LALIT public talk on capitalist financial crisis
12.10.2008
On Saturday 11 October Lindsey Collen gave a LALIT talk on the present world capitalist financial crisis in Curepipe at 3:30 pm. She drew attention to both the underlying reasons for the world crisis in capitalism and to the political weakness of the working class in most countries at this time when capitalist power world-wide is quite suddenly in perhaps its worst ideological disarray ever.
She also said that Mauritius is one of the countries most exposed to this kind of crisis in the whole world. She said that what Finance Minister Rama Sithanen has been saying about the "resilience" of the Mauritian economy is just not correct. During debate, discussion turned to the tourist industry. Hotel bookings are already being cancelled, but the Hotel industry that has expanded wildly, did this expansion on money borrowed from local banks. Will they be able to pay back the money? The same thing is true for textile exports. We will also have to wait and see whether the sell-off to multi-millionaires of luxury bungalows under the Integrated Resorts Schemes (in exchange for nationality) may also be a real estate bubble waiting to pop, a kind of "haut de gamme" version of the US "sub-prime" bubble. People brought up how so far, we have not really had it explained to us who exactly footed the bill for the failed sugar enterprises that Mauritian capitalists set up in in Cote d'Ivoire and failed textile industry that Mauritian capitalists set up in Madagascar, let alone for the hundreds of millions of rupees that disappeared somewhere between the MCB and the National Pension Fund.
The following is based on yesterday's talk and on Lindsey's notes:
In the course of two weeks, all the bourgeois ideologues in the US, Europe and everywhere, including ours here, suddenly include the word "capitalist" in their discourse, while the word "nationalization" is brought back from its banishment. Banks are suddenly actually getting nationalized or part nationalized. So the word has had to come back. Soon the 1,300,000 people who have lost their houses by a kind of "Sale by Levy" in the US, will no longer be called the "sub-prime mortgage crisis", but "workers" too poor to own a home. The capitalist system that was "here to stay forever", is suddenly as chaotic as it was in the Nineteenth and early Twentieth Century, bringing vast changes, and huge developments, but in a chaotic and cruel disorder. The end of all this and even "the end of history" so loudly announced is now found not to have been reached. Ordinary people are suddenly longing to understand "the economy" and "economics". Those who study economics at school and university suddenly realize, in turn, they have often been duped by their textbooks and teachers.
All this makes for interesting times. The economy has been put crash-bang onto the middle of the political table for discussion. Economics, too, is now, for the first time in decades, under scrutiny.
Parties like LALIT have to take advantage of the opportunities that such a systemic crisis produces. It is no longer just Mauritius in systemic crisis: the whole world is lurching into one. There is no time for creativity like crisis. Cruel as the crisis will no doubt be.
TWO OR THREE WILD CARDS IN TERMS OF VALUE
There is clearly a crisis in terms of the price of stocks in the stock exchange. Anyone can see that. Many stocks and shares have halved their price in one year. Some banks are worth a fifth of their worth last year, as they head for bust. So what is the problem with the price of capital?
While, price is determined by supply and demand at any one time, in order for a system to last over time, price must move around (above and below) the actual value of the thing. "Value", as opposed to price, as Adam Smith, David Ricardo and Karl Marx all so clearly determined, is derived from the amount of labour that has gone into producing a commodity or into an item of capital like a machine. The amount of money any nation state can print must be linked to the value of its production, in order to enable the capitalist system to function. And yet the US Treasury has been able to print much more than the value of the US's own production. This is because the dollar has until now been used as a reserve currency by both other nation states and by individual capitalists, and indeed ordinary working people, notoriously taxi drivers, for example. As the US empire declines, this produces the beginnings of a crisis of confidence over this reserve currency. This is one of the background issues. The price of the dollar is thus not linked to any value, but also, to a massive extent, to "demand". This demand is related to nothing but confidence. You could say it is a "confidence trick". About four months ago the Republican Congressional Leader said that he didn't see the problem, as he pronounced words to the effect: "We in the US get the goods, they (out there elsewhere) accept the paper. I can't see the problem."
Secondly, land as a capital item has a price that is not linked to value in the same way as other capital items. (Land was what the feudal landlords contributed to the merchants' money, to make up early forms of "capital", and has stayed a form in which capital can be held.) Land, other than agricultural land, relies for its price on supply and demand. This makes "bubbles" in the real estate market also an ongoing danger for capitalism. The present bank crisis, for example, was triggered by a burst bubble in the value of housing the United States. Suddenly, when interest rates went up from their phenomenally low (around 2%) level, people who had previously taken mortgages from banks who were desperately trying to find customers, could no longer keep up their payments. They defaulted. 1,300,000 people in the USA, mainly working class people, who have nothing else but their salaries to keep them going, have lost their houses during the crisis. When people default on payments, The banks claimed the houses, and found there was a nil market for them. Banks therefore began to go bankrupt. This began one year ago with Northern Rock in the UK, and has continued to Banks in the US and Europe, all of which have been bailed out by Governments. Iceland, direly affected, has not yet been able to bail its banks out. So, what has happened is that the price of land has deviated totally from the value. Some sources say there may be another 2 or 3 million who will lose their houses. In September alone, 160,000 workers lost their jobs, so this will add more people. Many people take out insurance coverage in case they cannot pay their mortgages. With 1,300,000 people defaulting, and many of them claiming insurance, huge insurance companies like AIG went into the red, and had to be saved. Even a Japanese insurance company has gone bankrupt. When working people in the USA cannot buy their houses anymore, we are reminded of the way in which Karl Marx described the relative downward push on wages, relative to profits. That workers' wages, and that means over the world-wide system, tend towards subsistence or the price of labour (i.e. the price of the labour to reproduce the labour the next day).
Thirdly, there is an inherent element of gambling in ordinary old-fashioned finance capital (called risk-taking in the jargon), whereby people buy stocks in the expectation that they have a chance of rising, or order products on borrowed money in the expectation of being able to sell them for a higher price than they bought them. And just as gambling does not create any new "value", but shares existing values, so the stock exchange can go into phases when this happens. And this inherently dangerous gambling element in the stock exchange has been magnified, in turn, by two new forms of unregulated buying and selling of assets. The first newish form is buying and selling "futures", like the 2010 maize crop or cotton crop, and the second is the buying and selling of bad debts. This second form of "asset" is at the bottom of the US mortgage crisis, and explains why it has been exported to countries all over the world. The US banks, rather like the Mafia does, made up its "bad debts" into potential assets and sold them. Only the Mafia seems to have been fairer, in that its bruiser-sub-contractors know they are paying 75,000 dollars for collecting 100,000 dollars. The stocks that were sold (so-called "toxic bundles") were passed on without people knowing what they were buying, and without the authorities knowing how many debts there are, nor where they were being and are being sold.
Fourthly, globalization real-time shifts in capital from one country to another have allowed for the problem and the crisis to go almost anywhere in hardly any time at all, and to provoke multiplier effects that had not been predicted.
Fifthly, and this would be a sufficient cause for rejecting capitalism altogether, capitalism is insensitive to the finite nature of the earth and its echo-system. The pricing mechanism does not include the loss from not using solar and wind energy TODAY, since it will have gone by tomorrow. Nor does it include the fact that global warming could cause social effects so severe that they threaten civilization altogether. In other words, capitalism, if it continues on its present course after the crisis, will leave us with truly unimaginable spectres: millions of displaced city-dwellers, unable to cultivate or even to invent basic tools, turning into bands of louts following warlords, probably of a communalist nature, roaming the different ruins of civilization, preying off the land and the stocks until they are depleted.
CAPITALIST CYCLES' CUSHIONS REMOVED
The two forms of capitalist cycles that produce crises (shorter cycles over a few years, and longer ones over decades) had been heavily cushioned over the past 60 years, in ways that they were not cushioned before, and then, in the past 10 or 15 years, these cushions have been removed. The intrinsic capitalist crises so beautifully described by Karl Marx have come back again. But they were cushioned for many years, so that depressions became recessions, crashes became crises. How? The first major cushion has been social security systems and the "welfare state" in general that were fought for by workers, and that bosses conceded whenever the spectre of the Russian Revolution came to haunt them. What these gains by the working class meant in economic terms for capitalism was that, when demand for goods started on a downturn, that used to spiral out of control as factories closed and more people lost jobs and thus spent less, there was still a certain proportion of expenditure that continued, even when people lost their jobs because of the downturn. With unemployment benefit and social security money, a minimum of demand continued. With generous pensions, some spending continued. Health and education services continued to demand Government spending. These services represent a kind of "deferred" or collectivized part of wages, and often amounted to nearly half of wages. Even in the US, where social services and social security were not marvelous, after the New Deal, there was a safety net, not only for individuals, but as we now see, for the system. Over the past 10 to 15 years, social security and welfare state systems have been scaled back in the developed world, and often completely ruined in developing countries, which have become increasingly important as a proportion of global capitalism. So, this has been the first cushion gone, that has permitted the same old cycles become vicious. (Technically, the cushions like social security are referred to as having an "anti-cyclical" characteristic.)
The second anti-cyclical reality over a similar period was the vast public expenditure on heavy industry i.e. on war. From the build-up to the Second World War and then throughout the Cold War there was heavy expenditure on armaments. It was about twice as much, in terms of percentage of expenditure than it had been prior to the Second World War, in the capitalist economies taken as a whole, and was often referred to as re-kick-starting the economy after cyclical crises. The political "necessity" for this expenditure ended abruptly after the implosion of the Stalinist bureaucracies around 1989. And the spending on arms, as a proportion of world-wide spending in the entire capitalist system, has decreased relative to what it was from 1939-1990. (This economic reality puts the lies told by Bush and Blair into the perspective of the economic pressures on them.)
The third anti-cyclic effect is that of many small producers in the market making prices elastic, in particular, permitting prices to fall quickly enough to allow a re-pick-up after a down-turn. Monopoly prices are less elastic. Today, and this has accentuated during ultra-liberal globalization, there are more huge monopoly companies. The more huge multi-national corporations there are, the less easily prices can go down. It is only when prices go down that the economy can hope to get boot-strapped out of a down-turn. Once huge enterprises close down, the knock-on effects are drastic, as well. So the bigger the proportion of huge enterprises in the total economy, the more sensitive to cyclical crises and even the risk of total crashes.
DE-REGULATION
Over the period of the neo-conservative ultra-liberal (not in the American sense) take-over of economics by the capitalist ideologues, Friedrich Hayek and Milton Friedman, and of politics by Reagan and Thatcher, a process known accurately as "de-regulation" came into being. Workers can be sacked more easily. This obviously makes the cyclical crises worse. Factories can be closed more easily. This has the same effect.
So, de-regulation was a helping factor in bringing this crisis to us.
TECHNOLOGICAL DEVELOPMENTS
However, in any case, there have been vast technological developments, often unbridled ones, and it is after one of these such leaps, that the worst genuine economic crisis can be expected to looms, because these technological leaps are at the heart of the big waves of boom-and-bust. So, the recession we were due for, is here now, for many combined reasons.
It has been triggered by and will be exacerbated by the financial melt-down.
PROGNOSIS
If the crisis is resolved by patching up here and there, this will only serve to delay a worse crisis.
Governments, if they want to keep capitalism going, will have to very speedily go ahead and:
*Take some form of control over banks and insurance. This is a form of nationalization or part-nationalization.
*In order to do this, Governments will have to raise tax money. This they should do by taxing the rich. As Mike Moore puts it the 400 richest Americans have in the past 8 years had an increase in their riches that is equivalent to the 700 billion dollar bailout the Government has voted, so as to buy up and isolate the toxic bundles.
*Re-introduce rules to protect workers.
*Increase social security payments.
*Provide health, pensions, education free up to and including tertiary.
*Cutting interest rates is an option, and in any case, interest rates are a reflection of the rate of profit. And just how low this is comes as proof that there is indeed an inbuilt tendency, again as Karl Marx pointed out, towards profit getting lower and lower as the percentage of input into machinery (past labour) gets higher compared with labour (living labour) that creates value. In Japan, the present rate of interest is 0.5%. It can hardly be lowered.
There is the frightening spectacle that war will be used as a means of kick-starting the economies. As Rosa Luxemburg pointed out so well in her work on Capital, profit is made by bringing new productive forces and markets into existing capitalism, and not within the system. We are near the limits of civilizations which are not already inside the capitalist system; the ex-Stalinist regimes have been brought back in now, all the ex-colonies tied in; production taken care of by the State has been privatized. Now, there is literally, the choice between socialism, and the barbary of war or of fascism.
So, it is important not just to look at what Governments ought to do.
But, this is what THEY should do. They are the bourgeois State. The important question is what WE should do. We, who as working people would like to take control of all decisions about what to produce and what to spend, and to take control now. We, who as working people fail to understand why we should continue in wage slavery, which, in terms of our labour, we now realize, is only a very heavily cushioned form of slavery, or serfdom. Why should we have to sell a third of our lives to careless, greedy capitalists? While we live in insecurity?
And why should be let a system continue when it not only refuses to give us a democratic control of what is most important of all, economic life, but also fails to "price in" the environment that it destroys mindlessly.
It is indeed time for us to bring the economy and economics into the political arena. Let's challenge the ban on open discussion as to who controls the economy and how come they do so. Let's use the crisis to come on to the political offensive. And let us do it, all of us, consciously. We have allies in the 90% of people who live by selling their labour, selling a third of their lives by the month or the day or the week, if they are lucky enough to be in work. Let's build a program to take power, all of us, so as to begin the process of taking control, all of us, of the economy.
