[OPE-L:5703] Re: Real under attack

Paul Cockshott (wpc@cs.strath.ac.uk)
Tue, 11 Nov 1997 09:28:32 -0000

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> In this sense, if the left wants an electorally viable economic
programme, I
> think it should include:
> a) industrial policy, credit lines for sectoral development, etc,
> b) reduction in interest rates and faster devaluation of the currency,
I would fully agree with these but rather than simply say faster
of the currency, which sounds ad-hoc, one should put it on more
principled lines. One should argue that the function of exchange rate
policy should be solely to bring about a balance on the current account
in international trade. Thus the state bank should have as its policy
aim the adjustment of the Real /DM or Real/$ rate so as to bring
trade into balance.

What confounds the situation is the fact that the system has three
degrees of freedom at present and only one or two control instruments
Degrees of Freedom
Real/$ ratio
current account balance
capital account balance

Control Instruments
Interest rate policy
Purchase and sale of foreign currency reserves

A pre-requisite of exercising some degree of social control here
is to reduce the number of degrees of freedom that the system has.
I would advocate de-liberalising capital movements, either by exchange
controls or punitive rates of taxation on capital transfers.

In the absence of capital movements in and out of the country, a neutral
policy with regard to the foreign reserves should result in the Real/$
ratio and the current account bringing one another into balance.

This then frees interest rate policy to become a means of regulating
the level of internal investment.

> c) increase in taxation, especially of capital gains and large
A precondition for the simultaneous control of inflation and of
the interest rate is that the state have an effective tax system, capable
of either balancing the budget or using the budget surplus/deficit counter
cyclically. From this standpoint, an emphasis on progressive rates of
income tax and effective tax collection may be more important than
taxes on assets.

> d) massive investment in education and health (this is cheap stuff, we
> know that; it's a matter of political will),
> e) firm, sustained, and pre-announced increases in the minimum wage, to
> it from around US$80/month to much higher levels within 4-5 years (this
> to be done before the next round of executive elections),
> f) suspension of additional trade and financial liberalisation, to
> the necessary tools for economic policy,
I think that one should seperate the issues of financial and trade
liberalisation. Trade liberalisation is not generally harmful to the
working class interest unless accompanied by financial liberalisation.

> g) suspension of the privatisation programme, at least until a regulatory
> framework has been legislated, in order to prevent the transformation of
> state-owned monopolies into private ones.

Why should we conceed that there is are any grounds for supporting
privatisation. I would have thought that as socialists we would see
any extension of privatisation as a retrograde step.

> I think this gives the flavour of what I think can be put to the
> and perhaps win some votes. Of course, support for such a social
> reformist programme is problematic for many of us (myself included). It
> presumes that the left can take over the state and use its instruments
> positive ends, presumes that more employment (that is, more surplus
value) is
> good, etc.
I dont think that there is any need to be the least bit appologetic
about supporting measures that lead to more employment. These are
in the interest of the workers movement.