The collapse of Laker Airways

February 8, 1982

The collapse of Laker Airways is more than a major disaster in the international airline industry. It reaches far beyond that into the inner reaches of the giant banks and the military-industrial complex, in which the aerospace industry is a key factor.

The demise of Laker Airways is bound to aggravate and deepen the world capitalist crisis. It will also sharpen the hidden antagonisms between the British and U.S. capitalist governments.

Although billed as a major British entrepreneurial innovation, Laker Airways was deeply and intimately connected with the U.S air travel and aerospace industries. The role in its collapse of the U.S. capitalist government under the Reagan regime should not be overlooked, as it has been in most of the capitalist press.

Did U.S. force bankruptcy?

In particular, the role of the Export-Import Bank, an arm of the U.S. government, should be carefully examined. The bank holds a mortgage of considerable dimensions on Laker's planes, running beyond some $86 million.

The Export-Import Bank of the U.S. also guaranteed a loan made by the private Export Funding Corporation as part of a $228 million package, of which $60 million is due. All told, it seems, the Export-Import Bank holds about $147 million of Laker indebtedness.

Also, it holds the first mortgage on five planes of Laker's and, in case of default, it can take possession of the aircraft to recoup some of its money. Since the Export-Import Bank is an arm of the U.S. government, the Reagan administration can easily manipulate the financial situation of Laker Airways.

Consultations between the Reagan regime and the Thatcher government must have preceded the forced bankruptcy. U.S. private banks and the Export-Import government bank of the U.S. could easily have staved off a default. But they chose not to.

The Thatcher government, with British Airways itself in deep trouble, would not intervene with British banks to save Laker Airways.

The Laker debacle comes, therefore, as a boon to U.S. airlines, especially Pan American, TWA, and others who were in very sharp and venomous competition with Laker.

The collapse of the Laker venture is illustrative of a number of very fundamental laws concerning the present phase of capitalist economic degeneration.

Laker and Henry Ford

We should, however, first go over some of the salient facts concerning Laker and find out just what this unique capitalist entrepreneur was trying to do.

Freddie Laker was attempting what Henry Ford did in an earlier era, when the auto industry was in its infancy and before monopoly capitalism had fully matured.

Henry Ford began his automobile venture by cutting the cost of production and adapting the conveyor belt and assembly line to automobile production. He introduced mass production in the auto industry and thereby was able to feature an inexpensive, standardized car.

He was soon thereafter able to out distance all his competitors by producing a car for the millions. His Model T, designed in 1908, began to sell in the millions where, previously, the auto market was restricted to the more privileged buyers.

Ford had several advantages which Laker does not. Ford was able to gain control of raw materials and also the means of distribution.

Like Ford, Laker tried to show that he could successfully reduce prices. He cut trans-Atlantic passenger fares by half. Thus, a London to New York flight cost the passenger $135, half what was charged by the other giant airlines.

Putting aside his flamboyant methods and general right-wing political demagogy, which is typical of an earlier buccaneer-type age, Laker tried to break up the virtual monopoly that exists in trans-Atlantic and domestic air travel. He proved highly successful for a period of time. But only for a period of time.

His cost-cutting methods forced the giants to reduce air fares. The giants, too, were interested in cutting costs and fares if it raised the profit level. But that was just the point.

Laker's cost-cutting of the fares cut deep into the profit level of the giant airlines. He kept gaining passengers while they sustained losses. He therefore earned the unmitigated anger of the international monopolists, in the aerospace as well as airline industries.

Laker's mode of operation -- cost-cutting and reducing the fares virtually by half -- opened air travel to vast sections of the population, including the middle class and many from the working class.

The rule under the early competitive, so-called relatively progressive epoch of capitalist development was for the bankers and manufacturers to support somebody like Laker as against the giants. Why?

Because at that time the more efficient producer would succeed as against the less efficient, more costly capitalist entrepreneur.

The entire theoretical edifice of early capitalist political economy rested on the assumption that the more efficient producer should prevail over the less efficient, more costly one. Present day apologists for imperialist monopolies still repeat this old truth, but it no longer fits the conditions of capitalist monopoly.

Under the old rule, Freddie Laker would be a winner, like Henry Ford.

But Laker's methods -- the methods of mass production, if one can apply that formula -- resulted in profit losses for the giants. And it is the profit motive, lest we forget, which is the motor force of the capitalist mode of production.

Thus we see that mere improvement in the means of production and distribution, or the introduction of new methods in rendering a service on a mass production basis, are only acceptable and practical in the contemporary capitalist epoch if they maintain and increase the margin of profit. Failing that, the monopolists, who control the industry, and the bankers and suppliers, who dominate the vital arteries of the aviation industry, turn thumbs down on such innovations as introducing low-cost, mass transportation by air.

Was Laker Airways really on the verge of bankruptcy as a result of its bold innovations in mass air travel? Not really.

Laker's sin was that he still tried to expand in the midst of a capitalist recession, thereby making further inroads into the airline monopolists' inner sanctum. To do that, he needed to reschedule some of his debts.

Expansion blocked by recession

This was not an extraordinary demand nor an unusual practice. This is done over and over again in the entire capitalist air travel and aviation industry business, including the aerospace industry which is intimately connected and part and parcel of the military-industrial complex.

But to get a credit extension or rollover of funds requires the okay of the very monopolist grouping which first of all gave him the opportunity to get into the business. The banks refused to give an extension of the debt or reschedule it.

They refused not really because he was losing money, but because his price-cutting practices were wreaking havoc on the profit level of the industry.

State subsidizes airlines

It should be noted that the entire airline industry is subsidized by the capitalist state in the U.S. as well as in Europe and Asia. The subsidies granted to them are of both a direct as well as indirect character. No one can succeed in the industry without the permission of the giant banks and access to the credit markets which finance the airline and aviation industry.

From 1978 until about 1980, the capitalist world was recovering from one of its endless crises. Beginning early last year the capitalist economy worldwide took another plunge, this time far more serious and devastating than the previous one.

Today it has virtually encompassed the whole capitalist world. And its disease has also enveloped, to a limited extent, some of the socialist countries. Furthermore, there seems little hope for an early end.

Bourgeois ideologists have always justified the continuation of the capitalist mode of production on the basis that it proved its superiority over the older modes of exploitation, such as feudalism and its precursor, chattel slavery.

The capitalist mode of production was in fact superior to the previous modes of exploitation in that it continually raised the level of the productive forces, by an unending series of technological revolutions. On the basis of the continuous development of the productive forces the capitalist system of exploitation proved itself capable of the uninterrupted production of cheaper, less costly commodities.

It was able to do this by reducing the unit cost of a commodity, and was therefore able to make this cheaper commodity available to the world market, ultimately on the basis of mass production. Capitalism is said to be more efficient because it can reduce the unit cost (per socially necessary labor time) more effectively than any previous social system of production.

It has been drilled into the heads of students and scholars alike, and the broad mass of the workers as well that capitalism can outproduce all other systems because it can reduce the unit cost of a commodity or service. It does this not by reducing the wage level, but while gradually increasing it, using technological and other labor-saving devices to make the commodity less costly, thereby serving the consumer and society as a whole.

That is the principal rationalization for capitalist exploitation and imperialist oppression. According to this rationalization, it should not have been Laker Airways, it should have been one of the giant airlines, like Pan Am, TWA, or British Airways, that fell victim to the laws of capitalist development and the unrestricted reign of the free capitalist market.

But this is not the dawn of capitalism, when the so-called free enterprise system was governed by the early forms of capitalist competition. Dusk has enveloped this entire system, and reigns on an international scale.

Capitalist competition has degenerated into monopoly capitalism, which knows only the competition of giant multi-nationals conglomerates, and imperialist international cartels. Cheaper products are only welcome if, by chance, they enhance rather than cut severely into the ever-growing extortionate profits which the monopolists wring out of society in general and the working class in particular.

Productive forces held back

The justification for the existence of the capitalist system rested on the fact that it was continually perfecting and developing the means of production, raising their level on a continuous and uninterrupted basis. This is no longer true.

The vast resources of research and development, of innovation and efficiency, of scientific and technological personnel are being diverted into the destructive channels of military production. This erodes the very vitals of the civilian economy. At the same time the civilian economy cannot detach itself or operate as a separate department from the military.

Although civilian production, judged on the basis of overall gross national production, is far more preponderant at the present time, it is the military-industrial complex which siphons off the cream of the crop from the civilian economy. The military-industrial complex engages the civilian economy in an altogether different direction than if the latter had full freedom to follow its own automatic processes.

Military distorts civilian economy

The banks, in conjunction with the aerospace industry and Big Oil, organically push for union with the military. The incentives for the development of the productive forces are thereby restricted and retarded. The productive forces grow only relatively compared to what would be possible if they were not chained to unbridled militarism and the private ownership of the means of production.

Producing a commodity cheaper than a competitor was the watchword and criterion for the so-called progressiveness of the competitive stage of capitalism. One of the significant aspects in the subjugation of China in the pre-imperialist epoch was, as Marx put it in the Communist Manifesto, "The capitalist West's cheap commodities were able to batter down the Chinese walls."

Today the U.S. needs a flotilla of carriers, a fleet of bombers and fighters, and an endless string of air bases to force upon the oppressed people monopoly-priced commodities and fraudulent schemes for rapid industrialization which in reality destabilize the existing economy and ruin the possibilities for stable planned development.

Super-profit motive blocks capitalist regeneration

The supreme test of the viability of the capitalist system was that it could reduce the unit cost of a commodity or a service without open or hidden wage cutting. Instead, it raised the level of wages as a result of technological development and innovation.

That has given way to reducing the wage level with givebacks, cuts in social services, and a general decline in living standards in the interest of securing greater and greater super-profits. This is the new universal cure -- all and panacea proposed and practiced by the Thatcherite-Reaganite program of economic contraction and military expansion.

The collapse of the Laker experiment proves the inability of the imperialist economy to generate a new wave of capitalist development on the basis of new methods which are socially useful and economically viable, but run up against the motor force of capitalist super-profits.

If monopoly capitalism could not tolerate even such an innovation as Laker's, which met all the standards usually set by capitalist theoreticians for the further development of capitalism, how then can it set in motion its resources to revive the worldwide deteriorating capitalist system?

Imperialism is becoming more and more a closed corporation on a transcontinental basis. None but the innovators in the art of military destruction are given a cheerful welcome into the world imperialist community of bandits, cutthroats, and outright murderers.

The innovators who are welcome are those who can help plan genocide in South Africa and in the Caribbean. At the same time, these innovators invariably pursue the path of trying to economically strangle the socialist countries, as witness Poland, and planning wars of destruction against all national liberation movements that seek to raise themselves to a full state of sovereignty, such as the heroic Palestinian people.

Main menu Book menu