or do without cars altogether, made sense.


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