The economy demands planning:

To Plan or Not to Plan

To plan (be) or not to plan (be), that is the question:
Whether ’tis Nobler in the mind to suffer
The Slings and Arrows of outrageous Fortune,
Or to take Arms against a Sea of troubles,
And by opposing end them

(With apologies to Shakespeare)

Capitalism has reached a tipping point. The system has become so heavily monopolized in the basic sectors and dominated by concentrated social wealth that the economy demands planning. Those holding great social wealth agree, for otherwise their private wealth cannot grow at what they consider an acceptable rate. They want state-organized planning to defend their private interests and enlarge their private fortunes; they oppose planning to defend the public interest, strengthen the overall socialized economy and build the nation.

The law of a falling rate of profit forces those that own great social wealth to plan in concert with the state to prop up their private profits using the public treasury and the political power of laws, rules and regulations that suit their private interests, but which immediately come into contradiction with the public interest, other owners of social wealth and the working class.

The centres of great social wealth demand state-organized planning for private purposes. This private planning within parts of the economy comes into conflict with its broad socialized character and the need to harmonize interests, not pit private interests against each other and the public interest.

State-Organized Planning to Serve Certain Private Interests

Harper’s PMO put out a press release that distorts economic science to the point of farce. The Harper government proposes that the value of machinery be considered transferred to production at a rate of 50 per cent per year on a declining basis. This “accelerated depreciation” has a contradictory effect of decreasing the amount of added-value for accounting purposes yet increasing the claim on added-value by owners of equity. The loser in this accounting scheme is the government’s claim on added-value. This tax proposal is an example of state-organized planning to serve certain narrow private interests. With this state-organized planning for private purposes, the monopolies that benefit are in contradiction with each other, with owners of less social wealth, the working class and the economy itself.

In this case, the monopolies demand state intervention in planning to blunt the law of a falling rate of profit under capitalism. By artificially minimizing added-value through boosting transferred-value from machinery, the government’s proposal decreases taxable corporate income thus inflating the actual profit companies can claim. This manoeuvre overcomes at least for accounting purposes the law of a falling rate of profit for the companies directly involved while at the same time further decreasing overall added-value and its rate. By doing so, the problem of a falling rate of profit is buried under economic ignorance and self-serving accounting practices and not faced up to squarely.

State-Organized Measures to Distort the Economy and
Prevent Genuine Renewal

Only fictitious kinds of modern machinery depreciate at 50 per cent a year. Can anyone imagine modern machinery transferring its value at a yearly rate of 50 per cent unless of course it is complete junk to begin with and already falling apart as it leaves the factory, lasting only a few years at best? Even the current 30 per cent rate cannot be justified.

The irony that an annual 50 per cent depreciation of machinery would actually lower the rate of profit in the first few years appears to escape the PMO. The practice lowers the added-value in the accounts but at the expense of only the government’s claim while boosting the claims of owners of the monopolies due to the current tax regime. The government’s claim on added-value, the corporate tax, is based on a company’s “net profit,” which clever tax accountants can manipulate down to nothing while at the same time distributing profits to owners of equity.[1]

These state-organized measures to distort the economy are meant to serve certain private interests. They militate against the socialized economy as a whole by taking value from here and putting it there in contradiction with the laws of economic science. They deprive certain sectors of value while filling the coffers of others causing problems for the economy and creating conditions for a general crisis.

The current tax regime and this particular Harper government scheme show the necessity for a complete overhaul with governments and their social and material infrastructure claiming revenue directly from enterprises and not from secondary sources using employee income tax, payroll tax, sales tax, corporate tax on net profit, and user fees. The objective conditions cry out for planning in the public interest in harmony with the socialized nature of the modern economy to meet its needs and that of the people for social programs, which guarantee their rights.

The concept of manipulating transferred-value as a means for the government to claim less added-value from the socialized economy is a farce and causes problems in practice and theory. If the government does not want to claim any of the added-value from production, it should just say so and explain where it plans to find money to fund itself, its institutions, programs, the social and material infrastructure and the general interests of society. The people should denounce the government for making a mockery of economic science to serve narrow private interests.

The Harper government’s gambit is an attempt to circumvent a socialized economy that cannot continue in the old way with private relations of production and state-organized planning serving privileged private interests. The old relations based on private ownership of the social forces of production need to be revolutionized and brought into harmony with the reality of the new.

The distortion in accounting is one more effort to avoid the obvious conclusion that the socialized economy demands radical reform and not narrow state-organized planning to serve certain private interests. The falling rate of profit is a problem that emerges from the contradictions of capitalism and cannot be avoided as long as the system persists. It must be acknowledged as a scientific fact and dealt with accordingly, starting with restricting monopoly right and its destructive attempts to circumvent the law.

The economic planning that is needed emerges from the economy’s social character and the fact that private ownership of competing parts of the basic sectors cannot control and stabilize the overall economy, and has no use even for its own production unless it serves its narrow private interest for money profit. The organized people have to gain the political power and legal will necessary and capable of confronting and restricting monopoly right and depriving it of the political power that serves its narrow private interests.

Planning to serve the public interest and socialized economy, especially with regard to the wholesale sector, the determination of prices of production in the basic sectors according to a modern scientific formula, which includes an average rate of profit, and control over the supply and distribution of basic production are first steps to avoid recurring economic crises and open a path forward.

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Global Private Interests Versus the
Canadian Public Interest and Nation-Building

Posted below are excerpts from a May 14 statement from the PMO, “PM highlights support to help Canadian manufacturers equip for success,” with comments from TML in double parentheses.

“Economic Action Plan 2015 proposes to provide an accelerated capital cost allowance (CCA) at a rate of 50 per cent on a declining-balance basis for machinery and equipment used in manufacturing and processing. This is a substantially faster write-off than the standard 30 per cent rate, allowing businesses to defer taxes and recover the cost of their capital investments more rapidly. The measure will apply to capital assets acquired after 2015 and before 2026.”

((Investments in machinery are not recovered through deferred taxes. The value of the machinery is consumed in the production process and then transferred and preserved within new goods and services as transferred-value. Businesses recover the transferred-value when the new good or service is realized (sold). The quality of the machinery and intensity of its use determine the recovery period, not any arbitrary percentage the government may propose in deferring taxes.

The full value of the investment is recovered when the entire value of the machine has been transferred into new production and realized through sale. The machine at that point or earlier would have to be rebuilt to be of any use or retired from service. To impose a 30 or 50 per cent annual recovery to reduce the government’s claim on added-value distorts the economy and reveals the manner in which governments presently make their claim on added-value based on a company’s “net profit.” To relate the recovery or depreciation period for transferred-value to a government dictated “accelerated capital cost allowance” is a theoretical and practical distortion of economic science, which becomes yet another factor disrupting the economy causing crises and solves no problem.))

“This incentive will provide concrete, long-term support, enabling Canadian manufacturers to plan the investments that are needed to compete in a global economy …. The ten-year term will provide businesses with more planning certainty for larger, long-term projects.”

((State-organized help for private planning comes into conflict with competing private interests and the public interest. The interrelated socialized economy requires broad social planning taking into account all factors and sectors not just the private interests of particular businesses or sector.))

“New investments will help position them to meet both present and future economic challenges, while creating jobs and growth.”

((How does the Harper government know this? From this supposition, it predicts that whatever “new investments” businesses make will “meet both present and future economic challenges.” Maybe the investments will be completely disastrous or simply made to cash in on some pragmatic scheme for a quick score.

Also, the claim that investments in machinery and productivity “create jobs” is patently false. Increased use of machinery leading to productivity eliminates jobs. That is the point of productivity, to reduce the living work-time while producing the same quantity of goods and services. Certain businesses using more machinery such as robots generate greater productivity. This will not only eliminate jobs within their own companies but may wipe out competitors within Canada destroying even more jobs. The Harper PMO’s statement does not foresee this real possibility but brags of “creating jobs and growth.” This statement, unaccompanied by any talk of dealing with possible adverse consequences, shows the government has no plan for increased unemployment and enforced idleness due to greater productivity.

The broader public interest does not gain from this concession to private business interests. The people are left to deal with any negative consequences in an enforced atmosphere of “fend for yourself” creating chaos such as poverty and anti-social behaviour and outlooks. The government foregoes claims on added-value for nothing concrete in return just pie in the sky hopes for “growth,” which if it materializes using a gift from the public treasury is registered as a gain for private companies not public enterprise, social programs or public services.

If growth does materialize from certain companies becoming even larger and stronger, the public interest does not benefit. In fact, the public interest directly suffers. As global companies become larger, they become more dominant and belligerent in pushing monopoly right in opposition to public right.

Also, the investment in machinery by companies registered in Canada may in fact be used in their holdings abroad. This is not such a far-fetched idea. Earlier this year the trade union Unifor exposed a $526 million Export Development Canada loan to Volkswagen to help finance the global monopoly’s expansion not in Canada but abroad. The government rationalized this misuse of public finds under the hoax that maybe Canadian companies will increase their exports to Volkswagen’s non-Canadian enterprises.

Another issue not broached in the PMO statement is the origin of the machinery the companies may purchase. Prime Minister Harper made the announcement in Windsor, Ontario so presumably he has the auto sector in mind. These days, primary machines in vehicle production are robots, which are mostly not manufactured in Canada. Also, the Harper government often speaks of the resource sector, and again, the heavy machinery employed in that sector is not made in Canada but mostly in the U.S., Japan and Germany.

Without a plan to develop robot and heavy machinery production in Canada, the continual purchase of these means of production from abroad, aided by the state treasury, drains social wealth from the country and weakens the economy. The Harper government does not consider the negative implications of this on nation-building nor does it propose anything to change the situation. Its neo-liberal obsession to use the power of the state and its public resources for the empire-building of private monopolies means it opposes any restriction of monopoly right in defence of public right and the sovereign right of the people to control and build their nation and economy to serve the public interest, the people’s well-being and general interests of society.))

“This initiative is one of many measures that the Government has taken to create an environment that enables Canadian manufacturers to prosper. Other examples include the Red Tape Reduction Action Plan, the Venture Capital Action Plan, concluding negotiations for the Canada-European Union Trade Agreement, and concluding negotiations and implementing legislation for the entry into force of the Canada-Korea Free Trade Agreement.”

((This is disingenuous to say the least. Not one economist or academic would dare to suggest that the Canadian manufacturing sector has grown and prospered in recent times. The list of the Harper government’s initiatives to serve monopoly right highlights the growing problem facing Canadians of powerful global monopolies that put their private interests as a priority in opposition to the public interest and sovereign nation-building, and use their monopoly right and influence over the state to have their way.))

“The deferral of tax associated with this new measure is expected to reduce federal taxes for manufacturers by $1.1 billion over the 2016-2017 to 2019-2020 period. Since 2006 the Government has worked to create a low-tax environment for business investment ….”

((These types of statements from the Harperites reduce the socialized economy and society to a banality. The social wealth produced within the socialized economy is necessary to reproduce the economy, meet the needs of the working class from birth to passing away and serve the general interests of society. How is such a modern interrelated complex enterprise to be organized and controlled so that the public interest is served? The answer is not found in self-serving triviality.

Statements to the effect of “creating a low-tax environment for business investment” solve no problem and are meant to justify a regime that deprives Canadians of their right to govern themselves and control their economy in the public interest. Such statements attempt to paper over a regime that has handed over the basic sectors of the economy to global private interests in opposition to the Canadian public interest and nation-building. The neo-liberal line of constantly serving monopoly right is a slippery slope to disaster. Canadians demand their right to govern themselves and control their economy to serve the public interest, nation-building and the general interests of society.))

(Complete statement from the PMO is available here.)

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Farcical Accounting

Regarding the PMO’s proposal to depreciate
newly-bought machinery at 50 per cent a year

Besides everything else, does a particular company need the new machinery or not? Does such a company need the Harper government’s yearly 50 per cent transferred-value promise to push it into buying new machinery or otherwise would it just carry on with what it owns? If the machinery is needed, it could borrow the needed money and the value of the investment would return to the company in time as production is realized.

What does the government hope to achieve through this measure? Are companies going to buy all sorts of new machinery, and with it and the resulting increased productivity flood the economy with production that may or may not be needed, and can or cannot be realized? Does the government somehow know that companies are just itching to buy new machinery but will only do so if they can write it off in their tax accounting as transferred-value at 50 per cent each year? This arbitrary dictate is a public gift to companies and throws mud at economic science, which cannot accept an inflated transferred-value when determining a price of production.

Also, what has the government planned to do with the surplus workers who are no longer needed when the modern machinery increases productivity? Under the capitalist regime, increased productivity does not just generate more social wealth for a privileged few but also more idleness and poverty on the part of many.

The Harperites’ plan boosts equity profit by shifting the claim of the government on added-value to owners of equity. This sleight of hand declares the government’s claim on added-value as no longer valid, renaming it transferred-value from machinery depreciated at 50 per cent annually and used as a company tax benefit.

The increased owners’ claim of equity profit through a tax benefit arises from a convoluted sequence of events from an artificially inflated transferred-value. The increased transferred-value from depreciating machinery at 50 per cent annually decreases the available added-value at least according to the Harper government’s accounting. Paradoxically, the decreased added-value ends up benefitting the company as profit because of the existing way corporate taxes are calculated on so-called net profit. The company’s taxable net profit becomes less, resulting in a lower government claim on the available added-value, which becomes a tax benefit for the company.

A portion of the available added-value goes to pay for the new machinery before its value is transferred into new production and realized as transferred-value. This scenario exposes the necessity for a completely new taxation system whereby governments and their institutions claim added-value directly from the amount workers produce in the socialized economy and also exchange socially produced value, for example from public education and health care, directly with companies that consume the value. Also, the Harper government’s nonsense underscores the necessity to assert the public interest over the wholesale sector and the determination of prices of production.

The $1.1 billion in additional money going to companies to pay for machinery is seized from the government. In the most cavalier manner, the PMO press release brags about the $1.1 billion to be handed over to the private interests profiting from the scheme, without any mention whether the government needs this revenue or not. If the government does need the revenue, it makes no mention of where it will find the forgone $1.1 billion.

This state-organized distortion of the economy should be characterized as official corruption serving certain private interests. It opens the door to possible buying and selling of equipment here and there even within monopolies or fictitiously to themselves as a means to increase transferred-value and avoid paying taxes. The same piece of equipment could be moved around on paper to where it reduces net profit in the most effective way. Global monopolies are organized that way. To avoid showing any profits for years on end, they move the accounting of transferred-value around from one division to another, even from one country to another, or from the construction of a new mill or mine to a facility that is fully productive and can benefit from a tax deduction. Monopoly manipulation can declare a part of the same company completely independent for self-serving purposes. U.S. Steel has done exactly that saying its wholly owned Canadian subsidiary is bankrupt and owes the parent U.S. company billions of dollars as a secured creditor ahead of all others including pensioners.

With this tax measure, the Harper government keeps piling on the ignorance and contradictions. The people are forced to keep on keeping on as they say, or as Shakespeare writes, “to take Arms against a Sea of troubles, And by opposing end them,” and by doing so bring the outmoded relations of production of private ownership of competing parts of the economy into harmony with the already socialized economy where the actual producers will control the economy, and scientific planning can stabilize and stimulate the economy to best serve the public interest and general interests of society.

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