Tuesday, October 21, 2008

NZ: A Tactical Vote for Labour now!

The fast approaching election is not a normal election. The current international capitalist crisis has put the capitalist class under increased pressure, and the capitalist class is committed to solve this crisis at the expense of workers. Our attitude towards the competing parties now is about how the working class can defend itself from the bosses trying to make us pay for their crisis. We do not have the luxury of assuming that Labour and National are just two bosses’ parties, and that it makes no difference to our class which one we vote for. In the past we have argued for a tactical vote for Labour in order to expose it. This tactic has been overtaken by the crisis and what it means for workers. We have to assess which of the two main parties is the most immediate threat at to workers right now. We have come to the conclusion that the urgent task for workers is to keep National out of office. A National government would launch a massive attack on the working class and would weaken its still fragile organisations. That's why we advocate a tactical vote for Labour in this election.

Why do we say this? After all National and Labour have both shown that they are ruling on behalf of the capitalist class. Labour has moved to the centre and abandoned its earlier commitments to the labour movement and workers in general in the last decades. Under Key National clearly has an anti-worker agenda. So while it is true that neither have the interests of workers at heart, let us see what we can expect from each party after November 8 if it becomes the government.

The crisis, (see previous posts on this blog on the causes and effects of the crisis) can only be solved in two ways - at the expense of the bosses or at the expense of workers. Both National and Labour will try to solve it at the expense of workers make no mistake. But the way they do it is like sudden death versus slow acting poison. When offered a choice between being shot or poisoned, Trotsky once said, I'll take the poison because I can at least try to get an antidote. In fact, Trotsky survived an attempt at poisoning before he was ice-picked to death.

National's double barreled shotgun

National has shown in the last 2 weeks that it proposes to return to a market driven policy in which workers get wage cuts while bosses get tax cuts. It has ripped out the employers’ contribution to Kiwisaver and effectively made workers pay for it with lost wage increases. How do we know this to be true? Because National has said that it will give workers in or out of Kiwisaver the same wage increases.

When the crisis began to bite in the last week or so National's proposals were designed to rescue their big business mates not protect workers from job losses and wage cuts. Its two main proposals were first a 1% cut in the Reserve Banks rate of lending to banks. This means that the banks can get money more cheaply from the Reserve Bank than from the private banks facing a credit squeeze. While this may appeal to some workers as cheaper credit, in reality there is no expectation that any of this will be passed on to lower mortgage rates or any other debt servicing by the working class. This is effectively a tax-payer funded subsidy to investors to encourage them to take more "risks" and invest.

The second proposal was to force the Superannuation Fund to invest 40% of its fund in NZ. Key announced that this money would go into the pet schemes they are planning, Private Public Partnerships (PPPs) in toll roads, private prisons, private hospitals and schools etc. In other words, National would plunder the future pension funds of NZs for the short term profits of the private sector who would rake huge profits from these PPPs. This rip-off amounts to Rogernomics mark 2 except this time the state assets are not being openly privatised but rather plundered as taxpayers (created by workers) money going into private profits.

Its important to understand the link between National's cuts in taxes and social spending (e.g. taking the razor to the public service etc, cutting the R&D money going to industry and cutting Kiwisaver) and the use of the Super Fund to 'develop' the economy. Both amount to a redistribution of current savings all which originates in the labour of workers, into the pockets of big business.

National has also supported Labour's deposit guarantee that would pay out (without limit!) to depositors who might lose their savings in banks if they go bust. But National wants to extend this guarantee to the wholesale borrowing of NZ banks when the big 4 are Australian subsidiaries already covered by an Australian state guarantee. In the context of NZ as a semi colony, this amounts to National underwriting Australian and other imperialist profit-making in the NZ economy. National is only interested in solving this crisis by protecting and boosting profits at the expense of immediately cutting wages and social spending on the working class. This is the double barreled shotgun sudden death facing the labour movement.

Labours slow acting poison

Labour –and that of the closely aligned CTU –has a 'partnership' policy that claims that workers can be rewarded with their “fair share” of increased productivity (i.e. exploitation). Facing a crisis that threatens to destroy this 'partnership' Labour has revived the Keynesian economic methods of full employment and state spending to keep demand up in the economy so as to encourage investment and hence profits. Kiwisaver and Super Fund are part of this saving and investment strategy for profit growth.

National's policy to attack jobs, wages, spending and saving cuts out the foundations from this policy. That is why in response to the crisis Labour seeks to reinforce those foundations by a number of emergency measures. Job losses will be avoided with paid job training schemes and advancing house building and infrastructure projects. Labour's counter-crisis policy is designed to maintain the health of the capitalist economy and the slow acting poison of increasing exploitation and profits, but it has an immediate effect on workers in keeping them working, reasonably educated and healthy so that they are fit, ready and willing for exploitation.

Yet from a working class standpoint Labour's counter-crisis strategy opens up the opportunity for the labor movement to develop an antidote to capitalist exploitation. By keeping workers in work, training, education, and housing, and by allowing the unions to survive and grow, the labour movement can build the strength it needs to resist rising exploitation and increase its share of its own labor-power.

It can fight to reclaim that part of its former labor paid in taxes (including the bosses) that is being invested in public and private ventures. It can fight to reject all use of taxes by the private sector and to nationalise the key sectors of the economy -taking back former state assets and nationalising under workers control without compensation. All those industries that sack workers, close down, or are strategic in the economy like Fletchers, CHH, Fonterra, Telecom etc should be socialised. The antidote to the slow acting poison of rising exploitation is a fighting, democratic labour movement that pushes for socialisation of the means of production, distribution and consumption.

Short, sharp shock

Some on the left will still say it doesn’t matter if National becomes the government because it will give the labour movement a short sharp shock and galvanise it into action to bring down the government. Let's see how realistic this is. In the 1980s when we had a relatively stong labour movement, Labour got its new right agenda passed by short, sharp shock treatment. The labour movement was defeated and did not recover in time to stop the next short, sharp shock of the National Governments attacks on workers and beneficiaries in 1990-1991. Short sharp shocks have never resulted in the union movement being able to rally strongly enough to bring down new right Labour or National governments.

In fact it was the return of the 5th Labour government in 1999 that created a breathing space for the unions to recover and begin to rebuild. After 9 years the unions have recovered some of their former strength and have begun to tackle the difficult job of recruiting members who have never heard of unions or are in jobs that have never been unionised. The Employment Relations Act is designed to embed Labour’s class collaborationist 'partnership' policy and it cannot provide any real protection for workers. Yet National has promised to reform it and weaken those provisions that have allowed the unions to rebuild in the 2000s.

Therefore when some of the sectarian left say that a massive attack on workers is needed to revive and strengthen the unions, this is an insult to workers. On the historical evidence National will smother the weak child in its cot. The re-election of Labour facing this crisis will at least give the reviving union movement an even chance of surviving and consolidating its strength. A tactical vote for Labour facing this crisis gives workers more time and space to rebuild their forces and fight for an independent working class party.

Voting Tactics

  • Vote for Labour candidates in every electorate.

A vote for any other candidate may defeat the Labour candidate even where Labour has had strong majorities in the past. For example the total vote of Green, Alliance, Progressive, Maori Party, RAM and Workers Party candidates may lead to the defeat of Labour in a number of electorates and lead to its defeat. A vote for Maori Party candidates may not only defeat Labour candidates in the Maori seats but give National an ally to form an openly anti-worker government.

  • Vote Party vote Labour to give Labour the largest number of list members.

The Greens will probably have enough support outside the labour movement to get over the 5%. Therefore workers in the organised labour movement should give their party vote to Labour and not the Greens. Remember that the Greens can only play a role in support of Labour if Labour is returned. The Greens will not be able to stop National unless the party commits to Labour.

November 8 -Vote for a Labour Government

Thursday, October 16, 2008

Crisis of state monopoly capitalism in NZ

The current crisis of the global economy tells us some home truths about capitalism.

First, that the market cannot exist without the state. The evidence for this is overwhelming and has a long history from the origins of European colonialism in the 16th century, right up to the post WW2 Keynesian intervention of the state in the economy. The current crisis is the ultimate proof of this calling on massive state bailouts for the survival of the market.

Second, that those who rule the market also rule the state. The evidence for this is also overwhelming and has a long history. Wherever the state intervenes din the market the outcome is in the interest of the capitalist owning class. Even those interventions that appear to benefit other classes, or people in general, are in the last analysis, designed to increase profits. When interventions become less beneficial for profits they come under attack and unless strongly defended are removed. The current rescues of the market prove that all the arguments about the state acting to distort the market are specious when the market is facing destruction.

Third, that capitalism today is what Marxists call state monopoly capitalism (SMC). If the first two propositions are correct, then we cannot be surprised at the fusion of interests between corporations that become increasingly big and powerful, and the nation states that serve their interests. This is evident from the clear benefits that flow to the capitalist owners from state policies in foreign relations, such as colonialism and imperialism, wars which are designed to extend the power and wealth of the monopolies, and the use of the state to police and repress working class opposition to these policies.

We take from these truths the fact that in order to survive capitalism has over the last century or so been forced to become more and more monopolised and that these monopolies rely increasingly on the state to defend their interests. Monopolies are defined not only the exploitation of workers in production to produce profits, but by the grabbing of the profits of other less powerful firms.
So what the capitalists argue are special circumstances today - the massive state interventions to rescue the "system" -are actually no more than the expression of the necessary historic role of the state to defend the interests of capitalism, today as State Monopoly Capitalism where the state...bails out the banks!

The case of New Zealand

NZ as a capitalist nation is a good example of these truths. Capitalism in NZ was born as SMC. The state was necessary from the start to enable colonisation to occur. The British state forcibly suppressed the Maori people and disposessed it of its best land. To develop the land and industry, the state borrowed heavily and so forced the taxpayers to fund the development of infrastructure to enable the capitalist economy to be set up. So business was funded by the national debt paid out of taxes deducted from the surplus created by workers. A market for Land, Labour and Capital was created by the state.

The NZ economy did not take off however until after WW2 on the basis of a strongly interventionist state under Labour governments that protected the domestic market from global competition. Small farmers and businesses were able to grow as a result of heavy state subsidies, tariffs and import controls. Public works created a necessary infrastructure, while state borrowing and marketing of exports subsidised the costs of individual capitalist owners.

This state protected economy allowed the rise of local monopolies. Some were state owned such as energy, rail, telecommunications etc.,- because no capitalist would risk money in such massive ventures. Others, such as building, food processing, like Fletchers, Watties etc.were in the private sector but heavily subsidised (again by the taxation of workers wealth). Growth was possible so long as exports were efficient and protected domestic industry could compete with imports. But increasingly exports were subsidised by the state out of taxation (again created by workers whose surplus value pays workers as well as bosses taxes) to compensate for the high costs of inputs from protected industry. Local industry could not sustain the cost of cross subsidies (they couldnt screw more value from workers) when monopoly industry reached the limit of the NZ market. The class interests of the monopolists in exports and domestic industry prevailed and deregulation, cuts in subsidies and removal of protection was forced through by the 4th Labour Goverment of the 1980s.

NZs SMC was then directly exposed to competition with global SMC which devalued and restructured NZ capital. A fraction of NZ SMC which had comparative advantage survived in partnership with increasing FDI. The more efficient export producers rapidly amalgamated to form monopolies like Fonterra in dairy, and to a lesser extent in the meat industry. The state backed cooperative structure of these industries is now being merged with NZ and global monopoly partners. The case of Fonterra is the subject of a previous post on redrave.

The current crisis is impacting on NZ in the following way. NZ is now fully integrated into the global economy. The crisis of profitability in the US, EU and Japan, and the prospect of a similar crisis in China, will see the big global monopolies backed by their states competing for ownership and control of NZs key productive sectors. US pension funds and Aussie banks are the most prominent. They will be looking for the cheapest raw materials and labour power and use FTAs as a way of getting the best deal. They will push for the lowest compliance costs in labor and environmental law, and the lowest taxes and biggest infrastructure and energy subsidies. They will want a NZ government that is willing to offer them these least cost options.

Labour's response to global SMC

Labour's social democratic approach to the national economy is to try to strike a balance between the interests of NZ SMC and global SMC to protect the share of value retained in NZ for redistribution as the social wage. The social wage is the redistribution of some of the value created by workers back to them to cover costs that the wage paid by employers does not eg health, education, housing. It is a workers subsidy to employers rather than a welfare payment to workers.

We can see Labour's FTAs as an attempt to negotiate deals that try to balance the interests of NZ SMC with the SMCs of the US, EU, Japan, Australia etc. So far NZ has negotiated FTAs with other small independent or semi-colonial states in a similar position to itself in the world economy. These are nations that are essentially exporters of commodities or, like Singapore, trading and service providers. The object is to trade off increased access into these markets for NZ commodities and NZ FDI for FDI access to the NZ economy in infrastructure and services etc. The FTA with China, itself an economic giant but not yet an imperialist power, is a good example of his approach.

Has the FTA with China acheived Labour's objectives of creating opportunties for the growth of NZ SMC and avoiding the dominance of Chinese SMC? The upside are a rapid reduction of Chinese tarrifs and opportunity for joint ventures (JVs). The damage done to Fonterra's JV with Sanlu is a hiccup in this process (see article on Fonterra). Chinese access to FDI in NZ does significantly change the its existing access. But given China's massive sovereign wealth fund it may replace US, Australian and Japanese FDI in the near future.

So while Labour's limited social democratic trade objectives appear to be met insofar as NZ SMC has won benefits from FTAs, there is no necessary benefit of a 'trickle down' of social wealth inside NZ. For example, increased sales and profits to JVs in China are not going to be retained in NZ (as these industries become internationalised) or redistributed to NZ workers. Fonterra and other JVs in China will have compete with Chinese and other FDI (US, Japanese, Taiwanese etc) on the basis of labour productivity in NZ and China. As the Greens and others point out this will involve increasing exploitation and oppression for workers in China (and consumers a la Sanlu) as well as NZ (see comments on Fonterra workers).
Clearly social democratic attempts to moderate the worst effects of the global market are unable to avoid the need for SMC to make its profits at the expense of increasing exploitation of the working class. I will come back to this below on the section on workers' fight against SMC.

National and Labour respond to the crisis

National's historic approach is clearly to facilitate the takeover of NZ SMC by global SMC. Their policies in the 90's continued Labour's Rogernomic deregulation. The budget was balanced, taxes to the rich were cut, labour rights were attacked and welfare spending cut. The policy was designed make NZ more attractive to foreign investment. More state assets were sold (Bank of NZ; NZ Rail; electricity) and others were turned into 'state owned assets' (SOEs). FDI increased and most large NZ banks and businesses were sold to Australian, US and other SMCs in the form of multinational enterprises, pension funds and private equity funds.

National's response to the current crisis has been to return to its former agenda of privatisation and cost cutting to encourage FDI into NZ. However because most valuable state assets have been sold, National is now focussed on partial privatisation via Public Private Partnerships (PPPs) that allow joint ventures between public and private sectors in industry and infrastructure. Their policy is to open the SOEs, roads, schools and jails to joint ventures. In the face of the global credit sqeeze, National has taken the line of global SMC in pushing for cutting the Reserve Bank interest rate, supporting the Labour led government's depositor guarantee, and arguing that the NZ Superannuation Fund should invest up to 40% of its funds in NZ.

In this way National is hoping to privatise the Super fund to bankroll new PPPs to create big profits for the private sector. This is like the profit sharing agreements of Big Oil to exploit Iraqi oil. So while National has aready promised to cut taxes for the rich, and cut to cuts wages for workers, it now proposes to tap into existing tax savings to transfer it into private profits. National objects to deficit spending on public works because these are charges on future taxation which it wants to cut further, so it is determined to plunder existing tax savings. This is the equivalent of a tax cut for business and a transfer of public spending social spending into capital spending for profit.

Labour's approach to the current crisis is to revert to the techiques of Keynesian demand management. As the recession bites Labour is prepared to increase deficit spending to fund infrastructure work, speed up house building, and set up skill training for those made redundant by layoffs and plant closures. The difference between Labour and National is that while National wants to plunder the existing savings of the Super Fund to capitalise PPPs for private profit, Labour wants to increase public debt as a charge against future taxation to stimulate the economy.

Workers' fight against SMC

Both National and Labour are capitalist parties attempting to facilitate public investment to stimulate the economy. In the case of National this is a diversion of existing taxes in the Cullen fund to finance private sector growth for profits. In the case of Labour it is spending now to create jobs, housing, roads etc. to maintain consumption paid out of future taxation which will be created by the ongoing exploitation of workers.

There is no question that both are propping up SMC in NZ which can only survive by increasing the exploitation and oppression of workers. Yet when facing these two options workers at the coming election are being asked to choose between being robbed of their taxes and pensions now as well as facing lower wages and increased exploitation in the future, or being kept in busy work so that they can continue to be exploited and pay the taxes to fund growth of profits now and into the future.

Facing this choice there is only one option for workers. If we take National's option we are agreeing to being robbed now for the privilege of facing an economy in which wages, living standards and workers rights will come under increasing attack. If we take Labour's option we reject the plundering of the Cullen Fund or the cutting of Kiwifund, and agree to deficit financing to minimise the recession and defer the question of who will pay this debt into the future. Since workers produce the wealth from which ALL taxes are paid our strategy is to keep as much of the tax wealth that we produce as possible for use in employing, housing, feeding, educating and keeping us healthy. It doesnt matter that this drives up the public debt because it it buys us the precious time we need to organise and prepare to give our collective answer to the question of who will pay for the debt in the future!

We say that workers right now must fight to retain and regain the surplus that they contribute in profits and taxation by demanding that public spending goes on our wages, health, education and housing, rather than goes into PPPs designed to boost the profits of the ruling class in this country!
  • Jobs for all on a living wage. Public works funded out of taxation (which we create). Free comprehensive health, education and housing! Tax the rich to pay for it!
  • Re-nationalise under workers control and no compensation to the bosses of privatised assets.! Take back Telecom, Air NZ, Contact Energy, BNZ etc.
  • Nationalise under workers' control with no compensation all industries that threaten mass sackings or close down!
  • Fight for these policies by building fighting, democratic unions everywhere! Build workers councils and defence committees to stop evictions and lockouts!
  • For a Workers and working farmers government and a planned socialist economy!

Friday, October 10, 2008

Five point draft plan for socialism!

Facing the crisis of the bosses falling profits and the destruction of many trillions of fictitious capital, workers have to mobilise to solve the crisis on our own terms.

The alternative is capitalist barbarism or workers socialism!

In order for workers to live, capitalism must die!

We are facing more than a crisis (which is the interruption of the flow of capital) and are now facing a global depression. Depressions function to destroy surplus capital that is unprofitable so that the surviving capital can be reinvested in production and realise a sufficient profit. What is being called the global finance meltdown is no more than this destruction of surplus capital to renew the conditions for profitable production. We are witnessing the wholesale devaluing of surplus capital that has created a massive speculative bubble in the last decades but cannot return a profit.

State nationalisations to rescue the bosses system

The central banks and the state treasuries of the major imperialist powers are taking responsibility for this process of destruction and restructuring of capital. This is to be expected. Capitalism has always made use of its state power to create and defend the conditions for capital accumulation -from the 'primitive accumulation' of conquest and plunder in the 15th and 16th centuries to conquest and plunder of state monopoly capitalism today. We live in the epoch of imperialism, in which finance capital -the fusion of banking and industrial capital - rules through the state machine to invade, destroy and plunder the world resources for profits.

Thus facing a massive crisis of devaluation, capital relies on the state to prevent its collapse and demise. The measures used by the US, EU and UK central banks to subsidise the losses of banks, including 'nationalising' them, are being done on behalf of the whole capitalist class in the general interests of that class (and not as some would say the workers). It is the general interest of capital as a class that the weakest capitals are bankrupted and that the strongest concentrate and centralise capitalist assets in larger firms. This destroys the vast supply of surplus capital that cannot realise a profit reducing capital stock to the level that it can be reinvested profitably.

Imperialist wars on the horizon

This is also true between nations. While it appears that the rescue operations are coordinated between the major powers, in reality the costs of the destruction of capital are being partly transferred from US based finance capital onto their rivals in the EU, UK and Japan. Further, the biggest cost is downloaded on to the weakest nations as the destructive process becomes global. The nations that will suffer most are those without real assets, productive investments, or huge sovereign funds such as the oil rich countries of the Middle East and Russia and China.

For example, the UK while a political ally of the US is paying part of the cost of the US subprime crisis and its own finance capital speculation in fictitious assets. As well as nationalising the 6 main commercial banks, Brown has used anti-terror legislation to freeze the assets of Icelandic banks in which UK state agencies, the police and local councils, have invested their funds. This will also have an impact on Russia which has just made a massive loan to Iceland. Thus Brown is seeking to download part of the cost of US and UK finance capital speculation in risky assets onto the people of Iceland and the people of Russia, and of course to UK workers.

Workers bear the cost of the depression

Clearly it is the working class that will bear the biggest burden of these bailouts and rescue operations of finance capital. Depression destroys not only surplus constant capital, but also variable capital. Variable capital is basically the value of labor comprising the total costs of the 'wage basket' - food, housing, transport, health, education etc. Loss of jobs and conditions drives down wages and allows bosses to reinvest productive capital in industry along with cheaper more exploited labor. But widespread loss of jobs, incomes, housing etc means that the process of destruction hits workers hardest and creates the conditions for the rise of anti-capitalist resistance.

So when the bosses talk about the destruction of "the system" they don't really mean the loss of trillions of surplus capital, they are talking about the massive anger and opposition to the effects of this on the working class that has the power to organise and bring down capitalism and replace it with socialism. Thus the attempts by the bosses' states to manage the crisis are directed almost entirely to the management of the impact of the depression upon the working class and the supression of organised anti-capitalist resistance.

The strategy of workers fightback is to expropriate the value they have produced

The value that is being destroyed so far is mainly fictitious capital (the paper assets that have no real value because they cannot be exchanged for commodities embodying the labor of wage workers). It is of no interest to workers to defend this fictitious capital that is invested in non-assets with no value from destruction. So the housing mortgages that are based on hugely inflated prices of land and housing should be cancelled. It is a good thing for this fictitious value to be destroyed so that homes can return to their real value. This is their actual value representing houses as commodities that needs to be defended.
  • Mobilise to occupy homes, fight foreclosures, and build neighborhood union-based defence committees.

The big investment banks are the headquarters of finance capital. They are the repositories of money capital, that is, the value produced by workers in commodities that are exchanged for money deposited by the capitalists in banks. Much of their assets will be fictitious capital which is reflected in their massive losses.

The nationalisation of the surviving investment banks under workers control would not compensate their owners for bad assets. It means revaluing assets at their real value as a capital fund for investment in planned production. Commercial banks based on workers deposits would be nationalised and combined as a single state bank.
  • Nationalise the banks without compensation and under workers control!

The productive capital invested in industry only survives on the basis of massive state subsidies as well as at the expense of workers who have lost jobs, decent wages and benefits. The sub-prime crisis which triggered the meltdown of fictitious capital originated in the attacks on workers living standards so that they could not afford their mortgage repayments.
  • Occupy and demand the nationalisation without compensation and under workers control of all industrial corporations and big landlords!

The workers' fightback needs to be mobilised by transforming the exising organisations of the labor movement, the unions. However, the leadership of such unions are reformist and will defend the reformist policies of social democracy to meet the bosses attacks on workers. Thus it will be sufficient for them that the unions subordinate their actions to voting for political parties that promise to manage the nationalisations of finance capital "in their interests". This is a lie and a fraud. Nationalisations must not be paid for by workers and must be under their direct control.
  • Workers Democracy: for rank and file control of the unions and all organisations of the workers to implement the demands for nationalisations under workers control!

The fight for workers democracy in the unions means breaking the rank and file from the reformist leaders who preach bosses democracy and prop up the capitalist class. In the US they are the AFL-CIO backers of Obama. In Latin America they are the reformist left that politically supports the Bolivarian regimes of Chavez, Morales, Lula etc. In NZ they are the CTU that politically supports the Labour Party. [on the Crisis of Monopoly State Capitalism in NZ]
To make this break it is necessary to build a revolutionary workers party on the tradition of Marx, Lenin and Trotsky in the vanguard of the union movement.

Thursday, October 02, 2008

Marxist analysis of the current crisis - a draft outline

Draft for discussion and comments please.

Blame deregulation?

Most of the left commentary on the current credit crunch blames the US government for deregulating the finance sector. They point to the freedom that banks and mortgage firms had to lend money to people with no assets and insufficient income on the strength of rising property values (should be prices - see later). The result was overinflated prices that had to come down when the economy slowed and peoples' incomes fell so they could'nt service their debt. Not only that, but these banks bundled these mortgages into packages which they onsold so that the debt bubble spread right across the finance sector to some of the biggest investment banks like Lehman and Wachovia. Result, deregulation leads to speculation across the whole finance sector, and then ultimately to bad debts. Crash.

As proof commentators point to countries where stronger regulations prevented a housing bubble. Like France. Interesting case, since France has for over a hundred years been considered a rentier state. That is, it speculates OUTSIDE France. The point of this should be come clear below. Another instance is Sweden where a similar debt write down resulted from deregulation but was solved by nationalisation.

What's wrong with this scenario? Speculation doesnt result from deregulation. Speculation causes deregulation. In fact what happens is that an overproduction of capital in industry creates a surplus fund of capital that has to look elsewhere for a profit. If it is not invested to make a profit is looses its value. Since it cannot do this in production it has to do it unproductively in speculating in assets so it ensures that the government (which after all is the 'committee of the ruling class') allows it to do so. The result is overproduction of capital that engages in unproductive speculation in the value of already produced commodities. It is easy then to see that this does not create new value but instead speculates in the rise and fall of existing values (eg houses).

But why this overproduction in the first place?

Overproduction of capital results from a falling profit rate such that capitalists cannot be sure of getting a reasonable return on their investment. This happens in capitalist economies in a cyclical fashion. Big investments of new technology makes labor more productive by increasing the rate of exploitation {s/v - the amount of surplus value over the value of the wage roughly speaking). Workers can produce more commodities in a given time, so the labor time required to produce each commodity is less, and its value and usually its price is less. Capitalists make these investments then so they can produce more efficiently and cheaply and take a larger share of the market from their competitors. Capitalist growth is getting a larger share of the market, usually by these means, but not always (eg Iraq).

However, while this succeeds up to the point when the competitors make the same investment to catch up, it also carries a down-side. This is the fact that the more capital spent on what Marx calls constant capital which does not add value - plant, machinery, raw materials to make labor more competitive - relative to variable capital -wages of workers who do produce new value - then the organic composition - the proportion of constant capital to variable - rises, so that the rate of surplus value must rise faster to realise an adequate profit p = r/c+v (where p is profit, r is rate of exploitation (s/v) and where c is constant and v variable capital).

Marx calls this tendency for the rate of profit to fall (TRPF) the most important law of political economy. It is a general tendency and can be partially offset by counter-tendencies that reduce the price of c and v by various means among which are investing surplus capital abroad in colonies and other countries. Lenin later called this export of surplus capital imperialism.

Jumping to the present situation

It's clear that the US economy experienced a TRPF in the 1970s from which it has only partially recovered. This explains the export of capital in the last 30 years to many other countries to find the cheapest raw materials and labor as well as new markets and make bigger profits than was possible at home. Despite breaking down resistance to US FDI by the IMF, World Bank etc, capital export did not provide an outlet for all the surplus capital. It had to find new outlets by speculating in unproductive areas such as housing (not construction which is productive, but finished houses), commodities, and all sorts of other fictitious 'instruments' such as the futures market. None of these markets created any new value, all they did was to speculate in the movement of the prices of these already created values, so that their prices went up and down according to supply and demand. This is what many have referred to a the casino economy.

In any other country than the USA, the casino economy would not have grown to the extent that is has. This is because the value of the dollar would have collapsed and the US economy stagnated. Normally the value (price) of a currency such as the US dollar results from demand for actual real commodities produced in the USA. Those commodities have to be paid for in dollars so there is a demand for them. However, with the real productive economy stagnating, and surplus capital going offshore and into speculation, the declining dollar was artificially maintained by pegging it to the price of oil. Most of this oil is produced outside the US. Normally it would have to be paid for in the currency of the producer country. But the US was able to get agreement from most of the oil producers that dollars should be the currency for oil sold on the world market. In this way the downward pressure on the US dollar caused by its stagnating domestic economy was artificially boosted by the rising demand for oil internationally. In this way the US turned the world economy into the equivalent of the US domestic economy.

How is this connected to the property boom?

Well, with billions of petrodollars held by the oil producers and in demand by the oil consumers, the US could run a balance of payments deficit where it imported much more than it exported, and borrowed much more than it lent. In fact it became the No 1 world debtor nation to creditors like Japan, China and the EU. It could maintain huge military expenditures, subsidise its agriculture, and allow its industry to go into decline with no incentive to make it more competitive. The housing boom was an extension of the US as a debtor nation. Since the US could import much more than it could export, and workers could get access to this credit, this carried over to the consumption of housing as well. US banks as well as EU and Asian banks all loaned money in the construction and housing sector on the basis of a growing demand for housing which caused a boom in house prices. All was well until the protection of US industry itself was blown by the FDI of Asian and EU firms in production within the USA.

The introduction of more competitive plants inside the US - notably Japanese automakers - which were highly automated and undercut the cost of production of US commodities, brought about the collapse of US industry including the laying off of multitudes of workers who also lost pensions and health benefits. This is what brought an end to the speculative bubble in housing. Workers could no longer afford to pay their inflated mortgages and so the property market began to collapse and with it the huge edifice of debt now spread right through the international banking system. The sub-prime crisis spread to the credit crunch to the crisis of "the system" as George Bush calls it. So the bailout, by whatever name, is to get those bad debts off the balance sheet to allow the banking system to restore its confidence (to make profits) and start loaning capital again.

So it is a crisis of the whole "system" not just the banks. In fact the US has been able to postpone its "system crisis" by living off the rest of the world. That world is capitalist and is continuing to produce value and profits. In fact the US capitalists are benefiting from massive profits overseas (around half of its total profits). But more important, the health of the capitalist system outside the US, and the growing share of US profits in that, has finally disciplined the US ruling class and forced it to revalue its overvalued domestic economy. Thus as the world grows tired of propping up the US dollar and begins to sell oil for Euros etc., the US will have to restore the competitiveness of its exports to maintain the value of the dollar. The foreign plants inside the US have forced a reinvestment of productive capital into new high tech sectors so that US exports are now increasing. The auto industry has just got $60 billion from Congress to re-tool so it can compete with the Asian and EU automakers. Excess capital that is being destroyed by the collapse of the housing bubble will be taken off the books of the surviving banks and they will now begin to invest their capital in a revived and renewed US domestic industry.

Solving the crisis on the backs of workers - or not

So far from this crisis being caused by speculators freed from state regulation, it is caused by the lack of competitiveness of US domestic industry pushing surplus capital into speculative assets that have now proven to be valueless. This bubble maintained the fiction of value because of the role of the US dollar as world money enabling the US to live as the No 1 debtor nation. What brought this bubble to an end was not the deregulation of the banking sector, but deregulation of FDI flowing into the US economy. With the entry of FDI from Asian and the EU, US plants were uncompetitive and have been forced to restructure and retool. Along with this we see the restructuring of the labor market to re-assign labor to the competitive industries or into the reserve army of labor. Part of the historical re-adjustment of workers' living standards has been the collapse of inflated housing prices. The tent cities springing up everywhere prove that this new phase of US capitalist development has broken down the artificial barrier between the protected US economy and the rest of the world. US workers living standards are now sinking to the world level. The capitalists in the rest of the world will no longer allow the US ruling class to live at their expense. The inter-imperialist rivalry between imperialist blocs is hotting up. It's now up to US workers to join forces with workers everywhere to refuse to let the ruling classes in every country live at their expense. [See next post on 5 point draft plan for socialism]
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