Capitalism 2008 | Critical School | Saswat Pattanayak

A (Radical) Approach to the Subprime Mortgage Crisis

Tue, 23 Dec 2008 09:04:29 -0500

by Peter Marcuse

What is called the “subprime mortgage crisis” reflects a fundamental crisis in the housing system and a fundamental ideological blinders to the alternatives that the crisis suggests. The crisis is not a crisis of liquidity in the mortgage market, or a failure of regulation, nor is it the same as the crisis of Fannie Mae and Freddie Mac, which is a different crisis, with which it is often confused. It is rather the result of the inability of the market to provide adequate and affordable housing for large numbers of Americans, and of the ideological commitment to homeownership as the incarnation of the American Dream for the masses.

There has long been a crisis of housing affordable to a large portion of Americans. It was recognized at least as far back as the Housing Act of 1937, whose objective was to provide “adequate housing within their means for all Americans.” That promise was never fulfilled, and the history of United States housing policy is replete with one effort after another to solve the problem preserving the dominance of the private housing market . There is an obvious injustice in the results of such a system –-today, there is not a single city in the country in which a full-time worker earning the minimum wage can afford even a 1-bedroom apartment, a situation in which African-Americans, Hispanics, immigrants, and women suffer in grossly disproportionate numbers. As a result grass-roots groups, discontent with that situation, mounted substantial pressures for reform. With only one significant exception, and even that one limited (public housing ) very public program to enlarge the supply of affordable housing has relied on bribing the private housing industry to make its housing more affordable. Those programs have systematically been provided with grossly inadequate funds for that purpose, have never been made a matter of entitlement, and have always been conspicuously inefficient in terms of the amount of subsidy siphoned off as profit by those involved in its private provision.

Not only have prior governmental efforts in housing been subject to the pressures of the private housing industry , they have also been colored by the ideological belief in home ownership as “The American Dream.” It is a powerful ideology. It relies in part on the prevalent identification of homeownership with the single family home, and that only through “ownership” can security of tenure be attained, that security being identified with freedom from a landlord's right to evict. Most buyers accepting this ideology are unaware that there are other forms of tenure that can provide equal rights of occupancy, because “ownership” is in fact a complex bundle of rights, of which security of occupancy may or may not be provided, as so many of today’s foreclosed home “owners” have become painfully aware.

The protest against inadequate housing was thus met by a program that tried to maintain these two causes of that inadequacy intact: promoting for lower-income households private home ownership, in homes supplied by the private market. The programs had a progressive component: preventing discrimination in housing, including mortgage provision, because of race, and the red-lining of minority neighborhoods.. The Community Reinvestment Act of 1977 resulted, requiring banks to allocate prescribed portions of their mortgage portfolios to such neighborhoods. That however meant that banks had to modify their normal definitions of risk (which included neighborhood conditions) to satisfy the act, and in turn meant that in some cases they in fact made more conventionally risky loans. Fannie Mae and Freddie Mac, government-sponsored private corporations that bundles individual mortgages into packages that are then turned into marketable securities, were encouraged to buy loans to low-income households as proof that they were in fact serving a public purpose, and engaged on large-scale advertising programs to market such loan. The history of these two corporations is in fact interesting, and too little discussed. Originally Fannie Mae was a governmental corporation, and agency of government, that served the function of packaging private loans and reselling them for a moderate fee to cover possible losses. When it turned out that the packaging-resale process in fact could generate a handsome profit, the agency was split into two, GNMA (The Government National Mortgage Agency) was kept as a government self-financing but not profit-making corporation dealing only in government-insured loans, keeping the fees it received for making loans as a reserve against possible defaults, and Fannie Mae was spun off as a private profit-making corporation, entitled to siphon off and return to investors any profits it might make. Yet Fannie Mae was given an expected if not formalized government guarantee against major losses, exemption from state and local taxes, and exemption from SEC oversight. Thus the profit from mortgage packaging activities was privatized and in part subsidized and the risk of loss remained ultimately public.

In any event, government policy massively promoted home buying by low-income households: everyone in the private housing industry made money on it, and politicians could happily claim they were helping more and more families achieve the American Dream.

Many homes were in fact provided to families who could not afford them. As long as their price on the market went up, the expectation that the increase in price would be even greater than the discrepancy between current costs and current incomes left everyone happy; as soon as prices stopped increasing, the problems began to mount.

So what’s the solution? There are a number of proposals, some partially incorporated in the Dodd bill already passed, which in effect make it possible to for home “owners” in or near default to extend the term of their mortgages. Other proposals address how new mortgages should be regulated in the future: lenders should be required to tell their prospective borrowers of the lowest-cost mortgages available., they should be forced to disclose all costs and fees up front, there should be more opportunity to evaluate the operation of mortgage markets. They are all worth doing, but they only deal with the fringe of the problem There is a history of stabs at regulation of specific problems, in the Fair Housing Act of 19The Equal Credit Opportunity Act of 1974, the Home Mortgage Disclosure Act of 1975, as well as the broader community Reinvestment Act of 1977.. In the end, deregulation is not the problem; the existence of what needs to be regulated is the problem.

So what is really the problem ? It is both ideological and economic, and its name is the same in both: The private supply of one of life’s necessities through the private market, the provision of housing for profit not for people. In more classical terms, the handling of housing for its exchange value rather than for its use value, the commodification of housing.

The ideological problem lies in the belief in the goal of private single-family home “ownership” with the American Dream, visualized as a single-family home on a suburban lot, and the coupling of that belief with the conviction that the private market is the best way to achieve that goal. Underlying the widespread acceptance of the goal are some facts of life in the dominant housing system:

1. that rental tenure is insecure and always subject to the danger of eviction;

2. that the only alternative to insecure rental is ownership in fee simple;

3. that “ownership” in fee simple guarantees unrestricted use and secure occupancy and ultimately the ability to sell at a profit;

4. that housing prices seem to be steadily rising, and thus occupancy seems secure;

5. that “ownership” should be seen as a way of accumulating assets for households;

6. that public policy has provided substantial economic incentives for homeownership through the mansion tax subsidy, the deduction from income taxes of mortgage interest and real property taxes

7. that the experience of any kind of supportive collective or communal ownership and residential facilities is minimal.

So the ideology is rooted in real world experience, but a limited experience, more extremely limited in the United States than in many other countries. Knowledge of the way the housing system functions in the real world in fact contradicts the conclusions drawn from this limited experience.

1. Rental tenure could in fact be made at least as secure of “ownership” by appropriate lease provision and selection of appropriate landlords, e.g. non-profits or government;

2. A wide variety of tenures is available: cooperative, condominium, limited equity co-ownership, mutual housing association, land trust, each of which combines various attributes in the bundle of rights that is “ownership.”

3. Clearly wrong, as hundreds of thousands are now finding.

4. Clearly wrong, as millions are now finding, Some 9 million households today have negative equity in their homes.

5. Putting the above two points together, wrong; treating housing for its exchange value runs contrary to optimizing its use value, and by and large does not even increase asset value for many.

6. True, but subject to technically easy congressional change—a political decision

7. True, but countless examples do exist, here and abroad.

The conclusion at the ideological level then is that an educational campaign to illuminate the limits of home “ownership” and the range of available alternatives is needed.

The nature of the economic problem is similarly clear. It results from the simple fact that the overwhelming majority of housing, both units and services, are privately provided for profit. Yet the simple fact is that, given the level of rents required to produce the profit that is sought, a major part of the population cannot afford adequate housing, and will either pay a disproportionate part of their incomes for housing, neglecting food or clothing or health care or education. There are two answers to this problem:

One is a mild one: extend control over the level of profits that is permitted in the provision of housing. The tools for this purpose are at hand: rent control; anti-speculation and excess profits taxes; criminalization of discrimination and unfair practices; eviction controls and building code improvement and enforcement. Such measures are more than lipstick on a pig, but fall short of reshaping the animal: providing an alternative.

The alternative is radical, but very simple: until adequate incomes are guaranteed, providing adequate public financing to cover the gap between even regulated housing costs and ability to pay. Where that financing is to come from can be debated; measures such as the military budget and raising progressive income taxes are surely obvious possibilities.

On the immediate question of what to do about the current crisis, separate it into the immediate crisis and the prevention of its recurrence in the future:

Included in the current package of reforms is $4 billion of grants to state and local governments to use in rescuing borrowers. Let it be used to buy the homes that are in foreclosure, possible in many cases at bargain prices, and let those units remain publicly owned units with their residents remaining in occupancy and control. Let there be experiments to see if those units should be handled as an expansion of public housing along existing models, which can be adapted to provide the security and individual control that the “owners” wish. But let there also be a wide range of experimentation with other forms of non-private-profit oriented ownership models. Many existing ideas are already on the table. Other physical forms of housing can also be explored; for instance, Dolores Hayden has argued from a feminist perspective that a non-sexist housing program would include the possibility of common cooking and eating facilities, shared recreational space, etc.

Importantly, let the $4 billion be vastly augmented. The treasury, in its current bail-out policies, is criticized for socializing the risk but letting the profits remain private. Use the $4 billion plus to socialize the profit in the housing supply system. The balance between private for-profit “ownership” of housing and public “ownership” should be shifted dramatically in favor of the latter. Likewise, development and construction and management should shift to the public sector; there is plenty of good experience in each area.

As to the future: accept the fact of on-going major public investment in the housing of its people. For those still in a position to buy privately and willing to do so, let the government help by playing the technical role of bundler, as GNMA now does, for a fee, but leave the risks of default with the originating bank, as it had been before FNMA began selling securities for a profit. Let Fannie Mae and Freddie Mac go bust. Deal with the impact on shareholders who invested, not to speculate, but to provide icome on retirement through pension funds, be helped by public assistance to those pension funds, not by bailing out the institutions that permitted the crisis to happen and had been profiting on the system for many years before its collapse.

Economic Illiteracy

Sun, 26 Oct 2008 01:07:05 -0400

by Fidel Castro

In Zulia [a western Venezuela state], Chavez made reference to “comrade Sarkozy”. This remark carried some irony but he meant no offense. On the contrary, he was rather recognizing the sincerity of the President when he spoke in Beijing in his capacity as chairman of the European Community.

Nobody was saying what every European leader knows but would rather avoid: that the current financial system is useless and must be changed. The Venezuelan President candidly proclaimed:

“It is not possible to re-found the capitalist system; it would be like trying to sail on the Titanic when it’s laying on the ocean floor.”

According to press dispatches, at the meeting of the European and Asian Nations Association attended by 43 countries, Sarkozy made remarkable confessions:

“The situation is not good for the world which is facing an unprecedented financial crisis marked by its magnitude, swiftness and violence, a crisis whose consequences on the environment call into question the survival of mankind, as 900 million people lack the means to feed themselves.”

“The countries taking part in this meeting account for two thirds of the global population and half its wealth. The financial crisis started in the United States, but it is now a global crisis demanding a global response.”

“An eleven-year-old boy’s place is not in a factory but in a school.”

“No region in the world has a lesson to teach others.” This is a clear reference to the United States.

Finally, he recalled before the Asian nations the colonial past of Europe in that continent.

If Granma had written such words, they would have been considered a cliché of the official communist press.

German Chancellor Angela Merkel said in Beijing that it was not possible “to foresee the magnitude and duration of the current international financial crisis. We are actually dealing with the inception of a new constituent Charter of finances.” That same day the news revealed the general uncertainty unleashed.

The 43 countries from Europe and Asia gathering in Beijing agreed that the IMF should play a major role in assisting the countries most seriously afflicted by the crisis. They also supported an interregional summit to promote stability on the long run and the development of the world economy.

The President of the Spanish government, Rodriguez Zapatero, stated that “there is a crisis of responsibility which has enabled a few to grow richer while the majority is increasingly poor.” He also said that “the markets have lost confidence in the market,” and he urged the countries to fend off protectionism as he is convinced that competition will force the financial markets to play their role. He has not been officially invited to the Washington summit since Bush resents his withdrawing of the Spanish troops from Iraq.

The European Community President, Jose Manuel Durao Barroso, upheld his warning on protectionism.

The UN Secretary General, Ban Ki-Moon, had his own meeting with outstanding economists trying to prevent that the developing countries become the main victims of the crisis.

The former Foreign Minister of the Sandinista Revolution and current President of the UN General Assembly, Miguel D’Escoto, asked that the issue of the financial crisis be not discussed among the wealthiest nations and a group of emerging countries that make up the G-20 but rather at the United Nations.

There are discrepancies about the venue and the meeting where a new financial system should be adopted that would put an end to chaos and to the absolute lack of security for the peoples. There is much fear that the wealthiest countries in the world, meeting with a small group of emerging nations enduring the financial crisis, might end up adopting a new Bretton Woods in disregard of the rest of the world. President Bush said yesterday that “the countries that will discuss here next month the global crisis should also renew their commitment to the basics of economic growth on a long term basis: free markets, free enterprise and free trade.”

The banks were lending tens of dollars for every dollar deposited by the savers. They multiplied the money. They breathed and perspired through every pore…Any contraction led to ruin or to absorption by other banks. They had to be saved; always at the expense of the taxpayers. They were amassing great fortunes. Their privileged majority shareholders could afford to pay any money for anything.

Shi Jianxun, a professor at the Tongui University in Shanghai, claimed in an article he published in the foreign edition of The People’s Daily that “the harsh reality has made the people realize, amidst the panic, that the United States has used the predominance of the dollar to plunder the riches of the world. There is a pressing need to change the international monetary system based on the predominant position of the dollar.”

He used few words to explain the essential role of currencies in the international economic relations. This had been happening for centuries between Asia and Europe. Let’s not forget that opium was imposed on China as a currency. I already addressed this when I wrote The Chinese Victory [Part I: http://embacuba.cubaminrex.cu/Default.aspx?tabid=7650; Part II: http://embacuba.cubaminrex.cu/Default.aspx?tabid=7667].

The authorities of that country would not even receive the metal silver initially used by the Spaniards from their colony in the Filipinas to pay for the products purchased in China, because it was progressively devaluated due to the abundance of this metal in the New World recently conquered by Europe. Today, the European leaders feel embarrassed by the things they had imposed on China for centuries.

According to the Chinese economist, the existing difficulties with the terms of trade between these two continents should be resolved with Euros, pound Sterling, yens and yuans. Undoubtedly, a reasonable regulation between these four currencies would help in the development of fair trade relations between Europe, Great Britain, Japan and China.

Two countries which produce sophisticated equipment with state-of-the-art technology, both for production and services, such as Japan and Germany would be included in that area, as well as the potentially largest engine pushing the world economy, China, with a close to 1.4 billion population and over $1.5 trillion in its hard currency reserves mostly in US dollars and Treasury bonds. Japan is only second with almost an identical amount of hard currency reserves.

At the present juncture, the value of the dollar is increased by this currency’s predominant position imposed on the world economy as the Shanghai professor has rightly indicated and rejected.

A large number of Third World countries, which are exporters of goods and raw materials with little added value, are importers of Chinese consumer goods. These usually have reasonable prices, unlike Japanese and German goods which tend to be increasingly expensive. Even when China has tried to prevent the overvaluation of the yuan, as the Yankees have constantly demanded to protect their industries from Chinese competition, the value of the yuan increases and the purchasing power of our exports decreases.

The price of nickel, our main export item, whose value recently was over 50 thousand dollars, now hardly reaches 8,500 dollars a ton, that is, less than 20% of the top price it had enjoyed. The price of copper has decreased to less than 50%, and the same is true of iron, aluminum, tin, zinc, and every other mineral indispensable for a sustained development. And defying any rational or common sense, the price of consumer goods such as coffee, cocoa, sugar and others has barely grown in over 40 years. This is the reason why not long ago I also warned that as a result of an impending crisis, the markets would be lost and the purchasing power of our products would be considerably reduced. The developed capitalist nations are well aware that under such circumstances their factories and services would be paralyzed, and only the consumption capacity of a large part of mankind already living at the poverty line or under this level, would keep them going.

This is the great dilemma raised by the financial crisis and the danger that social and national selfishness will prevail regardless of the wishes of many politicians and statesmen agonizing over this phenomenon. They have no confidence in the system from which they emerged as public men.

After the people have left illiteracy behind; when they have learned how to read and write and they have an indispensable minimum knowledge allowing them to live and produce honestly, they still need to overcome the worst form of ignorance in our times: economic illiteracy. It’s the only way to know what’s happening in the world.

Fidel Castro Ruz

October 26, 2008

5:15 p.m.

Looking for Solutions: Labor and the Crisis of Neoliberal Capitalism

Sun, 26 Oct 2008 01:04:34 -0400

by Ingo Schmidt

This article by Ingo Schmidt lays out some of the debates within labour movements, in the past and today, about economic alternatives. It raises the question of how North American labour movements can begin a process of struggle to form alternative solutions after years of setbacks at the very hands of neoliberalism and financial markets. It follows with two contributions towards such a process. One is an open letter from labour scholars that suggests to union leaders and rank-and-file activists that there is a need to prepare for a struggle against lay-offs, wage concessions and cuts in pensions and public services that will be promoted once the crisis on the financial markets impacts the rest of the economy. The second is a resolution promoting such action and the educational activities necessary for its success that was passed by the Vancouver and District Labour Council at its October 2008 meeting.

For three decades after the Second World War, the ideas of British economist John Maynard Keynes provided the intellectual backbone of trade unions in Western developed countries like Canada. Unionists maintained their affinity with Keynes, despite his declaration that “class war will find me on the side of the educated bourgeoisie.” This affinity remained intact even during the dark ages of neoliberalism that superseded the postwar era of enlightened welfare capitalism.

In the context of the current crisis, with bankers and bosses abandoning their neoliberal beliefs and flocking to large-scale state intervention, union economists who never gave up on Keynes see their chances again. They hope that Keynes' defense of union activity against liberal and neoliberal anti-union attitudes will find more of an audience than it did when the belief in free markets reigned supreme. The rationale for such hopes is provided by the collision between neoliberal postulates and the need for state intervention in the context of the current crisis. The theoretical attraction that Keynes holds for trade unions is his argument that wage cuts are not, as liberal and neoliberal economists suggest, a remedy to overcome crisis.

The Keynesian Case Against Wage-Cutting in Crises

According to Keynes, lower wages may lead to lower prices because companies are under severe competitive pressure. As a result, buyers will expect future price reductions and thus postpone their purchases, reducing aggregate demand and therefore employment. To the extent that wage cuts do not translate into price cuts of the same magnitude, however, they lead to lower real wages, lowering the purchasing power of working class households. The effect is the same either way: decreases in aggregate demand and employment can turn a cyclical recession into a depression with devastating social consequences.

The political implications of this analysis are clear: wage cuts must be avoided if the desire is to prevent locking in conditions that will generate a downward spiral of wages, prices, aggregate demand and employment (a point that Karl Marx had also earlier made). Unions are the social agent capable of performing a stabilizing function by resisting wage cuts. In Keynes words: “Every trade union will put up some resistance to a cut in money-wages, however small.” Those seeking to avoid a deterioration of recession into depression by means of maintaining wages, however, would also support government spending to overcome the lack of aggregate demand that caused the recession in the first place. Keynes devoted almost all of his General Theory of Employment, Interest and Money (1936) to making an argument for the use of fiscal policies as a remedy for economic crisis.

The Limits of the Keynesian Case

Politically, Keynes' suggested strategy rests on trade unions that are able and willing to resist wage cuts in times of crises and governments that are willing to use deficit spending as a means of raising the economy out of a slump. None of these conditions holds today. Canadian unions, like their counterparts in most other developed countries, were on the defensive from neoliberal policies of wage restraint and fiscal austerity long before the crisis hit. Struggling with hostile employers – whose anti-union repertoire includes shutting down locations where workers are involved in organizing drives, to back-to-work legislation against public sector strikers, the re-organization of work processes and the deployment of organizational forms that are resistant to the control of industrial and craft unionism – unions were pushed back and forced to accept concession bargaining. Thus, they may not be in a position to successfully resist employers' pressure for wage-cuts.

Recent union organizing drives, such as those of the SEIU and UNITE-HERE or living wage campaigns such as that of the HEU in British Columbia, valuable and important as they are, haven't generated enough successes to allow unions to negotiate the kind of sectoral wage agreements that would be essential to a Keynesian counter-crisis strategy. Such negotiations are further hampered by the extremely fragmented bargaining structure that exists in Canada. Even significant membership gains wouldn't change the fact that collective bargaining is conducted in myriads of bargaining units among which there is little or no cooperation. Such cooperation, via centralized or pattern bargaining, would be required to negotiate wages for workers in Canada in such a way that labour's share of national income could be defended or increased at the expense of the share going to corporate profits.

Generating sufficient bargaining power is not simply a question of increasing union membership, cooperation and re-organization. It also depends on the engagement of the rank-and-file. Certain layers of the working class (and this is more true for unionized than non-unionized workers), are not only workers but also stakeholders. They own houses, have access to consumer credit and have their retirement savings invested in stock markets. While they are small fish compared to big money, it is precisely for this reason that they are suspicious of any economic policy that might endanger their stakes, however small. Consequently, they are open to those who promise to defend these stakes. Ultimately, the question these workers are facing is whether they believe their future will be better secured by doing what is necessary to remain members of the diminishing group of small stakeholders that allies itself with the propertied classes or by making common cause with the property-less workers who have a great deal to gain from unionization and increased social protection.

Organizing the unorganized, coordinated or centralized bargaining and coalitions with activists who work in the lowest rungs of the working class are not the only prerequisites to successfully pursue Keynesian reform policies but also more radical policies necessary to address underlying distributional and class inequalities. Such policies also require a labour presence in the political arena. At this time, there is little of such presence in existence. Admittedly, many union leaders and members (certainly not by all) see the NDP as labour's representation in parliament. During elections, many politicians employ a rhetoric that makes them sound very progressive.

However, neither hopes for the NDP [New Democrats -- Canada's left-liberal electoral party] nor all-party appeals to hard working people can conceal the fact that labour has hardly any stakes in the existing political-economic system. Workers in the Soviet empire were told that five-year-plans in their centrally planned economy would bring them closer to a workers' paradise. Workers in the empire of capital are told that tax breaks and balanced budget will pave the way to a stakeholder paradise in which differences between bosses and workers evaporate. Though the credibility of such neoliberal promises has been damaged by the current crisis, they still impact economic policies.

Thus, breaking away from the neoliberal ideas that have achieved the status of a popular religion since the 1970s, when the political and propertied classes abandoned their postwar deal with trade unions, social democracy and Keynesianism is difficult for everyone, from the boardrooms of the rich and powerful to the street corners where the downtrodden congregate. From this angle it could be argued that today's question is not so much whether Keynes will have a comeback after the neoliberal age, no matter how inspiring his ideas are intellectually, but how to get people involved in a collective search for ideas and policies to stop efforts by big capital to shift the burden of the current crisis onto the shoulders of the working class and the poor.

The Comeback of Marx’s Ideas

Regarding the unfolding struggle over the distribution of the crisis burden, another author who is having a comeback these days might offer some guidance. Karl Marx, whose main work Capital (1867) [available on the Marxists.org website] finds more readers by the day, has much more to say about the conflict of interest between capitalists and workers, including the subsections of either of these classes, than Keynes. The latter was well aware of the existence of social classes. In order to maintain capitalism during times of severe crisis, such as the Great Depression, he considered a deal between the working class and the capitalist class necessary; a deal that would create jobs and secure wages for workers and profits for capitalists. In order to strike such a deal, Keynes, who also had served in the field of economic diplomacy, focused on class cooperation more than on class conflict. Not so Marx. A political émigré in Britain who mostly lived on money that his bourgeois friend Friedrich Engels donated to him, he had not much to lose and was therefore free to think about ways to win a world.

In doing so, he made clear that only during economically good times the conflict over wages, working hours and working conditions on one side and profits and capital accumulation on the other could be tamed. Such conditions were envisioned by Keynes in the 1930s and became true, in parts of the world, after WW II. However, the moment of prosperity and welfare capitalism was already passing in the 1970s. It was replaced by a thirty year period of slower real economic growth, unemployment, shifts from wages to profits and an explosion of debt and paper wealth. The current crisis marks the end of this period.

In order to save at least parts of the wealth illusions that financial markets produced before the crisis, enormous quests for tax dollars were recently made and approved by rich countries' governments. So far, this bailout money is largely a government promise to shareholders, particularly the big ones, to compensate them for their speculative loses. But the bills for these bailouts will certainly be presented to the working class. Further cuts in public services, higher taxes on low incomes and maybe even inflation to destroy all financial illusions until wealth is only represented by land and the physical means of production are means to achieve this goal. The owners of these means, who see their profits declining in the course of the crisis, will join governments' onslaught on the working class with lay-offs for some workers and speed-ups along with wage cuts for those who can keep their jobs. If things are heading in this direction, it may be a good idea to look up some of Marx's ideas instead of those of Keynes.

Marx not only explained why the pursuit of profit doesn't lead to general prosperity, but also why it leads to economic crisis and social devastation. He also took a close look at the making and unmaking of working classes. Any time that workers in a particular industry had found ways to improve their conditions, Marx noted, capitalists operating in these industries would either re-organize work, seek government support to lower legal standards and/or put their money into different locations or industries to restore profits. Thus, the working class has always been in flux, no matter that some images of banner-carrying and fist-raising workers suggest otherwise.

Today's difficulties of finding effective ways to organize are not new: they are a recurrent theme in the history of labour and socialist movements. They go hand in hand with the search for ideas, policies and campaigns that will advance the class struggle and address inequalities in the present, while building workers' collective capacities for self-development for the future. These struggles are essential to setting out a vision of feasible alternative social orders, indeed the remaking of socialism as a viable political project, to the financial and economic turmoil we have again been so violently subjected to.

Ingo Schmidt is a Vancouver educator and labour activist.

Invited Disaster

Sat, 25 Oct 2008 01:02:21 -0400

by Jayati Ghosh

The past two weeks have made it clear that the developing world is far from immune to the storms raging in the financial markets in industrial countries. Stock prices in emerging markets have gone on roller-coaster rides similar to those in New York and Europe. Indeed, they have shown such very high volatility, going sharply up and down on a daily basis around an overall declining trend, that the pattern is reminiscent of the behaviour of stock indices in the last major international financial upheaval in 1929/30 – the Great Depression. And the credit crunch and freezing of inter-bank lending have been only too evident even in developing countries whose economic “fundamentals” are apparently strong and whose policymakers believe that they can decouple their economies from the global trends.

This almost immediate diffusion of bad news is the result of financial liberalisation policies across the developing world that have made capital markets much more integrated directly through mobile capital flows and created newer and similar forms of financial fragility almost everywhere. But the international transmission of turbulence is only one of the ways in which the global financial crisis can and will affect developing countries.

A medium-term implication for developing countries is the impact on private capital flows, which are likely to come down with the credit crunch and with reduced appetite for risk among investors. The past five years witnessed an unprecedented increase in gross private capital flows to developing countries. Remarkably, however, this was not accompanied by a net transfer of financial resources, because all developing regions chose to accumulate foreign exchange reserves rather than actually use the money. Thus, there was an even more unprecedented counter-flow from South to North in the form of central bank investments in safe assets and sovereign wealth funds of developing countries, a process that completely shattered the notion that free capital markets generate net financial flows from rich to poor countries.

The likely reduction of capital flows into developing countries is generally perceived as bad news. But that is not necessarily true, since the earlier capital inflows were mostly not used for productive investment by the countries that received them. Instead, the external reserve build-up (which reflected attempts by developing countries to prevent their exchange rates from appreciating and to build a cushion against potential crises) proved quite costly for the developing world, in terms of interest rate differentials and unused resources. While some developing countries may indeed be adversely affected by the reduction in net capital inflows, for many other emerging markets this may be a blessing in disguise as it reduces upward pressure on exchange rates and creates more emphasis on domestic resource mobilisation.

Similarly, it is also likely that the crisis will reduce Official Development Assistance (ODA) to poor countries. It is well known that foreign aid is strongly pro-cyclical, in that the developed countries’ “generosity” to poor countries is adversely affected by any reversal in their own economic fortunes. But in any case, development aid has also been experiencing an overall declining trend over the past two decades, even during the recent boom.

In fact, the developed countries were extremely miserly even in providing debt relief to countries whose development prospects have been crippled by the need to repay large quantities of external debt that rarely contributed to actual growth. Notwithstanding the enormous international pressure for debt write-off, the G-8 countries have provided hardly any real debt relief. When they have done so, they have provided small amounts of relief along with very heavy and damaging policy conditionalities and in a blaze of self-serving publicity. So the speed and extent of the debt relief provided to their own large banks by the governments of the U.S. and other developed countries, even when these banks have behaved far more irresponsibly, has not gone unnoticed in the developing world.

Remittance Incomes

One major source of foreign exchange that will certainly be affected is remittance incomes, especially from workers based in countries of the North. Already, the Inter-American Development Bank estimates that 2008 will be the first year on record during which the real value of inward remittances will fall in Latin America and the Caribbean. Remittances into Mexico (which are dominantly from workers based in the U.S.) in August were already down 12 per cent compared with a year previously, and this will only get worse. There is also evidence of declining remittances from other countries that relied strongly on them, such as the Philippines, Bangladesh, Lebanon, Jordan and Ethiopia. In India, where around half of inward remittances currently come from the U.S., the same pattern of decline is likely.

Exports of goods and services, like remittances, are going to be affected by the global economic downturn. For most developing countries, the U.S. and the European Union remain the most important sources of final export demand, and as they inevitably tip into recession, exports to these markets will also decline. There has been much talk of China emerging as the alternative engine of growth for the world economy. But this is highly unlikely, for several reasons.

First, the Chinese growth, which has pulled along many other Asian developing countries in a production chain, has been largely export-led. The U.S., the E.U. and Japan together account for more than half of China’s exports, and as their economic crisis intensifies, it is bound to affect both exports and economic activity in China.

Second, even if China’s policymakers respond by shifting to an emphasis on the domestic economy, this is unlikely to generate levels of international demand that will come anywhere near meeting the shortfall created by recession in the developed countries. China’s share of global imports is still too small for it to serve as a growth engine on the same scale.

Fond hopes have been expressed by some Western policymakers and economists that China can use the $2 trillion of foreign reserves that it controls (directly and through Hong Kong Special Autonomous Region) to bail out the bankrupt U.S. financial system. But these hopes are also misplaced. Certainly, it is likely that eventually some of the shares purchased by the U.S. Federal Reserve and Treasury in their troubled banks may be eventually auctioned off to Chinese and other sovereign wealth funds, among other investors. But this is not anything like a solution to the basic problem of dealing with the “toxic assets” held by the various troubled financial institutions of the West, especially as even the full amount of such assets is still not known given the complicated tangle in which such institutions are caught.

Across the developing world, one additional detrimental effect of the current crisis is likely to be the postponement or even cancellation of large investment projects whose ultimate profitability is now in doubt. This will have negative multiplier effect, as cancelled orders and lost jobs further reduce demand. The construction sector has already been hit, and many large projects are being cancelled even in economies that are still growing. The aviation sector is going through a major shakeout, which is evident even in India where there has already been a tendency towards mergers and worker retrenchment (see separate story). The tourism and hospitality sector, which had emerged as an important employer in many developing countries, is facing cancellations and declining demand across both luxury and middle-class segments.

End of Commodity Boom

The recent crisis has also signalled the end of the commodity boom, which is bad news for developing countries that predominantly rely on commodity exports, and good news for commodity-importing developing countries. This follows a period of unprecedented increase in oil and other commodity prices, led largely by speculative investor behaviour. On October 14, oil prices (Brent Crude futures) fell to less than $75 a barrel from nearly $150 in early July. One important index of commodity prices, the Reuters-Jefferies CRB index, on October 14 was 40 per cent below its all-time high in July. While speculative behaviour was clearly behind the volatility in commodity prices over the past year, it is likely that such prices will continue to decline now because of the broader economic slowdown.

This may provide some breathing space in terms of inflation control for importing developing countries, especially oil importers. But remember that even at $75 a barrel, oil prices are still 300 per cent of their nominal level of only five years ago. And while world prices of important food items have also declined in the recent past, they are still too high for many developing countries with low per capita incomes and a large proportion of already hungry people. Indeed, the financial crisis may actually make it more difficult for many governments of poor developing countries to secure adequate commodity supplies to meet their people’s needs. The food crisis seems to have gone off the international media map, but it still rages for possibly a majority of the population of the developing world. The current global economic crisis will certainly not make it better.

China Safe

These are forces that will affect all or most developing countries, but they will be felt differently in different places. In particular, the extent of financial contagion and possible local financial crisis depends on how far the developing country concerned has gone along the road of financial liberalisation. It is worth noting that countries that have gone furthest in terms of deregulating their financial markets along the lines of the U.S. (for example, Indonesia) have been the worst affected and may well have full-blown financial crises of their own. By contrast, China, which has still kept most of the banking system under state control and has not allowed many of the financial “innovations” that are responsible for the current mess in developed markets, is relatively safe. India, which still has a nationalised banking system and a greater degree of regulation, is better off than Indonesia, but reforms that the National Democratic Alliance (NDA) and the United Progressive Alliance (UPA) government have pushed through despite Left protests, along with a growing current-account deficit, have rendered the country more fragile and potentially vulnerable than China.

In addition, countries with large external debts and current-account deficits will face particular problems. Already, it is apparent that financial markets are estimating the risk of default (in the form of the price of credit default swaps) for countries such as Pakistan, Argentina and Ukraine as high as 80 per cent or more. Sometimes, as in Kazakhstan and Latvia, it is because of their highly leveraged banking systems. In other cases, as in Turkey and Hungary, it is because of the very high current-account deficits.

Of course, developing countries are still bit players in this global drama. This particular financial crisis has so many ramifications mainly because it is occurring in the very core of capitalism and originated in the U.S., the country which had the global power and influence to impose its own economic model on almost all of the rest of the world. And the depth and severity of the crisis are likely to signal global political economic changes that will shape the world for the next few decades. Geopolitical shifts are likely to result from such glaring exposure of economic vulnerability in the global hegemony.

While the drama is still being played out and the ultimate denouement is still unclear, what cannot be denied is that U.S. dominance of world economics and politics is now under severe question and has suffered a blow from which it may not recover. There was certainly some symbolism in the fact that on the day when a Chinese man was walking in space for the first time, U.S. Treasury Secretary Henry Paulson was down on his knees pleading for a bailout. The changes in the world in the next decade will not be linear or unidirectional, and there are bound to be savage conflicts over resources and much else, but the recent pattern of global imperialism has been disturbed severely.

No More Western Lectures

This is not a conclusion that will be easily drawn in Washington, or even in Europe. Financial crises were things that happened in the developing world. And after overcoming the crisis, Western officials, consultants and others could lecture the governments of the crisis-ridden countries on their past profligacy and wrong policies, and proceed to administer the severe “Washington Consensus” medicine that they felt was essential. Now, of course, the wrongdoing and the collapse are most evident in the U.S. and Europe, and they are following the opposite of what they had prescribed for developing countries, by rescuing banks and going in for Keynesian counter-cyclical macroeconomic policies. So it should be difficult, at least for a while, for even the most hard-boiled and insensitive Western policy adviser to take the same high moral tone with developing countries as in the past.

The global financial and trading system is one that for many generations has been almost exclusively determined by the governments of former colonial powers of the West, and their writ still runs large in all the global institutions. Thus, the G-7, which leaves out Russia and China, not to mention India and Brazil, still presumes that it has the right to redesign the international financial architecture. The Financial Stability Forum of the Bank for International Settlements excludes any representation from developing countries. The tiny countries of Belgium, the Netherlands and Luxembourg, with a total population of less than 28 million, have more votes in the International Monetary Fund than China, Brazil or India.

But even more than the geopolitical or economic shift, a bigger shift may come about from the clear failure of the economic model of neoliberalism. The notions that markets know best, and that self-regulation is the best form of financial regulation, have now been completely exposed for the frauds that they are. And so this pervasive financial crisis, which is still to fully play out and work itself through in real economies, may have led to one very positive shift. It has created a genuine opportunity not only for questioning the economic paradigm that has been dominant for far too long, but also replacing it with more progressive and democratic alternatives.

World's Labor Federations React to Financial Crisis

Fri, 24 Oct 2008 01:10:29 -0400

by Dan La Botz

Labor unions around the world have reacted to the financial crisis and the economic recession with words and actions reflecting their national experience, their political ideology, and their leaderships.

Unions and workers have already seen the financial crisis and the growing recession result in the closing of plants and offices, in shorter workweeks, pay cuts, and loss of health benefits and disappearance of billions from pension plans. The International Labor Organization (ILO), a tripartite organization of government, business, and unions, has predicted that unemployment could rise by 20 million, from 190 to 210 million in 2009. ILO Director-General Juan Somavia said that "the number of working poor living on less than a dollar a day could rise by some 40 million -- and those at 2 dollars a day by more than 100 million." Unions in the developing world have also faced a crisis of rising food prices and falling petroleum prices, and all face the deteriorating environmental situation. The major labor federations' responses vary greatly.

While almost all federations have given expression to workers' fear, frustration, and anger, the political programs and calls to action that they put forward differ fundamentally. In all countries surveyed, the labor movement is divided into rival federations, often along ideological lines. No one federation speaks for all workers in any one country. Few unions have suggested a desire to initiate a major struggle over the crisis, and almost none talk about the need to end the capitalist system. Yet virtually all federations, even the most conservative, have felt it necessary to speak out on the damage to working-class lives and the need that the world's governments do something for working people.

We look here at response from around the world from the moderate American, Canadian and European confederations to the more radical Latin Americans and Japanese.

The International Trade Union Confederation

The International Trade Union Confederation (ITUC), which represents 168 million workers in 155 countries and territories and has 311 national affiliates, called for "reshaping the management of the global economy" to serve workers. The statement reads:

Resolving the financial crisis must go hand in hand with concerted international action to stimulate jobs and growth so that the imminent danger of world recession is averted, and economies are launched on paths of just and sustainable development.

The essential task of regulating financial markets, so as to shut down the option of a return to business as usual and a repetition of today's debacle, must be one component of a wider agenda to reshape the management of the global economy.

The imbalances which have seen real wages fall or stagnate, at the same time as capital has reaped record profits, need to be redressed. Organising and bargaining rights, recognized internationally, must be enforced universally so workers can have real influence over their lives and their futures. The trade agenda, mired in the impasse of the Doha Round, can only move forward once it is based on the imperatives of decent work, development, rights and equity. i

Various ITUC/CSI affiliates throughout the world -- and some unions which are not affiliated with the world body -- took stronger or weaker positions.

Chinese Labor

The All China Federation of Trade Union (ACFTU), led by the Chinese Communist Party and closely tied to the Chinese Communist government, held its 15th National Congress in mid-October just as the first waves of the international financial crisis and world recession were beginning to wash up on the shores of Asia. The ACFTU chose Wang Zhaoguo to serve a third term as president of the federation. He also serves as vice chairman of the Standing Committee of the National People's Congress, the national legislature.

Wang presented a report to the Congress which represents approximately 200 million Chinese workers, the world's largest labor federation, in which he stated that during the last thirty years as China reformed its economy the ACFTU also reformed, innovated, and continued to protect employees' interests.

While he did not touch directly on the current economic issues, Wang said that against the new background of building socialism with Chinese characteristics, the country's trade unions had undertaken the responsibility of becoming mass organizations that unite employees to insure that they enjoy democratic rights. The ACFTU, he said, is also dedicated to promoting social harmony.

Meanwhile the economic downturn hit the industrial province of Guangdong, the center of China's export industry, and, in particular, the toy industry. Half of the province's toy companies were reported to have gone out of business during 2008. While Wang spoke at the Congress in Beijing, thousands of workers protested at closing toy factories in Dongguan in Guangdong province. At the Xixian factory in Shenzhen, which produces for the luxury watch retailer Peace Mark, some 600 workers engaged in a two-day sit-in at the factory, demanding they be paid wages owed them.

Japan's Zenroren

The Japanese Trade Union Confederation, Rengo, "asked Prime Minister Fukuda to cut income tax, increase welfare payment and consider support measures such as distributing the national oil reserve to small and medium enterprises, etc, as emergency measures for people suffering from steep rise of prices of necessities of life." Rengo affiliates and local unions also organized rallies and demonstrations in support of these measures.

The National Confederation of Trade Unions (Zenroren), Japan's more militant labor federation, having experienced a financial crisis in the 1990s does not subscribe to the idea that labor unions should simply accept a tax-funded bailout of the banks. Yoshikazu Odagawa, Secretary General of Zenroren, National Confederation of Trade Unions, issued a statement on behalf of his union that assessed the previous crisis and described the union's response to the current one. It is worth citing at length:

The Japanese economy in 90's experienced 'the lost decade' after the burst of the bubble economy. In this period, the Japanese government repeatedly injected huge amounts of tax money into the banks and initiated mergers and acquisitions among these financial institutions. Other ways of bailing out the banks were to keep low interest rates and to create tax deductions especially for them. As a result, some mega-banks improved. However, the accumulated government deficit has dramatically increased, and they have been attacking the pension and health insurance systems. Big downsizing and government attacks drove the people into grave frustration and poverty.

The banks that had been injected with tax money became crazy for securitizing money and joining the money game, at the same time they became more reluctant to lend money to small business. It is absolutely clear that financial bailout of the 1990's had no impact on improving people's lives.

Japanese banks and security companies are suffering from the current financial crisis, but I want to make it clear from our experience that a taxpayer-funded bailout does not work for people and small businesses.

The current financial crisis that began in the US has had a direct impact on the Japanese working class. Skyrocketing prices of gas, food and raw materials have had a detrimental impact on workers' lives and standards of living, particularly those of low wage workers. There has also been a serious impact on farmers and fisher folk.

Another phenomenon in Japan is deteriorating employment security caused by an increasing number of business bankruptcies. We have also seen increasing bankruptcies among small- and medium-sized enterprises because of bank's reluctance to lend or credit withdrawal. In the first half of 2008, bankruptcies increased by 15%. Japanese auto manufacturers have already begun to reduce 20,000 employees.

Zenroren has set up a special struggle committee to break through the crisis, and campaign for employment security, demanding that the government provide support for workers and small businesses through such measures as tax cuts and financial subsidies. International labor union solidarity must be strengthened to control arrogant speculators and strengthen labor protection. (Translation by Keisuke Fuse.)

The European Trade Union Confederation

The European Trade Union Confederation (ETUC) issued its London Declaration, proclaiming that "The world financial crisis must be a turning point and cause a complete change in the way the financial world works." The ETUC wrote that where public money has been invested into financial institutions there should be "public influence and control so causing a fundamental change in behavior." The European unions demanded "government action to ensure that funds are available for investment in the real economy, helping develop green jobs and technologies and sustainable development."

The ETUC also said that there should be "help provided for workers affected, for householders threatened by eviction, for pensioners threatened with poverty in old age, for entrepreneurs seeking investment capital." The unions aid, "It is not fair that the main beneficiaries [of a rescue] might be those who caused the mess." Finally the ETUC called for an "urgent return of public policy attention to the major issues of income and wage inequalities."

French CGT and Spanish Unions

In France, the labor movement has already been engaged in October in action in defense of state owned property, particularly the Post Office.

The General Confederation of Workers (CGT), a large and important labor federation, reacted to the crisis with a strong rejection of the American financial model which had been imposed on Europe and the world during the last two decades. The CGT called for a new national development strategy that would focus on the development of workers through training, providing workers with job security and new social services, and investment in research and new products. The CGT has also called for tripartite -- government-banks-unions -- conferences focused on the future of the bank workers, who in France are unionized.

Leaders of the General Union of Workers (UGT) and Workers Commissions (CCOO), the two principal labor federations of Spain, called the crisis "grave" and "serious" but also expressed confidence in the labor policies of Spain's president José Luis Rodríguez Zapatero of the Socialist Party. Asked by the press if they would call a general strike, they said no because strikes were called to defend workers, not in response to a general economic crisis.

Turkey

Unfortunately there has been little reaction to the crisis so far from the Turkish labor movement, according to Cigdem Cidamli, one of the editors of the labor website Sendika.Org.

On October 21 the Public Employees Trade Unions Confederation (KESK) called the other broader labor organizations, such the People's Houses, organizations based in poor neighborhoods that fight against neoliberalism and for social rights, to discuss a general program to confront the crisis.

"We proposed under the general title of 'defending the right of people to live and to work against the crises' some concrete demands about employment, banks, debts and social rights, but it seems still some time needs to pass for the movement to move in that direction," said Cidlami. "The People's Houses will have a big demo in Ankara on 2nd of November after a foregoing campaign against the AKP government and the crises and we hope this may create some general motivation to act together with others on this direction."

Latin American Unions

The Latin American situation is quite different because of the social and political movements of more than a decade on that continent against the "Washington Consensus" -- the U.S. free trade policy implemented by the U.S., the International Monetary Fund (IMF), and the World Bank. For decades Latin American unions have engaged in general strikes, virtual national uprisings, and political movements that have brought center-left or left-wing governments to power in Brazil, Argentina, Venezuela, Bolivia, and Ecuador. Unions in much of Latin America defend social property and some fight for socialism.

In Brazil, the Confederation of Workers (CUT) helped to create Workers Party (PT) of the country's president Luis Inácio Lula da Silva. The CUT published an anti-crisis program in July that, among other things, calls for "reducing the workday but at the same wages as a way for workers to participate in the increase in the productivity of the corporations." The CUT also calls for an increase in the minimum wage with a cost of living index, government stabilization of food prices, and reduction or removal of taxes from food and other basic commodities. At the same time the CUT calls for tripartite forums to improve industrial competitiveness, examining productive chains to find the bottlenecks.

Venezuela: Unions for Socialism

In Venezuela workers are divided between the more conservative Venezuela Confederation Workers (CTV), the leftist National Union of Workers (UNT), and unions -- left, right, and center -- that remain independent of both. The UNT is a federation which backs President Hugo Chávez and his project for a Socialism for the Twenty-First Century. The UNT also strongly supported Chavez's nationalization of the Bank of Venezuela. Stalin Pérez Burgos, a Coordinator of the UNT, said, "I am always pleased with these proposals from President Chávez, even though I don't completely agree with the way in which it was done. I would have preferred that the bank was expropriated straightway [taken without compensation], but this is good . . . it's a step forward."

Another UNT leader, Orland Chirinos, said, "The government bank can offer more favorable credit to peasants, small producers, and merchants than the private banks, so that it will be preferred by small savers. But this is a limited and reformist measure if it doesn't lead to the expropriation of all of the private banks so that that the government controls 100 percent of the financial system and so that it passes into the hands of workers, peasants, and the people." However, some on the labor left have criticized Chavez's nationalization of the bank because they see it as a measure intended to help save Spain's Santander Bank.

North American Unions

The unions of the North American Free Trade Agreement (NAFTA) area -- Canada, Mexico, and the United States -- have spoken out on the crisis and the damage it will do. The U.S. labor federations, the AFL-CIO and Change to Win, both looked to a new Democratic Party administration headed by Barack Obama to change the country's economic direction and help labor. Mexico's independent unions joined in the National Dialogue adopted some time ago a program to confront the crisis.

President of the AFL-CIO John Sweeney emphasized re-regulation, infrastructure, and healthcare:

The AFL-CIO calls on Congress and the Bush Administration to craft a program for rescuing the mortgage markets that is governed by people devoted to the public interest, that stops the tidal wave of foreclosures, and that provides liquidity, but not an open-ended subsidy, to the institutions that created and benefited from the practices that led to catastrophe. Congress must absolutely ensure that the administration's plan is not just bailing out Wall Street, but also responds to the real pain on Main Street.

The AFL-CIO supports a program for stabilizing money markets and a ban on short selling in the financial services industry. Both are necessary to avoid a panic and the destruction of our financial infrastructure. But these steps are not permanent solutions to our economic and financial problems.

Permanent solutions can be found in the economic program of Barack Obama -- re-regulation of the financial markets, a government focused on creating good jobs by investing in infrastructure and solutions to our energy crisis, health care for all Americans, a government that will protect and improve Americans' retirement security, and a guarantee that American workers can bargain for their fair share of the wealth they create.

Change to Win also links American economic recovery and improvements for workers to the election of Obama. The Change to Win Coalition issued an eight point program which also emphasized infrastructure, green jobs, health care, education, and the Employee Free Choice Act (EFCA) which would facilitate union organization.

Canadian Labour Congress

Ken Georgetti, President of the Canadian Labour Congress, issued a statement that criticized Canada's corporate elite and the government and called for a re-regulation of the economy.

Canadian working families will bear the brunt of a deep economic crisis caused by a self-serving and arrogant corporate elite, aided and abetted by complacent and do-nothing governments. Our jobs and our pensions are at risk. Today, we demand nothing less than a fundamental change of course.

Immediately after the election, whoever is Prime Minister must develop an emergency national action plan with input from labour. This must include measures to audit, re-regulate and shore up our battered financial system, and concrete measures to save and create jobs through major public investments and changes to unfair trade deals.

Mexico: The Defense of Social Property

Mexico's labor movement too is divided between the conservative Congress of Labor (CT) dominated by the Confederation of Mexican Workers (CTM) and the two independent alliances, the National Union of Workers (UNT) and the Mexican Union Front (FSM). These latter two alliances unions have been in a years-long battle to try to prevent the privatization of the Mexican Petroleum Company and the electric power generating industries. The Mexican Mine Workers Union (SNTMMRM) has been on strike at the Cananea mine for over a year over health conditions and in defense of the union's autonomy. Mexican teachers in over half the country's states have been on strike for over a month against a government alliance with their own union, the Alliance for Quality Education (ACE), because they believe it will harm their union, teachers, and lead to privatization of education.

The UNT and the FSM, and other groups such as the Authentic Labor Front (FAT) and the Mexican Network Against the Free Trade Agreement (RMALC), joined with many other groups in the National Dialogue. In a conference held on February 4-5, 2005, the Second National Dialogue adopted the Non-Negotiable Minimum Program which may be said to be an anti-economic crisis program.

The Minimum Program gives us an idea of the kinds of issues Mexican unions have been concerned about even before the current crisis. It calls for: 1) no more privatizations; 2) a program of nationalization of industry; 3) national leadership by the manual and intellectual working class, peasants, students, small- and medium-sized business people, together with all who join in this program; 4) a new and qualitatively different democracy, a democracy of the people; 5) self-determination and nonintervention in the affairs of Mexico and other countries, and for no use of violence in international relations; 6) rejection of the terms of the Free Trade Area of the Americas (based on the North American Free Trade Agreement); 7) the economic, political, and cultural integration of Latin America and the Caribbean; 8) a significant reduction of the service of the external debt with the difference going to national development; 9) an end the robbery of the nation which the Fobaproa-lpab [bank rescue program] imposed, guaranteeing public education, protecting workers' rights, and the Social Security [public health and pension] program; 10) reform of Article 27 to protect rural communities, strengthening infrastructure, credit opportunities, technical assistance, and subsidies which would raise productivity.

South African Unions Summer Strikes

Zwelinzima Vavi, General Secretary,Congress of South African Trade Unions (COSATU), spoke out on the crisis on October 22. "Truly this year has been a turning point both for South Africa and for the world economy," he said. "To ensure that workers don't end up paying for the global financial crash will require increased militancy, better organisation and more sophisticated engagement on economic policy both in South Africa and in solidarity with the global trade union movement." Vavi stated that COSATU supported the position of the Alliance Summit of the African National Congress held on October 22. He summarized the position as follows:

First, industrial policy must from now on prioritise employment creation. Joblessness remains extraordinarily high in South Africa, at almost 25% (using the narrow definition), and will likely get worse due to the current crisis. We need to ensure that government has a strategy to ensure that every sector of the economy, including the public services, contributes as much as possible to sustainable employment creation. That requires a huge change in thinking about industrial policy as well as government employment.

Second, the Summit agreed on the need to drive an agrarian development policy that will improve living conditions for the millions of rural poor, especially those who have long been left in the former Bantustans with inadequate infrastructure, services and land. We need to fundamentally rethink the government's current proposals on land reform to achieve this end.

Third, fiscal and monetary policy must support the transformation of the economy, rather than simply giving capital whatever it wants. We realise that government cannot spend recklessly, and that government mustn't let inflation get out of hand. But we also can't put holding the line on spending and inflation above the interests of our people. And that means we need reasonably expansionary policies that support economic growth and increased opportunities.

Fourth, the summit reached important agreements on improving social security and the criminal justice system. In both areas, we need stronger government measures to improve conditions for working people and the poor.

Finally, and perhaps most importantly for future development, the Summit called for the creation of a developmental state. The two key steps to achieving that end are streamlining the Cabinet and establishing a planning commission. These systemic changes should help ensure a more consistent and rigorous approach to transformation of our society and the economy.

South Africa, one of the largest and most important industrial economies on the African continent, has already been in crisis. Unemployment is officially at 25% but some estimate real unemployment at 40 percent. Rising costs for electricity, food and basic commodities led the to lead a national general strike this past summer. The strike stopped transportation and stopped businesses in many parts of the country, including coal and gold production. While such a general strike against rising prices does not necessarily lead to a clear victory, South Africa's unions clearly registered the workers' objection.

The situation in South Africa is complicated by the fact that the leaders of the ruling African National Congress Party (ANC) are engaged in a power struggle and there is tension between the ANC and COSATU.

With the financial crisis far from over and the recession deepening, the world's labor federation, unions, and workers will be driven to develop more radical programs and to take more serious action to confront the crisis. The crisis will tend to push workers to the left, and the unions will be forced to move with them or lose control of the working class that they claim to represent.

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Dan La Botz is a Cincinnati-based teacher, writer, and activist. He is the author of Rank-and-File Rebellion: Teamsters for a Democratic Union (1990), Mask of Democracy: Labor Suppression in Mexico Today (1992), and Democracy in Mexico: Peasant Rebellion and Political Reform (1995), Made in Indonesia: Indonesian Workers Since Suharto (2001) and the editor of Mexican Labor News & Analysis, a monthly collaboration of the Mexico City-based Authentic Labor Front (FAT), the Pittsburgh-based United Electrical Workers (UE), and the Resource Center of the Americas.

The Argentine Way

Fri, 24 Oct 2008 00:39:48 -0400

by Jayathi Ghosh

That Argentina recovered from a severe financial crisis is worth noting because it did so by implementing heterodox measures, including controlling capital.

The world’s attention is riveted on the United States economy as the financial crisis in the global superpower promises a depression within that country and threatens economic growth everywhere else. But as crisis management in the U.S. comes into play with the government’s proposal for a huge bailout of troubled banks, it is interesting to look at how financial crises in less powerful countries have been managed. The details of the plan in the U.S. are still e merging, but it is clear that it will involve a very large draft on taxpayers, both present and future, and rely on resources from other countries, including developing Asia.

But most other countries that have financial crises are not so fortunate as to be able to make the rest of the world pay for their problems. Especially in developing countries, a financial crisis is usually a double whammy as bank failures and stock market collapses are compounded by the flight of capital and the associated collapse of the currency. And then (once again unlike the U.S. at present), the governments of these countries in the throes of financial crisis have to put up with (largely mistaken) advice from the International Monetary Fund (IMF) and similar organisations, which insist on ramming more free-market medicine down the throats of economies that have been destroyed by reckless liberalisation.

Argentina was one such country in 2001 as one of the severest financial crises to hit any emerging market caused a precipitate decline in output and employment, doubled poverty rates within a year and caused such political instability that no fewer than six governments changed over two years. The policies imposed by the IMF only served to accelerate the economic decline and push the country into an apparently endless downward spiral. By 2002, half of the population was living below the official poverty line.

Yet, after the government of Nestor Kirchner came to power in 2003, there has been a remarkable recovery, which has made Argentina the fastest growing economy of the developing world after China in the past four years, with annual rates of growth of real gross domestic product exceeding 8 per cent. The recovery was all the more noteworthy because it was based on economic principles very different from the neoliberal model which governed Argentine policymaking in the 1990s and which continued to be supported by the IMF and major external creditors.

The IMF plan was for Argentina to go in for further privatisation of public assets and more deregulation, along with maintaining very high real interest rates, in the hope of “restoring investor confidence” and once more attracting foreign capital into Argentina. Instead, the Kirchner government stopped bothering about placating foreign investors and directed its attention to domestic producers. It used a stable and competitive exchange rate regime to ensure that domestic production revived and grew. It focussed on improving the consumption levels of ordinary people and reducing poverty. It sought to provide basic (but privatised) services at more accessible rates, often through renationalisation or through controls on the pricing of utilities. Significantly, the government also took a hard line – which ultimately proved very effective – with Argentina’s external creditors, forcing a majority of them in 2005 to accept a debt write-off agreement that effectively cancelled 65 per cent of the value of the country’s outstanding debt.

Role for the state

The neoliberal perception, widely touted in the international press at the time, was that this would spell complete doom for the economy in international markets. The new policies – according to the proponents of the “Phoenix Plan” group that emerged after the crisis – envisaged a renewed role for the state in restructuring the economy in the direction of greater transparency and efficiency, moving towards a welfare state even in the much more difficult context of contemporary capitalism.

Obviously, all this was anathema to those wedded to the neoliberal model, as well as to its beneficiaries in international finance, who predicted continuing and even more devastating economic collapse in Argentina as punishment for the move away from economic orthodoxy.

Yet, this did not happen and, if anything, the economy went from strength to strength. It is true that the government could not borrow from international bond markets, but it was able to find other investors (including the Bolivarian Republic of Venezuela) to hold its public debt. Foreign direct investment also started coming back in as the economy grew and amounted to about $4 billion a year, around the same level as in the market-friendly 1990s. And most important of all, the continued growth in output was also associated with employment growth and diversification.

Reasons for the miracle

How did this miracle come about? The conventional wisdom is that this was all due to exports of agricultural commodities and that Argentina simply benefited from the boom in global primary commodity prices. It is certainly true that Argentina is a major exporter of wheat, beef and, now, soya bean and that these exports soared in both quantity and value. But exports have accounted for only around 13 per cent of the economic growth of the past four years and cannot be held solely responsible for the recovery.

Rather, it was the government’s ability to manage the boom to diversify the economy and direct investible resources to other domestic sectors that was the key. Throughout this period, the exchange rate was maintained at a level that not only encouraged exports but – more importantly – discouraged imports and allowed domestic producers to sell in the home market. This produced a revival of many labour-intensive traditional industries, such as textiles and metal machinery, which were badly affected by the earlier high currency regime. It also led to the emergence of newer activities, including services such as tourism and Spanish software delivery, which benefited from the cheaper peso. Meanwhile, the government was able to gain at least some part of the rents from the sharp increase in world agricultural prices by imposing an agricultural export tax of 25 per cent.

This tax has to be seen in the specific context of Argentine agriculture, which is dominated by large farmers who are either themselves landholders or corporate businesses who cultivate with the help of hired labour on land taken on lease from small owners. A tax on agriculture (which is otherwise untaxed) in the form of the export tax is, therefore, a means of income redistribution. The revenues from this tax in the period of high world prices allowed the government to increase its own spending in important areas such as education, health and anti-poverty programmes and still maintain a primary fiscal surplus.

This very heterodox economic approach paid rich dividends until early this year. Cristina Fernandez, Nestor Kirchner’s wife and herself a noted Senator, easily won the presidential election on the basis of widespread public support for these economic policies. And the impressive success of this strategy was underlined by the fact that the growth was also accompanied by relatively stable inflation rates, rising employment rates and a dramatic reduction of poverty.

Yet, the recent past has been much more troubled. Two major problems have emerged in the past few months, creating some amount of political instability and resentment against the government despite all its other successes. The first is the battle with farmers as the government attempted to introduce a variable export tax rather than a flat rate. Since this unfortunately coincided with the global decline in agricultural prices since March, there was a vociferous protest from farmers, who constitute a strong lobby. Ultimately, this variable tax, which is otherwise a good policy in Argentina’s specific economic context, had to be withdrawn.

The second problem is one that directly affects much greater segments of the economy, including the ordinary people who have been beneficiaries of the boom. Inflation has been running high, especially for the past year, but the official rate of inflation has been suppressed through statistical jugglery. Thus, while the official rate is now about 9 per cent, unofficial estimates suggest that in actual fact both wholesale and consumer prices are rising at the very high annual rate of 25 per cent.

This attempt to conceal the actual rate of inflation is both bizarre and wrong-headed since it obviously cannot succeed in preventing people from realising what prices they are paying and because it then distorts all the other measures that the government itself uses for its economic policies. Thus, those workers who are able to negotiate on the basis of the higher perceived rate are able to maintain their real wages, but public sector workers, whose wages are calculated on the basis of the official consumer price index, suffer declines in real wages. The holders of inflation-indexed bonds also suffer. Most of all, of course, such a strategy reduces the credibility of the government in the eyes of not only some possibly unreliable investors but also its own citizens.

But this is a problem that can be relatively easily dealt with if the government decides to recognise the true inflation rate and then do something about it. It is clear that subsequent inflation control will require other measures, such as an incomes policy.

Tractable problems

So the current problems in Argentina are tractable, especially in the context of the still-growing economy. This is worth noting because not only did the economy recover fairly quickly from a severe crisis but it did so by implementing heterodox measures that involved controlling capital and improving the consumption of the poor. This is likely to be an instructive contrast to both the unfolding crisis in the U.S. and the measures that the George W. Bush regime will take to deal with it.

Responses from the South to the Global Economic Crisis

Tue, 21 Oct 2008 01:01:19 -0400

Declaration from the International Political Economy Conference in Caracas published in The Bullet, [Canada], 10/21/2008

Final Declaration

Academics and researchers from Argentina, Australia, Belgium, Canada, Chile, China, Cuba, Ecuador, France, Mexico, Peru, Phillipines, South Korea, Spain, United Kingdom, United States, Uruguay and Venezuela participated in The International Political Economy Conference: Responses from the South to the Global Economic Crisis, held in Caracas from the 8 to 11 October 2008. The conference stimulated a wide ranging debate on the current economic and financial health of the global economy, the new perspectives and the challenges to the governments and peoples of the South posed by the international financial crisis.

The meeting concluded that the situation has worsened in the last few weeks. It has progressed rapidly from being a series of crises in the financial markets of countries in the centre and has turned into an extremely serious international crisis. This meant that countries in the South are in a very difficult situation.

The crisis threatens the real economy and, if energetic and effective actions are not taken immediately, all peoples in the world could be drastically punished; especially the least protected and most neglected sectors.

The vulnerability of our currencies, the financial imbalances and the serious recession that looms large give the lie to the neoliberal myth about the benefits of deregulating markets and the solidity and trustworthiness of the existing financial institutions; the former also clearly bring into question the foundations of the current capitalist system.

The contributions made to the conference shone the spotlight on the way the crisis, which began in August 2007, has developed and on the failure of the ever larger concessions, bailouts and privileges provided by state intervention in developed capitalist countries to save the dregs of an already non-functional world financial system.

We denounce the attempt to make the overall world system carry the cost of the financial bailout thus aggravating the situation of poverty, unemployment and exploitation experienced by the world's workers and peoples.

Neither the colossal state interventionism seen over the last few weeks to rescue institutions dismembered and drained dry by speculation, nor massive public indebtedness are plausible ways to get out of the crisis. The existing dynamic encourages new rounds of capital concentration and, if the peoples do not firmly oppose this, it is becoming perilously likely that restructuring will occur simply to save privileged sectors. This could mean there is a danger of capitalism returning to an authoritarian way of functioning, since in the North an increase in discrimination and racism towards immigrants from countries in the South has already been noted – which is something extremely regressive.

If the current restructuring the capitalist system continues down the same road, there will be enormous productive and social costs and the already fragile sustainablity of the environment may suffer even more damage.

The need to reform the international economic and financial structure is today unavoidable. Those who think this also believe that it is necessary to find a post-capitalist solution; in Venezuela this is referred to as Twenty First Century Socialism.

In a moment as critical as this, national and regional policies must give priority to social spending and to protecting natural and productive resources. States must introduce urgent financial regulation measures to protect savings, to keep stimulating production and must fight off the dangers implicit in a lack of regulation by immediately implementing exchange and capital movement controls.

It will therefore be essential to develop the highest possible degree of balanced regional complementation and trade integration by reinforcing industrial, agricultural, energy and infrastructural capacities. Initiatives such as ALBA and the Bank of the South must extend their radius of action and move their perspective towards that of a alternative form of greater integration which includes a new common currency. This is so we can move towards creating a new word financial architecture which will make it viable for the south to be involved in a different way in the international division of labour.

In this context it is necessary to evaluate a series of contributions and proposals from the social economy which seek to dignify labour and encourage local coordination to combat the impact of the crisis.

On an international level, we must not cease to demand a far-reaching reform of the international monetary and financial system; this entails defending savings and channelling investments into serving the Peoples' essential needs. The continued re-emergence of a system which favours the central role of speculation, increases economic differences and especially punishes those countries and sectors which are least protected must be prevented.

Therefore new (multilateral) economic institutions must be created on new bases; they must have the authority and the instruments to be able to act against the anarchy of speculation. Hence it has become indispensable that national authorities intervene urgently in ways that challenge the basic workings of the market and protect the finances of the peoples affected. The crisis has created common interests among the peoples of all nations.

Based on these analyses and considerations, The International Political Economy Conference: Responses from the South to the Global Economic Crisis has reached the following

Conclusions and Recommendations for Action

We begin with the following characterisation of the international economic situation;

We find ourselves in an unprecedented international situation. The economic and financial crisis has worsened and accelerated greatly in the last few days. Its future development, as well as being difficult to foresee could take on, from one day to the next, dramatic overtones.

The initial epicentre of the crisis was in the United States and on the stock markets but the crisis is now a world crisis which is affecting the whole financial system and is increasingly contaminating the productive apparatus. The crisis is having a particular impact now on Eastern and Western Europe.

In spite of the initial expectations that Latin America could remain outside the crisis and that it is “shielded,” there are already very convincing signs that the sub continent is certain to be affected. We can not only expect a prolonged decrease in foreign trade but are certain to be hit by a very violent financial crash – and soon. The more internationalised the banking system and stock exchange the greater its fragility.

We are making these suggestions well aware that in any crisis there are always winners and losers. We are strongly in favour of taking those measures which ensure the welfare and rights of our peoples, of citizens in general and not in favour of coming to the aid of the bankers responsible for the crisis as they are doing in Europe and the United States.

Given this new situation and the fact that it is worsening at an accelerated rate we think it is necessary to make the following recommendations for action, some of which will have to be implemented by taking urgent political decisions at the very highest levels.

Therefore, consideration should be given to calling an immediate Extraordinary Summit of Latin American and Caribbean presidents or at least of those of UNASUR. Either or both of these would be presided over by a large popular mobilisation of our peoples.

ON THE BANKING SYSTEM

Given the collapse of the international financial system, states in the region should immediately take charge of their banking systems using controls, intervention and nationalisation without compensation following the principle enshrined in the new Ecuadorian constitution which forbids the state to accept responsibility for private debts. (Article 290, point 7: “it is forbidden for the state to accept responsibility for private debts”).

The reason for these measures is to prevent capital fleeing abroad, a run on currencies, the transference of funds from the branches of foreign banks to their head offices and to prevent banks from freezing credit by not lending the funds they receive.

The off shore banking systems of every country must be shut down, for under current circumstances, when liquidity problems are causing money to be siphoned off from the periphery, they are an extremely dangerous haven from regulations and fiscal controls.

The banks' books must be opened; bank oversight must be strengthened as must the mechanisms of strict regulation which make the real situation of national banking systems transparent for they are the institutions into which the populations' savings are deposited. (Given that financial services are public services) One of these measure must guarantee there is a minimum amount of domestic investment in the liquid assets of the system (coefficient of domestic liquidity).

Popular economic activities for development and not for profit must be encouraged and administered by populations living in the areas where such bodies are located.

If the state does intervene they must recover the costs of the bailout from the banks' property and have the right to do so from the property of the shareholders and managers.

THE NEW FINANCIAL ARCHITECTURE

The lack of coordinated monetary policies causes a “competitive devaluations” war which makes the crisis worse and unleashes rivalry between our economies thus preventing a coordinated response from the region and even creates structural threats to the progress of initiative towards integration, such as UNASUR. Therefore, clear signs that there will be a Latin American monetary agreement should be given which will straight away make evident the additional opportunities for “shielding” our macro-economies. Thus, defining a system of payment settlements based on a basket of Latin American monies will provide each country with additional sources of liquidity which will allow them to distance themselves from the logic of the dollar crisis.

Along the same lines as creating institutions to “shield” our economies we will need more coordination between our central banks and must go beyond neoliberal dogma by managing our international reserves in a much more efficient and timely way. So it is important to move forward on the proposal for a Fund of the South that is an alternative to the IMF with liquidity available for emergencies in exchequers (national treasuries) or balance of payments.

Making good use of the bigger surplus reserves of each country brought about by the creation of a payment settlement system (regional credit transfer rights) and by the existence of the Common Fund of the South, resources can be mobilised to get the Bank of the South up and running straightaway ensuring that it will function democratically and not reproduce the logic of the multilateral financial credit organisations. This bank must be the heart of this process of transforming the already existing network of Latin American bancos de fomento whose mission is the reproduction of productive apparati based on fundamental human rights. We understand all of the foregoing in way something similar to what was emphasised in the Quito Ministerial Declaration of 3 May of this year where it said “The peoples gave their governments the mandate to provide the region with new tools for integration for development. These should be designed on transparent, participatory bases and accountable to those who issued the mandate.”

It is essential to ratify exchange controls in the countries where they exist and to establish them where there don't to protect reserves and prevent capital outflows.

In the context of the suspension of payments imposed by the crisis on the international financial system it is imperative that the countries of the region consider suspending payment of public debt. This measure is intended to temporarily protect sovereign resources threatened by the crisis and avoid an emptying out of the national treasuries.

Latin America and the Caribbean should learn from what is happening in Europe where each country is trying to solve the crisis on its own. This makes it imperative to bolster the mechanisms of integration being developed in the region.

SOCIAL EMERGENCY

We propose that the widest possible degree of national and peoples' sovereignty be exercised over natural resources, in order that they be rationally exploited and their prices defended to benefit the peoples.

We propose setting up a Regional Social Emergency Fund to ensure food and energy sovereignty right away and to deal with the acute problems of migrations and reduction in remittances. This fund could operate out of the Bank of the South or the Alba Bank.

Pursuant to the principle of not rescuing bankers but rather our populations, public budgets must be maintained for social spending and we must contemplate an increase in these budgets to combat the imminent effects of the international crisis on our peoples; our priorities are employment security, universal income, public health and education, housing.

Establishing anti-inflationary mechanisms, such as price controls which conserve and increment low wages and pensions, subsidies etc, which play a role in redistributing income and wealth.

FINANCIAL ORGANISATIONS.

The international financial crisis has revealed the complicity of the IMF, the World Bank and the IDB with transnational bankers who have caused the current collapse with its horrific social consequences. The loss of prestige of these bodies is obvious. This is the opportunity for the countries in the region to follow Bolivia's example and withdraw from ICSID (International Centre for the Settlement of Investment Disputes) and to take up Venezuela's call to withdraw from the IMF and the World Bank and begin to help to build a new international financial architecture.

We convene a second International Political Economy Conference: Responses from the South to the Global Economic Crisis to be held in the first four months of 2009.

Wealth's Apostles

Tue, 21 Oct 2008 00:59:25 -0400

by Vijay Prashad

Chinese factory managers have cut their orders for raw materials. The Baltic Exchange Dry index has plummeted. Currencies climb up and down, but the stock exchange indices look like the altimeter of an aircraft in freefall. Stock markets across the planet look to the Central Banks of Euro-Land and the U. S. for some guidance, and then shy away, taking cover under the flimsy shields of their own governments. The Sovereign Funds of the Gulf States prefer to park their substantial petro-dollars into their own infant stock exchanges, since they have already burned their fingers in New York and London.

Part I: Wealth’s Apostles.

Petrified by the imminent collapse of the entire financial architecture, the Finance Ministers of the Group of Seven (G7) countries hastened to Washington for an emergency meeting, summoned to their Rome, to find a quick solution. The smiles that littered the faces of the ministers in their February meeting in Osaka were absent. Instead, they reverted to type. America’s Henry Paulson had a pinched nose in the official photograph, as he frowned toward the camera as it to say, get this over with, and get me out of here. Two of the men in the room had been bred in the left, only to have walked right-ward: Britain’s Alistair Darling, once a 4th Internationalist and now another Scotsman for Brown, walked around with the typical smug look of New Labour, while Italy’s Giulio Tremonti, once of the Italian Socialist Party and then of Berlusconi’s disreputable Forza Italia, walked around at a forward angle, as if to display his eagerness to please with his body’s slant. Tremonti, at least is an intellectual, one who has perversely adopted some of the anti-globalization rhetoric to smash the remnants of Italy’s social wage. France’s Christine LeGarde trained as a labor lawyer, but gave little of herself to the working-class. A twenty-year career in the Chicago law firm of Baker & McKenzie trained her well for her job in the Sarkozy cabinet, pushing an agenda to make the French worker “work harder.” But she is the opposite of Tremonti, having said early into her term that like her boss, she believes that the French think too much and don’t do enough. No intellectualism or big ideas from her desk. But at least she could say as much. The Japanese Finance Minister, Soichi Nakagawa, has a thing for the bottle, and it might be expected that the tension sent him in search of the nearest bar. This is the cast of characters that wants to determine the destiny of our times.

Germany’s Peer Steinbruck looked ill. A long-time SPD man, now in charge of his country’s checkbook in this grand alliance of hard right and right, Steinbruck came to Washington having made the strongest statement on the crisis. “The world will never be as it was before the crisis. The United States will lose its superpower status in the world financial system.” The system would, he argued, “become more multi-polar.” These are fierce words, and it is doubtful that Steinbruck earned any smiles from Paulson or his team. World Bank president Robert Zoellick, the stooge of James Baker who took an active role in stealing the 2000 election for Bush, was seen in his company. Zoellick’s smile is like a cattle-prod, a warning to get in line. Any other dissent could not be brooked. IMF Chief, the Frenchman Dominique Strauss-Kahn said of the crisis that it is “the result of regulatory failure to guard against excessive risk-taking in the financial system, especially in the U. S.” (September 22). A few days after the October meeting, Strauss-Kahn faced charges that he had, what the Japanese call, a “lower half problem.” The IMF began investigations into an affair Strauss-Kahn had with a senior official of the IMF’s Africa division, Piroska Nagy. The dirty tricks squad released its file on him.

Paulson’s defiant laissez-faire was broken down by events, by his commitments to his Wall Street brethren, and by pressure from the few elements of social democracy that linger in the hearts of Euro-Land. The October 10 statement from the Finance Ministers and their Central Bankers laid out a five point plan, three of which, at least, pointed directly toward the partial nationalization of the banks, otherwise anathema to Paulson. “Take decisive action and use all available tools,” said the statement, “to support systematically important financial institutions and prevent their failure.” To “unfreeze credit and money markets” and to ensure that banks can raise capital “to re-establish confidence,” it was imperative that the government’s take a stake in the banks themselves. This was the mantra from the Europeans and the Japanese, and it had to be heeded by the floundering U. S. Working Group on Financial Markets (this was the push that moved Paulson and others into the Cash Room at the U. S. Treasury on October 14 to announce that the government would take an equity stake in the banks).

From Euro-Land came another suggestion, that the powers convene a New Bretton Woods. A spat broke out between Paris and London, as Sarkozy and Brown debated who had first called for such a conference. At the UN General Assembly in late September, Sarkozy called on the states to “rebuild together a regulated capitalism in which whole swathes of financial activity won’t be left to the sole judgment of market dealers. Let’s rebuild a capitalism in which banks do their job, and the job of the banks is to finance economic development, it isn’t speculation….Let’s build a capitalism in which the credit agencies are controlled and penalized when necessary…There is so much opacity today, we find it difficult even to understand what is happening.” Trying to reconcile the irreconcilable, Sarkozy took refuge in the comfort of civilizations: he called this the end of the “Anglo-Saxon era,” and with a whiff of condescension opened the door toward the Gallic era.

The lugubrious Gordon Brown could have joined in with this civilizational-racial angle, claiming his Celtic heritage against the Germanic Anglo-Saxons. But instead, he made the call for a “New Bretton Woods” a pissing contest, raising it as if a new idea at an October meeting of European leaders in Brussels. But really the call is an old one. Familiar as well to Giulio Tremonti who made the proposal in early March on Rai Due, saying globalization was invented “by a group of madmen, of mad illuminati,” people who “invented techno-finance, sold mortgages, packaged them and sold them around. Now all this has failed. Globalization has failed.” Instead, he proposed “we are thinking about an agreement among large nations, like the one in Bretton Woods: a new Bretton Woods.” Even Tremonti is not the first to say so. France’s ATTAC did so, and so have the bulk of the states of the United Nations since the debt crisis punished Mexico in 1982. But till now, no-one took them seriously.

Part II: The Lion’s Den.

Bretton Woods is the name of a small town in the beautiful White Mountains of New Hampshire. As you drive along Route 302 from Vermont, you pass by the road that can take you to Franconia, where Robert Frost wrote some of his best verse (“Stopping by the Woods,” but also the 1916, “The Line Gang,” with the unforgettable “With a laugh, an oath of towns that set the wild at naught, they bring the telephone and telegraph”). You brush by Bethlehem, where the pollen count is so low that people used to come here to shelter before antihistamines. And then, before you can breathe, you enter the area of the mountains, the Crawford Notch region that brings you within sight of Mt. Washington. Little wonder then that in the early 1900s, the railways ran a service that linked the barons of New York, Boston and Philadelphia to their own private Switzerland. Joseph Stickney wanted to build a major hotel on an immense plain between Crawford Notch and Twin Mountain. To design the hotel, he hired Charles Alling Gifford, already a pioneer of the “millionaires’ cottages” on Jekyll Island, Georgia. Gifford designed well for the landscape, and a series of “busy Italians” built the Mount Washington Hotel, a “mountain colossus” (Among the Clouds, August 13, 1901). Grandness embossed the hotel. One guidebook from the time gushed, “There is an indoor scene comparable in brilliancy with a reception to the diplomatic corps at the White House or a levee at the Court of St. James”

FDR’s set knew the hotel well. They learnt to Golf there, and enjoyed the fresh air when they got away from their busy pursuits of money and intrigue. When FDR wanted to convene a conference to take charge of the reconstruction of international finance after World War II, he decided to hold it at this hotel. Since 1936, the Mount Washington found it hard to make a profit, having lost custom to the turmoil of war (during the Depression it did fine). An influx of government money allowed it to refurbish itself. The hotel had been segregated (but for the musicians, such as “a colored orchestra with banjos, taps and drums” to play the Danse de la Forêt in 1916). It would now have to welcome delegates from China, Ecuador, Egypt, Greece, India, Iran, the Philippines and elsewhere. The wait staff didn’t care. Later, one elevator operator told a reporter from the Littleton Courier, “The delegates wouldn’t tip. The most liberal elevator passenger was a Chinaman.” The Americans and the Europeans were the most parsimonious.

Lord Keynes held forth (his wife, the prima donna ballerina Lydia Lopolava was the rage at Bretton Woods). He had not wanted to invite the rest of the world, as it were. They, he wrote acidly, “clearly have nothing to contribute and will merely encumber the ground.” If they were allowed, the Bretton Woods conference would be “the most monstrous monkey-house assembled for years.” There was only one woman at the table, Mabel Newcomer (a Vassar Professor of Economics). The delegates from the darker nations could not help set the agenda, for the few that came where were there at the sufferance of their colonial masters (such as the Indians and the Filipinos) , while the free people (such as some Latin Americans and the Chinese) were shown the door when the real deliberations began. The Chinese delegate, to be fair, was Dr. H. H. Kung, a descendant of Confucius and husband of Ailing (“Pleasant”) Soong (whose sisters had married Dr. Sun Yat Sen and Generalissimo Chiang Kai-shek). The richest man in China at that time, Kung didn’t seem to do much to pave the way for the reconstruction of a devastated Chinese mainland.

The delegates from afar had to be there in the Gold Room to put their impressions on the final communiqué. No surprise then that the two major institutions that came out of Bretton Woods, the International Monetary Fund (IMF) and the World Bank (WB), had to be run by an European or an American respectively. No-one else would have a turn. Keynes’ disdain for those not like himself was shared by others, and it was this that moved them to disenfranchise the world from the governance of the IMF and the WB (the main votes on their Boards of Executive Directors are held by the U. S. and Europe). The silence of the colonized and semi-colonized meant that the new monetary policies favored those who had already seized the world’s wealth, and the trade policies that followed set inequality in stone. Chastened by the economic warfare of the 1920s and 1930s that not only brought on the hostilities of World War II, but also contributed to the prolongation of the Depression, the major powers now created a currency regime that would be less volatile. The WB was created to help manage the reconstruction of war ravaged Europe (not Asia, nor Africa, both also burnt to the crisp by European ambitions). The IMF emerged as an institution to tide over countries that had a balance of payments or short-term liquidity problem. There is no mandate to poverty reduction or to the elimination of the vast global inequalities that marked the end of the colonial era. The IMF and the WB were institutions for the maintenance of colonial domination by other means.

For that reason, the countries that had been shut out of the creation of the IMF-WB built their own project and their own institutions. The main organization was the UN Conference on Trade and Development, UNCTAD, created in 1961 by the bulk of the UN nations, newly freed from colonial dominion of one kind or another (these are countries that wedded themselves to the Third World project, as I outline in The Darker Nations). In the 1980s, the IMF and the WB began to use the debt crisis as leverage to transform the politics and economics of the poorer world. Structural adjustment policies weakened whatever mild gains had been made over the course of the past fifty years. The lack of effective democracy in the IMF-WB and their promiscuous relationship with Europe’s capitals and with Washington, DC, allowed them to skew their policies against the needs of those who make what is so acquisitively enjoyed by those in power.

When Tremonti says that he is thinking of an agreement “among large nations” I’m sure he doesn’t mean “large” in terms of demography. Otherwise China, India, Indonesia, Brazil and Pakistan would join the United States in setting up the new rules (Tremonti’s Italy only has .9% of the world’s population, while China and India house over 36% of the world’s population). Gordon Brown’s opinion piece in the Washington Post, “Out of the Ashes” (October 17) is populated with the royal “We.” “We must deal with more than the symptoms of the current crisis,” he writes, and then hastens to add, “European leaders came together to propose the guiding principles that we believe should underpin this new Bretton Woods.” The ideas are fairly straightforward, including transparency, sound banking, responsibility, integrity, and global governance. But these could mean anything: responsibility of whom, and toward whom? The same with integrity. There is similar hoopla about global this and global that (“the global problems we face require global solutions”) except the only ones who seem to count in the drafting of the project are the Europeans and the U. S. (with Japan). No-one proposes to call a genuine world-wide conference, to revive the project of the UNCTAD, to ask Beijing and New Delhi, N’Djamena and Quito. Brown quotes Dean Acheson who said of Bretton Woods that he was “present at the creation.” India and China might have been there, but they were absent: their input was minimal, and it remains marginal.

If Brown asked those involved in the Bolivarian experiment, he’d get a set of concrete proposals that would be just the tonic needed for a tired planet: their principles, derived from the Third World project, would call for capital controls over hot money, firm obligations for foreign direct investment to remain for the long-term, better ability for states and regions to protect the value of their currency, construction of trade policies consonant with the needs of the population and not the imperatives of transnational corporations, and finally the revival of the United Nations Centre on Transnational Corporations (which led a much abused life from 1973 to 1993). These and more would be the kind of proposals that would come from the South. But Brown’s ear is turned toward Paulson, and he can’t hear what Chavez is saying.

While in the White Mountains last week I casually asked someone if he knew anything about the Abenaki Indians. He didn’t. Nor are their any signs to indicate that they were ever alive. Except a ski resort named for them. The Abenaki were exterminated by the plague of 1616-1618, then the slow, painful encroachment of the Massachusetts settlers up the Merrimack River (including a series of wars that devastated the Abenaki and other peoples: King Philip’s War, 1675-78, Lovewell’s War, 1723-25 and the French and Indian War, 1754-63, during which Major Robert Rogers conducted his bloody raid of the village of St. Francis), and by finally by the long cultural war that fully cleansed the landscape of them. Bretton Woods was built on the homeland of the Abenaki, taken by the colonialists for its resources (the trees became raw material for the ships) and for the land. It is fitting then that Bretton Woods, built on colonial amnesia, is the name of a conference that the G7 wants to revive, once more forgetting the silenced billions.

By all means a conference, but not one that shuts out the many. Chavez gets this. After meeting Sarkozy in Paris in late September, Chavez told the press that such a meeting must “not be confined to the Group of Eight.” He’s having a good laugh. Reflecting on the equity stake in the banks, Chavez said, “Comrade Bush is to the left of me now.”

Vijay Prashad is the George and Martha Kellner Chair of South Asian History and Director of International Studies at Trinity College, Hartford, CT His new book is The Darker Nations: A People's History of the Third World, New York: The New Press, 2007.

The Global Economic Crisis: An Historic Opportunity for Transformation

Tue, 21 Oct 2008 00:52:18 -0400

An initial response from individuals, social movements and non-governmental organisations in support of a transitional programme for radical economic transformation. Beijing, 15 October 2008

Preamble

Taking advantage of the opportunity of so many people from movements gathering in Beijing during the Asia-Europe People’s Forum, the Transnational Institute and Focus on the Global South convened informal nightly meetings between 13 and 15 October 2008. We took stock of the meaning of the unfolding global economic crisis and the opportunity it presents for us to put into the public domain some of the inspiring and feasible alternatives many of us have been working on for decades. This statement represents the collective outcome of our Beijing nights. We, the initial signatories, mean this to be a contribution towards efforts to formulate proposals around which our movements can organise as the basis for a radically different kind of political and economic order. Please sign on to this statement by adding your name in the comments section.

The Crisis

The global financial system is unravelling at great speed. This is happening in the midst of a multiplicity of crises in relation to food, climate and energy. It severely weakens the power of the US and the EU, and the global institutions they dominate, particularly the International Monetary Fund, the World Bank and the World Trade Organisation. Not only is the legitimacy of the neo-liberal paradigm in question, but the very future of capitalism itself.

Such is the chaos in the global financial system that Northern governments have resorted to measures progressive movements have advocated for years, such as nationalisation of banks. These moves are intended, however, as short-term stabilisation measures and once the storm clears, they are likely to return the banks to the private sector. We have a short window of opportunity to mobilise so that they are not.

The Challenge and the Opportunity

We are entering uncharted terrain with this conjuncture of profound crises – the fall out from the financial crisis will be severe. People are being thrown into a deep sense of insecurity; misery and hardship will increase for many poorer people everywhere. We should not cede this moment to fascist, right wing populist, xenophobic groups, who will surely try to take advantage of people’s fear and anger for reactionary ends.

Powerful movements against neo-liberalism have been built over many decades. This will grow as critical coverage of the crisis enlightens more people, who are already angry at public funds being diverted to pay for problems they are not responsible for creating, and already concerned about the ecological crisis and rising prices – especially of food and energy. The movements will grow further as recession starts to bite and economies start sinking into depression.

There is a new openness to alternatives. To capture people’s attention and support, they must be practical and immediately feasible. We have convincing alternatives that are already underway, and we have many other good ideas attempted in the past, but defeated. Our alternatives put the well-being of people and the planet at their centre. For this, democratic control over financial and economic institutions are required. This is the “red thread” connecting up the proposals presented below.

Proposals for Debate, Elaboration and Action

Finance

-Introduce full-scale socialisation of banks, not just nationalisation of bad assets. Create people-based banking institutions and strengthen existing popular forms of lending based on mutuality and solidarity.

-Institutionalise full transparency within the financial system through the opening of the books to the public, to be facilitated by citizen and worker organisations.

-Introduce parliamentary and citizens’ oversight of the existing banking system

-Apply social ( including labour conditions) and environmental criteria to all lending, including for business purposes

-Prioritise lending, at minimum rates of interest, to meet social and environmental needs and to expand the already growing social economy

-Overhaul central banks in line with democratically determined social, environmental and expansionary (to counter the recession) objectives, and make them publicly accountable institutions.

-Safeguard migrant remittances to their families and introduce legislation to restrict charges and taxes on transfers

Taxation

-Close all tax havens

-End tax breaks for fossil fuel and nuclear energy companies

-Apply stringent progressive tax systems

-Introduce a global taxation system to prevent transfer pricing and tax evasion

-Introduce a levy on nationalised bank profits with which to establish citizen investment funds (see below)

-Impose stringent progressive carbon taxes on those with the biggest carbon footprints

-Adopt controls, such as Tobin taxes, on the movements of speculative capital

-Re-introduce tariffs and duties on imports of luxury goods and other goods already produced locally as a means of increasing the state’s fiscal base, as well as a means to support local production and thereby reduce carbon emissions globally

Public Spending and Investment

-Radically reduce military spending

-Redirect government spending from bailing out bankers to guaranteeing basic incomes and social security, and providing universally accessible basic social services such as housing, water, electricity, health, education, child care, and access to the internet and other public communications facilities.

-Use citizen funds (see above) to support very poor communities

-Ensure that people at risk of losing their homes due to defaults on mortgages caused by the crisis are offered renegotiated terms of payment

-Stop privatisations of public services

-Establish public enterprises under the control of parliaments, local communities and/or workers to increase employment

-Improve the performance of public enterprises through democratising management - encourage public service managers, staff, unions and consumer organisations to collaborate to this end

-Introduce participatory budgeting over public finances at all feasible levels

-Invest massively in improved energy efficiency, low carbon emitting public transport, renewable energy and environmental repair

-Control or subsidise the prices of basic commodities

International Trade and Finance

-Introduce a permanent global ban on short-selling of stock and shares

-Ban on trade in derivatives

-Ban all speculation on staple food commodities

-Cancel the debt of all developing countries – debt is mounting as the crisis causes the value of Southern currencies to fall

-Support the United Nations call to be involved in discussions about how the to resolve the crisis, which is going to have a much bigger impact on Southern economies than is currently being acknowledged

-Phase out the World Bank, International Monetary Fund, and World Trade Organisation

-Phase out the US dollar as the international reserve currency

-Establish a people’s inquiry into the mechanisms necessary for a just international monetary system.

-Ensure aid transfers do not fall as a result of the crisis

-Abolish tied aid

-Abolish neo-liberal aid conditionalities

-Phase out the paradigm of export-led development, and refocus sustainable development on production for the local and regional market

-Introduce incentives for products produced for sale closest to the local market

-Cancel all negotiations for bilateral free trade and economic partnership agreements

-Promote regional economic co-operation arrangements, such as UNASUR, the Bolivarian Alternative for the Americas (ALBA), the Trade Treaty of the Peoples and others, that encourage genuine development and an end to poverty.

Environment

-Introduce a global system of compensation for countries which do not exploit fossil fuel reserves in the global interests of limiting effects on the climate, such as Ecuador has proposed.

-Pay reparations to Southern countries for the ecological destruction wrought by the North to assist peoples of the South to deal with climate change and other environmental crises.

-Strictly implement the “precautionary principle” of the UN Declaration on the Right to Development as a condition for all developmental and environmental projects.

-End lending for projects under the Kyoto Protocol’s “Clean Development Mechanism” that are environmentally destructive, such as monoculture plantations of eucalyptus, soya and palm oil.

-Stop the development of carbon trading and other environmentally counter-productive techno-fixes, such as carbon capture and sequestration, agrofuels, nuclear power and ‘clean coal’ technology.

-Adopt strategies to radically reduce consumption in the rich countries, while promoting sustainable development in poorer countries

-Introduce democratic management of all international funding mechanisms for climate change mitigation, with strong participation from Southern countries and civil society.

Agriculture and Industry

-Phase out the pernicious paradigm of industry-led development, where the rural sector is squeezed to provide the resources necessary to support industrialisation and urbanisation

-Promote agricultural strategies aimed at achieving food security, food sovereignty and sustainable farming.

-Promote land reforms and other measures which support small holder agriculture and sustain peasant and indigenous communities

-Stop the spread of socially and environmentally destructive mono-cultural enterprises.

-Stop labour law reforms aimed at extending hours of work and making it easier for employers to fire or retrench workers

-Secure jobs through outlawing precarious low paid work

-Guarantee equal pay for equal work for women – as a basic principle and to help counter the coming recession by increasing workers’ capacity to consume.

-Protect the rights of migrant workers in the event of job losses, ensuring their safe return to and reintegration into their home countries. For those who cannot return, there should be no forced return, their security should be guaranteed, and they should be provided with employment or a basic minimum income.

Conclusion

These are all practical, common sense proposals. Some are initiatives already underway and demonstrably feasible. Their successes need to be publicised and popularised so as to inspire reproduction. Others are unlikely to be implemented on their objective merits alone. Political will is required. By implication, therefore, every proposal is a call to action.

We have written what we see as a living document to be developed and enriched by us all. Please sign on to this statement at the bottom of the page.

A future occasion to come together to work on the actions needed to make these ideas and others a reality will be the World Social Forum in Belem, Brazil at the end of January 2009.

We have the experience and the ideas - let’s meet the challenge of the present ruling disorder and keep the momentum towards an alternative rolling!!

Initial Signatories

Organisations:

Transnational Institute, Netherlands

Focus on the Global South

Red Pepper magazine, United Kingdom

Institute for Global Research and Social Movements, Russia

Ecologistas en Acción, Spain

JS - Asia/Pacific Movement on Debt and Development (JS APMDD), Asia

RESPECT Network Europe, Europe

Commission for Filipino Migrant Workers (CFMW), Netherlands

The Movement for a Just World, Malaysia

Nord-Sud XXI, Switzerland

Europe Solidaire Sans Frontières (ESSF), France

Indian Social Action Forum (INSAF), Inadi

Movimiento Madre Tierra, Honduras

Asian Bridge, South Korea/ Philippines

Center for Encounter and Active Non-Violence, Austria

The Alliance of Progressive Labor (APL)

Pakistan Institute of Labour Education and Research (PILER), Pakistan

Pambansang Katipunan ng Makabayang Magbubukid-PKMM (National Federation of Patriotic Peasant), Phillipines

Proresibong Alyansa ng mga Mangingisda-PANGISDA (Progresive Alliance of Fisher), Philippines

WomanHealth, Philippines

Kilusan para sa Pambansang Demokrasya (KPD), Philippines

Fisherfolk Movement Philippines

Democratic Socialist Perspective, Australia

Resistance & Alternative, Mauritius

Observatori del Deute en la Globalització, Spain

African Journalists on Trade and Development

Centre for Education and Communication (CEC), India

EQUATIONS, India

ESK-Basque Land, Basque Country

Common Frontiers, Canada

Alab-Katipunan, Philippines

Finnish Asiatic Society, Finland

Red Constantino, Philippines

Intercultural Resources, India

Women’s March Against Poverty and Globalization (WELGA)

FDC Women’s Committee

Bharatiya Krishak Samaj (Indian farmers organization)

Peace for All International Development Organization, Canada/Uganda

Foundation for Media Alternatives, Philippines

The Philippine Rural Reconstruction Movement , Philippines

The Freedom from Debt Coalition-Iloilo, Philippines

Jubilee Eastern Cape, South Africa

SdL intercategoriale, Italy

Foro Ciudadano de Participación por la Justicia y los Derechos Humanos, Argentina

APRODEH (Asociacion Pro Derechos Humanos), Peru

Individuals:

Fiona Dove, South Africa

Walden Bello, Philippines/Thailand

Hilary Wainwright, United Kingdom

Boris Kagarlitsky, Russia

Achin Vanaik, India

Dot Keet, South Africa

Brid Brennan, Ireland

Pietje Vervest, Netherlands

Cecilia Olivet, Uruguay

Ramon Fernandez, Spain

Pierre Rousset, France

Rodney Bickerstaffe, United Kingdom

Von Francis C Mesina, Philippines

Al D. Senturias, Jr., Philippines

Sammy Gamboa, Philippines

Fe Jusay, Philippines

Nonoi Hacbang, Philippines

Lidy Nacpil, Philippines

Tom Kucharz, Spain

Herbert Docena, Philippines

Seema Mustafa, India

Kenneth Haar, Denmark

Wolfram Schaffar, Germany

Christa Wichterich, Germany

Isabelle Duquesne, France

Adhemar Mineiro, Brazil

Benny Kuruvilla, India

Aehwa Kim, South Korea

Manjette Lopez, Philippines

Bonn Juego, Philippines

Rasti Delizo, Philippines

James Miraflor, Philippines

Miquel Ortega Cerda, Spain

David Llistar, Spain

Alpo Ratia, Finland

Mira Kakonen, Finland

Hilary Chiew, Malaysia

Celeste Fong, Malaysia

Tatcee Macabuag, Philippines

Teodoro M. de Mesa, Philippines

Uwe Hoering, Germany

Asad Rehman, UK

Andy Rutherford, UK

Debbie Valencia, Greece

Petra Snelders, Netherlands

Etta P. Rosales, Philippines

Pete Pinlac, Philippines

Ute Hausrnann, Germany

Alain Baron, France

Hanneke van Eldik Thieme, Netherlands

Dorothy Guerrero, Philippines

Ric Reyes, Philippines

Dr. Chandra Muzaffar, Malaysia

Ahmad Soueissi, Switzerland

Elias Davidsson, Germany

Juan Almendares, Honduras

Carlos Ruiz

Alexis Passadakis

Sally Rousset, France

D.W.Karuna

Hyowoo Na, South Korea

Sung-Hee Choi, Korea

Marko Ulvila, Finland

Matthias Reichl, Austria

Orsan Senalp, Turkey/The Netherlans

Tamra Gilbertson, Unites States

Prof. Kamal Mitra Chenoy, India

Prof Anuradha Chenoy, India

Gilbert Achcar, UK

Richel “Ching” M. Borres, Philippines

Helen Mendoza, Philippines

Sukla Sen, India

Olli-Pekka Haavisto, Finland

Amira Armenta, Colombia

William K. Carroll, United States

Gigi Francisco, Philippines

Sylvia Estrada Claudio, Philippines

Pablo Rosales, Philippines

Alice Raymundo, Philippines

Maris dela Cruz, Philippines

Terry Townsend, Australia

Ashok Subron, Mauritius

Ko Ko Thett

Einar Ólafsson, Iceland

Anjani Abella, Philippines

Gianni Alioti, Italy

Dr Michael Williams

Peter Lavina, Philippines

Gina Cantano-Dela Cruz, Philippines

Cecilia Jimenez, Philippines/Switzerland

Thierry De Coster

Sushovan Dhar, India

Krishan Bir Chaudhary, India

Dave Tucker

Bruno Ciccaglione, Italy/Austria

Haydi Zulfei , Asia

Adam Davidson-Harden, Canada

Al Alegre, Philippines

Tom Mertes

Elâabadila Chbihna, Morocco

John A. Fitzpatrick

Matyas Benyik

Roger Keyes

Ted Aldwin Ong, Philippines

Romero P. Gerochi, Philippines

C.P. Vinod, India

Laurence Schechtman

Berend Schuitema, South Africa

Francesco Martone, Italy

Asbjørn Wahl, Norway

Teodolita S. Lopez-Suano, Philippines

Hans Schäppi, Switzerland

Rasigan Maharajh

Anna Camposampiero, Italy

Lorenzo Pellegrini, Italy/Netherlands

Rashmi Shetty, India

Wahyu Susilo, Malaysia

Fabrizio Tomaselli, Italy

Rayhan Rashid, Bangladesh

Saskia Poldervaart, Netherlands

Pierluigi Tedeschi, Italy

Gladys Baldew, Netherlands

Francisco Soberon, Peru

Erik Eriksson, Sweden

Marco Cuevas-Hewitt

Luigia Pasi - Italy

Maximo Kinast Aviles

Predictable Poverty: The Inevitable Legacy of a Neo-Liberal Eurpoe

Tue, 21 Oct 2008 00:48:57 -0400

by Susan George

The requirements for reducing or eliminating poverty, in Europe and world-wide, are known and the money is there, but the weight of the financial lobby is such that political will at present seems non-existent.

'All for ourselves and nothing for other people' seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as [the great proprietors] could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons. For a pair of diamond buckles, perhaps, or for something as frivolous and useless, they exchanged the maintenance, or what is the same thing, the price of the maintenance of a thousand men for a year.

Adam Smith, The Wealth of Nations, 1776.(1)

Introduction

In the early twenty-first century, poverty on a world -wide, massive-scale is not merely unnecessary but inexcusable. This is indeed its most striking feature. One could argue, following Adam Smith [who considered himself a "moral philosopher" not an economist] that it was equally avoidable in the Great Britain of 1776, but that is a matter for historians. Here we shall stay in our own century while keeping Adam Smith's words of indictment in mind. The "vile maxim of the masters of mankind" is, alas, alive and well; the masters are still trying to keep all for themselves and allow nothing for other people. Whenever they can, which is most of the time, they organise public policy in such a way that their goals can be met.

In contemporary Europe we are living in such a time. Europe could eliminate poverty on its own soil, reliably estimated in 2006 to strike 72 million people, around 15 percent of its total population.(2) It could also contribute hugely to eradicating poverty in the world, taking the lead in the OECD countries in that regard. It has the wealth and the [unused] policy space to do both. Like other OECD countries, however, Europe refuses to confront the obvious solutions which would involve very small changes in the lifestyles of the rich, and a few, somewhat larger ones, for banks and transnational corporations. So it seems to me that the first duty of a participant in a conference concerning "the fight against poverty" is to examine wealth.

Whatever might have been possible, politically speaking, in the eighteenth century had people been obliged to share more equally, it was still a time when genuine crop failures could take place; trade was expensive and sometimes the necessities of life were in short supply. Here I shall argue that today, for the first time in human history, poverty retains not a shred of mystery nor of inevitability; one need no longer ask if, technologically and materially speaking, it could be eradicated. The answer is simple and straightforward: yes, it could . Politically, however, as I shall also argue, the European Union, with the complicity of its Member States, is doing whatever lies in its considerable power to prevent this happening both in Europe itself and in the world. This will be the second focus of my contribution.(3)

I. Wealth and inequality

Now, nearly two and a half centuries after the opening quote from Adam Smith, the father of modern capitalist theory, let us hear the stylistically less well-crafted but nonetheless heartfelt cry of the "Lowtax Network Editorial Team":

'There is such a lot of money!

'Despite a presumably temporary dip in asset values as a result of shell-shocked markets post sub-prime, HedgeFund.net said recently that total hedge fund assets stood at $2.848tn at the end of March 2008.'(4)

Not quite three trillion dollars in hedge funds, or $2.848.000.000.000? So claims Investors Offshore. Although such a sum may sound enormous and indeed amounts to more than twenty percent of the entire GDP of the European Union, it is modest compared to the real private money that is out there. Merrill-Lynch and Cap Gemini have recently published their twelfth annual World Wealth Report , a trustworthy source given that Merrill-Lynch wants to manage as much wealth as possible and therefore has an interest in getting the figures right. Their Report for 2008 counts a shade over ten million "High Net Worth Individuals" in the world-about one in every 670 people. These HNWIs, including the far richer and more exclusive group of "Ultra-HNWIs", in 2007 together controlled $40.7 trillion, that is, $40.700.000.000.000.

By the year 2012, Merrill-Lynch believes this group will have collectively accumulated $59 trillion. This projection is reasonable given that the increase of the HNWI's total wealth in 2007 compared to that of the HNWIs of 2006 was more than nine percent. Furthermore, since 2002 the total wealth of this growing class of HNWIs has increased by more than 50 percent. In other words, every year there are more HNWIs [although only a slight increase in their numbers compared to the total world population] and every year their nest-egg grows so that it has now reached dinosaurian proportions.

Let us also be clear about the meaning of "wealth" in this context: The Merrill-Lynch Cap Gemini definition limits it to investable wealth of which the HNWIs all have at least a million dollars "excluding collectibles, consumables, consumer durables, and primary residence". In other words, art and wine collections, mansions, luxury cars, top-of-the-line kitchen equipment and other relatively illiquid assets don't count. As a point of comparison, needed when scaling these dizzying financial heights, the $40.7 trillion in the hands of these ten million HNWIs come to more than three times the GDP of either the United States or the European Union, nearly six times that of China and thirteen times the GDP of India.

Europe's share of this valuable pie is roughly a quarter and has remained constant as the total pie has grown. Increasingly large sums and shares now go to Asians, Latin Americans and Middle-Easterners. At 3.7 percent, Europe has the lowest growth rate in the numbers of the HNWIs-who now count 3.100.000 Europeans, compared to over 15 percent growth in the numbers of Mid-Easterners and 12 percent of Latin Americans. The wealth accruing to these geographical regions remains, however, modest compared to the total and two-thirds of that wealth is still in North America and Europe.

So the investable cash the hedge funds have garnered, those $2.8 trillion that the Lowtax Network brags about, is plainly peanuts-not even seven percent of the pile the HNWIs are sitting on worldwide.

Various other measures of private wealth exist, such as the Forbes Magazine list of billionaires world-wide, again measured in $US. The 2006 list [published in 2007] gave 943 names; the one for 2007 published in early March 2008 had grown to 1125 people whose wealth is usually based on corporate shares. I did not have the courage to do the adding-up myself and Forbes does not give totals. Some have said that the total wealth of the 2006 list of fewer than a thousand individuals came to $3.5 trillion. I have lazily added up only the fortunes of the people at the top in 2007: the first three have $180, the first ten $426 billion.

Now try the following simple calculation. If you have "only" one billion dollars, like pages and pages of people at the end of the Forbes list, and if you are such an incompetent investor that you make a return of "only" $50 million or five percent a year; then every day of the year, Sundays and holidays included, you must spend $137.000 in pure consumption or you will automatically become richer. In other words, once you reach this level, it is virtually impossible ever to be poor or even just affluent.

We can indeed join in the Lowtax Network Team's shout of triumph: "There is such a lot of money!" There is indeed. The world is awash in it and there is quite enough for everyone. But as the simple calculation above indicates, beyond a certain level, it's very hard not to become richer. The natural, mathematical tendency of wealth is to become concentrated where it already is-at the top. The 20/80 "power law" takes over. Twenty percent of the population will have 80 percent of the wealth; 80 percent of the population will have 20 percent of the wealth. Today these figures are even more exaggerated and this will be the case so long as no political intervention or regulation is tolerated. This is precisely the position defended by the European Union and its Member States: allow nature to take its course.(5)

However, before inquiring into the purely European responsibilities concerning the persistence of poverty and what might be done about it, let us quickly look at the collective inequality data for the world, of which the best assessment is undoubtedly the WIDER study published in December 2006.(6)

The main WIDER findings were not surprising for those who have studied the subject: In the year 2000, 2 percent of adults in the world owned more than half of global household wealth. The richest 1 percent alone accounted for the ownership of 40 percent of global assets while the top 5 percent captured 71 percent and the top 10 percent held 85 percent of the wealth. The bottom half of humanity got along on barely 1 percent of total assets. These figures show the operation of the power law in high gear, especially since the WIDER definition of "wealth" was broader than that of Merrill-Lynch. The WIDER scholars used the classic "net worth" definition, meaning all physical and financial assets, including homes, the principle asset for most people who own anything, less debts.

Who's who, and where, in these WIDER percentages and how much wealth do they have? The good news is that to belong to the category of the "top half" of the human race, you needed only the modest sum of $2200 worth of assets. The bad news is that most people would still feel exceedingly poor at that level, even in terms of Purchasing Power Parity [PPP], the measure now used in most official comparisons. Top 10 percent membership meant owning $61.000; the top 1 percent required $500.000 plus. This latter amount, let us recall, is not nearly enough to get you into the really exclusive ranks of the Merrill-Lynch HNWI club-37 million people are in the top 1 percent according to WIDER whereas only 10 million are of interest to Merrill-Lynch.

The WIDER authors estimate that the world's households together possess $125 trillion in wealth, about triple global GDP. If the wealth were shared equally, everyone on earth would have $26.000 worth of assets [WIDER calculates this figure in terms of PPP]. No one expects ever to arrive at complete equality-it probably would not be a good idea even if it were attainable-but these calculations do tend to show that the world as a whole is certainly not "poor" by any standard measure.

In the 21st century we thus have a broad and increasingly detailed knowledge about who is rich and who is not, where they live, how many they are, what their wealth is based on and so on. Still, many might say that globalisation is the famous tide that lifts all boats so the poor are benefitting from it too. They are said to have risen from an even lower level on the human scale and their absolute and relative numbers are said to be decreasing [although everyone recognises that if China and India are left out of this equation, the argument collapses]. Leave globalisation and the market, we are told, to increase economic growth and the boats of the poor will rise on the tide with the rest.

This is unfortunately not the case. Inequalities are growing mightily both within and between countries and as over thirty recent food riots have shown, market events can plunge tens of millions back into absolute destitution. Tony Addison and Giovanni Andrea Cornia explain why we cannot usefully speak about combating poverty without examining inequality. Inequality matters a great deal where poverty reduction is concerned. It impedes rather than encourages growth and it swamps or punches holes in the boats of the poor. We must recognise that

'inequality has risen in many countries over the last two decades... . This is disturbing since little progress can be made in poverty reduction when inequality is high and rising. Moreover, contrary to earlier theories of development, high inequality tends to reduce economic growth, and therefore poverty reduction through growth.'(7)

Their paper provides evidence of strong negative relationship between inequality and growth and they show that

'"Traditional" sources of inequality must be addressed through land reform, and more public spending on the human capital of the poor.'

These measures, however, even if applied, will not be sufficient since

'new causes of rising inequality must also be tackled by redesigning stabilization programmes to avoid sharp anti-poor demand compression and to protect pro-poor spending; regulation of privatized enterprises to protect disadvantaged poor consumers; and more pro-poor education investment to offset the tendency of trade liberalization to increase income inequality.'

More explicitly, avoiding "anti-poor demand compression" and compensating for same with "stabilisation programmes" means that sharp price increases [food, energy, water...] will hit the poor hardest and leave them without the necessities of survival if governments do not act. "Regulation of privatised enterprises" means that these authors assume that privatisation is a fait accompli. So it is, after decades of structural adjustment at the hands of neo-liberal institutions like the World Bank or the IMF applying "Washington Consensus" anti-poor medicine. These policies also have primacy in neo-liberal Europe, one of whose goals is to facilitate the inclusion of all human activities in the marketplace.

Thus for Cornia and Addison, at the very least, these now privatised utilities, transport networks, health-care systems, education; but also formerly government-managed food stocks, veterinary services, municipal water systems, rubbish collection and so on must be regulated, that is, overseen by public authorities [if these services haven't disappeared altogether]. They don't ask for re-nationalisation or other forms of public ownership, merely for "regulation".

"Pro-poor education investment" to ward off exclusion of the poor from labour markets when trade is liberalised and subsequently "increases income inequality" is another means of adjusting to contemporary reality and trying to alleviate the plight of the poor. But as we shall see in a moment, fully a third of the European labour force is estimated by the Commission itself to be of "low educational attainment" and there are few signs that Europe has any intention to do anything about it, despite the "Lisbon Strategy". Annual assessments of progress towards the Lisbon goals show Member States falling behind in crucial areas.

In other words, neo-liberal globalisation will necessarily create inequalities and the greater the inequalities, the more the poor will be made poorer and more vulnerable.

A good part of the "social" or non-monetary wage is wiped out through privatisation and higher prices for basics like water, transport or electricity. Lack of public investment in health and education has, in many places, made recourse to private systems an attractive option for anyone who can afford them-which not everyone can. If one hopes to reduce, much less eradicate poverty, then specific, targeted public policies are required in Europe or elsewhere. It is wishful, if often convenient, thinking to believe that such a result can be achieved through "growth" and some imaginary "magic of the marketplace". Markets reward the haves, not the have-nots for the excellent reason that it cannot even "see" those who contribute little to capitalist production and buy so little that they are nearly invisible to capitalist consumption. We have known for decades that growth does not "trickle down".

If one is serious about reducing or eliminating poverty, the obvious road to take in Europe is the Keynesian one of cross-border taxation and redistribution, re-establishment of the social wage through high-quality, integrated [cross border] public services including health-care and life-long education, a responsible fiscal policy including the elimination of tax havens, regulation of financial transactions and imposition of accounting practices that do not allow transnational corporations to use transfer pricing and other dodges; a European Central Bank with a mandate to practice policies leading to full-employment and so on. The European Union is actively avoiding all such practices and in some cases rendering them legally impossible.

II. European responsibilities

The arguments concerning poverty laid out above could be illustrated and supported for pages more, but this paper has no pretentions to being exhaustive. Nor do I believe it possible to convince anyone not already convinced of the harmful effects of neo-liberal policies. These policies, as now applied throughout Europe and the world, were consciously designed to do exactly what they have done: amass maximum wealth at the top while ignoring the consequences of greater poverty and inequality below.(8)

No one now denies the rise in inequality and wealth concentration but the standard answer to corrective policy changes is always the same. We heard it most recently at the failed mini-ministerial meeting of the WTO in Geneva this summer. Have faith in "market-based solutions" and the market will solve your problems. Let us now look briefly at how Europe, specifically the European Union, with the acquiescence and active cooperation of its Member States, fits into this picture.(9)

Since the Single European Act of 1986, the purely economic orientation of the EU has grown ever-clearer. The amendments to previous treaties contained in this Act were designed to increase the capacity of Europe to establish a truly common market. It was also the first time that social policies and democratic aspirations were explicitly pushed aside. The then-President of the Commission, the social-liberal Jacques Delors, explained that these would come "later". We are still waiting.

Nearly twenty years later, under the Barroso Commission which many consider the most neo-liberal in EU history, the Treaty for a European Constitution [TEC] drafted by an unelected convention made the market orientation even more explicit. The word "market" occurred 78 times in the text, "competition" [usually accompanied by the phrase "free and undistorted"] was given 25 mentions, "social policy" got three and "unemployment" none. The "four freedoms" were the paramount objective of the TEC: the free movement of "goods, persons, services and capital", interpreted as we shall see shortly in the broadest possible way so as to reduce other rights to the barest minimum.

The French debate in 2005 on the TEC and the future of Europe was the most ardent I had witnessed since May 1968: contrary to the assertions of the Commission, the French knew exactly what they were voting for/against. It was a class vote, with everyone but the managerial class voting No and when the French people voted decisively [54.7%] against the TEC [as did the Dutch even more decisively-61.6%-- shortly thereafter], the Commission and European elites discarded all democratic pretence. The people had voted wrongly, therefore the people were wrong and should be ignored. Or, as Commission Vice-President Gunter Verheugen put it even more brutally after the French/Dutch votes, "We must not give in to blackmail". So much for universal sovereignty.

The Lisbon Treaty, drafted in an even more secretive fashion and even more difficult to decipher, followed in due course and incorporated virtually all the provisions of the defunct Constitution, passing over the popular rejections as if they had never occurred. According to the principle author of the TEC, Valéry Giscard d'Estaing, Lisbon provided only "cosmetic changes" to make it "easier to swallow". Nicolas Sarkozy admitted that if the French were allowed to vote again, they would again vote No, as would the people of many other nations. Therefore they should not be allowed to vote. The same authoritarian treatment given the French and the Dutch is now being meted out to the Irish. Disregard for one's own rule of unanimity is clearly preferable to another failure and one can be sure that the Commission will not rest until it has obtained the Treaty it wants in order to steamroll ahead with its own profoundly undemocratic, economically divided Europe.(10)

Among the poverty-enhancing attributes of the texts Europeans are being forced to swallow are the provisions on public services or rather "services of general economic interest" which are specifically made subject to competition. Unanimity is required for any common social or fiscal policy, meaning that competition will push these downwards. Lisbon obliges EU members to "improve their military capabilities" [while making them subservient to the US and NATO] which means that other budgets will necessarily suffer. Although "enhanced cooperation" is quite easy to realise among like-minded European governments in the military sphere, it is extremely difficult if not impossible to organise cooperation regarding social and fiscal policies. And of course the four freedoms trump all other considerations.

The twelve central/eastern European newcomers will not receive anything like the structural funds generously apportioned to Spain, Portugal, Greece and Ireland in earlier days; everything points to the deliberate use of these newcomer countries as reservoirs of cheap labour. In 2005, the "Bolkestein" or services directive was roundly denounced as organising unfair competition between the workers of higher- and lower-wage countries. The characteristically neo-liberal directive stipulated that firms from Eastern Europe need not even register with the authorities of a western European country in order to supply services there, at the going wage and working conditions in the "country of origin". Faced with an outcry, even from the usually docile European Trade Union Confederation, the Commission and Parliament were obliged to soften the directive to some degree and exclude some vital social services from its remit.

The Commission, however, true to form, decided that it would get what it wanted through another channel and has now passed on the matter to the European Court of Justice.

The result has been consistent jurisprudence in 2007-2008 weakening labour protection and the right to strike, while forbidding a national Member State to consider its own labour code as "public policy". The relevant cases, known as the Vaxholm-Laval, Viking, Ruffert and Luxembourg decisions, have all diminished hard-won worker rights.

The Vaxholm-Laval decision forbade Swedish unions to organise industrial action to force a Latvian company [Laval] to pay Swedish wages to its Latvian workers engaged in construction work in the Swedish town of Vaxholm.

The Finnish Viking Line wanted to reflag one of its vessels staffed with a largely Finnish crew in Estonia so it could hire an Estonian crew not benefiting from a collective agreement negotiated by the Finnish Seaman's Union. The decision found that "Social policy objectives do not automatically take precedence over the objective of having a properly functioning common market", in this case "freedom of establishment" in Estonia.

The Ruffert case concerned the right of German public authorities, when awarding work contracts, to demand that tendering companies commit to paying wages to foreign workers in line with rates specified in collective agreements applicable to German workers. The European Trade Union Confederation General Secretary called the ECJ decision refusing this demand "another destructive and damaging judgement [after Vaxholm-Laval]. They both assert the primacy of the free movement of services over existing labour regulations which apply to the place where the service is provided".

The ETUC also called the Ruffert decision "an open invitation for social dumping, which will not only threaten workers' rights and working conditions, but also the capacity of local (small and medium) enterprises to compete on a level playing field with foreign (sub)contractors."(11)

Most ominous of all, however, is doubtless the "Luxembourg" case brought by the European Commission against its own EU Member State. The Commission claimed that Luxembourg had violated the EU "Posting of Workers Directive" [PWD] when it transposed this directive into national law. Luxembourg argued that its national "public policy" [which could therefore legally replace the terms and conditions expressly listed in the PWD] included among other provisions written employment contracts, automatic indexation of wages to the cost of living, regulation of part-time and fixed-time work and respect of collective labour agreements. Luxembourg therefore claimed it was justified in requiring foreign employers to conform to its "public policy" which is "to protect workers".

The ECJ upheld the Commission on all points: Luxembourg's interpretation was "excessive"; its legislation went beyond what is allowed by the PWD because the latter embodied an "autonomous principle of Community law and can be monitored by the European judge accordingly...National labour law as a whole cannot constitute public policy".(12)

These four decisions create a huge incentive for companies to subcontract work to subsidiaries that are, on paper at least, located in low-cost EU countries. Downward pressure on standards, wages and social rights will necessarily increase.

Thus the EU is organising the race to the bottom among workers. Its own statistics show that it has already been successful in reducing the gains of labour while enhancing those of capital. The statistics relating to the labour/capital share of added value can be calculated in different ways, using different bases and different time-lines--economists enjoy arguing about the best ones to use. But the EU itself, in its own most recent Employment in Europe Report 2007 shows that after hitting a peak in 1975 when the labour share of added value was 70 percent [69.9% to be precise], by 2006 it had declined gradually by over 12 percentage points, to 57.8 percent, with, of course, equivalent increases in capital's share from 30 to 42.2 percent.

In some countries the decline has been even steeper, as in France which now stands at 56.7 percent labour share of added value. The erosion of the labour share in the new Member States is even more drastic. In 2005 and 2006, Poland stood at 48.6, Bulgaria at 44.6 and Slovakia at only 42.3 percent. Malta, of particular interest to us here, averaged a 51 percent share of added value for labour over the period 1990-2006, peaking in 2003 at 53.3. It has since slipped back to 50 percent. .(13)

In the EU, the drop for labour was more than double that of the United States. Although in the US, over the whole period 1960-2006 the share of labour never exceeded 66 percent, with that high point reached in 1970, it was more stable. The low point came in 2005, at 61 percent, for a total loss of "only" five percentage points compared to 12 for the EU. As for Japan, long known as the most egalitarian developed country, it reached a remarkable 76 percent share for labour in 1975-1977 but had plummeted to 60 percent by 2006. In terms of labour share, Europe still remains the worst performer among these major OECD countries-or the best for capital, depending on how one measures.

As noted above, economists don't necessarily agree on the details of calculating added value shares between labour and capital, but as the EU points out in its own Report, all the other credible sources-the Bank for International Settlements, the IMF or the OECD-- show exactly the same patterns though the actual numbers may vary.

Not being an economist, I am unqualified to assign proportional responsibility for the decline in the labour share [never forgetting the improved share for capital] but it is easy to point to at least some of the factors that have contributed to it. Globalisation has given capital greater bargaining power over labour and changes in this rapport de forces between the two have surely played a part. Offshoring, de-industrialisation with the consequent loss of well-paid manufacturing jobs and the simultaneous rise of less well-paid service jobs also must have had something to do with this trend. Privatisation , like the relentless search for "shareholder value" have gone hand in hand with massive layoffs.

The unexamined question in the changes in value-added shares seems to me the role of the financial sector which exploded especially during the past decade. At least during the period from 2000-2006, profits of the banking and financial secotrs were nearly double those of any other industry. Investors had little incentive to invest in the real, job-creating economy. Financial institutions were furiously innovating, leveraging, and passing the hot potato of shaky loans, packaged as "Structured Investment Vehicles" or "Collateralised Debt Obligations", on to other unwary institutions-with the private ratings agencies egging them on.

As we know, this bubble has burst, with dire consequences. Working people have already paid several times: first when jobs in the real economy became scarcer and less well paid because of the rush to invest in financial products, not "real" ones; second when many lost their homes or the "equity" [capital] placed in their homes; finally when the bubble burst and taxpayers had to step into the breach to save the financial system. Now they will pay once more as we sink into generalised recession.

Europe's growth problem-and it is a problem-is seen to lie not in the dominance of runaway finance but in the "rigidity of the labour market". The remedy, seen from Brussels, is "Flexicurity". This hideous neologism is supposed to combine to best effect flexibility and security but it is also dangerous: the GUE-NGL [progressive left] group in the European Parliament has already labelled it "Flexploitation". Theoretically, the idea is to export the Danish model to the rest of Europe. The Danes have little protection with regard to hiring and firing, but a lot of support if they are between jobs or unemployed. Unfortunately, it's not possible to generalise this system without a great many other changes which the EU and most of its Member States are unwilling or unable to undertake.

For example, the Danes [and other Scandinavians] don't want to hear about a "European Minimum Wage" which would be a progressive measure for some other countries, because they know that their own wages [no minimum is set] are higher than an EMW would be. The Scandinavians also live in societies where the social consensus accepts high taxes and expects very high rates of participation in trade unions and collective bargaining among social partners. So while the goals of full employment, high levels of security, willingness to change jobs and access to life-long learning are certainly worthy ones, more emphasis for the moment seems to be placed on flexibility than on security, as the mounting proportions of casual and unwilling part-time employment seem to attest.

Furthermore, the 2008 Commission Report on Education brings the unwelcome news that illiteracy [called officially "low performance in reading literacy"] in Europe "actually increased by 10 percent between 2000-2006 and has reached 24.1 percent". These illiterates, unless they can somehow be rescued, will soon join the ranks of the "almost 108 million people [who] still have low educational attainment, about one third of the labour force", which is to say that they are virtually unemployable except in purely manual, unskilled jobs which are in shorter and shorter supply. These people constitute an exceptionally large reservoir of present and future poverty.

It would be wrong to leave the subject of European policy's own contributions to poverty without examining, however briefly, the impact of the EU on poverty in the South. Here we have a rich field to choose from. I have argued elsewhere that Europe should commission systematic research on the contribution of its own policies to the "push factors" causing massive immigration which is now treated entirely as a security-police-military problem. My argument is that we have helped to close off every avenue of socio-economic success, particularly in the countries of North and Sub-Saharan Africa and having done this, we are then surprised when the inhabitants of these countries risk their lives trying to move to Europe.(14)

I will not elaborate on this theme here other than to say that in my research proposal to the EU Research Directorate, I included in my list of topics which should be examined in relation to migration pressures : the continuing existence of large amounts of external debt and structural adjustment which impede personal development, the acquisition of skills, promote exports over local needs, and so on. Other areas are commodity prices; agriculture, notably the CAP; fisheries, climate change [beyond Europe's sole control] and unfair trade. Here I would like merely to touch on EU trade strategies, particularly the Economic Partnership Agreements [EPAs] under negotiation with ACP countries and the likely results-namely to increase poverty in some of the poorest countries in the world.

"Free trade" is the most sacred of the neo-liberal doctrines and the EU Trade Commissioner Peter Mandelson is a true believer. In October 2006, he launched the strategy "Global Europe" which concerns Europe's place in the world through commerce. Particularly since the "Doha Round" of the World Trade Organisation has become stalled if not comatose, Mandelson has concentrated on bilateral and plurilateral negotiations and has given the Economic Partnership Agreement with the 78 African-Pacific-Caribbean countries his particular attention.

The definition of "free trade" has shifted enormously in the past decade. Although lowering of tariffs on incoming goods is still an important component of trade agreements, what Mandelson and others refer to as "Beyond Borders Barriers" are as important if not more so. BBBs or "non-tariff barriers" in the European vocabulary mean any obstruction not only to sales of EU goods and services but also "barriers to investment" by European transnational corporations in any area. They want equality of access to government contracts and the elimination of government regulations Europe interprets as "disguised barriers to trade". The WTO is also concerned with all these, but bilateral and plurilateral trade agreements are all "WTO Plus", meaning that by definition they must allow freer movement and fewer "barriers" than WTO agreements do.

All the successful, now-industrialised countries, including the most recent ones like Korea or Taiwan, reached their present economic status by protecting their infant industries, using targeted government spending and subsidies and maintaining tariffs often as high as 40 or 50 percent on incoming goods, but these protections are no longer allowed for newcomers. Some of the ACP countries, especially the poorer ones, receive a hefty slice of their revenues from tariffs but are now being asked to forego these without compensation.

Mandelson's chief aim, however, seems to be totally unrestricted entry for European transnationals, so he is calling for the dismantling of national investment codes so as to eliminate restrictions on the sectors a TNC can invest in, the number of investors allowed in each sector, quantitative or proportional limitations on investment [for example 49 percent] or repatriation of profits, requirements for local hiring and local content and so on. EPAs can only be described as "leonine". So why do poor countries accept them, as many have done with a few notable exceptions like Senegal? They have signed because the EU has told them that if they don't, their development aid will be cut and the EU will buy fewer of their products. It is also demanding access to government public procurement contracts, often reserved for local firms, as well as access to raw materials.

No country seems too small or insignificant to pry open-in the early days of the services negotiations in the Doha Round, NGOs [legally] obtained copies of the correspondence between the Commission and the major European water companies in which the former asked the latter which countries they wanted to expand in, supplying which services, in which modes. The result was 73 GATS [General Agreement on Trade in Services] requests for market opening in the "request-offer" process, often to extremely poor countries.

Conclusion

The solutions to poverty, both European and world-wide are quite obvious and, naturally, the financial industry and many other interests lobby consistently against them. As there are between 10.0000 and 15.0000 lobbyists in Brussels, they have a lot of help.

--With regard to the financial crisis-cum-recession, transparency is vital. Banks at present won't lend to each other because nobody knows how much debt the other one has and how bad its balance sheet really is. So they are pulling back from most lending and making loans much more expensive. This is known as the "credit crunch" based on lack of trust, not of money.

--The private ratings agencies which gave the toxic SIVs and CDOs triple AAA ratings need to be placed under government control; they should be paid by the buyers, not the sellers of securities to eliminate their present perverse incentives.

--The finance wonder-boy innovators have to be prevented from passing on the hot potato of toxic debt and obliged to keep a good proportion of their own products on their own books. Leverage [through which $1 can easily become $40, $50 or even $100] must be controlled by enforcing capital requirements with real assets.

--Stop allowing the socialising of losses and make shareholders pay the real costs of the debacle.

In a general way, we are neglecting to use existing tools. Here are a few:

--Cancel the debt of poor Southern countries, but [this is my personal view, not that of any particular NGO] in exchange for involvement of the people in the concerned countries in determining how the savings should be spent. The government should not be allowed to do this by itself. The argument that "one cannot apply conditions" is laughable, given that we have been doing so for decades, but the wrong conditions, those of the Bank-IMF.

--Close down tax havens, particularly those in Europe used by Europeans and European companies. The Tax Justice Network estimates that rich individuals have placed well over $11 trillion in such havens; the OECD has branded three major European ones-Andorra, Monaco and Lichtenstein-as completely uncooperative. Tax avoidance and evasion are now major industries.

--Tax cross-border financial flows, whether of currencies [recently traded at the rate of $3.2 trillion a day], stock market purchases, or transnational corporation profits. A very small property tax above a certain level would be helpful. Let us hire Price-Waterhouse or the equivalent to tell us how to levy another small tax on the billionaires and the HNWIs. The technical means to do all these exist, the obstacles involved are purely political.

--Seek fair trade, not free trade, taking into account the real, long-term interests of Europe, especially with the Mediterranean countries and Sub-Saharan Africa. Recognise food sovereignty as a basic, inviolable right.

--Invest in education and ecology. Require the banks that have been bailed out time and again reserve a certain portion of their loans at very low interest rates for these areas.

It is now generally known that there is no such thing as "aid flows" from North to South. Rather, the "aid" is coming from the South, or from Southern nationals, to the North and net flows are massively in the North's favour. Worker remittances from migrant workers to their home countries dwarf anything that Europe is sending to them under the heading of "Development Aid" and market opening will proceed by one means or another. Debt service from Sub-Saharan Africa alone continues at the rate of $25.000 every minute. Transnationals set up more or less where they like and disregard the needs of the local people when they do not simply steal their land. We can expect further impoverishment as a result.

It is not an accident that many NGOs and social movements have given up on the European Union as it presently exists although they continue to fight against its policies. Yet Europe could be a model for a new kind of society if it abandoned the meretricious, damaging values of neo-liberalism and returned to its Enlightenment roots which would now include enlightened Keynesian policies of taxation and redistribution, at the European and global levels. Europe still has the best social model in the world, based on rights and economic security and this can be mathematically proven.(15)

The requirements for reducing or eliminating poverty are known and the money is there. The political will at present seems non-existent, but social movements will continue as best they can to defend a different future, as I have tried to do here.

This was Susan George's contribution to "The fight against poverty" civil society project conference 2008 at the Jean Monnet Centre Of Excellence, University Of Malta, 8 October 2008. Susan George is Chair of the Board of the Transnational Institute. Her latest books are Hijacking America: How the religious and secular right changed what Americans think, and We the peoples of Europe.

Notes

(1) Book III, Chapter IV, p.512 in the Andrew Skinner edition, London, Penguin 1974

(2) Sarah Bouquerel and Pierre-Alain de Malleray, "L'Europe et la Pauvreté: Quelles réalités ? » Note no. 31 for the Robert Schumann Foundation, April 2006

(3) The elites of the United States, Asia, Brazil, etc. are also trying to prevent redistribution and eradication of poverty but this conference centres on Europe.

(4) See Investorsoffshore.com, "Private Wealth Management" by the Lowtax Network Editorial Team, August 2008. This network appears to be based in London although this is not clear from the data on the site..

(5) The "power law" holds true in an amazing number of areas: 20% of the banks have 80% of the accounts; 20% of publishers publish 80% of the books; 20% of US colleges receive 80% of the applications and so on.

(6) United Nations University World Institute for Development Economics Research [UNU-WIDER] The World Distribution of Household Wealth [James Davies, Susanna Sandstrom, Anthony Shorrocks, Edward Wolff] , Helsinki, December 2006

(7) Tony Addison and Giovanni Andrea Cornia, "Income Distribution Policies for Faster Poverty Reduction", WIDER Discussion Paper no. 2001/93

(8) For the means by which neo-liberal policies became the new "common sense" in the US, see Susan George, Hijacking America: How the Religious and Secular Right Changed What Americans Think, Polity Press, Cambridge, 2008. For more on the enthusiastic participation of the EU in these same policies, see Susan George, We the Peoples of Europe, Pluto Press, London, 2008.

(9) Because critics of the Constitution and now the Lisbon Treaty have so often been shoved into the category of "allies of the right" or "anti-Europeans", allow me to make clear that this is not the case for me, for the Attac movement [I am honorary president of Attac France], for the coalition most active in organising the No campaign in France, nor for the many other progressive Europeans I meet. While willingly recognizing my non-elected status and lack of representativity, I find all around me, in many European countries and contexts, something like furor, even hatred for the Commission and the present structures of Europe emerging. Those who feel this way are almost invariably enlightened, fervent Europeans but they want a social, ecological, democratic European Union, not the autocratic, corporate-friendly one being imposed on us now. The more official Europe displays its contempt for the people, the more dangerous this situation could become. Unfortunately, everything indicates that the Commission itself, like the top European bureaucrats, are utterly oblivious to this danger.. .

(10) Bruno Waterfield, "EU polls would be lost says Nicolas Sarkozy" The Daily Telegraph, 15 November 2007; . Giscard d'Estaing in hearings before the Constitutional Affairs Committee of the European Parliament 17 July 2007, see also his 'Tribune libre" in Le Monde of 14 June 2007 in which he explains that through Lisbon,, which was the Constitution rendered "colourless and painless" , "public opinion would be unwittingly led to adopt the provisions that [governments} didn't dare present to them straightforwardly". Many other major European figures [Barroso, Merkel, d'Amato, Zapatero, Bertie Ahern, the Belgian foreign minister, etc].all explained that Lisbon was the same thing as the Constitution ; many added that it had been deliberately made much more difficult to understand. .

(11) See press releases on the ETUC site

(12) Posting of Workers Directive 96/71/EC; European Court of Justice, Commission vs. Luxembourg C319/06 and ETUC Briefing Note on the case. The decision was handed down on 19 June 2008, a week after the Irish referendum favouring the No. The formal name of this court is the Court of Justice of the European Communities.

(13) .Employment in Europe Report 2007, Chapter 5, "The labour income share in the European Union"., European Commission, 2007; using country or area specific tables and charts.

(14) Susan George, Paper for the EU Research Directorate, programme "Responding to Global Challenges"; "Examining Relationships between European Union Policies and Migratory Pressures" [April 2008, to be included in an as yet unpublished collection of proposals issuing from the Global Challenges workshop.

(15) See the final chapter of Susan George, We the Peoples of Europe, op.cit. which is based on the International Labour Organisation report Economic Security for a Better World; 2006, an exhaustive survey classing countries according to seven types of security. European countries, including many in eastern Europe, come out on top; the United States is no. 25.

Crisis Allows Us to Reconsider Left-wing Ideas

Sat, 18 Oct 2008 00:47:36 -0400

by Paul Gillespie

World view: In November 1857, Karl Marx wrote to Frederick Engels: "The American crash is a delight to behold, and it's far from over." He predicted the financial crisis - the most geographically widespread to have hit 19th-century capitalism until then - would deepen and lead to a complete collapse of Wall Street, writes Paul Gillespie

Notwithstanding his own financial distress, he had never felt so "cosy". Engels himself felt "enormously cheered". The events confirmed their theoretical analysis and political strategy of linking reality to preparedness.

That crisis spurred Marx to complete his economic studies on finance capital and its cycles of boom and bust, clearing the way for the more comprehensive Das Kapital, published 10 years later. It theorised the system as an anarchic, irrational and blind competition, pursuing profit and accumulation.

Credit and production expand in a contradictory way until they can no longer sustain profitability. Then collapse clears out waste, reorganises production and stimulates the capitalist state to amend the rules governing trade, finance and investment. The state's role oscillates between night-watchman and direct intervention, but its power should never be underestimated.

Marx's work has suddenly become popular again in Germany, as a new generation tries to understand the dynamics of these events and how they should be evaluated historically. There are disturbing memories of the 1929 crash and its awful political consequences, coming after the 1922-1923 financial collapse which destroyed German savings. As the crisis unfolded three weeks ago, German finance minister Peer Steinbrück was quick to claim "the US will lose its status as the superpower of the world economic system. The world will become multipolar." It is happening before our eyes. And Steinbrück says "generally we have to admit that parts of Marx's theory are not so bad".

Commentators have been quick to notice, and many to mock, such left-wing schadenfreude, whether directed at the US or capitalism as a whole. Germans especially should be aware of how hubris and nemesis can follow one another - as Steinbrück found out a mere 11 days after saying a bank rescue programme was not needed when he announced a plan to protect German bank deposits.

Although this is undoubtedly a grave crisis for finance capitalism, with deep effects on the real international economy, it is not - as yet - a systemic collapse. The extraordinary speed and depth of the events and the $1.8 trillion response to them, especially this week in the European Union, have helped avoid the meltdown heralded at the weekend by Dominique Strauss-Kahn at the International Monetary Fund meeting in Washington. French president Nicolas Sarkozy, British prime minister Gordon Brown, German chancellor Angela Merkel and Spanish prime minister José Luis Rodríguez Zapatero are taking the lead to create a "refounded capitalism" more capable of withstanding such cyclical shocks by better global regulation.

In an audacious initiative, Sarkozy and EU Commission president José Manuel Barroso are meeting US president George Bush this weekend to seek a G8 summit next month on a new agreement to regulate global finance. Presumably it would include the president-elect. If that is Barack Obama, he will be confronted with a dramatic adjustment of US power to a more multipolar world, for which he is better prepared and which he is more willing to accept than John McCain.

Note that most of these leaders are from the centre right, not the centre left. Centrism is resurrected from the wreckage of radical right-wing deregulation, more than is the left. The argument is about re-regulation rather than redistribution, the public rather than the private interest, transnational against national sovereignty.

So far, that is. The traditional left has had little operational purchase on the crisis other than I-told-you-so utterances about their inherently cyclical nature. Confronted with this international convulsion, "the Left" is for the most part as weak and tame as it certainly is in Ireland. Popular anger here and in the US, for example, is far more radical, but not expressed in such vocabularies. This is a real challenge and also an opportunity for the left - just as it was for Marx and Engels 150 years ago.

But does the left refer to traditional social democracy, which accepts market capitalism but seeks to equalise it; to the "third way" variety popularised by Blair and Brown; or to the "democratic socialism" of post-Stalinist parties? What of more recent green socialism? How to classify the rump of traditional Stalinist parties in Europe, India and elsewhere? Should Chinese and Vietnamese one-state authoritarian capitalisms led by such communist parties be included? Where do the left of South Africa's ANC and the burgeoning variety of Latin American left-wing movements fit in? Is the US Democratic Party part of that family? How do all of these relate to the growing radical or far-left tendencies and social movements drawing on previous bottom-up revolutionary traditions such as Trotskyism and anarchism?

Big events revive these debates, but they need to be reinvented for new times. Conventional sociological post-industrialism accounts rendering left ideologies and movements redundant badly need revision in the light of falling living standards and growing inequalities. So does Fukuyama's notion of the end of ideology and the triumph of market capitalism - as he now admits. Big names too: Keynes, Polanyi, Kondratieff, Galbraith and now Paul Krugman are deployed by social democrats against those who want to resurrect Marx and Engels.

Six Questions for Eric Janszen on the Economic Collapse

Thu, 16 Oct 2008 00:36:08 -0400

by Rafil Kroll-Zaidi

1. Is the Dow still inflated?

It is. My Dow target since 2006 has been around 5,000. Here’s why: The impact on the stock market of the 2003–2007 monetary and fiscal reflation was similar to that of the 1933–1937 reflation–except that this most recent reflation was enhanced by real estate asset-price inflation. Sure, by 1937, the stock market had nominally recovered 80 percent of what it lost between 1929 to 1933. But in real, inflation-adjusted terms, it recovered only 50 percent of what it lost.

Today, all of the pricing power that was temporarily injected into the economy with the credit expansion is running in reverse, with across-the-board debt deflation. Soon the dollar will resume its decline relative to commodities (although not currencies) increasing food and energy inflation pressures in the United States, even as unemployment rises and wages deflate.

2. What can we expect from federal intervention?

The government has been trying to manage the debt deflation for over a year, to no avail. The markets are “pricing in” the structural problems of the banking system and financial markets–problems, as I said, that cannot be addressed with ad-hoc and marginal national policies. The entire global financial and monetary system has to be overhauled. This will require immediate and unprecedented cooperation among governments and institutions. But America lacks the global political leadership needed to drive the process.

Time is short. The financial-markets crisis is now spilling over into the real economy. Soon unemployment and other hardships will limit the ability of governments to sell a global bailout package. This is how the first great era of globalism degenerated into political chaos in the 1930s.

The nationalization of the U.S. banking system is a bold step. The markets are pleased, as has been the pattern for government interventions in years past: when interventions are promised, the markets crash up; when the interventions are not delivered, the markets crash down. When the interventions vastly exceed expectations, as with the agreement among governments in the U.S., the U.K., and Europe to purchase shares in leading banks–nationalization in all but name–the stock markets react with manic enthusiasm.

Certainly short-term risks to investors have declined. The markets correctly understand that a functioning credit system is a prerequisite for a modern economy. But getting the credit system working again is like restarting a heart-attack victim’s heart. The underlying cause still has to be addressed, and that takes years, and other organs may fail while the patient is out.

It seems like the whole finance economy was Long-Term Capital Management writ large: basically no one, not even regulators, appreciated just how precarious it all was. How do we create a stable regulatory structure?

The decline in regulation is a symptom of FIRE economy interests (Finance, Insurance, and Real Estate) taking control of the political machinery to increase profitability. But the profitability of the credit industry was a side effect of interest rates falling (after the Volcker Fed raised them to 20 percent). The incursion of the credit industry into every aspect of American life–college tuition, health care–was the result. But it’s worse than that. Manufacturing was financialized. Take the auto industry–a finance manager at one of the Big Three automakers told me, “We used to be a car company that sold financing on the side. Now we are a bank that makes cars.” Look at GM stock in recent days. It’s gotten hammered worse than during the Great Depression, not only because of a coming loss in production profitability but also because of the loss in profits from credit operations that had become such a large part of their operating profits. The regulators have to start over.

4. There have been warnings about how precarious it is for the $63 trillion credit-derivatives market to be bigger than the “world economy.” What are people talking about when they bring up this figure?

Credit-default swaps (CDSs) have been described as insurance policies taken out between two parties. One party agrees to insure against the default of a bond; the other party agrees either to pay out the insured amount if the default happens during the term of the contract or to keep the premium if it doesn’t. But CDSs are not exactly like insurance policies–you do not have to own the asset in order to take out insurance against it. So the CDS market is like thousands of gamblers taking out hundreds of fire-insurance policies of various terms–say, averaging five years–against hundreds of houses. The total value of the insurance premiums of all of the contacts may be $4 trillion (known as the gross market-replacement value) while the total liability of all of the counterparties may be $63 trillion (notional value) if all of the houses were to burn down. The gigantic notional value of CDS market is often covered by financial journalists with alarm. But the chances that all of the houses are going to burn down in five years is close to zero. The actual liability is somewhere between the gross replacement value of $4 trillion and the notional value of $63 trillion.

If the “statistically correct” thing happens and only one of the several hundred houses burns down in five years, then the total amount that all the counterparties owe together is manageable. But if many of the CDS contract writers are using the same or similar risk models and they happen to be substantially off, then the total cost of the insurance payouts may exceed the insurers’ ability to pay. The insurers will be forced to default on the default insurance.

The risks are: 1) that a few such defaults will lead to others, causing a panic; 2) that in a panic that the CDS market cannot be bailed out by the Fed because the market is based on of thousands of handwritten contracts enforced by novation, the weakest form of contract settlement–which means there is no central clearinghouse where parties can be brought together to work out problems; and 3) that there is a considerable concentration of CDS liabilities among a small number of financial firms. That is why Bear Stearns, for example, was bailed out, and why Lehman should have been bailed out, from the perspective of financial system stability.

5. How much worse will it get, and has anyone been able to beat this market?

It happens like this:

the dollar, declining;

import prices, rising;

goods prices, flat to rising;

wages, falling;

asset prices (stocks, bonds, real estate), falling;

long-term interest rates, low but rising;

short-term interest rates, low but flat to falling.

The probable outcome will be an inflationary recession or an inflationary depression–a toxic and complex mix of asset-price deflation, wage deflation, and energy-price inflation that will have an impact on food prices.

I don’t think most Americans understand just how much trouble the country is in. We are backing ourselves into a corner. Our debt-laden economy is highly sensitive to increases in long-term interest rates, and those since 2003 have become largely determined by foreign capital inflows from central banks, sovereign wealth funds, and other official (as opposed to private) sources. If a significant geopolitical shift away from financial support of the U.S. takes place–due to, say, military conflict between U.S. creditors, or perhaps due to rising economic and financial crisis at home–the source of those inflows may quickly dry up. One reasonable estimate I read forecasts a 2 percent increase in the ten-year Treasury bond per year that inflows stop and holdings merely remain constant. That will tend to increase mortgage rates and slow the U.S. housing market and economy further.

As the economy contracts, the inexorable logic of the American political economy is to increase protectionist and unilateral measures, as if the United States were still a net creditor as in the late 1970s. If such policies are pursued (which caused the world trade negotiations to collapse earlier this year) the results will be disastrous for America: the current orderly diversification from the dollar may become disorderly.

As to beating the market–members of iTulip.com moved from stocks to cash starting at the end of 2007 and have continued to buy gold since 2001. Some of our members have purchased negative index funds such as SRS and have done well.

6. Who should go to jail?

Many will go to jail, but I’ll wait for the hearings before I offer a judgment.

Eric Janszen is the angel investor and iTulip.com founder

How to Approach the Crisis

Thu, 16 Oct 2008 00:32:04 -0400

by Derek Wall

The fear that virtually no-one voices is that the banking system will disintegrate. I guess that commentators are keeping silent because nobody wants to think about a generalised bank collapse, with the money in a billion citizens’ accounts disappearing.

There is a realistic chance of this happening and the ensuing chaos does not bear thinking about.

The optimists hope that we will escape with a very severe recession, but the most pessimistic believe that the economic system will move into total meltdown.

The cause of this economic turmoil is simple. Bankers no longer trust each other, therefore they are unwilling to lend each other money and, in turn, businesses that need credit to survive are finding it increasingly difficult to get hold of the necessary cash.

Banking depends on trust. If confidence disappears, the whole system falls apart.

Banks, governments, pension funds, insurers, local authorities and even charities have become increasingly dependent on derivatives, which are essentially complex financial instruments that use mathematically sophisticated gambling to generate ever more cash.

Yet derivatives are a toxic debt time bomb and no institution wants to be holding them when they blow up.

Neoliberal globalisation has allowed corporations to depress wages and an extraordinary gap between rich and poor has opened up.

This is the reason why poor people in the US, especially African-Americans in states such as Florida, have been defaulting on their mortgages in their millions. And financiers who have made literally billions are making the rest of us pick up the bill.

The danger is that governments will bail out the system, but, a few years down the line, the bankers will start the process all over again.

Capitalism is inherently unstable, it does not work economically, its demands are wrecking the planet and it currently does not even function financially.

There are two dangers at present.

First is the threat of economic collapse, which will severely damage capitalism, at least in the short term, but will bring unemployment, poverty and even hunger to billions of people.

The second is that the system will be cleaned up enough to avoid immediate disaster so that it can continue wrecking havoc into the future.

Nicholas Hildyard and his associates at The Corner House, an impressive economic think tank and grass-roots activist community based in Dorset, have produced a detailed strategy document on the crisis aimed at social movement activists, the green movement and the left.

It examines the history of the derivatives and “hedges,” looks at the speculation that underpinned this new finance and how derivatives are being used to get around finance rules. It also makes some strategic recommendations for the left.

Hildyard notes that the neoliberals have been on the ideological offensive since the 1970s, overturning regulations and creating a new economic framework which effectively put everything up for sale.

For example, private finance initiative schemes have become a way of funding public infrastructure by using derivatives and other complex financial instruments.

The left needs to challenge the logic of markets head on. There is an ideological battle for hegemony that must be won. We must, while challenging capitalism, study its mysterious workings with care.

Most politicians don’t understand the derivative markets, even though such markets determine how the economy works and effectively govern how global society functions.

Unless we understand how our increasingly complex financial system has evolved, we will continue to be hoodwinked and manipulated. The Corner House guide clears up a lot of the mystery.

Only grass-roots activism is likely to be effective. Without huge social protest, Prime Minister Gordon Brown and the rest of the political elite will reshape the economic system in ways that benefit themselves while we pick up the bill in wage cuts, forced redundancy and higher taxes.

Banks should become mutuals owned by us, making investment decisions based on social and ecological need, not the pathological greed of a few.

Yet this approach is not currently on the agenda and common sense is alien to mainstream politicians. Therefore, despite the current crisis, the neoliberal consensus may well continue.

The finance capitalists have the ear of policy-makers. For example, the World Trade Organisation is pressing ahead with measures to make it more difficult to regulate derivative markets.

Private finances fund much state activity. There is no real talk of governments using the banks that they have effectively nationalised to support job creation, fund infrastructure such as rail and the renewable energy that we need for ecological sustainability.

In Britain, all three main political parties support the neoliberal consensus and, in the US, both Barack Obama and John McCain are unlikely to challenge finance capitalism, with bank collapses being used to create new monopolies.

Hildyard argues for far greater regulation but he notes that regulation avoidance is being used to create new opportunities by finance capitalism.

What we need, according to his report, is a “new moral economy” where exploitation of one individual by another for short-term gain is rejected.

This is where the politics comes in, as such a moral economy can only be built through struggle.

The Latin American left has shown the way forward - only through the nurturing of grass-roots struggle based on real democratic participation will the necessary change become possible.

www.thecornerhouse.org.uk/pdf/document/WallMoneyOct08.pdf

Derek Wall is active in the Green Party of England and Wales.

Fictitious Capital and Real Compacts

Wed, 15 Oct 2008 00:41:53 -0400

by Anitra Nelson

Perhaps we need a Marxian to sort out the world's financial woes. The insights of Karl Marx on capitalist crises, especially speculation and financial crises, were sophisticated for his time. Indeed, this nineteenth century communist revolutionary called financial assets and loans 'fictitious capital' or 'imaginary wealth' as distinct from 'real capital' - industrial or productive capital - such as factories and commodity stocks.

The first part of this article discusses Marx's concepts of crises and fictitious capital in the current international financial climate. It relies on my doctoral study, which was published in 1999, Marx's Concept of Money: the god of commodities (Routledge, London). Many contemporary commentators focus on what might be done to remedy the situation. Instead the second part starts from the premise that the current crisis illustrates the very destructive and inhumane nature of capitalism and argues for instituting a humane and ecologically sustainable world without money. This second part draws from my site - Money Free Zone.

Fictitious capital

Marx stressed that stocks and shares are often exchanged at 'prices' at variance with the value of the real assets that they represent. In other words, financial capital circulates relatively autonomously of the productive process from which it arises and on which it depends, an endless tango, contributing to capitalist cycles and financial crises.

The current speculative boom in the USA has focused on housing investments. A pass-the-parcel style of lending evolved. Lenders were so cocky that borrowers would repay unabated, successive interests enthusiastically bought in down the line through mortgage-backed securities. This has led to a domino-like fall of credit once repayments seized up and as defaults rose. Hyman Minsky (1) has elaborated on this model of lending and its role in capitalist crises.

Repayments were jeopardised by wild lending practices, which meant that home loans were provided to many borrowers who had little hope of repaying. In a neo-conservative policy climate, it was assumed that the market, lending institutions, would price such loans for risk (through insurance). Though less severe than in the USA, in Australia lending was characterised by greater quantities and varieties of household credit (see Steve Keen's Oz Debtwatch site ). This kind of lending has strongly contributed to the current international financial crisis, in terms of over-speculation.

In Capital III Marx writes that when a sufficient proportion of capitalists invest, i.e. lend, without receiving repayments plus interest or profits, a generalised crisis will evolve of the dimensions we are now experiencing:

"If the reproduction process has reached the flourishing stage that precedes that of overexertion, commercial credit undergoes a very great expansion... the point when jobbers first enter the picture on a notable scale, operating without reserve capital or even without capital at all, i.e. completely on money credit… Interest now rises... It reaches its maximum again as soon as the new crisis breaks out, credit suddenly dries up, payments congeal, the reproduction process is paralysed and... there is an almost absolute lack of loan capital...(2)

With mortgage-backed securities both borrower and lender rely on the houses' maintaining their value. Everything is inclined to tumble if either house prices fall or borrowers' incomes are threatened enough to compromise their ability to keep making loan repayments. In fact, defaults and falling prices tend to stimulate one another, setting up a negative dynamic. This has happened in New Zealand, Australia, the USA and the UK.

Capital: money begetting more money

Basically, all investment lays bets on future returns. Investment is always a gamble. Indeed the rationale for capitalists' making profits is embedded in return for risk. If the risk doesn't pay off, they lose their money. So be it. Of course, this accepted reward for risk is turned on its head if those responsible for over-lending are 'bailed-out' by the US and so many other, including Australian, governments.

In Marx's time similar dilemmas raised the same quibbles:

"...where the entire interconnection of the reproduction process rests on credit, a crisis must evidently break out if credit is suddenly withdrawn and only cash payment is accepted, in the form of a violent scramble for means of payment. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis... On top of this, however, a tremendous number of... purely fraudulent deals, which now come to light and explode; as well as unsuccessful speculations conducted with borrowed capital... It is clear that this entire artificial system of forced expansion of the reproduction process cannot be cured by now allowing one bank, e.g. the Bank of England, to give all the swindlers the capital they lack in paper money... Moreover, everything here appears upside down, since in this paper world the real price and its real elements are nowhere to be seen... This distortion is particularly evident in centres such as London, where the monetary business of an entire country is concentrated...".(3)

Today, of course, we have an international economy and one of the prime financial centres in question is Wall Street, New York.

However, as Marx stressed, the irony of the ideal of the individual in capitalism is in the omnipotence of the economic system over capitalists and workers and the dependence of our whole society and politics on growth. Thus we cannot afford to let the swindlers go to hell, because they will drag us there with them (while we cling to capitalism).

Material bases for crises

For Marx, economic crises were endemic and exogenous features of capitalism, which occurred at any time of substantial or widespread interruption to the production or circulation of commodities. Because capitalists act independently, indeed competitively, the result is a constant tendency to crises. Demand and supply is unorganised at every level (individual firms, particular sectors and national capital) and there is the constant necessity for generalised growth, based on profits (invested capital), which might not eventuate.

Thus the precarious material bases of capitalism sensitised the system to crises resulting from imbalances of demand and supply between different sectors of production, overproduction or underconsumption (workers not being paid enough to buy the products they create) and speculation. Speculation or unwise investment appears after the fact in all these cases. At the same time, overinvestment - too many people wanting to invest and gain returns from the available capitalist activities - also leads to bubbles or boom. Then they burst or bust. So, while poor regulation or lack of regulation of lending institutions might exaggerate a crisis, no specific regulation of banks could avert the general and constant phenomenon of capitalist crises.

Today, too, many commentators are arguing that throwing money at Wall Street and lenders not only means throwing proverbial good money after bad but might not solve the problem because it is not simply a credit crisis. One argument has been that the 'bail out' must provide 'little' people with mortgage repayment support, not for reasons of social justice but because such support is critical in material terms to overcome the basis of the crisis. Home purchasers must be supported so they can keep repaying their mortgages and keep the lenders solvent. This way the crisis finds some floor, or safety net.

These arguments accord with Marx's materialist analysis, which was based on the exploitation of workers by investors, entrepreneurs and managers. Marx's materialism was centred in human behaviour; the economic categories of profits and growth were social creations dependent on slave-like deliverance of commodity and service-producing labour to capitalists. This system requires the constant ritual of work for monetary pay, money in a sense circulating effort, assets standing for past labour.

Rising house prices

The last decade of burgeoning household debt in Australia has been accompanied by rising residential house prices. A mainstream analysis suggests too few houses and apartments, the need for government to open up and service more land and high-rise buildings in cities. This analysis fails to refer to inequities within our country, namely rising numbers of households that have two houses, such as families with holiday houses and a second house inhabited by student children.

Current mainstream analyses also tend to deflect attention from the most interesting aspect of the current lending boom - pushing up house prices, in effect incorporating speculation within ordinary households. In Australia, as house prices have risen to levels which have alarmed the International Monetary Fund, rents have increased strongly too.

Today, in Australia, paying for a home and superannuation complicates worker-employer relations. You could say that each worker has become a bit of a capitalist. Or, you could reason that workers not only get paid less than the value of the result of their work but also pay substantial proportions of their wages back to capitalists in the form of borrowing for larger and more expensive homes and by mandatory investments in superannuation.

Thus, workers are even more exploited in invisible or contradictory ways. Tenants link into the same structure - there is no escape. However, Marx was not the first to recognise that the game is one of mutual hostages. Around half of the finance lent by Australian banks today goes to, and comes from, mortgagors. If they were alive now, the authors of the Communist Manifesto, Marx and Engels, might well rally: 'Borrowers of all countries unite...'(4)

Real compacts (v. fictitious capital)

Part of the reason that I chose Marx's concept of money as the subject of a doctoral study related to my experiences as an activist, especially in the women's liberation and environmental movements, and reflection that the basic building block of the capitalist system is money. By the end of that study, which involved reading many people's ideas about what money was - and how it 'worked'! - I decided that the only way forward was to dispense with money altogether. Some of those thoughts were expressed in an article published in 2001 - 'The poverty of money: Marxian insights for ecological economists' (Ecological Economics 36, 499-511). Late last year I brought together my thoughts about experiences in cooperatives and with permaculture, and from reading and discussions on utopian and other literature at a site - Money Free Zone.

The Compact site calls for a 'compact' society. Compact means both 'an agreement' and 'small and efficient'. The argument is that money-free social relations, a 'compact society', will enable, embody and reproduce fairness, equity and sustainability. In a compact society our everyday practices will be modest and effective, minimising resource and energy use to meet simple and basic needs. We need to even out the inequalities between people within regions and between regions.

The idea is that formal collective agreements, compacts, will enable us to act in concert, to avoid some people's activities undermining other people's efforts. Networks of compacts will form the basis of compact neighbourhoods, compact communities, compact regions and a planetary compact society.

Visions and strategies for establishing sustainable practices proliferate but are in conflict with economic prerogatives that still dominate decision-making and actions. Capitalist practices are based on trade, exchanging goods and services for money, and producing goods and services for trade. The whole production process and decisions about how and what to produce are centred on the market.

This market logic uses monetary calculations. It is as if money is our common god, our central value, and provides the principles for all our main relationships and activities. Within this mainstream perspective, even sustainability initiatives must be 'economic', an example being the dominance of 'triple bottom line' approaches. Thus the world is still seen through capitalist eyes: fragmented in units in accordance with economic criteria and credentials, i.e. profitability.

Current sustainability initiatives are failing because really sustainable practices require that non-monetary values, principles and relations rule our decision-making and activities. To be sustainable we need to treat everything according to their use-value and use-value efficiencies, i.e. minimising needs and environmental impacts, and use-values must include ecological values.

Thus we must dispense with the market requirement of monetary values and calculations, i.e. capitalist determinations and complications, structuring business around assets and flows, credits and debits. Ecological processes and dynamics are hard enough to understand and manage without overlaying needs to make production and exchange sensible in terms of markets.

The concept of 'compact' is akin to 'contract' but involves none of the monetary values and financial risks common in contracts. Compacts have the potential to provide the political and economic building blocks of a world without monetary relations and values. Compacts would commonly involve at least two parties that agree, for instance, to share the use-rights and responsibilities of a resource base or to provide one another with goods and or services. In other words compacts would express agreements over the use and management of resources necessary to enable people to exist modestly and to share responsibilities as stewards of the earth and all its natural communities.

Compacts and networks offer viable forms for people to take and share direct power. Compacts would encompass all kinds of activities, including collective production and spheres of exchange, organised locally and in local-to-local networks. Thus we refer to a 'compact movement' as networks of socially fair compacts between groups and individuals, compacts that respect environmental sustainability and that will merge to form a dynamic path to rational, humane and sustainable livelihoods.

Many people have some relationships and practices consistent with a vision of compact communities. A 'compact movement' is already apparent in individual acts and voluntary associations as people place humane and environmental principles and values above monetary, capitalist ones. Generalising such values and formalising them in compacts will create alternative forms of governance, ultimately a global compact society.

This vision is not wholly new: many liberation philosophies point in the direction of a planetary compact society. Anarchism, permaculture, humanism and communism give priority to equity and fairness between people along with living in modest and sustainable ways, respecting nature. Associated principles and values have been expressed in the writings and actions of many philosophers and activists. However, a key distinction of the compact vision from numerous others is that production and exchange on the basis of people's and planetary (ecological) needs will take place without using money, or monetary values, principles and relationships.

Networks refer to the internal communications and relations between members within compacts as well as external connections comprising further compacts and other kinds of relations supporting compacts. For instance, a household would be organised by way of a compact which, in turn, would be a member of other compacts specifically formed to sustain the household and to help its members to sustain other people within their neighbourhood comprising people and the local natural and built environment.

Current capitalist practices contradict universal human rights to basic needs such as food, clothing, shelter, safety and care. Every activity involves monetary considerations at some level, shackling direct and sensible responses to human and environmental needs. Non-monetary compacts and networks would work directly with available human skills and effort, and energy and materials assessed in terms of their use-values.

Every human being would have a right to basic needs and would be a member of compacts designed to fulfil those needs at the same time as belonging to networks that would make them responsible for fulfilling other people's basic needs and care for the local environment. Planning and distribution formalised in compacts would be facilitated using electronic communication, which would link households with neighbourhood precincts and broader, sub-bioregional communities and bioregional networks.

Compacts and networks would be diverse, fulfilling a variety of purposes for numerous members. As basic ways of organising, formal compacts would offer robust and stable forms for local to global organisation of all kinds of activities, from those directed at fulfilling basic needs and wants to cultural and recreational ones. Permaculture and alternative, appropriate, technologies for generating energy and extracting and processing resources offer ready-made ways to proceed.

Some people would need to resettle according to the natural opportunities and limits of local and regional environments. Even so, place-based living would allow for mobility outside local groups, especially for members with skills and knowledge to share. Non-monetary exchange has always relied on customary rights and responsibilities with local and personal variations associated with social and environmental circumstances and developments. Non-monetary exchange will involve compacts and networks that allow groups to have access to basic needs and wants from outside the local area when necessary.

The deficiencies of local collective self-sufficiency and production for direct use-values can be overcome through low levels of exchange enabled by e-communication, negotiated on terms specific to the potential and limits of the people and landscape in question. Thus spheres of exchange would be minimal and formal and either of mutual advantage to two exchanging individuals or communities or involve multilateral benefits to many individuals or communities.

Strategies

The transition to a world without money - which is only to say that the conditions are laid for humans to establish communities based on social justice and environmental sustainability - would be created by, on the one hand, diminishing production and exchange based on a monetary, capitalist rationale and, on the other hand, progressively taking over production and exchange using non-monetary compacts. Collectively, our actions would weaken a reliance on capitalist practices and strengthen networks of compacts as alternative forms of governance, production and exchange.

Permaculture (permanent, sustainable agricultural practices and principles of designing sustainable livelihoods) offers ways to think about, plan, strategise and act to create a world that is socially just as well as environmentally sustainable. Permaculture emphasises self-reliance, production for direct use, minimising exchanges and concentrating them in the local area, working collectively and with nature rather than competitively and to control nature.

Monetary exchanges and production for the market must be re-modelled into exchanges that focus not only on the use-values of the produced and exchanged goods and services but also on the parties to such exchanges. Thus production and exchanges would be formally planned, centre on collective sufficiency based on bioregions managed for environmental sustainability and would involve production and exchange only marginally for identified, specific, external groups and environments.

Sustainability requires the end of the market, production for trade, and trade. Instead, we must care for the earth, care for people, and share the surplus.

Dr Anitra Nelson is a writer, researcher and filmmaker who lives in the Blue Mountains (New South Wales, Australia). Currently she is a Senior Research Associate at RMIT University (Melbourne), researching mortgage default in Australia. Since her PhD, Marx's Concept of Money: the god of commodities , was published in 1999 by Routledge (London) she contributed a chapter to Marx's Theory of Money: Modern Appraisals (Palgrave Macmillan, 2005), edited by Fred Moseley, and concentrated her studies on ecological sustainability. Most recently, she has jointly authored, with Frans Timmerman, '2020', a review of Australia's options for cutting carbon emissions (Dissent, #27, Spring 2008: 47-52) and edited and contributed chapters to Steering Sustainability in an Urbanizing World: policy, practice and performance (Ashgate, London, 2007).

Notes

(1) For more on Minsky and his financial instability hypothesis, see - http://cepa.newschool.edu/het/profiles/minsky.htm

(2) K. Marx (1981, orig. 1894) Capital: A Critique of Political Economy Volume III [David Fernbach translation] Penguin Books Harmondsworth: 619-20. [Chapter 30, if reading another edition.]

(3) Ibid: 621-22.

(4) Following the final paragraph of K. Marx & F. Engels (1847-48) The Manifesto of the Communist Party, often referred to as The Communist Manifesto. In a recent Australian edition published by Ivy Press (Wingfield, South Australia) in their Manifesto Series with an introductory critique by David Boyle, this paragraph (70) reads:

"The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. Let the ruling classes tremble at a communist revolution. The proletarians have nothing to lose but their chains. They have a world to win. WORKERS OF ALL COUNTRIES, UNITE!"

The Great Unmasking

Wed, 15 Oct 2008 00:34:22 -0400

by Linda Burnham

Capitalism in crisis is a sight to behold. Most of the

time the system seems to hum along quite nicely. Oh,

maybe a passel of people loses their jobs when some

big-headed suit at the top decides to up and move on to

a cheaper labor market. And maybe a city or two, or

even a whole region, goes bankrupt and destitute, shops

boarded up, ghosts in the street. Maybe a generation of

young people ends up poorly educated because nobody

could figure out how to turn a decent profit schooling

ten-year-olds, so it slid down to the bottom of the

priority list. Maybe there's an aberration here or

there, like the positive incentive to filling up

prisons. But overall, the thing has the reputation of

the proverbial well-oiled machine, humming along and

delivering the greatest good to the greatest number.

And besides, it's the only machine in town.

But then it breaks down. Spectacularly.

And it turns out that this highest possible form of

human development has more than a few foundational

flaws, the relevant one at the moment being that it is

subject, inevitably and constitutionally, to periodic,

devastating crisis.

At such moments the verities of capital are called into

question, and not by the closet Marxists and nostalgic

revolutionaries. No, the capitalists themselves, in

deed if not in word, are heaving great chunks of their

ideology overboard. Invisible hand of the market? Heave

ho. Limited government intervention in business? Heave

ho. Self-correcting system? Heave ho. Whatever it takes

to re-stabilize the system, let's do it. Principles be

damned.

The pragmatic and temporary abandonment of core

ideological beliefs is a great unmasking. And behind

the mask - fear, befuddlement, bravado.

The lords of finance live in a universe in which they

are rewarded for being both insatiable and delusional.

With maximizing profits as their single imperative they

toil daily at the task of turning every human

relationship and every form of matter - animal,

vegetable or mineral - into a monetized asset. The only

limits on how many ways that monetized asset can be

reconfigured and repackaged; the only limits on how

many times it can be resold; the only limits on how

many ways profit can be wrung out of it are the limits

of the imagination. We're human; our imagination is

without limits. We've figured out how to buy, sell and

lease the air space above buildings and the wind

blowing across the plains. And here you thought

'inherit the wind' was just a metaphor. But at least

the air is a substance you can feel and hear and, on a

crisp fall day, smell. Our boys are way beyond that,

having long since abandoned the molecular to trade in

the entirely immaterial.

So those are the rules they've been playing by. Did the

current crop of players make up those rules? No, they

are the rules of the reproduction of capital and the

current players just happen to be in the game at a time

when, abetted by the information superhighway and in

the context of globalization, they've triggered a

crisis that may yet turn out to be steeper, wider and

deeper than any in recent history. As anybody standing

on the corner could tell you, don't hate the player,

hate the game.

And the rest of us? What are we to them? We are the

human embodiment of the capacity to carry and pay off

debt. That's it, that's all. We are our credit scores.

We might as well have them flashing on an LED display

implanted in our foreheads.

We've been suckered, cajoled, manipulated and coerced

into joining them in their world of delusion, ensnared

as bit players in the grievous overproduction of

imaginary wealth. And while the realm of the fictitious

expanded infinitely, the realm of our real lives

contracted and shrank. Our wages flatlined or fell; we

lived in fear of acquiring an uninsured health problem;

our mortgages turned into a leaden ball and chain. The

loans and debts multiplied and the interest rates kept

rising. One administration after the other enabled a

regime of trickle up profits and trickle down pain.

So while they're frantically hustling to salvage the

system, let's stop for a moment to consider where we

stand.

We collectively face three major, inter-related crises:

the global crisis of capitalism; the crisis of

planetary sustainability; and the crisis of war,

militarism and empire.

The crisis of capitalism will be temporarily resolved.

On our backs, to be sure, and it will undoubtedly take

a while, but the markets will stabilize, borrowing and

lending will resume, and profit-taking will be back on

track. The mask, now in the repair shop for a custom

remodel job, will be back in place, firmly affixed to

once again show the face of capital triumphant. And

capital triumphant will have firmly in hand the one

chunk of ideology that was never tossed - there is no

alternative, or TINA.

Which brings me to the fourth crisis, hardly

acknowledged and barely discussed, at least here in the

U.S.: the crisis of the political impotence of the

left.

We stand at the brink of multiple disasters in the

howling absence of an alternative vision for

sustainable, people-centered human development, or an

alternative platform for deep reform, or an organized

base capable of challenging and shifting power.

And so this moment - the great unmasking - should serve

as an urgent reminder that we have a multi-generational

project at hand. That is, to construct a viable politic

and effective organizational forms capable of acting on

the belief that it is possible to build a society that

lifts up that which is generous and creative and humane

while curbing the greedy, the short-sighted and the

predatory. There must be an alternative.

Otherwise we, and generations to come, will remain at

the mercy of the players and their game.

______________

Linda Burnham is a co-founder and former executive

director of the Women of Color Resource Center. She was

a leader in the Third World Women's Alliance,

an organization that grew out of a women's caucus in

the Student Non-Violent Coordinating Committee (SNCC),

The numerous articles she's published include: "Has

Poverty Been Feminized in Black America," "Race and

Gender: Analogous or Not," "A Sledgehammer Message

from L.A.," and "Recruiting for the FBI: Reflections

on The Bell Curve."

The Depression: A Long-Term View

Wed, 15 Oct 2008 00:29:56 -0400

by Immanuel Wallerstein

The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering a mere recession. Don't believe it for a minute. We are already at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation, with all its negative consequences for ordinary people. Or it might take the form, a bit less likely, of a runaway inflation, which is simply another way in which values deflate, and which is even worse for ordinary people.

Of course everyone is asking what has triggered this depression. Is it the derivatives, which Warren Buffett called "financial weapons of mass destruction"? Or is it the subprime mortgages? Or is it oil speculators? This is a blame game, and of no real importance. This is to concentrate on the dust, as Fernand Braudel called it, of short-term events. If we want to understand what is going on, we need to look at two other temporalities, which are far more revealing. One is that of medium-term cyclical swings. And one is that of the long-term structural trends.

The capitalist world-economy has had, for several hundred years at least, two major forms of cyclical swings. One is the so-called Kondratieff cycles that historically were 50-60 years in length. And the other is the hegemonic cycles which are much longer.

In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has been slowly declining since the 1970s. George W. Bush's follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of U.S. hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come. There is not much that anyone can do to change this.

The Kondratieff cycles have a different timing. The world came out of the last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn in the history of the modern world-system. It reached its height circa 1967-73, and started on its downturn. This B-phase has gone on much longer than previous B-phases and we are still in it.

The characteristics of a Kondratieff B-phase are well known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be -- the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan -- have intervened in the market regularly and importantly -- 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) -- to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.

In the past, once a depression wreaked its havoc, the world-economy picked up again, on the basis of innovations that could be quasi-monopolized for a while. So, when people say that the stock market will rise again, this is what they are thinking will happen, this time as in the past, after all the damage has been done to the world's populations. And maybe it will, in a few years or so.

There is however something new that may interfere with this nice cyclical pattern that has sustained the capitalist system for some 500 years. The structural trends may interfere with the cyclical patterns. The basic structural features of capitalism as a world-system operate by certain rules that can be drawn on a chart as a moving upward equilibrium. The problem, as with all structural equilibria of all systems, is that over time the curves tend to move far from equilibrium and it becomes impossible to bring them back to equilibrium.

What has made the system move so far from equilibrium? In very brief, it is because over 500 years the three basic costs of capitalist production -- personnel, inputs, and taxation -- have steadily risen as a percentage of possible sales price, such that today they make it impossible to obtain the large profits from quasi-monopolized production that have always been the basis of significant capital accumulation. It is not because capitalism is failing at what it does best. It is precisely because it has been doing it so well that it has finally undermined the basis of future accumulation.

What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. As everyone pushes in whatever direction they think immediately best for each of them, a new order will emerge out of the chaos along one of two alternate and very different paths.

We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.

As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short run, it is not, by and large, a pretty picture.

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Immanuel Wallerstein is Distinguished Professor Emeritus of Sociology, State University of New York at Binghamton. Among his numerous books are The Modern World-System (1974, 1980, 1989), Unthinking Social Science (1991), After Liberalism (1995), The End of the World As We Know It (1999), and The Decline of American Power: The U.S. in a Chaotic World (2003). This commentary was published on 15 October 2008. © Immanuel Wallerstein, distributed by Agence Global.

This is What Denial Does

Tue, 14 Oct 2008 00:57:46 -0400

by George Monbiot

This is nothing. Well, nothing by comparison to what’s coming. The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year, as a result of deforestation alone(1). The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing freshwater - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it’s the first response to every impending dislocation.

Gordon Brown, for example, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40 per cent of the world’s foreign equities are now traded here. “I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”(2) The financial sector’s success had come about, he said, partly because the government had taken “a risk-based regulatory approach”. In the same hall three years before, he pledged that “in budget after budget I want us to do even more to encourage the risk takers”(3). Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends upon the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That’s another noun which reminds us of the connection. The OED gives 69 definitions of stock. When it means a fund or store, the word evokes the trunk - or stock - of a tree, “from which the gains are an outgrowth”(4). Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland’s financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the Common Fisheries Policy. Already the prime minister Geir Haarde has suggested that his countrymen concentrate on exploiting the ocean(5). The economic disaster will cause an ecological disaster.

Normally it’s the other way around. In his book Collapse, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe(6). The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. (Let’s hope Iceland doesn’t go the same way.) Diamond wonders what the Easter islander who cut down the last palm tree might have thought. “Like modern loggers, did he shout ‘Jobs, not trees!’? Or: ‘Technology will solve our problems, never fear, we’ll find a substitute for wood.’? Or: ‘We don’t have proof that there aren’t palms somewhere else on Easter … your proposed ban on logging is premature and driven by fear-mongering’?”(7).

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for example, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90 and 99% of the population. The Mayan collapse was accelerated by “the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems”(8). Does any of this sound familiar?

Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other’s conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks - of either kind - start sliding towards oblivion, we’re knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.

I’m not going to suggest, as some scoundrel who shares a name with me did on these pages last year(9), that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity which is not available during periods of economic success. Governments restructuring their economies should read Herman Daly’s book Steady-State Economics(10).

As usual I haven’t left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission(11). But what Daly suggests is that nations which are already rich should replace growth (”more of the same stuff”) with development (”the same amount of better stuff”). A steady state economy has a constant stock of capital maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.

References:

1. Richard Black, 10th October 2008. Nature loss ‘dwarfs bank crisis’. BBC Online. http://news.bbc.co.uk/1/hi/sci/tech/7662565.stm

2. Gordon Brown, 20th June 2007. Speech to Mansion House. http://www.hm-treasury.gov.uk/2014.htm

The God That Failed: The 30-Year Lie of the Market Cult

Sat, 11 Oct 2008 00:20:10 -0400

by Chris Floyd

Perhaps the most striking fact revealed by the global financial crash -- or rather, by the reaction to it -- is the staggering, astonishing, gargantuan amount of money that the governments of the world have at their command.

In just a matter of days, we have seen literally trillions of dollars offered to the financial services sector by national treasuries and central banks across the globe. Britain alone has put $1 trillion at the disposal of the bankers, traders, lenders and speculators; and this has been surpassed by the total package of public money that Washington is shoveling into the financial furnaces of Wall Street and the banks. These radical efforts are being replicated on a slightly smaller scale in France, Germany, Italy, Russia and many other countries.

The effectiveness of this unprecedented transfer of wealth from ordinary citizens to the top tiers of the business world remains to be seen. It will certainly insulate the very rich from the consequences of their own greed and folly and fraud; but it is not at all clear how much these measures will shield the vast majority of people from the catastrophe that has been visited upon them by the elite.

But putting aside for a moment the actual intent, details and results of the global bailout offers, it is their very extent that shocks, and shows -- in a stark, harsh, all-revealing light -- the brutal disdain with which the national governments of the world's "leading democracies" have treated their own citizens for decades.

Beginning with Margaret Thatcher's election in 1979, government after government -- and party after party -- fell to the onslaught of an extremist faith: the narrow, blinkered fundamentalism of the "Chicago School." Epitomized by its patron saint, Milton Friedman, the rigid doctrine held that an unregulated market would always "correct" itself, because its workings are based on entirely rational and quantifiable principles. This was of course an absurdly reductive and savagely ignorant view of history, money and human nature; but because it flattered the rich and powerful, offering an "intellectual" justification for rapacious greed and ever-widening economic and social inequality, it was adopted as holy writ by the elite and promulgated as public policy.

This radical cult -- a kind of Bolshevism from above -- took its strongest hold in the United States and Britain, and was then imposed on many weaker nations through the IMF-led "Washington Consensus" (more aptly named by Naomi Klein as the "Shock Doctrine"), with devastating and deadly results. (As in Yeltsin's Russia, for example, where life expectancy dropped precipitously and millions of people died premature deaths from poverty, illness, and despair.)

According to the cult, not only were markets to be freed from the constraints placed on them after the world-shattering effects of the Great Depression, but all public spending was to be slashed ruthlessly to the bone. (Although exceptions were always made for the Pentagon war machine.) After all, every dollar spent by a public entity on public services and amenities was a dollar taken away from the private wheeler-dealers who could more usefully employ it in increasing the wealth of the elite -- who would then allow some of their vast profits to "trickle down" to the lower orders.

This was the cult that captured the governments of the United States and Britain (among others), as well as the Republican and Democratic parties, and the Conservative and Labour parties as well. And for almost thirty years, its ruthless doctrines have been put into practice. Regulation and oversight of financial markets were systematically stripped away or rendered toothless. Essential public services were sold off, for chump change, to corporate interests. Public spending on anything other than making war, threatening war and profiting from war was pared back or eliminated. Such public spending that did remain was forever under threat and derided, like the remnants of some pagan faith surviving in isolated backwaters.

Year after year, the ordinary citizens were told by their governments: we have no money to spend on your needs, on your communities, on your infrastructure, on your health, on your children, on your environment, on your quality of life. We can't do those kinds of things any more.

Of course, when talking amongst themselves, or with the believers in the think tanks, boardrooms -- and editorial offices -- the cultists would speak more plainly: we don't do those things anymore because we shouldn't do them, we don't want to do them, they are wrong, they are evil, they are outside the faith. But for the hoi polloi, the line was usually something like this: Budgets are tight, we must balance them (for a "balanced budget" is a core doctrine of the cult), we just can't afford all these luxuries, sorry about that.

But now, as the emptiness and falsity of the Chicago cargo cult stands nakedly revealed, even to some of its most faithful and fanatical adherents, we can see that this 30-year mantra by our governments has been a deliberate and outright lie. The money was there -- billions and billions and billions of dollars of it, trillions of dollars of it. We can see it before our very eyes today -- being whisked away from our public treasuries and showered upon the banks and the brokerages.

Let's say it again: The money was there all along.

Money to build and generously equip thousands and thousands of new schools, with well-paid, exquisitely trained teachers, small teacher-pupil ratios, a full range of enriching and inspiring programs.

Money to revitalize the nation's crumbling inner cities, making them safe and vibrant places for businesses and families and communities to grow.

Money to provide decent, affordable and accessible health care to every citizen, to provide dignity and comfort to the elderly, and protection and humane treatment for the mentally ill.

Money to provide affordable higher education to everyone who wanted it and could qualify for it. Money to help establish and sustain local businesses and family farms, centered in and on the local community, driven by the needs and knowledge of the people in the area, and not by the dictates of distant corporations.

Money to strengthen crumbling infrastructure, to repair bridges, shore up levies, maintain roads and electric grids and sewage systems.

Money for affordable, workable public transport systems, for the pursuit of alternative sources of energy, for sustainable, sensible development, for environmental restoration.

Money to support free inquiry in science, technology, health and other areas -- research unfettered from the war machine and the drive for corporate profit, and instead devoted to the betterment of human life.

Money to support culture, learning, continuing education, libraries, theater, music and the endless manifestations of the human quest to gain more meaning, more understanding, more enlightenment, a deeper, spiritually richer life.

The money for all of this -- and much, much more -- was there, all along. When they said we couldn't have these things, they were lying -- or else allowing themselves to be profitably duped by the high priests of the market cult. When they wanted a trillion dollars -- or three trillion dollars -- to wage a war of aggression in Iraq, they found it. Now, when they want trillions of dollars to save the speculators, fraudsters and profiteers of greed in the global market, they suddenly have it.

Who then can believe that these governments could not have found the money for good schools, health care, and all the rest, that they could not have enhanced the well-being and livelihood of millions of ordinary citizens, and helped create a more just and equitable and stable world -- if they had wanted to?

This is one of the main facts that ordinary citizens around the world should take away from this crisis: the money to maintain, secure and improve the lives of their families and communities was always there -- but their governments, and their political parties, made a deliberate, unforced choice not to use it for the common good. Instead, they subjugated the well-being of the world to the dictates of an extremist cult. A cult of greed and privilege, that preached iron discipline to the poor and the middle-class, but released the rich and powerful from all restrictions, and all responsibility for their actions.

This should be a constant -- and galvanizing -- thought in the minds of the public in the months and years to come. Remember what you could have had, and how it was denied you by the lies and delusions of a powerful elite and their bought-off factotums in government. Remember the trillions of dollars that suddenly appeared when the wheeler-dealers needed money to cover their own greed and stupidity.

Let these thoughts guide you as you weigh the promises and actions of politicians and candidates, and as you assess the "expert analysis" on economic and domestic policy offered by the corporate media and the corporate-bankrolled think tanks and academics.

And above all, let these thoughts be foremost in your mind when you hear -- as you certainly will hear, when (and if) the markets are finally stabilized (at whatever gigantic cost in human suffering) -- the adherents of the market cult emerge once more and call for "deregulation" and "untying the hands of business" and all the other ritual incantations of their false and savage fundamentalist faith.

For although the market cult has suffered a cataclysmic defeat in the last few weeks, it is by no means dead. It has 30 years of entrenchment in power to fall back on. And the leader of every major political party in the West has spent their entire political career within the cult's confines. It has been the atmosphere they breathed, it has been the sole ladder by which they have climbed to prominence. They will be loath to abandon it, once the immediate crisis is past; most will not be able to.

So remember well the lessons of this new October crash: The money to make a better life, to serve the common good, has always been there. But it has been kept from you by deceit, by dogma, by greed, and by the ambition of those who have sold their souls, and betrayed their brothers and sisters, their fellow human creatures, for the sake of privilege and power.

Chris Floyd is an award-winning American journalist, and author of the book, Empire Burlesque: High Crimes and Low Comedy in the Bush Regime. For more than 11 years he wrote the featured political column, Global Eye, for The Moscow Times and the St. Petersburg Times in Russia. He also served as UK correspondent for Truthout.org, and was an editorial writer for three years for The Bergen Record. His work appears regularly CounterPunch, The Baltimore Chronicle and in translation in the Italian paper, Il Manifesto, and has also been published in such venues as The Nation, the Christian Science Monitor, Columbia Journalism Review, The Ecologist and many others.

Can the Financial Crisis Be Reversed?

Fri, 10 Oct 2008 00:28:03 -0400

by John Bellamy Foster

An interview for Página/12

Página/12: What is your opinion about the decision of the Treasury Department to consider taking ownership stakes in many United States banks? Do you think this is the right political-economic strategy? I mean, will it lead to the recovery of the system?

JBF: The Treasury Department proposal to purchase majority shares in major U.S. banks (the extent of this is still not clear) is, in a U.S. context, an act of sheer desperation, following a whole series of increasingly desperate actions. It signals that the crisis is out of control. The standard operating procedure whenever there is a major credit crisis is to activate the lender of last resort function and for the central bank to flood the economy with liquidity, while bailing out large financial and economic institutions that threaten to bring down the whole ship. Since the publication in 1963 of Milton Friedman and Anna Schwarz's A Monetary History of the United States, most U.S. economists have come to believe that the Great Depression was a result of the failure to open up the monetary floodgates when necessary; that it had little to do with the real economy. All of the prevailing notions of how to deal with a financial/economic crisis grew out of this. This is the tradition that Ben Bernanke, the current Federal Reserve Board chairman, comes out of. It meant dealing with the problem primarily in monetary/interest rate/price terms.

But in the face of this massive financial crisis, now 14 months old, and rapidly morphing into what looks like a full-scale debt deflation on the order of the Japanese meltdown/stagnation in the early 1990s -- even threatening to turn into a new Great Depression on the scale of the 1930s -- the U.S. government is bailing like mad with bigger and bigger buckets, and trying absolutely everything it can think of. It has poured hundred of billions of dollars, and is prepared to pour trillions of dollars more, into bailing out the financial sector (witness the Treasury Department's $700 billion bailout plan, and the Federal Reserve Board's declaration that it will be the buyer of last resort for the commercial paper market, to the full amount of $1.3 trillion). The lender of last resort has changed into the buyer of last resort on a huge scale. An array of tools has been unleashed to combat the crisis of a kind and of a magnitude scarcely even imagined before. Just the other day central banks across the world cut interest rates basically in tandem. Nothing has worked. The meltdown has continued. The financial contagion is spreading globally, with all of Europe and now Japan caught in the downswing.

It is only in these dire circumstances that the United States, where private property is more sacrosanct probably than anywhere else in the world, is talking about some kind of nationalization of banks, if only limited. In financial circles they are now calling this "regime change," borrowing the term of course from a different context. But it is clear what it means: the end of neoliberalism, and the rise of aggressive government interventions into the economy. It represents a clear recognition that this is not a liquidity crisis that can be solved by pouring more money into financial markets or by lowering interest rates. What difference does a reduction in rates make for a borrower who could not obtain a loan at a higher rate and now cannot obtain a loan at a lower rate? There's a lot of dollars out in the financial world, the problem is that those who own the dollars are not willing to lend them to those who cannot be certain to pay them back -- and that's just about everyone who needs the dollars. This is a solvency crisis, where the balance sheet capital of the U.S. and U.K. financial institutions -- and many others in their sphere of influence -- has been wiped out by the declining value of the loans (and securitized loans) they own, their assets. As an accounting matter they are insolvent.

Will it work? Can they avoid a massive devaluation of capital across the board? I doubt it. It is likely too late to stabilize things in this way. Things have gone too far. The crux of the matter is that the whole "Atlantic" economy is in trouble, not just the financial sector. Consumption is collapsing in the United States, where it represents more than two thirds of total demand, and a good part of world demand. Fifteen percent of the population is under water with their mortgages. Real wages in the United States have not risen since the 1970s and people are deeply in debt and their circumstances are eroding. Unemployment is way up and jobs are vanishing. Where the productive base of the economy is weakening drastically, a falling financial superstructure, finding the ground shifting under it, is unlikely to be able to right itself.

As for the politics of nationalization of banks in the U.S. and U.K., one should not confuse this, as is all too common, with socialism or even radicalism, unless one is talking about socialism for the rich. This is just another desperate stop-gap measure aimed at preventing a full-scale debt deflation. But as a sign of the total collapse of the "U.S. model" of "free market" finance capitalism, the moral and political consequences are vast.

Página/12: Which sort of policies should the government implement to sort out this crisis, extending beyond the financial market?

JBF: I don't think anyone knows how to "sort out" or stop this crisis. What we are seeing is a lot of improvising while the house is falling down around us. There is no possibility of avoiding a very severe world economic crisis at this point; the object has shifted to avoiding a deep debt deflation as in the 1930s. We are facing one of the great crises in the history of capitalism; nothing this bad has been seen in advanced capitalist world in eighty years, since the Great Depression itself.

My own view is that the sole object at this point -- though it is hard to imagine this in the United States at present due to the weakness of labor and of working-class organizations in general -- should be to reorganize social and economic priorities to meet the needs of those at the bottom. It is a fact that the U.S. economy over decades has drastically weakened the conditions of the wider population, which is at the root of the whole problem. So addressing those conditions is the real key. But even if that were not the case, the goal of those who identify with the great majority of the population, with the working class, the propertyless, the poor, should be clear: to put the employment, food, nutrition, housing, health, education, environmental conditions of those at base of society first. This is simple humanity and justice. Why flood the financial world (which means first and foremost the rich, the near-rich, and corporations) with trillions of dollars ultimately at taxpayer expense, probably to no avail, when something might be done for the greater population? Marx said, in one of his ironic moments, that the only part of the national wealth that was held in common amongst all the people was the national debt. If the wealth is not shared, why should the public take on more debt, supporting the opulence at the top while the great majority of the people are seeing their basic conditions deteriorate? Let the system take care of itself; let us devote our public resources to the people. More good would be accomplished that way. Of course what this means is a reactivation of class struggle from below; something we haven't really seen in the United States in a long time. I ended a lecture recently by saying that the working class in the United States could learn a lot from how class struggles have been waged in the streets in Argentina. You may think your working class has not accomplished all that much, but from our perspective things look different.

Página/12: Do you think it is necessary to change the regulation of the financial system or sector to solve the crisis?

JBF: If you mean by regulations, placing more limits on the financial system, it certainly will happen in the future after the economy settles down to whatever level it will end up at. But no real regulations will be imposed now during the height of a financial meltdown. The Federal Reserve and Treasury Department in the United States and the other branches of the government, and of course other governments as well, are doing everything they can to combat a more catastrophic financial meltdown, including getting the printing presses going (this is a metaphor of course these days since now it is done electronically) in order to pour liquidity and capital into the system. Beyond that they want to "restore confidence," which is code for increased risk-taking. The goal is to get the "animal spirits," as Keynes called them, going again. To inflate the financial system they are reducing, not increasing, regulations at the present moment; and that is how the state authorities always respond to a financial crisis. They have no choice as long as they represent the interests of capital. Imposing tough regulations would make things worse for financial interests that find everything closing in on them at present. The goal is to get money flowing again. So the answer is that for the moment at least any real reregulation is not in the cards.

The truth is the advanced capitalist system has been dependent on a process of financialization (the increase in the financial superstructure relative to the "real economy") as the main means of combating the stagnation of production and investment for decades now -- beginning in the 1960s, but accelerating in the 1980s, and accelerating still more in the 1990s. It is the underlying tendency to stagnation rooted in exploitation and inequality that is the root problem. (This was brilliantly and relentlessly explained in a long series of articles by Monthly Review editors Harry Magdoff and Paul Sweezy from the 1960s to the 1990s.) Financialization, the blowing of one bubble after another (ideologically justified by neoliberalism), was offered as the solution to stagnation in the real economy. It was this that mainly spurred economic growth in the United States and elsewhere at the center of the system given the stagnation of investment in new productive capacity (held down by existing overcapacity). Ultimately, however, there was no "solution" other than the wiping out of capital: "the real barrier to capitalist production," Marx wrote, "is capital itself."

We are once again up against that real barrier. Hence the issue of regulation/deregulation/reregulation is, at this point, immaterial -- at least if one is talking about new restraints on capital as a solution to the immediate problem. Restabilization of capitalism requires what has always been the saving function of crises: a vast amount of existing capital must be extinguished to enable a smaller surviving amount to begin again the process of blind, crazed accumulation. But the real-world suffering that would accompany such a massive "devaluation of capital" -- the lost jobs, housing, self-respect, and the misery, even starvation, which would follow on a global scale today -- would mean the end of the U.S. model of capitalism, since the rest of the world would never accept such a result. What we need and must fight for is real regime change: that is a socialism for the 21st century.

John Bellamy Foster is editor of Monthly Review. This is the full text of the interview with Foster conducted by Página/12 (Argentina). A shorter version of this interview will appear in Página/12.

The Need for Coordinated Stimulus

Fri, 10 Oct 2008 00:24:10 -0400

by Dean Baker and Mark Weisbrot

The current economic crisis is the result of an extraordinary period of extreme economic mismanagement. The world's central banks, most importantly the Federal Reserve Board in the United States, made the decision to ignore, if not actively cultivate, the growth of asset bubbles. This was the case with stock market bubbles in the 90s and housing bubbles in the current decade.

They compounded this mistake by ignoring the explosive growth of credit and new complex derivative instruments. They allowed financial institutions to become hugely over-leveraged, ensuring that the collapse of the bubble would lead to major financial disruptions.

Finally, they failed to recognize the seriousness of the problem, understating the size of the problem at every step. This has slowed efforts to muster an adequate response to the situation. President Bush and other political leaders markedly worsened the situation when they raised the specter of the Great Depression and otherwise sought to raise fears in order to gain public support for the bank bailout package.

The meeting this weekend of the G-7 provides an extraordinary opportunity to begin the reversal of this dismal record. First, it is necessary to have a coordinated financial and monetary policy to stem the immediate financial crisis. This will require bank bailouts that focus on the direct injection of capital into the banking system, following the example of the United Kingdom earlier this week.

The financial system will also benefit from further cuts in overnight lending rates, especially by the European Central Bank (ECB). The ECB's focus on concerns over inflation at this economic junction is almost as foolish and potentially more harmful than the decision to ignore the growth of the housing bubble.

The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush's scare tactics for promoting his bank bailout.

The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.

It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.

Mark Weisbrot and Dean Baker are Co-Directors of the Center for Economic and Policy Research, in Washington, D.C.