We are hearing it every day, in the papers, in the media: austerity. We are told that most, if not all, of the European economies have national debts that are so high, that the economies need "structural adjustments" and "radical reforms" in order to "restore confidence". But we should all think quite carefully about what this means.
Just a couple of years ago, the financial sector showed itself to be based on ludicrous, almost insane, overconfidence as banks lent far in excess of any sensible level, boosting credit and the sale of financial products without the necessary underpinning of real capital. Such speculative exploitation of the market in confidence led to the biggest financial crisis in decades, some say since 1929.
Because the financial sector is so crucial to maintaining the flow of capital, all those businesses that oil their production and investment with doses of credit need the financial system working smoothly, making available cash at low interest rates to encourage investments, and of course, growth. That magic word trips off the tongues of politicians as if just the mere mantra suffices to allay any fears that they might have other interests at heart, such as the public good. As long as everything is subservient to growth, all will be well, or at least that's what we are told. And in order to get back confidence, that essential quality of a functioning market so easily squandered by the financial sector, investors have to regain confidence that the economies are business machines that are working for their benefit.
So each economy across Europe is being turned into a debt-repayment vehicle, a combination of a state-backed restoration of the flow of credit, together with the opportunity to invest the newly available capital into profitable ventures. But where are these investment opportunities to be found? As Chris Harman ably demonstrated in Zombie Capitalism, one of the problems that periodically besets capitalism is a surplus of production and the lack of profitable investment opportunities for the surplus capital.
Unless new outlets are found for the investment, and markets found for the surplus product, the flow of capital grinds to a halt. There aren't many new areas on the globe ripe for new investment so the attention has been turning towards state assets, which brings us back to the structural adjustments and radical reforms.
Article comments
— go to most recent comments1 - Doug Hunter
Really? Retirement at 55 and an overabundance of inefficient government paper pushers has nothing to do with the crisis? Perhaps you believe the government can simply pay a person to learn at school and live with their parents (the government will subsidize you much more if you're a single parent hence the increase in that stat) until they're 30 when they can take over a government paper shuffling and approval job with sub-fulltime hours and full benefits, throw in a couple of years of unemployment or sabbatical then retire with full social benefits at 55. Maybe if it weren't for the evil capitalists no one would have to work at all, right? Goods and services could just magically appear from some foreign land where brown or slanty eyed folks are pulling the 14 hour shifts and we can just sit on our duffs.
You're right that our corporate bosses have become irresponsible and greedy, but our 'working' classes have become lazy and entitled at the same time. We have an unsustainable system, but if you burn all the wealthy at the stake and confiscate their assets for the good of the commune, we still have an unsustainable system, one that 'exploits' (i.e. gives a better job than they previously had) third world workers to make our welfare state possible.
Capitalism improves everyone's standard of living it touches, from the 'exploited' subsistience farmer who earns a relatively nice income at the sweatshop, to the 'poor' in the US living in 1000sqft houses with cable, 2 TV's, 2 cars, and plenty of time for makin babies. The problem is, it also creates opportunity for some to rise above... creating inequality.
Some people are so jealous and petty and pathetic that they'd rather shackle those that seek to rise above and force everone to suffer in equal misery than exist in a world where someone might earn more than them. Not I.
On a sidenote, I'd actually like to see the workers in Greece succeed with bouncing the austerity package, not taking the capitalists bailout money (with strings attached), and defaulting on their debts. It'd be a grand experiment, unfortunately wiser men than you or I would rather avoid that human suffering and prefer measured cuts to calamitous collapse. I say bring on the dear leader and workers paradise (until the checks start bouncing) in Greece.
2 - Bob Lloyd
[Retirement at 55 and an overabundance of inefficient government paper pushers has nothing to do with the crisis?]
Is this a plausible explanation of the depth of the largest financial crisis in over 70 years? No it isn't. Even inefficiency on a massive scale wouldn't be enough to explain it. So firing at the usual targets (single parents, unemployed, people on benefits, etc) isn't anything like an answer. In fact, one major reason for the historical growth of government institutions is to maintain the environment for the profitable use of capital and that includes welfare and benefits provision at home, and intervention (often military) abroad.
[our 'working' classes have become lazy and entitled at the same time]
Another haphazardly targetted snipe. Just check out the changes in overall working hours and the amount of unpaid overtime over the last thirty years. People are having to work harder and harder just to retain their jobs and that's not because of laziness but because of the fierce competitive pressures in the job market. Employers have never been so powerful. The rise in unemployment is not caused by an increase in laziness but all manner of related economic reasons such as structural changes, a fall-off in investment, the credit squeeze, overproduction, and so on.
[Capitalism improves everyone's standard of living it touches, from the 'exploited' subsistience farmer who earns a relatively nice income at the sweatshop, to the 'poor' in the US living in 1000sqft houses with cable, 2 TV's, 2 cars, and plenty of time for makin babies.]
It seems amazingly idealistic to believe that. Capitalism is an excellent system for shifting wealth from the many to the few, from those who have to work to those who don't. Simply owning capital is a means of becoming wealthier without having to work and it is blatantly untrue to suggest that everyone benefits. Even where some people do benefit, the benefits are very unevenly distributed, loaded in favour of the owners of capital.
Just take one simple example, Haiti. Capitalism provided Haiti with development funds which led in turn to the total impoverishment of the economy, the destruction of the small farmer economy, and the creation of foreign-owned sweatshops. People who were able previously to work the land, feed their families, and live reasonably, were transformed into sweatshop workers unable to buy the expensive imported food. The dumping of rice from the US into the Haiti economy destroyed the local small-scale farming economy. That worked to the benefit of some US firms but seriously damaged the Haitian economy and impoverished millions. Globalisation is full of such examples.
It's very easy to condemn working people for resisting attempts to make them pay for the crisis they didn't create - and there's little debate about who was responsible. The old notion that workers should be grateful that someone gave them a job assumes that the capitalist is some kind of samaritan. In fact, capitalists have no choice but to compete and to try to increase the rate of exploitation, or they either get taken over or go bust. They only take on labour if they can make a profit. But it's not generosity or some dedication to social well-being - it's profit that drives them.
We shouldn't be reluctant to question the rationality of a system that is inherently prone to disastrous crises and which so damages the public good.
3 - Doug Hunter
Bob, Yes it is a plausible explanation. In 1956 defense spending was 60% of the US budget and transfer payments only 20%, now this is almost exactly reversed and projecting forward the growth of the welfare state is only set to increase further. These things ARE unsustainable. You can call it austerity or call it raising the retirement age for medicare and social security or you can call it 'cuts' or you can just inflate your currency printing new money to pay your welfare benefits and avoid calling it such, but the end result is the same... we cannot afford the life we have become accustomed to living and 'austerity' will happen.
You're right about the workers, I should have primarily said entitled rather than lazy, but then you must admit that our own (US) migration policy is set by allowing in illegals to 'do the jobs we won't do'. Explain to me what that means. Is that not a sign of unsustainable entitlement?
Our lifestyle is subsidized by the products of low wage labor yet we consider ourselves too good to take part in it. Sounds like entitlement to me.
The other thing I've never been sold on is the idea that by confiscating (usually simply destroying) the wealth of the rich that someone poor necessarily benefits. It's not like the wealthy have food, clothing, shelter, and health care bottled up and hidden in a warehouse. Their wealth is tied up in a business. If you sell their businesses to get their wealth, you're hurting yourself in the long run as now you have no means of production or employment. You might consider state control and use the former profits for increased wages but that kills off any new outside investment and the lack of profits means the value of the business has simply evaporated (value being determined largely as a multiple of profit).
Accumulation of capital is required for new ventures and investment in new businesses. Now that you have successfully shut that down where will it come from. Government is the only one left I suppose. Whose welfare check should they cut for that to happen? A capitalist might bring a factory and a job to the third world, when would a workers union vote to expend potential wages to open a new factory in the third world on their own?
Inefficiency abounds.
As I stated above, I'd like to give the radical leftist ideas a chance again though. Maybe the workers in Greece can start something and we'll see how that goes. Let's try it on a small scale first and watch what happens.
***I know we already have Venezuala, but not every country can load a small population welfare state onto the back of a top 10 oil reserve(which incidentally still requires rich capitalists to actually buy the oil, that's why they still do business with the great satan and take our petrodollars).
4 - roger nowosielski
You're sounding more reasonable in this last post, Doug.
A simple question: why weren't we talking of entitlements in the good old days, say the sixties and the seventies? Pensions, vacations and healthcare were more or less the norm for most American workers. And these were the usual rewards to accrue to a person for having worked their entire life for a company.
And yet, no one was raising any stink.
5 - Bob Lloyd
Interesting about the US economy. As you can see from here the corporate profits tax dropped 38% over the last thirty years, the contributions for social insurance stayed pretty static at around 40%, and the indirect business tax dropped from 6.5% to 4.8% of receipts. So the private sector benefitted greatly.
During that time of course, Medicare went up. Many think it's perfectly right that a civilised country should make sure that all of its citizens get adequate medical cover irrespective of their income.
Incidentally, the arms spending was an essential element in stabilising growth in the post-war US as the government controlled both sides of the demand-supply equation for weapons and hence associated economic sectors. The spin off was controlled economic growth - Keynsianism through the barrel of a gun.
And you're right that capitalism is in near perpetual crisis. It regularly generates overproduction, regularly runs out of profitable places to invest, regularly sees a drop in profits, leading to slump, inflation and unemployment. Governments recently used the state assets to shore up these very large business because they now exert so much economic power that the social consequences of their actions cannot be accepted and absorbed by society without generating social upheaval and revolt. So the politicians try to keep the lid on it and won't dare allow them to go bust.
That's why social democratic politicians in Europe, even when they call themselves socialist, are actually managers of capitalism carrying out conservative policies in defence of capitalist institutions.
I think you misunderstand though my point about questioning the system and contemplating an alternative. There's no reason to destroy the capital, although capitalism regularly does just that, through wars, slump, recession, and so on. The people who are creating the wealth are still there, and so are the businesses. But if the businesses will not act in a socially responsible way, then surely they should lose the right to act independently. States can take them off those who are acting irresponsibly but they have to be prepared for the conflict. Venezuela is a case in point and you make the important observation that the oil reserves provided the necessary financial insurance.
As an example though, since European states now own significant proportions of the banking sector, why should they not retain that control, or better take the capital from the owners at knock-down prices reflecting the social damage their speculation has done. That would mean at least freezing the assets of those owners who had wreaked such damage internationally and ensuring the adequate and controlled flow of capital. The state is currently paying the piper but is reluctant to call the tune. There's no good reason why it can't do a better job than the present owners and put the banks into social ownership.
You rightly pose the question of where the capital would come from but since it hasn't been destroyed, it is still there. The real issue is who controls it. And that's where there's a political struggle. Of course many of the politicians who wring their hands at the moment, were involved in the abolition of financial regulations a few years ago when they thought they were stimulating the markets - they actually allowed the proliferation of imaginary financial products divorced from the real economy.
6 - roger nowosielski
Very well-thought through, balanced post (if one holds out the hope the system will survive).
Of course, social ownership, of banks first, and who knows of what later, puts a different wrinkle on the system and a whole set of questions as to the direction it is heading.
7 - STM
Austerity ... who really pays?? Yep, ordinary people like you me and the rest of us.
As for Doug's comment: "Our lifestyle is subsidized by the products of low wage labor yet we consider ourselves too good to take part in it. Sounds like entitlement to me."
I reckon you've hit the nail on the head there; Americans didn't get wealthy by shysters on Wall St moving money around or coming up with "investment" schemes that were so bizarre, even the people selling them didn't understand them beyond the idea that higher-risk debt had been packaged up with blue-chip and lower risk debt and then sprinkled with AAA-rated golden fairy dust.
Americans should remember what they're good at: making decent stuff and selling it. That's how the place became wealthy in the first place.
Taking advantage of cheap labour will eventually mean everything - including profit - moving offshore.
Make something in the US and charhe an extra couple of bucks for it.
And eat lunch at the local diner even ... which is what I do down here in another lucky country, because when you pay a local for their work and their products - even a cup of coffee - it keeps all that money flowing around the local economy, keeps jobs at home and supports local businesses trying to keep their heads above water.
8 - Bob Lloyd
[Taking advantage of cheap labour will eventually mean everything - including profit - moving offshore.]
Interestingly, that doesn't follow. Globalisation contracts often use cheap indigenous labour but the profits accrue to the foreign companies. The workers get employment and the pay goes into the local economy, but overall there is capital flow out of the country and the creation of economic dependence since the foreign debts are almost always permanent. Couple that with the expensive imports that are almost always tied into the deals and you have a relative impoverishment.
The same thing occurs when "liberalisation" takes place when state services and assets are privatised.
Ironically, higher wages are a much better stimulus for a capitalist economy than depressed wages but businesses don't see the larger picture.
9 - Doug Hunter
#4
Interesting question but we can all play that game.
Social security and government medical spending were only about 3% of GDP in 1960 rather than 12+% and growing today. How did they get by without the great welfare state and social spending then?
I think the answers are complex and involve both cultural and governmental shifts. I don't have the time or energy to analyze the macroeconomics of the US in the 60's and 70's and compare it to today, but what immediately jumps out is the shift from saving, producing, and exporting in 1960 to spending, consuming, and importing by the end of the 70's.
A system as large and complex doesn't wither away or change course overnight. It's hard to tell how far back and which exact policies effected our lives then and into the future. The only indicators we listen to are the short term ones, which I believe don't always correlate with the long term effects of policy. If nothing else capitalism should have taught us that today's boom could be tomorrow's bust and vice versa. People have traditionally tried to exempt governments from that cycle, but I disagree. I think government goes through the same cycles, just slower since they control their own money supply and monetary policies. I believe yesterday's boom of the welfare state is tomorrow's bust.
Either our welfare state goes or our standard of living does, we simply don't have the money to continue both any longer. Either way I'd say we're due for a little 'austerity'.
10 - roger nowosielski
Doug, I could provide you with a link to a video analyzing the situation historically. So let me know if you're game. I don't want to be repeating arguments which are better and more eloquently presented elsewhere.
As an aside, however, the very term "entitlement" is a rather recent addition to our political lexicon. Wonder why? And why has it become a buzzword?
11 - Doug Hunter
#8
I disagree and I think history has shown otherwise. Yesterday's exploited cheap labour are largely today's bustling economies. I don't believe the US can simply rely on shuffling paperwork and acting as the worlds reserve currency forever, I still believe production matters.
12 - roger nowosielski
Stan, a great majority has been reduced to buying cheaply made, inferior products.
Try to get an appliance for home that's made in the good ole US of A. No such luck.
Hamilton Beach, Stanley Tools, Mr. Coffee, Sunbeam, almost any "American" firm you can think of, all of these products are made in China. And Walmart has become the nation's greatest retail story, as well as an employer.
This didn't happen by coincidence. There were forces, economic and political forces, which brought this situation about.
13 - roger nowosielski
And BTW, Lloyd makes an excellent point when he says that lower wages, contrary to appearances, have a tendency to work against the system, causing relative impoverishment worldwide, especially in the home countries. Which is why the American working class has been reduced to Walmart consumers. But of course, Big Business doesn't see the larger picture.
But I am not saying what you don't already know.
14 - roger nowosielski
"I don't believe the US can simply rely on shuffling paperwork and acting as the worlds reserve currency forever, I still believe production matters."
I'm in perfect agreement with that. It would seem that manufacturing is no longer a serious option. We must look to technology and energy industries as potential sources of creating wealth and employment. Unfortunately, because of the highly computerized character of the operations, and efficiency, I don't see these industries as offering anything near to mass employment.
15 - Doug Hunter
#10 Sure, I'm always open to new ideas.
#14 Real industry has such a large multiplier effect, especially technologically complex ones. The industry creates needs for trained technicians and outside contractors and suppliers and yes, dare I say, even government oversight. In addition that new money flows in and the workers buy houses and go out and eat and buy cars and so on and so on. I've heard that one primary manufacturing job, say a Boeing or something, enable the employment of 4 to 5 people because of these secondary services and effects.
16 - roger nowosielski
OK, Doug, this is the shorter version. If and when I locate the full (almost two-hour presentation), I'll provide the appropriate link. You may disagree of course with some of his ideas, but many IMO are sound - even though he is a Marxist.
BTW, here's a link to his website, offering many such lectures: Richard D. Wolff.
Anyway, tell me what you think.
17 - Doug Hunter
He sounded reasonable, but like everyone he cherrypicks and fits the data to suit his agenda. This idea that corporate profits are through the roof is not supported by government data, in fact corporate profits percentagewise were higher in the 50's and 60's and were only reapproached under Bush in the mid 00's. His theory was that profits were through the roof allowing debt, yada, yada in the 70's 80's and 90's when that's just not so. I think he hit the nail on the head when he talked about global competition, although he did not properly elaborate on this later. He also skimped on solutions and strangely tried to class small business innovation in silicon valley as 'communist'.
I believe in free enterprise, if worker owned and ran businesses are the answer then that we should go for it. It doesn't sound entirely that different from the right wing ownership society with everyone's money in stock. I'm left to wonder exactly how that is going to make our products more competitive in the global marketplace, they can take the 10% profit margin and plow that back into wages, but then how will they expand if they are successful? They can cut prices by 10% and perhaps be back in the mix with the same issue as above (they'd also be ripe fodder for a real capitalist to buy out).
Anyway, thanks for the link. We shall see what the future holds.
18 - roger nowosielski
Glad you liked it, Doug. I don't know much about cherrypicking the date. Not terribly well-versed, I'm afraid, in American economic history.
19 - roger nowosielski
"He also skimped on solutions and strangely tried to class small business innovation in silicon valley as 'communist'.
You're right about that. Innovative entrepreneurship, definitely. Communist, questionable. But the idea of innovation as originating in a different, other than corporate setting, is a sound one. So perhaps he pushed the notion of communism to express what's essentially a sound idea.
We're all more creative if left to our own devices and are free to associate, rather than when we're constrained by a corporate environment, I would think.
20 - Doug Hunter
I'm not either, I've just learned how to be a skeptical listener. The corporate profit over time was the first graph I decided to double check and some of his ideas were already on shaky ground. Here is a link to another piece making the same point as he was, but showing relevant data Corporate Profits over time
Note how the 50's and 60's are highest and 70's through the 90's are lower, exactly when he claimed workers were suffering and corporations raking it in. In fact, both were suffering stiff competition from overseas.
To try and tell people that their stagnate living conditions are caused by sadistic businessmen who just enjoy screwing them rather than the fundamental challenges of competing in a world marketplace where foreign labor goes for $30 a week while US labor wants $30/hr is a very bad precedent. It's OK to be honest about people's motives but creating class hatred and warfare based on false assumptions crosses the line in my book.
That being said, I'm sure he fully believes what he is saying and has only the best intent.
21 - roger nowosielski
I'll check it out, Doug.
22 - Doug Hunter
#19
As far as answers, I think we share an unusual amount of the same ideas. It's strange how we take different paths there. I think the benefits of innovation, job creation, and growth potential of small businesses have been well established. Big corporations aren't real fond of that sort of competition though, and they've pretty much bought and paid for the government so I'm not holding out much hope there.
I've been batting around a couple of ideas for articles (finally), and had narrowed it down to two. Does either of these sound interesting to you? Obviously they'd be from a right wing perspective, but still a little more progressive than your caricature of us.
1) Considering a wealth or value tax on corporations and individuals
2) Getting and keeping the best and the brightest with smart immigration policy.
** Obviously those are working titles, but you get the idea.
23 - roger nowosielski
I would opt for the second. The first seems like a dead horse.
We've got to create incentives and reward merit and innovation. And if it's not going to happen here, then where else?
24 - Doug Hunter
Yeah, we've already got the AMT and the good old inflationary printing press I suppose. Maybe I'll get my immigration ideas together and throw em into the ring, seems timely in light of the Arizona situation.
25 - STM
Bob #8. Sorry mate, you'r not quite right. I did say eventually. And yes, profit does EVENTUALLY move offshore. That has been proven to be the case over and over during the past two centuries. Globalisation won't change that IMO but simply facilitate and expedite that process.
China is the classic example of large chunks of so-called multinational and international profit and what might best be called {"profit spin-off" in the form of things such as higher living standards, moving offshore ... and in this case, of course, they are moving to China.
Do some research on the growing Chinese motor-vehicle manufacturing industry. Where do you think they learned the craft? It's not what it used to be, either. I believe there are Chery 4WDs being imported soon into Australia (which means they have already set up right-hand-drive production lines and not just for my country) that have been given four-star (out of five) crash ratings for here, which is a good standard.
Watch this space as China, Korea, India, even Thailand, continue to boom on the back of: North American, Japanese, European, Aussie and (their own clever) native know-how; a thirst for better lives; global money and stuff out of the ground (iron ore, coal and gas, probably even uranium in large quantities at some point) they are buying by the zillion-tonnes from this place (Oz).
Why do you think the Aussie government is moving to discourage foreign ownership of what's in our ground???
So the profits stay here, silly, instead of moving (almost) entirely offshore. Not a bad idea - we keep it and create many thousands of jobs and sell it to them at a decent market price instead of them buying it all up before it's dug out of the ground and making their own price.
You guys simply need to act: bring much more production back to the US; charge a little bit more for it; lower the value of the greenback slightly so that export markets are more amenable to American goods. And keep buying local - even if it's just your lunch.
Anything's do-able. But if you keep relying on shysters moving money about on computers, you are destined for the scrap heap at some point.