In this Section
3 Transforming the economy
As the masses in Europe, the Middle East, parts of Africa, China and the USA rise up against the desperate measures taken to save the global capitalist system from collapsing into slump, the world’s ruling classes are in disarray. The system of capitalist production is showing itself absolutely unsustainable in social, economic, ecological and political terms.
The financial meltdown that began in 2007 froze credit markets, interrupted trade and led to the shut down of productive capacity worldwide. But, far from being over, the financial crisis has only begun to run its course. Immeasurable mountains of unrepayable debt, tied up in devices that few understand, are still to be written off. World trade has slumped and the year-on-year growth that is the lifeblood of capitalism is out of reach. Global corporations are engaged in a new round of consolidation, mergers and acquisitions that will lead to closing factories and relocating production to lower wage countries. Those still in work are forced to work far harder for less money as the search for profit drives productivity upwards. Huge, worldwide stimulus programmes designed to restart the global economy are ending, leaving massive overcapacity and sending inflation soaring – especially in food and energy.
In the United States, the policy of printing money has spectacularly failed to return the economy to growth. It has fuelled inflation and global commodity speculation and added to the gargantuan federal deficit. A bidding war between Democrats and Republicans, intended to cut the $14.3 trillion deficit by a stunning $4 trillion, would slash health care and provoke nationwide resistance. Credit rating agency Standard & Poor has downgraded its outlook for the US for the first time, a warning that if the government fails to crack down hard enough, investment money will go elsewhere and interest rates will rise. Wisconsin and Massachusetts – led by the Democrats – are among the states passing draconian anti-union laws. Ben Bernanke, chairman of the Federal Reserve, has admitted that the deficit is unsustainable. Gold soared to an historic record beyond $1,500 an ounce on the news.
Attempts to restart the growth engine with high levels of debt and near-zero interest rates have floundered while sowing the seeds of runaway inflation. Britain leads the world in this respect. In the 20 years between 1990 and 2009, its combined private and public debt soared from two to five times the value of its annual production. Britain is now the most exposed of all the rich, but heavily-indebted countries, ahead of Japan, Spain, South Korea and France.
According to the European Union’s “debt league” table, Britain’s national debt – the amount the country owes to investors – is the third highest of member states. Britain is just behind near bankrupt Greece and Ireland who together with Portugal have brought the euro to the point of disaster. The Coalition government’s savage austerity measures, based on massive cuts in public spending, only add to the recession. In May 2011, the National Institute of Economic and Social Research (NIESR) forecast that consumer price inflation would reach 4.5% during the year, while real disposable incomes will fall by 1.3% as a result of price and tax rises. The NIESR also suggested that the Coalition’s targets for cutting the deficit would not be met, saying: “The weak recovery will feed through to lower tax revenues. That will mean that even if the spending plans are met over the next four years, public sector net borrowing will fall only to 3.6 per cent of GDP in 2015-16 rather than the 1.5 per cent projected by the Office for Budget Responsibility. Likewise, the current budget will then run a deficit of 2.2 per cent of GDP compared with the OBR’s deficit of 0.2 per cent. We do not expect the government to meet its target to balance the cyclically-adjusted current budget by 2015–16.” This can only lead to further cuts in public spending.
Germany’s return to growth supplying heavy machinery to China is dangerously exposed to Greek and Spanish debt through over-extended banks which have lent 20 times the value of the assets they hold. China’s government-funded programme of infrastructure investment has produced more than 50 new cities together with rail and road connections. These are intended to transfer production to lower wage areas, now that workers have become organised in factories producing for Honda, Apple and others. But much of the new capacity remains unused. Despite a series of interest rate rises, inflation outruns the 30% pay increases won by some workers, and is stirring unprecedented unrest.
The social costs of attempting to resuscitate the financial system and restore capitalist production to profitable growth are simply too great to bear, as the experience of Greece demonstrates. A year after an EU bail-out, Greece’s hospitals are experiencing severe shortages of beds and supplies while schools can no longer afford cleaners. Disposable incomes have dropped dramatically as wages and pensions have been slashed, taxes have been raised and unemployment has reached a record 15%. Eighteen months after the economic crisis erupted, despite a series of general strikes and increasingly violent protest actions, and with the cost of borrowing rising to an impossibly punishing 25% in April 2011, Socialist Party Prime Minister Papandreou insisted that more cuts were needed to meet deficit-cutting targets. Riot police have been put on continuous alert.
Capitalist logic means that tens of millions more will have to join those throughout the world who have already lost their homes, their jobs and their futures. Their experience contrasts sharply with the renewed enrichment of the bankers and investors whose demands for cost-cutting measures lay behind the environmental disasters in the Gulf of Mexico and at the Fukushima nuclear plant.
Dealing with the crash has drained the confidence from political and economic elites who not long ago were declaring that the world had entered a new “golden age” of limitless, risk-free prosperity. Neo-liberal dogmas about the “free market” now lie in tatters, whilst gargantuan neo-Keynesian intervention has produced minimal signs of success as an even bigger debacle unfolds.
Though many blame the “greed” of bankers and speculators on the money and commodity markets for the crash, their rise to power was the result of the insatiable demand for credit needed to fund the growth of commodity production and consumption.
The real source of the crash is to be found at the heart of the capitalist system of production, in the “real” economy where labour adds value to the inputs. In capitalist society people are employed to produce the commodities and services which are bought and sold in the global marketplace: cars, refrigerators, trainers, mobile phones, laptops, notebooks, net-books, tablets, food and drink, bus, train and plane journeys.
Only part of the value workers add through their labour is returned to them as wages. The surplus remaining – after the other costs of production are deducted from the income on sales – is distributed to shareholders as dividends, to pay rent to landowners, and as interest to banks and other suppliers of credit. Competition on price requires increases in the productivity of labour which reduces the hours needed for the production of a commodity. So the value, which is determined by the quantity of labour it contains, and hence the price of, and profit from each commodity tend to decline as a result. To offset the reducing profit derived from each ever-cheaper computer or car, more units of each type of commodity must be manufactured and sold.
This is the insane logic of capitalism. It pushes for growth not because it can, but because it must, until the limits of the market are reached, stretched and oversupplied. And then growth goes into reverse. Capacity is idled and then destroyed, while the exploitation of those with jobs increases as costs are slashed.
In the US, whilst real corporate profits are now near an all-time high, one out of six working people are either out of a job or have no choice but to work part-time. The amount of goods and services produced per worker rose by 3.5% in 2009, and 2010 saw a 3.6% increase, the largest in eight years. At the same time, labour costs – the value of wages and benefits – have seen their steepest decline since 1962-63. This is the result of companies putting the big squeeze on their workers – threatening to cast them into a sea of unemployed Americans if they don’t produce more for the same wages. These numbers tell us that an economy that now employs seven million fewer workers than it did in 2008 can produce the same amount of stuff, but at a great social cost.
According to an analysis of census data by USA Today, just 45% of the population now holds a job, the lowest share since 1983. Over the past decade, the number of non-working adults in the US has increased by 27 million. Those who have been laid off and were then lucky enough to get rehired mostly return on worse conditions. In an employers’ market, over half of all full-time workers laid off after at least three years at the same job return to the workforce with lower wages. More than a third of them lose 20% or more of their previous income. The average length of joblessness among the unemployed is now 39 weeks, shattering the record set during the 1981-2 recession by around 17 weeks. There are about five jobless workers for every full-time opening, but when you include involuntary part-timers, that ratio rises to 8:1.
The intense speed-up and enforced wage reductions experienced by American workers is but one of the responses to a global economy that was driven by new kinds of credit invented to try to overcome the barriers to growth. These limits had produced increasingly frequent and severe recessions throughout the last three decades of the 20th century and into the new millennium. Following the 1971 breakdown of the post-war Bretton Woods agreement of fixed currency exchange rates and capital controls, an unparalleled expansion of credit and debt channelled through globalised financial markets in equities, currencies, bonds and a multitude of derivative products funded the growth of transnational corporations and the consumer boom, particularly in the US and Britain. The financial system found new reserves of creativity. It learned to recycle debt into new credit in bewildering ways until it appeared that money could be made from money, simply by pressing a few buttons on a computer keyboard.
The global cloud of credit expanded way beyond the value of the productive capacity, goods and services it supposedly represented, engulfing the world in debt. By 2006, around 90% of the world’s credit was effectively worthless, sustained as it was by the fiction of endless growth. The boom in foreign currency exchange trading took the billowing cloud of fictitious value beyond measure. But every process has its limits. The credit boom reached its nemesis in 2006 when the first of many people found that they could no longer service their mortgage and credit-card debt. The consumer boom gave way to a downward spiral that ended the dream of continuous credit-and-debt fuelled growth.
With government cuts now biting hard, unemployment is set to soar in every country to and beyond the levels seen in the 1930s. By March 2010, in Europe, the total had soared to one in ten of the working population and it remained at that level throughout the following year. For young people the picture is much worse. By November 2010, in Ireland, the unemployment rate for 15-19 year olds had risen to 36.4%, in Greece 35% and in Spain a stunning 42.8%. A million young people are out of work in Britain and an independent study said that more than 3.4 million were without jobs, a million higher than official figures, even before the cuts came into effect. In the 17 countries forming the eurozone, joblessness among the young stood at 20.4% in April 2011, up from 14.6% in February 2008, before the start of the financial crisis.
In the United States, the crisis has destroyed almost eight million jobs and 2.8 million homes were repossessed between 2007 and 2009 from people unable to pay their mortgages. Despite claims that the recession had ended in the United States in 2009, repossessions rose by 35% in the first quarter of 2010, against the same period one year earlier, as banks took charge of 258,000 houses and flats - the highest quarterly total ever seen.
Credit-induced, corporate-led globalisation created social inequality and poverty on a vast scale, even before the present crisis. The richest 2% have appropriated more than half of all global wealth. In contrast, the bottom half together hold barely 1% of all global wealth. Despite the crash, there are now close to a thousand billionaires worldwide whilst almost half the world – over three billion people – live on less than $2.50 a day. The collective wealth of these super-rich individuals is greater than the combined income of the poorest three billion.
Britain under New Labour became a more unequal country than most other industrialised countries. The gap between rich and poor is wider now than years ago, according to the National Equality Panel’s 2010 report. About 15% of pupils in state schools are now entitled to free school meals. Since 1997, the poorest 10% of households have seen weekly incomes fall by £9 a week to £147 once inflation is accounted for. In 2006/08, half of the households in Britain owned 1% of net financial wealth, while the wealthiest 20% owned 84%.
Imagine that you are a member of a global society of communities whose citizens work together, co-operating on the land and in the buildings we own to meet our needs for food, clothing, housing, education, health and transport. You haven’t got a “job”. No-one has a job. There’s no employer, nor any employment contract. Your work is a contribution to satisfying the needs of the community. The work you do entitles you to a share of our community’s collective product.
The era of global capitalist corporations organising the world’s production to maximise profit has been replaced by a system of collectively-owned, democratically-controlled co-operatives. Now the global network of communities you belong to can ensure that the decisions we take are consistent with the continuation of life on the planet. You are not continuously bombarded with enticements to consume more products you never knew you needed. You are no longer addicted to buy-one-get-one-free food products laced with salt, sugar and fat. None of the value you produce is siphoned off for distribution as profits to external shareholders. You are not entrapped by offers of unlimited credit. Any surplus is saved for the future or used to target priority needs agreed by the community. You contribute what you can, and get back what your household needs.
Growth now means increasing local production, including the growing of food, with communities reducing their dependence on goods transported around the world, but exchanging fairly those things that cannot be made locally. Low-energy transport systems fuelled from renewable sources carry people and goods from place to place. The issue of money for exchange and credit for investment is controlled by democratically accountable not-for-profit service organisations modelled on credit unions and building societies.
Communities meet regularly to review their needs and plan what they collectively will do to improve lives and the lives of people in other communities around the world. Because you take part in the decisions which are made, you feel and are in control. Your community sends its delegates to regional and national Assemblies, taking part in decision-making at every level.
Capitalism is an unsustainable, exploitative, obscene system that is beyond repair and past its use-by date. A handful of for-profit corporations – perhaps as few as 100 controlling everything from food, drugs, cars and energy to finance – have brought us to this emergency in alliance with states and politicians who are there to serve the tiny elite which benefits from the accumulation of capital. We do not advocate regulation as a solution because deregulation was not the cause of the meltdown that has engulfed the world economy.
Instead, the inner contradictions of the capitalist system of production are the source, forcing it to expand production, overcoming all constraints. It was this that drove on the deregulation process imposed on national governments by the World Trade Organisation, the World Bank and the International Monetary Fund.
Millions of people already live at least part of their lives on non-capitalist, not-for-profit principles. Some 186 million belong to democratically-run credit unions using members’ savings to fund cheap loans. Millions participate in co-operatives of all kinds. Let us build a movement to replace capitalism with a society working along these lines. We could call it a co-operative transition.
In ending the selfish pursuit of profit we will work with others in a global network of revolutionary organisations to restore the health of the planet’s ecosystem. A not-for-profit system of production, distribution and exchange will optimise local production for local needs.
Together we will release the revolutionary potential of science, technology and technique to minimise resource use, creating a society based on co-operation, satisfying the needs of all. By replacing the employment contract with co-operative membership we will overcome alienation of people from their work, from what is produced and from society as a whole. Extending these relationships and principles throughout society will allow and enable people to fulfil their potential and aspirations, and make health and well-being the single defining social objective for the world’s population.
We should dismantle and replace the undemocratic top-down pyramid of organisations of free market capitalist rule from the International Monetary Fund, World Bank and World Trade Organisation to for-profit lobbyists, credit rating agencies and bottom-feeding loan sharks. New and democratised institutions will take measures to ensure that incomes and the standard of living are progressively equalised around the world.
A democratic world body like the United Nations, but not controlled solely by the interests of big powers and without the massive bureaucracy that goes with it, would debate what global institutions and laws are wanted. The World Health Organisation and the Intergovernmental Panel on Climate Change would make sure knowledge is shared and offer help and aid.
All productive resources would be owned in common, replacing unlimited exploitation and depletion with stewardship of the land, sea, the air and all of the planet’s ecosystems. Ownership of the production facilities of the major corporations will shift from external shareholders to a variety of forms of co-ownership under democratic control operating forms of self-management.
They will encourage and support small-scale enterprises, creative workers and farmers. Property rights in seeds, pharmaceuticals, genes, intellectual products and even water by global corporations will end. Providing assistance, sharing expertise and technology will become the new norms.
Decisions about the extraction and use of natural resources and the optimum location of facilities for the production and distribution of goods will no longer be determined by the market in cheap labour. Instead, the guiding principle will be the equitable satisfaction of needs in line with the restoration and enrichment of the planet’s ecosystems.
A revolutionary government will outlaw gambling in the derivatives casino and shut down speculative trading on stock markets, hedge funds and foreign exchange as a prelude to the unification of monetary systems into a not-for-profit global system of accounting designed to equalise the value of labour worldwide.
The entire financial system will be replaced with a not-for-profit network of socially-owned organisations providing essential services. Existing trading platforms and communication networks will become part of a democratically-accountable global system of distribution and exchange. The issue of money needed for exchange and credit for investment will be subject to democratic control. As electronic systems proliferate, digital accounting based on units of labour can replace money.
Local Assemblies will decide which personal debts can be cancelled and which renegotiated. Outstanding mortgages, for example could be replaced by socially-determined payments. All empty properties will be requisitioned and used to house those who are homeless or living in housing that is not fit for purpose.
- all austerity and spending cuts programmes aimed at appeasing the money markets will be terminated
- loans made to finance deficits caused by the capitalist crisis will be repudiated as the preparatory step to an entirely new financial system
- stock markets will be shut down and the majority of shares - those used for speculation by hedge funds and private equity funds - confiscated
- title/ownership will be transferred in trust to the workers in an enterprise. The remaining individual shareholdings will become non-transferable
- banks and all financial institutions will be taken over and their operations reduced to not-for-profit services run by committees elected by depositors and workers
- all mortgage debt will be replaced by socially-determined payment for housing renegotiated according to the ability to pay
- Private Finance Initiative contracts with the public sector will be terminated. Assemblies will delegate teams to re-prioritise and re-finance development projects
- surplus income from pension funds, freed from speculative investors’ control, will be used to fund the costs of transition
- all those able to work who are unemployed will be offered a job at the average wage or retraining with no loss of income.