Newsweek International editor ’s “Capitali st Manifesto”

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Newsweek International editor’s “Capitalist Manifesto”
A desperate attempt at reassurance
By Nick Beams
4 July 2009

Fareed Zakaria, editor of Newsweek International, has written an essay
entitled “The Capitalist Manifesto: Greed is Good (To a point)”, which
is intended to express relief that the panic engendered by the global
financial crisis is easing, and to offer reassurances that, for all
its faults, capitalism is still “the most productive economic engine
we have yet invented.”

The problem with this claim that all is, again, for the best in the
best of all possible worlds, is that far from the crisis having ended,
it is only just beginning to unfold.

Zakaria begins by drawing comfort from the fact that the financial
crises of the past 20 years were all overcome, leading to further
economic growth. The stock market crash of 1987 defied predictions of
a return to the Great Depression and “turned out to be a blip on the
way to an even bigger, longer boom.” The 1997 Asian financial crisis
did not lead to a global slump. Instead, the Asian economies
“rebounded within two years”. The collapse of Long Term Capital
Management in 1998, described by then US Treasury secretary Robert
Rubin as “the worst financial crisis in 50 years”, did not result in
the end of hedge funds. Rather they have “massively expanded” since then.

How were these earlier crises overcome? As Zakaria notes, US Federal
Reserve chairman Alan Greenspan always advanced the same solution: cut
interest rates and provide easy money, creating a series of asset bubbles.

When the subprime crisis developed in 2007, Fed chairman Ben Bernanke
followed the same procedure. However, on this occasion, interest rate
cuts failed to alleviate the crisis. The Fed initiated its injections
of liquidity in August 2007, but the situation only worsened. The
investment bank Bear Stearns went under in March 2008, followed by the
collapse of Lehman Brothers in September and, by the end of 2008,
notwithstanding massive injections of liquidity, all five Wall Street
investment banks had either collapsed or been forced to restructure.
The global financial system was on the brink of a meltdown.

This alone demonstrates that, far from the happy scenario painted by
Zakaria—this crisis is just like the others since 1987—the collapse
that began in 2007 marked a qualitative turn in an ongoing process.

Zakaria is forced to acknowledge that the global financial system has
been “crashing more frequently over the past 30 years than in any
comparable period in history”. But he insists that the problem is not
with the profit system itself. “What we are experiencing is not a
crisis of capitalism. It is a crisis of finance, of democracy, of
globalization and ultimately of ethics.”

In the first place, the separation of capitalism from each of these
phenomena is absurd—as if the capitalist mode of production could
somehow be lifted out of the historical situation in which it is
situated; as if it does not shape the socio-political environment in
which it operates, including the prevailing ethics.

Let us examine each of Zakaria’s explanations of the crisis in turn.
He insists, along with many others, that the fault lies with the
operations of the financial system.

“Finance screwed up, or to be more precise, financiers did. In June
2007, when the financial crisis began, Coca-Cola, PepsiCo, IBM, Nike,
Wal-Mart and Microsoft were all running their companies with strong
balance sheets and sensible business models. Major American
corporations were highly profitable, and they were spending prudently,
holding on to cash to build a cushion for a downturn.”

The separation of finance (the bad side) from the rest of the
capitalist economy (the good side) has a long history. It was taken up
by Marx in his withering critique of the French petty-bourgeois
anarchist Proudhon more than 150 years ago. As Marx explained then,
the “bad” side cannot be separated from the “good”, especially as it
turns out that, more often than not, the “bad” side is the driving
force of historical development. And that is the case in the current
situation. The development of American capitalism—and the global
economy—has been grounded on the vast changes associated with the
processes of financialisation that began in the 1980s.

A few figures illustrate what has occurred. In 1980, financial firms
accounted for about 5 percent of total corporate profits. By 2006 this
had risen to around 40 percent. On a global scale, financial assets in
1980 were roughly equal in value to world gross domestic product.
Twenty-five years later they constituted 350 percent of global GDP. At
the heart of this transformation has been the accumulation of finance
sector debt in the US economy. It rose from 63.8 percent of GDP in
1997 to 113.8 percent in 2007—a result of the banks and financial
corporations plunging ever deeper into debt in order to fund their
debt-based financial operations.

The rise and rise of financialisation was not simply a policy choice,
but a response to a crisis in the capitalist accumulation process that
had developed in the late 1960s and 1970s. Faced with a downturn in
the rate of profit, American capitalism undertook a major
restructuring program from the end of the 1970s onwards. This involved
the destruction of large swathes of manufacturing industry, a
concerted assault on the social position of the working class, the
development of off-shoring and outsourcing to take advantage of
cheaper sources of labour, and a turn to financial manipulation, such
as hostile takeovers and mergers, as the source of profit.

New mode of accumulation

The transformation of the American economy in the 1980s saw the
emergence of a new mode of accumulation, in which profits were made
through the appropriation, by financial methods, of already created
wealth. Historically, wealth had been accumulated in the US economy
through investment, trade and manufacturing. Now the driving force of
accumulation became rising asset prices. This has determined the shape
of the US economy, and the accumulation of profit by all sections of
capital—even for those not immediately connected to finance.

Back in the 1950s and 1960s, manufacturing firms based on
assembly-line production were not the largest component of the
American economy. But the vast increases in profitability that these
methods made possible created the conditions where all sectors of
capital could expand. This was a society dominated by what
sociologists have called a “Fordist regime” in which, as former GM CEO
Charles Wilson famously noted, “what was good for the country was good
for General Motors and vice versa.”

In the past 25 years, the fundamental role once played by
assembly-line manufacturing in the American economy has been assumed
by finance capital.

No matter how sound or well-run an individual capitalist firm may be,
the accumulation of profit is a social process. Each firm depends for
its expansion on the growth of the economy as a whole. And in the US,
finance capital has been the driving force.

Any attempt to separate the “bad” side from the “good” collapses upon
even a cursory review. Zakaria points to various corporations as part
of the “good” side of American capital. One of them is Microsoft. But
one of the chief sources of Microsoft’s profits has been the sales of
the computers and software programs that have powered the finance
sector. Consider Nike and Wal-Mart. They have profited by exploiting
cheap labour in China and other countries, under conditions of
globalised production. But these operations, involving complex
financial relationships, would have been impossible without the growth
of financial derivates. At the same time, Nike and Wal-Mart could not
have remained profitable without the rise in US consumer debt—much of
it from housing finance—that has sustained American consumption
spending in the face of stagnant or declining real incomes over the
past quarter century.

The essential significance of the global financial crisis is that it
marks the breakdown of the mode of accumulation that has prevailed for
the past 25 years.

Financial assets derive their value, in the final analysis, from their
claim upon the production of real wealth. Shares are an obvious
example. The share is a claim to a portion of a stream of income
generated by a particular company. But this share can be bought and
sold, and its value may increase in the market in excess of the value
of the underlying asset.

The fact that financial assets have expanded almost four-fold in
relation to global production over the past two and a half decades
means that all their claims to real wealth cannot be met. This
disparity is expressed in the emergence of so-called “toxic assets” on
the books of the banks and finance houses—claims to income and wealth
that are essentially worthless.

In other words, the crisis is not one of liquidity, i.e., lack of
sufficient funds to ensure the functioning of an otherwise healthy
system, but of insolvency. Its dimensions are indicated by the fact
that to restore the parity that existed in 1980 between the value of
financial assets and global GDP would mean wiping out financial asset
values equivalent to twice global GDP.

These figures make clear the meaning of the bailout and stimulus
packages launched by governments around the world. They have nothing
to do with maintaining the jobs and living standards of the working
class. Rather, they are aimed at transferring as much as possible of
the massive debts and “toxic assets” amassed by the financial
corporations and banks to the state.

It is precisely this state rescue operation that has boosted stock
markets over the past three months and enabled Zakaria to breathe a
sigh of relief. As a recent article in the Wall Street Journal noted,
one of the main reasons for the more than 30 percent rebound is
“disarmingly simple”. Financial markets are “awash in government cash”
as a result of the biggest combined financial stimulus the world has
seen in modern times.

The US government has already pledged $12.7 trillion in support of the
financial system, almost equivalent to America’s gross domestic
product. Since the financial crisis intensified in September 2008,
governments worldwide have committed $18 trillion in public funds,
equivalent to almost 30 percent of world GDP, to recapitalising the
banks. This has led to a blowout in their fiscal position.

In Britain, government debt is expected to soon reach 100 percent of
GDP while Japan’s government debt is headed for 200 percent by 2011
and government debt in the US is expected to reach 100 percent of GDP
by the same time. According to IMF economists, by 2014 public debt to
GDP ratios in the G-20 economies, comprising some 85 percent of the
global economy, will have increased by 36 percentage points of GDP
compared to the levels at the end of 2007.

A new political regime

Government finance, however, cannot go on indefinitely. The debts
incurred by the state to finance the banks will be paid through
slashing government spending and social services and forcibly
impoverishing the working class. The scale of this assault on social
conditions and living standards will be directly proportionate to the
size of the sums of money involved. According to one estimate in
Britain, consumption there will have to be reduced by at least 20
percent from its level in 2006-2007 to make even a start on balancing
the government’s books.

Zakaria points to the “terrifying” growth of government debt in
America, especially when entitlements and pension commitments are
included, and remarks that “no-one has tried seriously to close the
gap, which can be done only by (1) raising taxes or (2) cutting
expenditures.”

“This is the disease of modern democracy: the system cannot impose any
short-term pain for long-term gain.” The political implications are
clear: it is impossible to impose the massive spending cuts and rises
in revenue needed to wipe off government debt within the present
political order. Restructuring the US and other major capitalist
economies requires a new, far more repressive regime.

Zakaria goes to extraordinary lengths in his attempt to claim that
capitalism is not the cause of the crisis. The real problem, he
insists, is not failure, but too much success. The world has been
moving to “an extraordinary degree of political stability”; there is
no major military competition among the great powers; political
violence is on the decline. Given the wars being conducted by the US
in Iraq, Pakistan and Afghanistan, such an assertion can only be
described as absurd. As for the subsidence of great power rivalry, one
need only point to the constant and growing concern in US
policy-making circles about the rise of China.

However Zakaria is not going to let facts get in the way of the story
he wants to tell. Political stability, he claims, has been accompanied
by a reduction in inflation, economic growth and the establishment of
a global economic system. It is these “good times” that made people
complacent, and, as the cost of capital sank, more foolish. “The world
economy had become the equivalent of a race car—faster and more
complex than any vehicle anyone had ever seen. But it turned out that
no one had driven a car like this before, and no one really knew how.
So it crashed.”

What of the future? “The real problem,” he continues, “is that we’re
still driving this car. The global economy remains highly complex,
interconnected and imbalanced. The Chinese still pile up their
surpluses and need to put them somewhere. Washington and Beijing will
have to work hard to slowly stabilize their mutual dependence so that
the system is not being set up for another crash.”

In other words, while the crisis is over, all the conditions that
produced it are still present, and nowhere nearer to being resolved.

Lenin once remarked that the power of Marxism is that it is true.
Every so often, even conscious opponents of Marxism are forced, by the
very logic of objective facts, to point to processes that form the
centre of Marxist analysis. This is the case here.

According to Zakaria: “More broadly, the fundamental crisis we face is
of globalization itself. We have globalized the economies of nations.
Trade, travel and tourism are bringing people together. Technology has
created worldwide supply chains, companies and customers. But our
politics remains resolutely national. This tension is at the heart of
the many crashes of this era—a mismatch between interconnected
economies that are producing global problems but no matching political
process that can effect global solutions.”

The Marxist movement has long identified as one of the central
contradictions of world capitalism that between the global development
of the productive forces on the one hand, and the nation state system
on which the legal and political superstructure is based, on the
other. It is this contradiction that renders socialism, based on the
development of an internationally planned economy, an historic
necessity. Just as the feudal political order had to be overthrown to
make possible the growth of the productive forces under capitalism, so
today the globalisation of production has made the capitalist
nation-state system as reactionary and backward as the feudal
principalities and kingdoms two and three centuries ago.

This contradiction erupted in the first decade of the last century in
the form of World War I. It has now emerged once again, at an even
higher level. It can only be resolved by the working class taking
political power on a global scale; otherwise mankind faces being
plunged into wars and economic crises potentially more devastating
than those that characterised the first five decades of the twentieth
century.

Zakaria calls for better international coordination. But the objective
logic of the capitalist system itself drives events in the opposite
direction. Capitalist production is carried out on a global scale. Its
purpose is not to meet human needs, but to accumulate private profit.
When accumulation is expanding, the different sections of capital, as
Marx noted, operate as a kind of fraternity, dividing up the spoils
among themselves. When the system breaks down and it becomes no longer
a question of sharing profits but of trying to avoid losses, a violent
struggle breaks out. Such a breakdown no longer simply involves
intensified competitive struggles in the market, as it did in the
nineteenth century, but, with the vast growth of capitalist industry
and finance, economic crises inevitably bring the direct involvement
of the capitalist state.

This is what occurred last year. After the collapse of Lehman Brothers
in September, with the banking and financial system threatened with
meltdown, every government around the world responded, not by working
for globally coordinated action, but to protect its “own” banking
system, leading to immediate conflicts. In the months since, the
differences have only widened. The Germans and French are hostile to
the American government’s bailouts because they fear, rightly, that
these will enable US banks to retain their dominant global position.
The American government, for its part, opposes calls for greater
regulation, because they are directed at US finance. The British
government, meanwhile, does not want to introduce tougher regulations
fearing that they would endanger London’s position, described by
Financial Times commentator John Plender as “the adventure playground
of the global financial system.” This brings opposition from the
German government, which harboured hopes that the crisis would offer
more opportunities for Frankfurt. The various industry interventions,
likewise, have sharpened national rivalries. The German government’s
bailout of Opel, for example, endangers operations in Belgium, even
raising questions as to whether rules governing the operation of the
single European market might have been breached.

As for co-ordination between the US and China to resolve international
monetary imbalances, the Chinese central bank has twice called, within
the past three months, for the international financial system to be
restructured and the dollar replaced as the world reserve currency.
Were that to take place, it would cause a rapid decline in the global
position of American capitalism, which has enjoyed enormous advantages
from the dollar’s role as world money.

Failing international co-operation, Zakaria warns, there will be “more
crashes, and eventually there may be a retreat from globalization
toward the safety—and slow growth—of protected national economies.”
The development of just such a situation in the 1930s led directly to
World War II. It would have even more devastating consequences today.

In the end, Zakaria concludes that a “moral crisis” may “lie at the
heart of our problems”. Most of what happened over the past decade was
legal but “very few people acted responsibly.” However, he continues,
none of this happened because “business people have suddenly become
more immoral. It is part of the opening up and growing competitiveness
of the business world.”

Zakaria does not choose to develop this point, because to do so would
make it all too clear that this “moral crisis” is itself an expression
of the crisis of the capitalist economy.

The very processes associated with the rise of finance capital have
made the dividing line between legality and illegality, not to speak
of morality and immorality, ever-more blurred.

In a world of multi-million and multi-billion dollar financial
transactions involving the use of complex derivatives, where the value
of a financial asset can be altered by changing the value of one or
other of the variables in the mathematical model on which it is based;
where the more complex and obscure a financial derivative is, the
greater the profit going to the seller; where vast fortunes can be
made from financial gambling, and where a firm that does not employ
the latest dubious methods to boost the bottom line faces being
gobbled up by an asset stripper financed with junk bonds, what price
ethics?

Moreover, the growth of a financial oligarchy, which dominates and
controls the entire political system, means that any rational reform
of the present order is impossible, even if a solution were available.

The productive forces of the global economy—the complex and powerful
racing car, to use Zakaria’s analogy—created by the combined
intellectual and physical labour of the world’s working class, have
developed on an immense scale. But they can no longer be left in the
hands of a ruling elite that has lost the historical, political and
moral right to remain at the wheel. That is why a socialist
revolution, and the transfer of political power to the hands of the
working class, has become a historical necessity.

http://www.wsws.org/articles/2009/jul2009/zaka-j04.shtml

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