http://paeditorsblog.blogspot.com/
C U B A
Havana. March 9, 2009
REFLECTIONS OF FIDEL
A meeting that was worth it
AT the end of the Globalization and Development event, with the presences of more than 1,500 economists, outstanding scientific figures and representatives of international organizations meeting in Havana, I received a letter and a document from Atilio Boron, a Doctor of Political Science, senior professor of political and social theory, director of the Latin American Program for correspondence courses in the social sciences – PLED, as well as other important scientific and political responsibilities.
Atilio, a firm and loyal friend, had participated on Thursday the 6th in the “Roundtable” Cuban television program together with other eminent international figures who attended the Conference on Globalization and Development.
I found out that he was leaving on Sunday and decided to invite him to a meeting at 5 p.m. the day before, Saturday, March 7.
I had decided to write a reflection on the ideas contained in his document. I will use his words in the summary.
“…We find ourselves facing a general capitalist crisis, the first of any magnitude comparable with the one that broke out in 1929 and the so-called ‘Long Depression’ of 1873-1896. A crisis that is integral, of civilization and multifaceted, whose duration, profundity and geographical reach will surely be of a greater scope that the ones that preceded it.
“It is a crisis that goes far beyond financial and banking aspects and is affecting the real economy in every department. It is affecting the global economy, and goes far beyond the borders of the United States.
“Its structural causes: it is a crisis of overproduction and at the same time of under-consumption. It is no coincidence that it broke out in the United States, because this country has been living for more than 30 years from external savings, from external credit and these two things are not infinite: companies got into debt over their heads; the state also got into debt over its head in order to deal with not one but two wars, and not just without increasing taxes, but cutting them. Its citizens are systematically pushed, by way of commercial publicity, into getting into debt in order to sustain exorbitant, irrational and wasteful consumerism.
“But in addition to these structural causes others should be added: the accelerated financialization of the economy, the irresistible tendency to foray into increasingly risky speculation operations. With the discovery of capital’s “fountain of youth,” thanks to which money generates more money based on the value given to the exploitation of the workforce, and taking into account that enormous masses of fictitious capital can be achieved in a matter of days — or weeks, at the most — capital’s addiction is leading it to set aside any calculations or any scruples.
“Other circumstances favored the outbreak of the crisis. Neoliberal deregulation and liberalization policies made it possible for the most powerful actors roaming the markets to impose the law of the jungle.
“Enormous destruction of capital on a world scale, characterizing it as a ‘creative destruction.’ On Wall Street, this ‘creative destruction’ meant the devaluation of companies listed on that market to reach almost 50%; a company that was previously worth $100 million in capital on the market now has $50 million. A fall in production, prices, wages, purchasing power. ‘The financial system as a whole is about to explode. We already have more than $500 billion in banking losses, a billion more is to come. More than a dozen banks have gone bankrupt and hundreds more are expecting the same fate. At this point, more than $1 billion has been transferred from the FED to the banking cartel, but $1.5 billion more will be needed to maintain the liquidity of banks in coming years.’ What we are seeing is the initial phase of a long depression and the word recession, so much utilized recently, does not capture what the future holds for capitalism in all its dramatic dimension.
“Ordinary Citicorp stock lost 90% of its value in 2008. The last week in February, it was worth $1.95 per share on Wall Street!
“This process is not neutral, because it will benefit the largest and best-organized oligopolies, which will oust their rivals from the markets. The ‘Darwinian selection of the fittest’ will clear the way for new mergers and business alliances, sending the weakest into ruin.
“Accelerated increase in unemployment. The number of unemployed in the world (some 190 million in 2008) could rise by another 51 million throughout 2009. Poor workers (who earn just two euros daily) will number 1.4 billion; that is, 45% of the economically active population on the planet. In the United States, the recession has already destroyed 3.6 million jobs, half of them in the last three months. In the EU, the number of unemployed stands at 17.5 million, 1.6 million more than one year ago. By 2009, it is projected that 3.5 million jobs will have been lost. Because of their close ties with the U.S. economy, several Central American states such as Mexico and Peru, will be hard hit by the crisis.
“A crisis that affects every sector in the economy: banking, industry, insurance, construction, etc. and that is spreading throughout the international capitalist system as a whole.
“Decisions that are taken in world centers and which affect the subsidiaries of the periphery, generating massive layoffs, interruptions in the chain of pay, a fall in demand for supplies, etc. The United States has decided to support the Big Three (Chrysler, Ford, General Motors) of Detroit, but only to save their plants within the country. France and Sweden have announced that they will condition aid to their automotive industries: only the centers located in their respective countries will be able to benefit. The French minister of the economy, Christine Lagarde, stated that protectionism could be ‘a necessary evil in times of crisis.’ The Spanish minister of industry, Miguel Sebastián, is urging ‘Buy Spanish products.’ Barack Obama, we would add, is promoting ‘Buy American!’
“Other sources of the propagation of the crisis in the periphery include the fall in prices for commodities exported by Latin American and Caribbean countries, with their recessive consequences and higher unemployment.
“A drastic diminishment in remittances from Latin American and Caribbean emigrants in the developed countries. (In some cases, remittances are the most important item in international hard currency income, over and above exports.)
“The return of emigrants, depressing the labor market even more.
“This is combined with a profound energy crisis that requires the replacement of the current one, based on the irrational and predatory use of fossil fuel.
“This crisis coincides with growing awareness of the catastrophic scope of climate change.
“Add the food crisis, sharpened by capitalism’s attempts to maintain an irrational pattern of consumption, which has led to taking land suitable for producing food and allocating it for producing agro-fuels.
“Obama admitted that we have not yet touched bottom, and Michael Klare wrote recently that ‘if the current economic disaster turns into what President Obama has called the lost decade, the result could be a global landscape full of convulsion caused by the economy.’
“In 1929, unemployment in the United States reached 25%, as agricultural and raw material prices fell. Ten years later, and despite radical policies implemented by Franklin D. Roosevelt (the New Deal), unemployment remained very high (17%) and the economy could not climb out of the depression. Only World War II put an end to that stage. And now, why should it be shorter? When the 1873-1896 depression, as I explained, lasted 23 years!
“Given this background, why would we now come out of the current crisis in a matter of months, as some Wall Street publicists and ‘gurus’ predict?
“We will not come out of this crisis with a couple of G-20 or G-7 meetings. If there is any test of their radical incapacity to solve the crisis, it is the response of the world’s stock markets after each announcement or each law passed for a new bailout: invariably, the response of ‘the markets’ is negative.
“As George Soros attests, ‘the real economy will suffer the secondary effects, which are now gaining force. Given that in these circumstances the U.S. consumer can no longer serve as the driving force of the world economy, the U.S. government should stimulate demand. Given that we are facing the threatening challenges of global warming and energy dependence the next government should direct any stimulus plan toward energy savings, by developing alternative energy sources and building environmentally-friendly infrastructure.
“A long period of tug-of-war and negotiations is opening up to define how to get out of the crisis, who will benefit and who will pay the price.
“The Bretton Woods Agreements, which originated in the framework of a Keynesian stage of capitalism, coincided with the stabilization of a new model of bourgeois hegemony, which, as a product of the outcome of the war and anti-fascist struggle, has as a new and unexpected backdrop the strengthening of the gravitation of trade unions, leftist parties and states’ regulating or intervening abilities.
“The USSR is gone; its sole presence and the threat that its example could spread westward tipped the balance of negotiations in favor of the left, popular sectors, trade unions, etc.
“Currently, China holds an incomparably more important role in the world economy, but without reaching a parallel importance in world politics. The USSR, in contrast, despite its economic weakness, was a formidable military and political power. China is an economic power, but with little military or political presence in world affairs, although it is beginning a very cautious and gradual process of reaffirmation in world politics.
“China may come to play a positive role for the re-composition strategy of countries on the periphery. Beijing is gradually reorienting its enormous national energies toward its internal market. For many reasons that would be impossible to discuss here, it is a country that needs its economy to grow at an annual rate of 8%, whether as a response to the stimulus of world markets or to those that originate in its immense — only partially exploited — internal market. If that turn were to be confirmed, it is possible to predict that China will continue to need many products from Third World countries, such as oil, nickel, copper, aluminum, steel, soy and other raw materials and foods.
“In the Great Depression of the 1930s, in contrast, the USSR had a very weak insertion in world markets. China is different: it could continue to play a very important role, and like Russian and India (although these to a lesser extent), to buy the raw materials and foods that it needs, as opposed to the case of the USSR in the times of the Great Depression.
In the 1930s, the ‘solution to the crisis was found in protectionism and world war. Today, protectionism will come up against many obstacles due to the inter-penetration of the great national oligopolies in different spheres of world capitalism. The formation of a global bourgeoisie, rooted in gigantic companies that, despite their national base, operate in a countless number of countries, causes the protectionist option in the developed world to have scant effectiveness in North-North commerce, and policies will tend — at least for now and not without tensions — to respect the parameters established by the WTO. The protectionist card appears to be much more probable when it is applied, as it surely will be, against the global South. A world war driven by ‘national bourgeoisies’ of the developed world ready to fight amongst themselves for market supremacy is virtually impossible, because such ‘bourgeoisies’ have been displaced by the rise and consolidation of an imperial bourgeoisie that periodically meets in Davos, and for which the option of military confrontation is a phenomenally stupid thing to do. That does not mean that that global bourgeoisie does not support, as it has to date with the military adventures of the United States in Iraq and Afghanistan, the realization of numerous military operations in the system’s periphery, necessary for the preservation of the profitability of the U.S. military-industrial complex and, indirectly, for the great oligopolies of other countries.
“The current situation is not the same as the one in the 1930s. Lenin (said):
‘Capitalism does not fall without a social force that makes it fall.’ That social force today is not present in the societies of metropolitan capitalism, including the United States.
“The USA, UK, Germany, France and Japan settled their struggle for imperial hegemony on the military field.
“Today, hegemony and domination are clearly in the hands of the USA. It is the only guarantee of the capitalist system on a world scale. If the USA fell, it would produce a domino effect that would cause the collapse of almost all metropolitan forms of capitalism, let alone the consequences in the system’s periphery. If Washington were to see itself threatened by a popular insurgency, they would all rush to its rescue, because it is the last bastion of the system and the only one that, in case of necessity, can help the others.
“The United States is an irreplaceable actor and unquestionably the center of the world imperialist system: only it has more than 700 military missions and bases in some 120 countries, which constitute the system’s final reserve. If all other options fail, force will appear in all its splendor. Only the United States can deploy its troops and its war arsenal to maintain order on a planetary scale. It is, as Samuel Huntington said, ‘the solitary sheriff.’
“This ‘shoring-up’ of the imperialist center has the invaluable collaboration of its other imperial partners, or its competitors in the economic realm and even the majority of Third World countries, which accumulate their reserves in U.S. dollars. Neither China, Japan, Korea or Russia — to mention the largest holders of dollars in the world — can liquidate their stock in that currency because it would be a suicidal move. Of course, this is also a consideration that should be made with much caution.
“The conduct of the markets and savings-holders throughout the world is strengthening the U.S. position: the crisis is deepening; the bailouts are demonstrating their insufficiency; the Dow Jones on Wall Street is falling below the psychological barrier of 7,000 points — falling below the mark it fell to in 1997! — and despite that, people are seeking refuge in the dollar, with the value of the euro and gold falling!
“Zbigniew Brzezinski has said, ‘I am worried because we are going to have millions and millions of unemployed, many people really having a difficult time. And that situation will be present for some time before things eventually improve.’
“We are in the presence of a crisis that is much more than an economic or financial crisis.
“It is an overall crisis of a model of civilization that is economically unsustainable; politically unsustainable, without appealing increasingly more to violence against the peoples; environmentally unsustainable, too, given the destruction, in almost all cases irreversible, of the environment; and socially unsustainable, because it degrades the human condition to unimaginable limits, and destroys the very fabric of social life.
“The answer to this crisis, therefore, cannot just be economic or financial. The ruling classes will do exactly that: use a vast arsenal of public resources to socialize the losses and set the great oligopolies afloat again. Occupied with defending their most immediate interests, they lack even the vision to conceive of a more comprehensive strategy.
The crisis has not touched bottom,” he says. “We find ourselves facing a general capitalist crisis. There has not been a larger one. The one that took place between 1873 and 1896 lasted 23 years; it was called the Long Depression. The other, more serious one was the one of 1929. It also lasted no less than 20 years. The current crisis is all-embracing, of civilization, multifaceted.”
He immediately adds, “It is a crisis that goes far beyond the financial and banking aspects and is affecting the real economy in every department.”
If anyone were to take this summary and carry it in his or her pocket, read it over once in a while or learn it by heart like a small Bible, he or she will be better informed about what is happening in the world than 99% of the population, where citizens live under siege from commercials and saturated with thousands of hours of news, and real or false soap operas or fiction films.
Fidel Castro
March 8, 2009
11:16 a.m.
Is the Revolution in sight?
looks like the barge may be lifting off a sand bar...
March 9, 2009
The End of an Era: Neoliberalism and the Roots of Capitalism's Latest Crisis
by C.J. Atkins
http://dynamicmagazine.blogspot.com/
As the campaigns of Barack Obama and John McCain raced toward the Election Day finish line, the country and the world seemed to sink into a panic as the economy was collapsing all around us. Banks were going belly up, stock prices went on a roller-coaster ride, companies announced major layoffs, and Washington politicians were scrambling to point fingers and shift the blame.
How did this crisis sneak up on us? How was everyone caught off guard?
The truth is that millions of families across the country were not surprised in the least. For them, the economy was already in trouble a long time ago. What was really going on was that the economic hard-times that many working people had been feeling for years were finally starting to trickle up to those at the top. But to really understand how we got to this point, it is necessary to look back several years (even decades) to some of the trends that have come to characterize the capitalist economy. The current crisis is not something that just popped up. It is the result of more than thirty years of pursuing an economic model that has ultimately failed.
The Golden Age
In the years following World War II, capitalism in the West seemed to gain a new lease on life after the near total collapse of the Great Depression. The economy recorded higher growth each year and both big business and the working class seemed to be benefitting. Profits for capitalists were soaring higher as productivity notched upward. In the U.S., McCarthyism had stripped organized labor of some of its best leaders and tamed the unions, guaranteeing relative stability for the big corporations that dominated the economy. But even those attacks on the left could not totally destroy the victories that workers and their unions had achieved in the New Deal years. So the working class (or at least a certain sector of it) was enjoying some of the gains of this period that came to be known as capitalism’s “Golden Age”. Incomes were rising and the increasing inequality between the richest and poorest groups in society was actually reversing for the first time. The state was playing a very active role in the economy with several countries having substantial parts of their industry under public ownership. Some were starting to say that the boom-and-bust cycle of capitalism that Karl Marx had analyzed was now a thing of the past.
For some groups, of course, this Golden Age had never really been so “Golden”. In the U.S., African Americans continued to suffer from the economic and political oppression of segregation and second-class citizenship. Most immigrants, too, were excluded. Outside the advanced capitalist countries, many of the nations of Africa, Asia, and Latin America were struggling for independence, but they remained mired in the poverty resulting from centuries of imperialism.
But by the 1970s this mythical period of a new crisis-free capitalism started to unravel. The economic growth that had been the necessary glue holding together the stable class relations of the post-war period stalled and stagnation set in. The mass output of consumer and industrial goods in the 1950s and 60s was finally starting to outstrip effective demand. Markets were flooded with products as the old problem of overproduction reappeared. Inflation and unemployment shot up at the same time that productivity started to decline. The capitalist class searched for a solution as they watched profit rates trend steadily downward. On an international scale, the dominant position of the U.S. in the capitalist world economy seemed to be under strain as well. Europe and Japan were becoming major capitalist powers and the U.S. dollar’s status as the world’s currency was under increasing pressure.
Neoliberalism: The Return of Market Fundamentalism
Part of the solution they discovered was a process that has become known as financialization. Over time, more and more capital investment was gradually moved out of the “real” economy – those industries where people actually make and sell material goods and services – to the financial sector of the economy, or what is sometimes known as the “paper” economy. Activities in sectors such as banking, insurance, and investment started to vastly expand.
Occurring simultaneously with this structural shift in the economy was an ideological attack by the ultra-right. Free market fundamentalists like Milton Friedman declared that government had no place in the economy. Privatization of public companies and services was urged. The removal of government oversight of banks and corporations was said to be the best way to restore profitability and economic growth. Taxes were too high and valuable money was being wasted on social programs. Labor unions were strangling companies into bankruptcy. The free market would solve all of these problems if only the state would get out of the way. It was all a rehash of the same ideology of liberal capitalism that Marx had critiqued more than a century earlier.
Of course, the free market crowd did not truly want the government to completely get out of economic matters. They had some big tasks that only the power of the state could carry out. With the election of Ronald Reagan to the presidency in 1980, they got just the man for the job. Unions came under fierce attack, the budgets for social programs were gutted, and financial regulations were stripped away. Interest rates were sent upward to squeeze out inflation and restore the power of the U.S. dollar in the world economy. This also had the effect of shuttering plants across the nation, sending millions to the unemployment lines. Combined with this neoliberal approach in the economy was a heightening of Cold War tensions with the Soviet Union. Money was poured into the arms race. This sent government deficits and debt soaring higher than any social program ever had. It seemed the dominance of the U.S. in the world capitalist system was being restored.
The trend of decreasing inequality that had characterized the “Golden Age” was also in full reverse. Corporate CEO salaries went through the roof as working class incomes failed to keep up with inflation. Millions of families started to rely more and more on credit and debt to maintain their living standards.
The “Victory” of Capitalism
By the early 1990s, the economic and political problems of the socialist states in Eastern Europe had resulted in the collapse of the governments there and the discrediting of communist parties around the world. The neoliberal ideologists and the mass media declared that the battle between capitalism and socialism was over. According to them, Marxist ideas had been proven wrong and the “invisible hand” of the free market had triumphed. It seemed governments everywhere were starting to agree that there was no alternative to unrestricted and unregulated capitalism. Even centrist and left politicians, such as Tony Blair in the U.K. and Bill Clinton in the U.S., could be accused of abandoning any pretense of egalitarianism and continuing the pursuit of neoliberal policies. People were told that the good times were here again.
Profit rates did increase once more and consumerism was back. But much of the celebration rang hollow for millions of poor and working people. Expenditures on social welfare continued to decline over the decade and good-paying full-time union jobs disappeared. The reliance on credit that had started to appear earlier increased even more as people ran up their credit cards and took out second and third mortgages on their homes.
At a superficial level, things looked good. GDP was indeed growing and everyone was talking about the “new economy” of service and high-tech jobs. Many jobs were actually being created. These “good” times though, were only sustained by repeatedly delaying the downturns that were a basic part of the capitalist economic cycle. Financial speculation and outright gambling inflated one investment bubble after another. In the U.S., the federal government used its fiscal and monetary policies to encourage such activity in order to avoid recession. In the late 1990s, there was the so-called dot.com bubble, which saw massive amounts of capital flood into the internet and high technology industries. As that hype died down, money began pouring back into other stocks.
The deregulation and financialization madness reached new heights under the administration of George W. Bush. Since the 1970s, Wall Street had been inventing all kinds of new ways to funnel money through financial channels in order to generate huge profits. There were various kinds of derivatives, credit default swaps (CDSs), collateralized debt obligations (CDOs), and a myriad other forms of ever-more complicated financial instruments created. Put more simply, much of this was simply the cutting up and endless buying and re-selling of what in essence were just very complicated IOUs. Nothing real was being produced in this sector, yet billions of dollars were being made. Finance, which had in the past accounted for a small percentage of U.S. economic activity accounted for nearly a quarter of the country’s entire economy by the first decade of the twenty-first century.
The Bottom Falls Out
As the stock bubble began to burst and the “real” economy started showing signs of trouble with mass layoffs in manufacturing, the short-lived recession of 2001 was softened with the inflation of a new bubble. This one, which had actually gotten its start in the late 1990s, was in the real estate and housing sector. Home prices had begun to rise rapidly for several years, but they really started to take off by the early 2000s. . Millions of families who already had homes took out new mortgages to cash in on their increasing equity. Some who could afford it started purchasing two or three homes expecting to sell at a profit.
Suddenly, even families who in the past had been turned down for a mortgage because of their poor credit or low incomes were told they too could become part of Bush’s “ownership society”. A new kind of home loan, the sub-prime mortgage, was made available to millions of poor families – a large number of them African American or Latino. They were told there was no danger in taking out a mortgage that far exceeded their ability to pay or one that had adjustable rates. They could always just sell the house and make a profit if there was ever a problem. It was all presented as a safe investment. And so with all these new customers, the home construction craze continued.
But after a few years, problems started to appear. Home sales began to slump. In the suburbs, entire newly-built neighborhoods were sitting empty. In the cities, expensive condos waited for residents who weren’t coming. More and more homes were piling up. Of course, this didn’t mean that everyone now had a home and too many had been built. The fact is that by 2007 there were approximately 12 million empty unsold homes in the U.S. while at the same time about the same number of people were homeless.
Home prices, which everyone had been told could only go up, mysteriously started to fall – and fast. But there really was no mystery at all. It soon became quite clear that there was once more a situation of overproduction. The housing bubble had burst. People very quickly discovered that they now owed more on their mortgage than their house was worth. And as those adjustable interest rates kicked in, many found themselves facing mortgage payments they simply could not afford. Hundreds of thousands started to lose their homes. The fuse was now lit for a major economic crisis.
As these families started to default on their mortgages, the effects spread throughout the economy. Like all of those very complicated IOUs discussed above, these mortgages had been split up, packaged with other loans and debts, and resold. They were sold to other banks, to mutual funds, to pension funds, to other companies, to international banks, to foreign governments. When the mortgage doesn’t get paid by the homeowner at the bottom, the effect goes right up the chain to every bank, company, or investor that holds a piece of it. Everyone is left with a little sliver of a loan that will never be paid back.
It took several months to fully develop, but by the fall of 2008 the effects were clear. Banks and firms that had invested heavily in the subprime mortgage mess were in big trouble. Lehman Brothers went under as the invisible hand did its job. Other banks panicked. They refused to make loans to one another, businesses, or consumers out of fear they would never be paid back. Credit markets rapidly froze as lenders held tight to their cash. The world’s biggest insurance company, AIG, teetered on the brink and mortgage giants Fannie Mae and Freddie Mac looked ready to collapse.
Free market mythology had brought capitalism to the edge of an abyss. It became obvious to almost everyone that if the government did not act, the economy could crash. And so the bailouts began. Billions of dollars of taxpayer money poured into the banks to “recapitalize” them. Many were effectively nationalized. In some countries, they actually were. State intervention in the economy was seen by all, even Bush, as unavoidable. In the election, McCain was left without an economic leg to stand on as his message of deregulation and tax cuts seemed out of touch with reality.
Bush and Paulson offered what has been called “socialism for the rich” but did not bother to throw any kind of lifeline to working people. Their half-hearted actions in the fall did little to resuscitate the sinking economy in any meaningful way. The Obama campaign, already riding a wave of popular dissatisfaction with eight years of war and mismanagement, was pushed over the top by an economy that was spiraling downward more every day. As December and January rolled on, little was done by the lame-duck Republican administration. Companies that had already been in trouble were now in even more dire straits. They were hemorrhaging jobs, with over 100,000 lost in a single week in January.
As Obama takes office, he inherits a capitalist economy in ruins. The veil over the thirty year myth has been lifted for all to see – neoliberalism has failed. No matter what Republican politicians or Fox News may claim, socialism is not on our immediate horizon to be sure, but a major overhaul of capitalism is. The period of neoliberal dominance coincides almost exactly with that of the ultra-right in our country. Now the political and economic dynamics have shifted dramatically. It falls to those of us on the left to assert ourselves into that reform process and help shape the next step for our country and the world.
C.J. Atkins is from Arkansas. He is currently a graduate student in political economy at York University in Toronto, Canada.
http://dynamicmagazine.blogspot.com/
As the campaigns of Barack Obama and John McCain raced toward the Election Day finish line, the country and the world seemed to sink into a panic as the economy was collapsing all around us. Banks were going belly up, stock prices went on a roller-coaster ride, companies announced major layoffs, and Washington politicians were scrambling to point fingers and shift the blame.
How did this crisis sneak up on us? How was everyone caught off guard?
The truth is that millions of families across the country were not surprised in the least. For them, the economy was already in trouble a long time ago. What was really going on was that the economic hard-times that many working people had been feeling for years were finally starting to trickle up to those at the top. But to really understand how we got to this point, it is necessary to look back several years (even decades) to some of the trends that have come to characterize the capitalist economy. The current crisis is not something that just popped up. It is the result of more than thirty years of pursuing an economic model that has ultimately failed.
The Golden Age
In the years following World War II, capitalism in the West seemed to gain a new lease on life after the near total collapse of the Great Depression. The economy recorded higher growth each year and both big business and the working class seemed to be benefitting. Profits for capitalists were soaring higher as productivity notched upward. In the U.S., McCarthyism had stripped organized labor of some of its best leaders and tamed the unions, guaranteeing relative stability for the big corporations that dominated the economy. But even those attacks on the left could not totally destroy the victories that workers and their unions had achieved in the New Deal years. So the working class (or at least a certain sector of it) was enjoying some of the gains of this period that came to be known as capitalism’s “Golden Age”. Incomes were rising and the increasing inequality between the richest and poorest groups in society was actually reversing for the first time. The state was playing a very active role in the economy with several countries having substantial parts of their industry under public ownership. Some were starting to say that the boom-and-bust cycle of capitalism that Karl Marx had analyzed was now a thing of the past.
For some groups, of course, this Golden Age had never really been so “Golden”. In the U.S., African Americans continued to suffer from the economic and political oppression of segregation and second-class citizenship. Most immigrants, too, were excluded. Outside the advanced capitalist countries, many of the nations of Africa, Asia, and Latin America were struggling for independence, but they remained mired in the poverty resulting from centuries of imperialism.
But by the 1970s this mythical period of a new crisis-free capitalism started to unravel. The economic growth that had been the necessary glue holding together the stable class relations of the post-war period stalled and stagnation set in. The mass output of consumer and industrial goods in the 1950s and 60s was finally starting to outstrip effective demand. Markets were flooded with products as the old problem of overproduction reappeared. Inflation and unemployment shot up at the same time that productivity started to decline. The capitalist class searched for a solution as they watched profit rates trend steadily downward. On an international scale, the dominant position of the U.S. in the capitalist world economy seemed to be under strain as well. Europe and Japan were becoming major capitalist powers and the U.S. dollar’s status as the world’s currency was under increasing pressure.
Neoliberalism: The Return of Market Fundamentalism
Part of the solution they discovered was a process that has become known as financialization. Over time, more and more capital investment was gradually moved out of the “real” economy – those industries where people actually make and sell material goods and services – to the financial sector of the economy, or what is sometimes known as the “paper” economy. Activities in sectors such as banking, insurance, and investment started to vastly expand.
Occurring simultaneously with this structural shift in the economy was an ideological attack by the ultra-right. Free market fundamentalists like Milton Friedman declared that government had no place in the economy. Privatization of public companies and services was urged. The removal of government oversight of banks and corporations was said to be the best way to restore profitability and economic growth. Taxes were too high and valuable money was being wasted on social programs. Labor unions were strangling companies into bankruptcy. The free market would solve all of these problems if only the state would get out of the way. It was all a rehash of the same ideology of liberal capitalism that Marx had critiqued more than a century earlier.
Of course, the free market crowd did not truly want the government to completely get out of economic matters. They had some big tasks that only the power of the state could carry out. With the election of Ronald Reagan to the presidency in 1980, they got just the man for the job. Unions came under fierce attack, the budgets for social programs were gutted, and financial regulations were stripped away. Interest rates were sent upward to squeeze out inflation and restore the power of the U.S. dollar in the world economy. This also had the effect of shuttering plants across the nation, sending millions to the unemployment lines. Combined with this neoliberal approach in the economy was a heightening of Cold War tensions with the Soviet Union. Money was poured into the arms race. This sent government deficits and debt soaring higher than any social program ever had. It seemed the dominance of the U.S. in the world capitalist system was being restored.
The trend of decreasing inequality that had characterized the “Golden Age” was also in full reverse. Corporate CEO salaries went through the roof as working class incomes failed to keep up with inflation. Millions of families started to rely more and more on credit and debt to maintain their living standards.
The “Victory” of Capitalism
By the early 1990s, the economic and political problems of the socialist states in Eastern Europe had resulted in the collapse of the governments there and the discrediting of communist parties around the world. The neoliberal ideologists and the mass media declared that the battle between capitalism and socialism was over. According to them, Marxist ideas had been proven wrong and the “invisible hand” of the free market had triumphed. It seemed governments everywhere were starting to agree that there was no alternative to unrestricted and unregulated capitalism. Even centrist and left politicians, such as Tony Blair in the U.K. and Bill Clinton in the U.S., could be accused of abandoning any pretense of egalitarianism and continuing the pursuit of neoliberal policies. People were told that the good times were here again.
Profit rates did increase once more and consumerism was back. But much of the celebration rang hollow for millions of poor and working people. Expenditures on social welfare continued to decline over the decade and good-paying full-time union jobs disappeared. The reliance on credit that had started to appear earlier increased even more as people ran up their credit cards and took out second and third mortgages on their homes.
At a superficial level, things looked good. GDP was indeed growing and everyone was talking about the “new economy” of service and high-tech jobs. Many jobs were actually being created. These “good” times though, were only sustained by repeatedly delaying the downturns that were a basic part of the capitalist economic cycle. Financial speculation and outright gambling inflated one investment bubble after another. In the U.S., the federal government used its fiscal and monetary policies to encourage such activity in order to avoid recession. In the late 1990s, there was the so-called dot.com bubble, which saw massive amounts of capital flood into the internet and high technology industries. As that hype died down, money began pouring back into other stocks.
The deregulation and financialization madness reached new heights under the administration of George W. Bush. Since the 1970s, Wall Street had been inventing all kinds of new ways to funnel money through financial channels in order to generate huge profits. There were various kinds of derivatives, credit default swaps (CDSs), collateralized debt obligations (CDOs), and a myriad other forms of ever-more complicated financial instruments created. Put more simply, much of this was simply the cutting up and endless buying and re-selling of what in essence were just very complicated IOUs. Nothing real was being produced in this sector, yet billions of dollars were being made. Finance, which had in the past accounted for a small percentage of U.S. economic activity accounted for nearly a quarter of the country’s entire economy by the first decade of the twenty-first century.
The Bottom Falls Out
As the stock bubble began to burst and the “real” economy started showing signs of trouble with mass layoffs in manufacturing, the short-lived recession of 2001 was softened with the inflation of a new bubble. This one, which had actually gotten its start in the late 1990s, was in the real estate and housing sector. Home prices had begun to rise rapidly for several years, but they really started to take off by the early 2000s. . Millions of families who already had homes took out new mortgages to cash in on their increasing equity. Some who could afford it started purchasing two or three homes expecting to sell at a profit.
Suddenly, even families who in the past had been turned down for a mortgage because of their poor credit or low incomes were told they too could become part of Bush’s “ownership society”. A new kind of home loan, the sub-prime mortgage, was made available to millions of poor families – a large number of them African American or Latino. They were told there was no danger in taking out a mortgage that far exceeded their ability to pay or one that had adjustable rates. They could always just sell the house and make a profit if there was ever a problem. It was all presented as a safe investment. And so with all these new customers, the home construction craze continued.
But after a few years, problems started to appear. Home sales began to slump. In the suburbs, entire newly-built neighborhoods were sitting empty. In the cities, expensive condos waited for residents who weren’t coming. More and more homes were piling up. Of course, this didn’t mean that everyone now had a home and too many had been built. The fact is that by 2007 there were approximately 12 million empty unsold homes in the U.S. while at the same time about the same number of people were homeless.
Home prices, which everyone had been told could only go up, mysteriously started to fall – and fast. But there really was no mystery at all. It soon became quite clear that there was once more a situation of overproduction. The housing bubble had burst. People very quickly discovered that they now owed more on their mortgage than their house was worth. And as those adjustable interest rates kicked in, many found themselves facing mortgage payments they simply could not afford. Hundreds of thousands started to lose their homes. The fuse was now lit for a major economic crisis.
As these families started to default on their mortgages, the effects spread throughout the economy. Like all of those very complicated IOUs discussed above, these mortgages had been split up, packaged with other loans and debts, and resold. They were sold to other banks, to mutual funds, to pension funds, to other companies, to international banks, to foreign governments. When the mortgage doesn’t get paid by the homeowner at the bottom, the effect goes right up the chain to every bank, company, or investor that holds a piece of it. Everyone is left with a little sliver of a loan that will never be paid back.
It took several months to fully develop, but by the fall of 2008 the effects were clear. Banks and firms that had invested heavily in the subprime mortgage mess were in big trouble. Lehman Brothers went under as the invisible hand did its job. Other banks panicked. They refused to make loans to one another, businesses, or consumers out of fear they would never be paid back. Credit markets rapidly froze as lenders held tight to their cash. The world’s biggest insurance company, AIG, teetered on the brink and mortgage giants Fannie Mae and Freddie Mac looked ready to collapse.
Free market mythology had brought capitalism to the edge of an abyss. It became obvious to almost everyone that if the government did not act, the economy could crash. And so the bailouts began. Billions of dollars of taxpayer money poured into the banks to “recapitalize” them. Many were effectively nationalized. In some countries, they actually were. State intervention in the economy was seen by all, even Bush, as unavoidable. In the election, McCain was left without an economic leg to stand on as his message of deregulation and tax cuts seemed out of touch with reality.
Bush and Paulson offered what has been called “socialism for the rich” but did not bother to throw any kind of lifeline to working people. Their half-hearted actions in the fall did little to resuscitate the sinking economy in any meaningful way. The Obama campaign, already riding a wave of popular dissatisfaction with eight years of war and mismanagement, was pushed over the top by an economy that was spiraling downward more every day. As December and January rolled on, little was done by the lame-duck Republican administration. Companies that had already been in trouble were now in even more dire straits. They were hemorrhaging jobs, with over 100,000 lost in a single week in January.
As Obama takes office, he inherits a capitalist economy in ruins. The veil over the thirty year myth has been lifted for all to see – neoliberalism has failed. No matter what Republican politicians or Fox News may claim, socialism is not on our immediate horizon to be sure, but a major overhaul of capitalism is. The period of neoliberal dominance coincides almost exactly with that of the ultra-right in our country. Now the political and economic dynamics have shifted dramatically. It falls to those of us on the left to assert ourselves into that reform process and help shape the next step for our country and the world.
C.J. Atkins is from Arkansas. He is currently a graduate student in political economy at York University in Toronto, Canada.
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