Saturday, September 20, 2008

Fonterra and State Monopoly Capitalism

NZ Dairy giant Fonterra, NZ's biggest exporter, is implicated in the scandal over milk contaminated by melamine in China. This scandal is a metaphor for global finance capitalism in which companies privatise their profits but socialise their costs. Fonterra is a private corporation owned by dairy farmer shareholders in New Zealand. It has expanded internationally in recent years, into the US, Latin America and in 2005, China, when it bought a 43% share in Sanlu. The deal involved NZ production technology but no real control by Fonterra of the Sanlu operation. Fonterra therefore entered a partnership where it gained profits from the joint venture, but had little oversight and control of production.

Why would a company based on a farmers cooperative ownership which has a long history of advances in technology and quality control, risk its reputation and its future by gambling on such a risky venture? The answer is that to compete internationally against the other Dairy Giants, Fonterra went for high profits and passed on its risks and costs to the Chinese workers and consumers. At the same time it socialised its risks as the Chinese government and to the NZ Government will have to pay for the damage done to the families and to both economies.

Of course this makes a mockery of the ideology of the free market that argues that bad investment decisions should be punished by bankruptcy. Fonterra's fiasco in China then, is no different from all the corporations that depend heavily upon 'externalising' their costs onto the public sector.It is no different to Lehman Bros, and the AIG who have been rescued by the US Federal Bank. Or Air NZ and the Bank of NZ that have been nationalised several times by NZ governments. While the ideologues of the market complain that these corporates should be allowed to go bankrupt as punishment for their bad investments, corporate owners, central bankers and politicians know better. To allow the crisis to spread across the whole world economy will cause a major depression, a massive destruction of their wealth, and risk a popular challenge to the survival of the "system".

In a crisis then, neo-conservatives and liberals agree that the state must come to the rescue to prevent the collapse of the "system". They argue only over who will pay. The neo-cons like John McCain want tax cuts for the rich so that the tax burden of the central bank bailouts will fall on the poor. Obama wants more taxes on the rich so that they and not the poor will carry the cost of the bailouts. But the liberals are only quibbling about who will bear the costs. It is clear that the rich will benefit most from the rescues as the biggest and strongest banks and corporations backed by the state banks will survive. On the other hand, all those workers who lost their homes and their savings and equity are basically bankrupted.

And in the case of Fonterra you can be sure that it is not the families of the children who have died or got permanent kidney damage that will win. The Chinese and NZ states will cooperate to rescue their Free Trade Agreement by paying part of the health costs of these children. Sanlu managers may be shot and the company will struggle to survive, but Fonterra will escape real damage because it will be bailed out by the liberal NZ Government against any claims for compensation as it is the biggest NZ exporter and the backbone of the NZ economy.

Radical socialists object to this fraud. For them the power and wealth of the elite should not go unpunished. In particular radicals see finance capital as parasitic on productive capital, and should be nationalised and put under public control. Hence the sub-prime crisis would not have happened had Fanny Mae and Freddie Mac (that were formed to provide workers housing in the 1930s depression) not been privatised and allowed to fund a huge speculative wave of gambling on housing. They are now saying "we told you so" and for every 'nationalisation' of a private bank or finance house, they say "more nationalisation" and "no privatisation"!

In the case of Fonterra radical socialists argue that the cooperative ownership should mean cooperative control. Farmers should throw out the management that is trying to privatise the company and investing in production offshore where profits are put ahead of people. If the producers were in control and not the financiers then Fonterra would be a responsible and sustainable company. Radical Greens would develop this argument in the direction of a partnership between the producer cooperative and the state in investing in sustainable technology to reduce carbon emissions and protect the ecology, and to ensure that these standards apply in its international operations.

For Marxists there is more going on here than meets the eye. First, nothing new is happening. It’s happened before over long historical cycles or waves of booms and depressions. Depressions are caused by overproduction of capital that cannot return a profit and they usually lead to the bankruptcies and buyouts by viable capital. In depressions (or to stop depressions) the public sector has increasingly intervened to subsidise losses to allow capital to recover its profitability and restore its growth. Big private corporations are nationalized to preserve them and prepare them again for re-privatization. With each cycle capitalist firms get bigger and more multinational in their operation.

Since at least the opening of the last century, big monopoly banks and corporations have fused as finance capital. Banking capital continues to operate closely with industrial or productive capital and both are intimately bound to the state. In fact in the 1950s US president Eisenhower coined the term “Industrial- Military Complex” to indicate how far this complex was embedded. And just as liberal generals recognized this fusion of capital and state, social democrats welcomed it as an opportunity for the tail to wag the dog. Post-war Keynesian economics fueled the boom by heavy state intervention. The return of neo-conservative monetary fundamentalism came only when profits began to fall in the 1960s and neo-liberal ideologues pulled their copies of Adam Smith and von Hayek off the library shelves.

We conclude that the subprime crisis is but a symptom of a crisis of overproduction of capital. It is not an aberration or novelty. The state monopoly capital “complex” shows that the state does not intervene in the market but rather frames it. ‘Nationalisation’ therefore is not a qualitative paradigm shift from market to state. Rather it is a quantitative intervention of the state on behalf of all capitalists posing as the ‘national interest’. Since crises are inherent in capitalist production, neoliberal, liberal and radical socialist solutions that involve various forms of state intervention can only resolve crises at the expense of workers and the ruined middle class.

In the case of Fonterra this can be seen clearly insofar as Fonterra has become a Dairy Giant at the expense of both its workers and its cooperative owners. Dairy production has become increasingly concentrated in a large scale corporate employing wage labor and ownership is shifting from small family farming cooperatives towards a fully privatized corporation listed on the share market. It fits the model of a state monopoly corporation that privatizes its profits and socialists its losses. The only solution to state monopoly capitalism and its inherent crises is the socialization of the means of production, distribution and exchange and the building of a socialist economy and society.
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