Meltdown! A socialist view of the capitalist crisis Ton3 Iltis, Lee S/star, John Bellam3 Foster, Phil Hearse, Adam Hanieh, Dave Holmes Published by Resistance Books Australia 2009 2 M eltdown ! C ontents d on 9 t P ay for a f ailed s ysteM by Tony Iltis ..............................................3 a G uide to the w all s treet M eltdown by Lee Sustar ............................7 M onoPoly f inanCe C aPital & the C risis by John Bellamy Foster .........12 d eCline & f all of n eoliberal G lobalisation by Phil Hearse ..............19 M akinG the w orld 9 s P oor P ay : t he e ConoMiC C risis & the G lobal s outh by Adam Hanieh.....................................................27 n ationalisation : a k ey d eMand in the s oCialist P roGraM by Dave Holmes ....................................................................................33 l essons froM the P ast : t he G reat d ePression & the CPa by Dave Holmes ......................................................................................45 © Resistance Books 2009 ISBN 978-1-876646-16-5 Published by Resistance Books, 23 Abercrombie St, Chippendale NSW 2008, Australia Printed by El Faro Printing, 79 King St, Newtown NSW 2042, Australia n ote Throughout this pamphlet dollars ($) refers to US dollars unless otherwise stated.
From Green Left Weekly , October 11, 2008 (http://www.greenleft.org.au). Tony Iltis is a regular contributor to GLW ; he is also a member of the Democratic Socialist Perspective, a Marxist afOliate of the Socialist Alliance. d on 9 t P ay for a f ailed s ysteM By Tony Iltis ... more.
cMeltdown d is a word that one hears a lot on the news these days.
Despite the $700 billion government bailout of banks in the US, similar (albeit smaller) bailouts in Europe, and various forms of state intervention in the Onance industry on both sides of the Atlantic, sharemarkets worldwide are in free fall. Comparisons with the Great Depression of the 1930s are common. Homelessness and unemployment are rising and are set to increase dramatically.
MeAnwhile, more quietly but even more relentlessly, another meltdown is occurring: that of the polar icecaps. According to the Western world 9s establishment politicians and corporate media, the way to avert catastrophic climate change lies in setting up elaborate emissions trading schemes and carbon markets: that is, relying on precisely the mechanisms that have created the economic meltdown! SuperOcially, the crisis has created a dramatic reversal in the orthodoxy of Western economic policy.
After decades of preaching the virtues of deregulation of Onancial markets, privatisation of public assets and the superiority of the chidden hand of the market d over government involvement in the economy, Western governments are now spending gargantuan amounts of public money intervening in the economy. Following the US government 9s nationalisation of the mortgage institutions Freddie Mac and Fannie Mae and insurance giant AIG, and its unpopular $700 billion bailout of the banks, British PM Gordon Brown announced a £50 billion ($89 billion) bailout for British banks, including partial nationalisations, with a further £450 billion being earmarked should the banks need more. Likewise in Germany, France, Belgium, the Netherlands, Ireland and 4 M eltdown !
Luxembourg, massive state interventions and partial nationalisations are on the agenda. In Iceland, where a globally oriented Onance industry dwarfs domestic economic activity, the three largest banks have been taken over by a government desperately trying to stop the country becoming bankrupt. Iceland 9s stock exchange has closed.
There has also been mutual recrimination between the governments of Iceland and Britain. The British government has condemned Iceland for not guaranteeing the deposits of British individuals and institutions in Iceland 9s banks, including about £2 billion from British local councils. Iceland, for its part, has charged that the British seizure of Icelandic bank assets (using anti- terrorism laws!) has contributed to the crisis.
Iceland is currently negotiating a 4 billion euro bailout from Russia. 8h idden hand 9 still reiGns However, the failure of this expensive government intervention to halt the global collapse of sharemarkets 4 and remove the spectre of a massive downturn in production, fuelling unemployment and poverty 4 rePects that the old orthodoxy has not, in fact, been overturned. The thrust of the cemergency d economic interventions has been to pump money into the Onance industry in the hope that this will encourage the banks to restart the Pow of credit to productive industry.
The chidden hand of the market d still reigns. At the heart of the crisis is speculation on debt. With US wages remaining static since 1973, while the cost of living has risen considerably, consumer spending (and therefore corporate proOts) have been maintained by a credit- fuelled economy.
Furthermore, deregulated Onancial markets created a huge industry based on repackaging and reselling debts, creating incomprehensible investment options ( ccollateralised debt obligations d, ccredit default swaps d). In the US these cproducts d grew to a value of $64 trillion 4 Ove times the annual output of the US economy. There are nationalisations and there are nationalisations.
Under the various bailouts, the assets that governments are taking over are the so-called ctoxic assets d 4 precisely those economic cproducts d that have proved to be worthless. A more rational response would be to simply put the banks under state ownership. For their former owners, who have made countless billions, compensation should not even be considered 4 criminal charges would be more appropriate.
w hat $700 billion Could aChieve It is worth considering what the $700 billion spent on bailing out the US banks could have been spent on. Less than $200 billion would end poverty in the US. The widespread hostility of the US working class to the bailout rePects that while money can be found to protect billionaires 9 proOts from ctoxic assets d, no assistance has been forthcoming for those who 9ve lost their homes through ctoxic d variable interest rate mortgages.
Earlier this year, US President George Bush vetoed legislation to give medical coverage to 9 million poor children in the US, on the grounds that such expenditure, less than $6 billion, was cuseless d! Seven hundred billion dollars is twice the combined debt of the world 9s poorest 49 countries. Underpinning world poverty is the fact for every dollar spent on Western aid to the Third World, $25 are paid back as debt servicing.
Currently, global inequality condemns 11 million children to death each year due to lack of healthcare, sanitation, food and water. Ten billion dollars 4 a 70th of the bailout 4 would be sufOcient to save these lives. Six billion dollars would provide basic education for the whole world, while $9 billion would provide water and sanitation, $12 billion reproductive health for all women and $13 billion adequate nutrition and healthcare.
Along with increasing inequality within nations, the doctrine of neoliberalism (reliance on the chidden hand of the market d) has more than doubled the wealth gap between rich and poor countries. Much trumpeted debt relief and aid programs (such as the cMillenium Development Goals d) make any assistance dependent on poor countries following International Monetary Fund (IMF) diktats to privatise and deregulate their economies for the beneOt of Western corporations. Privatising and commodifying basic services such as water and sanitation, and the removal of food and fuel subsidies, literally means misery and death for millions.
The IMF 9s offer of similar cassistance d to Western countries in response to the current Onancial crisis should be treated with trepidation by workers and poor people in these countries. w ar sPendinG While the $700 billion bailout dwarfs Western social expenditure and international development aid, it is itself dwarfed by spending on the military. Don 9t Pay for a Failed System 5 6 M eltdown !
Since the 2003 invasion of Iraq, the US has spent $3 trillion on the war alone. The $1.339 trillion annual global military expenditure is, as much as the bailouts, assistance to the corporate elite. Not only do corporations make direct proOts through the arms trade, and increasingly privatised military infrastructure, military force ensures Western corporations 9 access to the world 9s resources and the labour of its people.
With excuses for the Iraq war (weapons of mass destruction and involvement in the 9/11 attacks) long discredited, it is difOcult to disguise that the real reason for the invasion was to corner the fossil fuel market. The centrality of fossil fuels to the Western-imposed global economic system raises the question of the other meltdown: global warming. Both crises have the same source: the proOt-driven capitalist economy.
Even when the economy was apparently booming, it was incongruous that Onding solutions to the climate crisis was tasked to economists, such as Sir Nicholas Stern in Britain and Professor Ross Garnaut in Australia. It should now be considered insane for the market to solve the problem of climate change when it has proved spectacularly incapable of solving the problems of the market! It is necessary to redeOne what is meant by cthe economy d.
Mainstream economists have claimed that speculators trading incomprehensible Onancial products based on debt are creating wealth. The Onancial meltdown has proved these claims fraudulent. Wealth is actually created by people working to make goods and services.
The corporate rulers of the world take this wealth rather than create it. With a large increase in unemployment looming due to the Onancial collapse it is worth remembering that the solutions needed to avert catastrophic climate change are labour intensive: for example, wholesale conversion of entire economies to renewable energy, sustainable agriculture and public transport instead of private car-based transport. More than 150 years ago Karl Marx and Frederick Engels, explaining that the working class, as the creators of wealth, could, if they took control of society, create a world without poverty, inequality or oppression, said, cWe have a world to win d.
Today it could be added that we also have a world to lose. \x2 a G uide to the w all s treet M eltdown Lee Sustar Many people are understandably frustrated when they try to make sense of the world Onancial crisis based on what they read in mainstream newspapers. These papers typically fence off business news into a special section dominated by jargon.
Until the economic crisis broke, television news anchors rarely mentioned the economy except to give stock market reports or Ogures on economic growth. Then there are specialised business newspapers, like the Wall Street Journal , that are off-putting to working people, and intentionally so. Their audience is a select group of executives and investors who write and speak in code.
And when it comes to the Onancial jargon you read in the press, that 9s even more impenetrable. Is the entire world economy really in crisis because investors poured money into something called cmortgage-backed securities d? C aPitalisM More than a century ago, Karl Marx put forward the first scientific understanding of the dynamics of capitalism.
The driving force of the system, he argued, was blind competition between rival capitalists. Instead of organising their business around the priority of meeting human needs, capitalists seek to maximise proOts by paying workers for only part of the value that they produce, and keeping the surplus for themselves for proOts, which are then used to Onance investments to further expand production. By the second half of the 19th century, capitalist enterprises had become too big to rely simply on their own proOts to Onance expansion.
Traditional loans from banks weren 9t sufOcient either. But if a given company didn 9t expand, it would lose out to its From Socialist Worker (US), October 11, 2008 (http://socialistworker.org). 8 M eltdown !
competitors. The capitalist solution was to raise money by selling ownership shares in companies, as well as borrowing money by selling bonds (a promise to repay investors what they put in, plus interest). Stocks, bonds and other Onancial instruments 4 collectively known as securities 4 had given rise, by the start of the 20th century, to an enormous credit system, complete with stock exchanges and other Onancial markets.
As Marx wrote in Volume 3 of Capital , credit greatly expands the cscale of production, and enterprises which would be impossible for individual capitalists d. This accelerated the development of capitalism 4 by eliminating the need for all transactions to directly involve the exchange of money, which sped up the rate at which commodities could circulate in the economy, something that was essential for the growth of a world market. The expansion of what later Marxists called cOnance capital d created what Marx called cmoney capitalists d 4 investors who have no direct relationship to the actual production of goods.
Finance capital played