Tag Archives: Political Economy

Economic Collapse Burying Workers; Will Spark Wider Wars

The global economic collapse is crushing workers even more. The UN’s International Labor Organization (ILO) predicted that the subprime crisis and rising oil prices will increase world unemployment by five million (Agence France Press, 1/23) over and above the already 189.9 million now jobless. That forecast was reached before the current turbulences in the world’s financial markets. “We still don’t know the impact of the stock market crisis on the employment figures,” explained ILO chief José Salazar-Xirinchs.
Trenton, NJ Mayor Douglas Palmer, president of the U.S. Mayor’s Conference, told 250 mayors meeting in Washington that the subprime crisis is “an economic tsunami…hitting our cities.” A recent Conference study said home values would drop by $1.2 trillion this year.

The mayors are asking for immediate federal help, but — even though some cities are suing banks and speculators who caused the subprime mess — their main response has been to cut social services even more nation-wide. Sacramento city officials have responded to a $55 million projected budget shortfall for next year by ordering an immediate hiring freeze and ending some discretionary spending. In Virginia, Fairfax County — facing a $220 million deficit for the coming fiscal year — is considering cuts to school districts. On January 24th, billionaire New York City Mayor Bloomberg announced an across-the-board 5% cut for all city departments, for a total slash of $1.5 billion in two years, including a $505 million dollar reduction in schools.

The effects of the current economic crisis are also hitting countries closely linked to U.S. imperialism. During the current world economic forum in Davos, Switzerland, the governor of Mexico’s Central Bank reported that his country’s economy will be hit badly — 40% of Mexico’s Gross Domestic Product depends on trade with the  U.S. Already, Mexico is predicting a slowdown in growth for 2008. On top of that, hundreds of thousands of Mexican immigrant workers in the U.S. are losing their jobs because of the subprime crisis (many work in construction) and general economic collapse, reducing their remittances to relatives back in Mexico.

This racist aspect of the subprime crisis is affecting Britain and Spain. Immigrant workers involved in construction there are losing their jobs.

International financier George Soros is not bullish about this crisis. He told the Davos economic forum that there is a profound difference in the current crisis, marking the end of an era of credit expansion based on the dollar as the international reserve currency. He called it the worst economic crisis since World War II. The hope that the rising economies of China and India will help ease the situation is being dashed since they depend on exporting to the U.S. and European markets, hard-hit by the current crisis. For example, incomes for workers in the U.S. have not risen in real terms for three decades because of downsizing, racist wage-cuts and the lack of mass fight-back by the union movement. The subprime crisis has put working-class homeowners — who borrowed money based on the rising values of their homes — in a hole, decreasing consumer spending. Less consumption and a falling U.S. dollar might spur China and other countries, who have lent the U.S. trillions by buying Treasury bonds, to cash in their investments, sinking the U.S. economy even more.

Soros is worried that resulting political tensions, including U.S. protectionism, may disrupt the global economy and plunge the world into recession or worse.

That “worse” could turn economic conflicts into a shooting war among the world’s imperialists for a bigger share of the capitalist pie. The subprime and credit-crunch crises are just symptoms of a capitalist system based on speculation, endless imperialist wars and racist-fascist attacks against the international working class. None of the tricks the bosses used in recent decades have worked, including Thatcherism, Reagan’s “trickle-down voodoo economy,” Clinton’s “new economy” or Bush’s tax cuts. U.S., British and other capitalists’ turning away from production has created an even more parasitic capitalist class, still more dependent on financial speculation and increasing fraud, without creating real value. Each new scheme — dot.com, subprime mortgages, etc. — created bigger bubbles, dragging the world economy down.

But capitalism won’t fall by itself. Since its birth the profit system has been based on boom-and-bust cycles, accompanied by massive wars, recessions and depressions. The anarchistic capitalist production system will continue as long as we workers let them make us pay with our blood for their profits. Previous wars and crises led to workers’ revolutions: the Paris Commune, the Bolshevik and Chinese revolutions. As the international working class prepares for May Day 2008, we in the Progressive Labor Party must step up our efforts to win workers, youth and soldiers worldwide to see that the only way out of this capitalist hell is building a massive revolutionary communist movement to bury the bosses once and for all.

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The Demon Is Capitalism

A Demon of Our Design: Markets, Hedge Funds and the Perils of FInancial Innovation
By Richard Bookstaber
John Wiley & Sons, Inc., 2007

“Complexity cloaks chaos” concludes Richard Bookstaber in A Demon of Our Own Design. He draws on insider knowledge of recent Wall Street debacles to paint a future of bigger, more frequent financial collapses. The need to reinvigorate value-producing manufacturing becomes more severe with each crash: the attacks on the working class sharper.

Historically, many empires have been undone by letting go of their domestic manufacture-based economies. A seventeenth-century Spaniard enthused: “Let London manufacture… as long as our capital can enjoy them. …All the world serves [Madrid] and she serves nobody.” Eventually, London used its manufacturing to become the center of a new empire, while’s Spain’s empire declined.

Speculation: U.S. Imperialism’s Hidden Weakness

The financial sector now accounts for 31 percent of U. S. corporate profits — up from 20 percent in 1990 and 8 percent back in 1950. But, larger percentages of financial profits come from hedge fund speculation. New York Times business columnist Floyd Norris blames these financial “innovations” for spreading the housing-related credit market crisis.
On the other hand, China has a growing industrial economy allowing it to become an emerging imperialist competitor. Not long ago U.S. “experts” questioned China’s economic viability since Chinese banks carried too many non-performing loans. China Investment Corporation, the state-run investment fund, will spend two-thirds of its $200 billion shoring up these banks. Their percentage of “bad” loans has already dropped by half.
Chinese imperialists got this capital from exploiting workers in their vast, rapidly-expanding manufacturing sector. They can get away with it because capitalist leaders long ago hijacked the communist revolution. They’ve turned it into it’s opposite — another exploitive capitalist nightmare.

Spiral to Hell

Bookstaber gives a running account of financial “innovations” beginning in the 1980s. He explains the mathematics behind investment strategies that caused such infamous disasters as the 1987 crash and the demise of Long Term Capital Management. He worked with many of the players and admits to contributing to financial catastrophes.
He freely admits speculative “financial tools” help for only a few years. The investment community “invents” one speculative scheme after another trying to stay ahead of the inevitable payback. By now, the very design of financial markets insures a “liquidity spiral to hell.”

His solution is to reduce “tight coupling and complexity of financial transactions.” The financial markets shouldn’t use “every financial instrument that can be dreamt up.” Speculation shouldn’t rely on large sums of borrowed money. This “leverage” speeds up the spiral to catastrophe, spreading the danger to areas beyond the original investment. Bookstaber hopes “simpler financial instruments and less leverage will create a market that is more robust and survivable.”

He never asks why U.S. bosses turned to financial speculation in the first place. Industrial opportunities to extract surplus value and profit failed to keep pace with those of emerging imperialist competitors. U.S. financial titans were forced to speculate to keep up. Bookstaber’s solution is fanciful in this climate.

Workers Create All Value

The value of an automobile or airplane is greater than the sum of the parts that make it up. The amount of labor in production creates the increase in value. The boss can’t use this extra value until he sells the product. Marx called this part of the process exchange. Exchange itself doesn’t create any value.
As exchange becomes less connected to creation of value, it turns into speculation. One boss can make money at the expense of another, but no value is created in the exchange. That’s what increasingly opaque hedge funds are all about. Eventually the house of cards collapses if no extra value is created to back up these financial “tools.”

Ruling-class strategic thinkers have awakened to the danger and to the need to actually produce value. They are re-industrializing on the backs of low-paid immigrant and black labor, starting with expanding subcontractors.

Racist practices like this hurt all workers. The network of non-union subcontractors has grown to include low-paid sub-assembly and assembly factories. Conditions in traditional union plants — with older white and black workers — are being driven down to subcontractor levels. Even in union facilities, the new hires get paid half what veteran co-workers make. The bosses may not be able to stop speculation, but they can and will attack us.

Re-industrialization with low-paid domestic labor is only the beginning. The bosses hope to rein in emerging imperialist competitors like Russia and China through control of Mideast oil. The current wars are only a prelude to more bloody oil wars. Eventually, direct confrontation will be necessary, leading to world war.

Poverty, war, racism and economic crisis are the demons of the capitalist design. We need a new design that produces for the needs of our class, not the profits of the bosses — communism.

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