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Post by dodger on Nov 30, 2013 14:21:02 GMT
www.workers.org.uk/opinion/opinion_1213/dismal.html‘Failed
economists
helped cause
the crash.
They’ve been
rewarded with
prizes.
But
they’re still on
the syllabus in
universities
around the
world…’
Hope for the dismal science
WORKERS, DEC 2013 ISSUE Economics is widely known as the “dismal science”, and the description rings true, so dismally has classical economics performed over the past century or more. (Marx, of course, was right.) One bright spot is that the new generation of students seems unwilling to stick with the mistakes of the past.
Economics students at the University of Manchester had been wondering (in their own words) “whether economics undergraduates were being taught the right things in the light of the 2008 Financial Crisis”.
A good question. They were being taught the dismal theories of the discredited economists who had played their full part in blowing up the bubble that burst so disastrously in 2008. People like Robert Lucas, awarded the Nobel Prize for Economics, who in 2003 said the “central problem of depression-prevention has been solved”. Unchastened by reality, he said in 2011 that the big threats to the US recovery were Medicare and higher taxes on the rich.
Then there’s Robert Merton and Myron Scholes, from Harvard and Stanford, Nobel laureates both. Along with Fischer Black, who died before he could collect his Nobel, they founded the “science” of derivatives. In 1970 there were no derivatives traded on the markets. Then Black and Scholes published an infamous equation “explaining” how it could all work. Merton came in later. By 2004 the notional value of derivatives traded globally was $273 trillion.
These bourgeois economists helped cause the crash. They’ve been heaped with prizes. They’ve been rewarded as befits loyal servants of finance capital. And they’re still on the syllabus in universities around the world.
The Queen asked at the LSE why no one saw the crash coming; no one could answer her. No wonder the Bank of England called a conference on the subject, “Are economics graduates fit for purpose?” (As if the Bank itself were actually fit for purpose!)
No wonder, too, that the students at the University of Manchester this year set up the “Post-Crash Economics Society”. They believe “that the content of the economics syllabus and the way it is taught could and should be seriously rethought”.
What is surprising – and a tribute to the students – is how seriously their challenge to economics orthodoxy is being taken. Prominent (non-neoliberal) economists have flocked to their banner. The students put their finger on a problem that no one wanted to talk about but that could no longer be dodged.
One echo has been the development in a project headed by Wendy Carlin, a professor at University College London, to introduce a new first-year curriculum for economics students. According to reports, it will include in-depth study of economic history and the way financial markets can undermine economic stability.
“The pressure for change from students, faculty, business and policy makers, along with new developments in economics, makes this an auspicious time to seek improvements in what economics students learn, and how they learn it,” said Carlin.
The students, then, have been teaching their teachers a well-earned lesson. Not so dismal after all.
Actually, the term “dismal science” was coined by one of the most dismal bourgeois economists of all time, Thomas Carlyle, better known as a (pretty dismal) historian. He used the term to attack John Stuart Mill for saying that abolishing slavery would lead to an improvement in the lot of the slaves. Carlyle, dismal as he was, argued strongly and, as it turned out, totally wrongly that emancipation would be bad for the slaves.
Getting things wrong has been a theme among bourgeois economists for quite a time, it seems.
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Post by dodger on Dec 5, 2013 13:57:18 GMT
Excellent study of the effects of 'shock therapy' - all shock, no therapy, 5 Dec 2013
This William Podmore review is from:
Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia (Hardcover)
Martin Myant is a Professor at the University of the West of Scotland, and Jan Drahokoupil is senior research fellow at the Mannheim Centre for European Social Research.
The seven East European countries' average annual per capita GDP grew by 3.81 per cent between 1950 and 1973, as against the USSR's 3.35 per cent (which refuted the thesis that the USSR exploited its East European allies) and against the 29 West European countries' 4.05 per cent. Between 1973 and 1989, the growth rates were 1.07 per cent, 0.99 per cent and 2.07 per cent.
The authors present a comprehensive indictment of the capitalist policies adopted by the counter-revolution. They write, "it was wrong to set stabilization as an overarching priority. ... driving down state spending and the money supply can be very harmful to other policy objectives. ... it was wrong to emphasize the need for the maximum speed with privatization."
In particular, they denounce privatisation: "the negative effects of speedy privatization resulting in weak legal environments. These were particularly damaging when international financial flows were weakly regulated, making it easy for individuals and businesses to transfer wealth to other countries. ... privatization ... in many cases left enterprises worse placed than under state ownership. Indeed, the incentive to seek quick profits was often highly damaging, leading to asset stripping and transfers of wealth abroad."
They point out, "voucher privatization led to a concentration of wealth, but with much going to share dealers and speculators and not to the enterprises that needed investment and modernization. ... investment funds played no significant role in pressing for, or enabling, enterprise restructuring. ... voucher privatization did little to improve enterprise performance."
The new capitalist governments embraced finance capital: "banks were able to finance enterprises' current transactions, but they did not provide much finance for investment. ... in no case were banks a major force in the successful development of modern domestically owned businesses. ... In countries where there was light, or non-existent, regulation and freedom for private enterprise, banks turned toward practices that helped to destabilize the economy or towards parasitic activities that supported the rapid concentration of wealth without ensuring that it was used for productive investment."
The authors state, "it was wrong to opt for speedy liberalization of banking. ... Another important theme was the liberalization of financial systems and opening to inflows of capital. These were to become more dangerous as economies developed, but the dangers were underestimated. There was an assumption that state debt could present a danger, but in fact, it was private debt that contributed most to the effects of the 2008 world financial crisis. These effects were quite devastating for some countries, although they appeared to have done well in the terms laid down by international agencies. They had followed the strategy of liberalization, privatization, low taxes, and limited state spending."
They point out that the governments did not even back their own new domestic capitalist firms: "Remarkably, the greatest help was given not to domestically owned firms but to inward investors that bought more successful established enterprises in Poland, Czechoslovakia, and Hungary. It seemed that they alone could succeed with arguments for protection, for better terms for importing equipment, and for investment in the necessary infrastructure."
The authors note, "the mean size of public administration for Eastern Europe and the FSU [Former Soviet Union] was only 3.8 percent of the labor force in comparison to the OECD mean of 10 percent ... The size of public administration in Russia was particularly low (1.2 percent of the labor force in 1993." This refutes the `bureaucracy' canard.
In Russia, "The 2000 labour code reform allowed the broad use of temporary contracts, expanded employers' rights to dismiss workers, and reduced the powers of trade unions in dismissals. Financing responsibilities in housing, health care, and pensions were transferred to individuals, markets, and insurance mechanisms. ... In 2004, the government began to dismantle the system of in-kind benefits inherited from the Soviet period, including access to public transport, housing, utilities, and other goods and services ... Restructuring of the system through monetization and retrenchment was met with massive popular resistance, unprecedented in the Putin presidency. Political parties, trade unions, and nongovernmental organizations (NGOs) joined in support of large street demonstrations and transport blockades across more than 70 cities in early 2005."
So, "The oligarchs were able to boost their economic power and personal wealth to such an extent that the accumulated wealth of the 87 Russian citizens listed by Forbes as billionaires in 2008 was equivalent to approximately one-third of Russian GDP."
Other results of capitalism? "In June 2009, Latvia, the worst hit country, implemented spending cuts and tax increases of 712 million euros ... It cut wages in the public sector by almost 40 percent and reduced pensions by 10 percent. It also reduced benefits and increased payments in health care. ... unemployment, using the ILO method of measurement, increased rapidly to 21.7 percent of the labor force in Latvia in February 2010, the highest of any European Union country. Equivalent figures for Estonia and Lithuania were 15.5 percent and 15.8 percent."
Myant and Drahokoupil observe, "the complexity of the effects of the initial financial difficulties points to a strengthening of forces leading toward deeper depression rather than to an awakening of forces for recovery."
The authors sum up, "Taking account of contrasts between transition economies, and of development elsewhere in the world, the key mistake would appear to have been excessive faith in, and reliance on, free markets. ... Where private enterprise was given the freest hand, controlled the least by a state, a legal framework, or an active civil society, the outcome was enrichment for some individuals, without much accompanying economic development."
By contrast, as Myant and Drahokoupil point out, "Uzbekistan and Belarus were the most reluctant to pursue the Washington Consensus strategy and to privatize their enterprises, yet they seem to have done better than many other CIS republics." Both kept public spending on education, health care and utility subsidies high. Belarus had free education and health care. As the authors remark, "state expenditures on education, and also health care and infrastructure, can enhance the efficiency of production factors and thus promote economic growth ... while the impact of fiscal policies on growth is generally rather slim, education expenditure has a positive impact." Belarus kept poverty rates below 2 per cent; unemployment was never more than 4 per cent and was only 1 per cent in 2013.
The GDP of Georgia, Tajikistan and Moldova in 2008 was just 60 per cent of 1989's. Russia's was 107 per cent. Montenegro's was 91 per cent, Croatia's 83 per cent and Serbia's just 72 per cent. By contrast, Belarus's was 160 per cent.
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Post by dodger on Dec 7, 2013 20:35:24 GMT
Liberal structures – the free movements of capital, goods and labour – suit capital best. By the same process, they aid crime and corruption...
Dirty money: capital just can't keep its hands cleanWORKERS, JUNE 2006 ISSUE Capitalism's Achilles Heel: Dirty Money and How to Renew the Free-Market System, by Raymond W. Baker, hardback, 438 pages, ISBN 047164488-9, John Wiley & Sons, 2005, £16.99.
This is a fascinating and deeply researched book by a businessman with experience across the world. Baker sums up, "Dirty money causes disaster for millions and deprivation for billions. No other economic condition generates so much harm for so many people. A system that continues to support such massive illegal flows, sustaining poverty, and contributing to historically high levels of global inequality, requires fundamental rethinking."
Multinational firms steal an estimated $500 billion a year from the peoples of Asia, Africa and Latin America. This can only happen with the connivance of the West's banks, which process the illicit gains.
Fictitious pricing
Baker writes, "Intracompany trade across borders represents about 50 to 60 percent of all cross-border trade. I have never known a multinational, multibillion-dollar, multiproduct corporation that did not use fictitious transfer pricing in some part of its business to shift money between some of its entities."
Half of all international trade and investment passes through the world's 63 tax havens, including the Isle of Man, the Channel Isles, the Cayman Islands, Bermuda, the Bahamas, Cyprus, Malta, Gibraltar, Singapore and Hong Kong. Nearly half are members of the Commonwealth. They host about three million dummy corporations (500,000 in the Caribbean alone), holding possibly $11 trillion.
Foreign aid to Asia, Africa and Latin America is $50 billion a year, just a tenth of the amount plundered. These countries owe $1.5 trillion: the World Bank/IMF's Heavily Indebted Poor Countries' Initiative forgives only $50 billion of this, 3%.
How does the system "support such massive illegal flows"? For centuries the British ruling class, then the US ruling class too, have used the law to maximise capital's freedom. Lord Chief Justice Mansfield said in 1775, "No country ever takes notice of the revenue laws of another." So no capitalist state enforces the tax rules of another, opening the way to tax evasion.
Tax avoidance
Later, in 1929, the ruling in the case Egyptian Delta Land and Investment Co., Ltd. v Todd established the principle – for the entire British Empire – that companies could incorporate in Britain but avoid paying British tax. This allowed tax havens to sprout across the Commonwealth. Britain itself became a tax haven. As a French parliamentary committee reported in 2001, "Great Britain does not cooperate with European countries and offers a totally unacceptable haven for criminal funds."
Baker shows how the US state used English law as precedent: "Holes [were] intentionally left in anti-money laundering laws." These laws allow US banks to trade in the money generated by most kinds of crimes committed in other countries – prostitution, people smuggling and slave trading, for example.
Failure
Even after 11 September, the American Bankers' Association lobbied against tighter controls on bank accounts to curb terrorists' funds. So it is no surprise that 99.9% of anti-laundering efforts fail.
Liberal structures – the free movements of capital, goods and labour – suit capital best. By the same process, they aid crime and corruption. The freer capital is, the more lawless the host society will be. Free movement of capital also destroys national sovereignty and democratic accountability.
Baker shows how all capitalism's leading institutions are complicit in crime, but what does he say we should do about it? He urges us to press capitalism to put justice before profit. He writes, "There is no suggestion here that businesses should not be maximizing profits, operating efficiently, and competing. The point is much simpler: capitalism should not place these aims ahead of justice in its institutions and transactions. Justice must be a prior condition."
Wishful thinking
Where is the evidence that capitalism could do this? It is idealist nonsense, sheer wishful thinking. As Lenin pointed out long ago, if capitalism could put justice before profit, it would not be capitalism.
Illegal money flows are not some kind of an unfortunate offshoot of capitalism: they are integral to capitalism. Baker gives us enough evidence to convict capitalism as an unreformable, exploitative system, inevitably breeding crime and corruption.
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Post by dodger on Dec 8, 2013 11:36:03 GMT
imarxman.wordpress.com/2011/08/31/can-the-beast-be-controlled/Can the Beast be Controlled?
Posted on August 31, 2011 by imarxman
We’ve seen more of the inner workings of the beast that is finance capitalism over the last couple of years than in the previous 100 years. We’ve heard about ‘short selling’, ‘credit default swaps’,’sub prime markets’, ‘toxic assets’, ‘casino banking’, ‘triple A to junk ratings’, and unaccountable ratings agencies that gave the thumbs up to the banks that brought the world’s banking system to its knees. We’ve seen banks bailed out with our money and then carry on as if nothing had happened. At one point in early August we were told that the crashing of stock markets was due to computers, because the whole system was on autopilot whilst the dealers were at the beach
Meanwhile, in the USA the political system is broken. Neither the President, nor Congress or the Senate are capable of controlling the beast which is demanding trillions of dollars of public spending cuts, no tax rises for the rich, and ring fencing of military spending. Clearly health and welfare spending will be slashed and American workers will be the ones that suffer. In the Eurozone it’s even worse. Greece, Ireland, Italy, Spain, Portugal and now even the mighty France are all now in serious trouble with the beast, looking for desperate measures to survive its wrath. Even Germany (who said it would weather the storm due to their solid manufacturing base) now finds its manufacturing output ‘flat lining’. And in Britain, Osborne boasts that ‘we are a ‘safe haven’ whilst our cities burn, stock markets crash, manufacturing levels plummet and unemployment and inflation soar.
What are we to make of all this? Well, the obvious conclusion is that governments and politicians do not and cannot control capitalism. This then begs the question ‘Whither Democracy?’ In other words what is the point of voting for a political party if it cannot control the economic system we are forced to live under? France and Germany have come up with the proposal to create a Eurozone ‘Economic Government’ run by the delightful Mr Van Rompuy, the unelected President of the EU. This proposal would mean that all matters of taxation and economic policies affecting Eurozone nations would be taken away from national governments and determined by some unelected body chaired by Mr Van Rompuy.
So what about Britain? Well, Osborne obviously cannot control the beast either. His attempt to slash public spending has not reduced the deficit and his rise in VAT has reduced consumer demand. Britain’s economy is closely linked to and dependent on trade with other EU countries and so tied in with the Eurozone financial crisis. When Merkel and Sarkozy mention a Tobyn tax on all financial transactions in the Eurozone as a possibility, stock markets crash in Britain wiping £billions off pension funds and individual savings. Yet the tax would be intended to reduce trading volumes and is probably the only way governments could even attempt to tame the beast. But governments around the world argue it could only work if every developed country imposed it and nobody wants to be the first one.
But the beast doesn’t like to pay tax. That’s why there are so many Tax Havens around the world from British Crown Dependencies like Jersey to British Overseas Territories such as the Cayman Islands to Bermuda and the Principality of Monaco (protected by France). Monaco boasts the highest GDP per person in the world at $151,630 p.a. and claims to be the most densely populated country in the world with the world’s highest life expectancy in the world at 90 years and lowest unemployment rate. As it is a tiny Principality that a Grand Prix can circumnavigate in a short time, you might imagine the dense population living in high rise flats working in multi storey factories producing gold plated BMWs. But in reality, they are lots of Philip Greens, the British multi billionaire owner of the Arcadia Group (although the company is registered in his wife’s name) that owns Top Shop and BHS etc, who are registered and pretending to live in Monaco to avoid paying their taxes. You would think it would be a simple matter for the British government to clamp down on tax avoidance in British Overseas Territories, but they can’t because capital would flee to some other tax free haven.
So the beast is totally out of control causing damage with every step. But could capitalism actually collapse? Almost certainly, is the answer, but it may take time without being pushed. During August, bank shares were tumbling and a run on the banks was being forecast for September when the dealers return from the beach. Britain seems certain to be heading for recession again, and there is the prospect that a bail out of Italy will bankrupt the European Central Bank on the one hand, and no bail out could lead to the collapse of French banks on the other. That’s not to mention Greece, Portugal, Ireland and Spain.
Any pretence that politicians can control capitalism has fallen away. We should now give thought to what to replace it with, something that is accountable, controllable, based on making things, and in particular, a system that serves the people and does not destroy lives.
@sonofsantiago
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Post by dodger on Dec 13, 2013 15:40:42 GMT
Splendid demolition of capitalist economic 'theory', 13 Dec 2013
This Will Podmore review is from: Zombie Economics: How Dead Ideas Still Walk among Us (Paperback)
John Quiggin is Professor of Economics at the University of Queensland in Australia. In this superb book, he refutes the leading ideas of current mainstream economics:
"*the Great Moderation: the idea that the period beginning in 1985 was one of unparalleled macroeconomic stability;
*the Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment;
*Dynamic Stochastic General Equilibrium: the idea that macroeconomic analysis should not concern itself with economic aggregates like trade balances or debt levels, but should be rigorously derived from microeconomic models of individual behavior;
*Trickle-down economics: the idea that policies that benefit the well-off will ultimately help everybody; and
*Privatization: the idea that any function now undertaken by government could be done better by private firms."
Quiggin points out, "The Efficient Markets Hypothesis provides a case against public investment in infrastructure and implies that macroeconomic imbalances, such as trade and current account deficits should not be regarded with concern and, provided they arise from private sector financial transactions, are actually both beneficial and desirable."
Supply-siders claimed that free trade, more migration, lower taxes and de-regulation would improve productivity. But they haven't. They claimed that Reagan's 1981 corporation and income tax cuts doubled US government revenues - not true. Income tax receipts grew more slowly in the 1980s.
Income tax is not the only tax on income: payroll taxes are regressive, falling mostly on wages. Most capital income is taken in the form of capital gains. Taxes on income and wealth account for half government revenues; the other half, consumption taxes, are regressive.
Anti-Keynesian economist Casey Mulligan wrote in October 2008, when the crisis had already started, "So, if you are not employed by the financial industry (94 percent of you are not), don't worry. The current unemployment rate of 6.51 percent is not alarming ..." His Chicago colleague, Steven Levitt, of Freakonomics fame, endorsed this piece, writing, "there is no reason to panic."
The heart of Quiggin's book is his brilliant chapter on `trickle-down' economics, for, as he notes, "the best candidate for zombie immortality is probably the trickle-down hypothesis."
He observes, "All the evidence supports the commonsense conclusion that policies designed to benefit the rich at the expense of the poor have done precisely that. ... The experience of the United States during the decades of market liberalism, from the 1970s until the Global Financial Crisis, gives little support for the trickle-down view. The gross domestic product of the United States grew solidly in this period, if not as rapidly as during the Keynesian postwar boom. More relevantly to the trickle-down hypothesis, the incomes and wealth of the richest Americans grew spectacularly. Incomes at the fifth percentile of the income distribution doubled and those for the top 0.1 percent quadrupled."
But on the other hand, "Median real earnings for full-time year-round male workers have not grown since 1974. ... the real incomes accruing to the poorest 10 percent of Americans have fallen over the last thirty years. ... In 2008, according to U.S. Department of Agriculture statistics quoted by the Food Research Action Center, 49.1 million Americans live in households classified as `food insecure', meaning that they lacked access to enough food to fully meet basic needs at all times due to lack of financial resources." Not much wealth trickling down then.
Greater inequality means less social mobility. In 2009, "42 percent of American men with fathers in the bottom fifth of the income distribution remain there as compared to: Denmark, 25 percent; Sweden, 26 percent; Finland, 28 percent; Norway, 28 percent; and the United Kingdom, 30 percent." Britain's social mobility has worsened since then.
Quiggin comments, "in the longer term using asset sales to finance current expenditure is a road to financial ruin. The sale of assets to fund current expenditure and tax cuts was pioneered by the Thatcher government in Britain."
Finance capital still rules, even though the world financial crisis destroyed all its claims to efficiency, stability, growth and equity. As Quiggin concludes, if things stay as they are, "we can expect more instability, with more frequent and sharper shocks."
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Post by dodger on Dec 14, 2013 6:42:48 GMT
In less than 18 months the Co-op banking group has gone from being the largest mutually owned bank in Britain to being taken over by three US hedge funds...
Smash and grab in the high street as US vulture funds sink their talons into the Co-op
WORKERS, DEC 2013 ISSUE
Three American hedge funds have now seized 70 per cent of the Co-op’s assets, reducing tens of thousands of shareholders’ and small investors’ bonds to junk value. With a customer base of 4.7 million people, linked to the wider Co-op group base of 7 million people, the only bank in Britain operating on ethical investment principles, having turned away £1.2 billion of unethical business since 1992, has now been devoured by US vultures.
Boom, the (almost) bust: the Co-op Bank’s rescue came at the expense of staff and customers.
Photo: Workers
The postmortem is still being carried out on how a £1.5 billion black hole emerged in the Co-op’s finances. With most of the senior boardroom executives and drivers of supposed expansion now gone – many with extremely handsome payoffs – it is worth reviewing what went wrong. In the background is the amazingly disingenuous position of the government: they publicly state they want to see the breakup of the monopoly position of the four big banks (Lloyds, Barclays, HSBC, RBS). The government suggests that the solution to this bank monopoly is the development of mutual banking. Mutual banking is not supposed to run the risks of unethical banking procedures, policies and criminal activity that have dominated banking worldwide since the 2007 collapse.
Standard practice
Looked at historically such unethical banking procedures, policies and criminal activity have been the norm – standard practice since the banks achieved a monopoly over finance and industrial capital in the early 20th century.
The true position of the government regarding the banks has been to promote, strengthen, bail out, acquiesce to their demands, and ensure that banking and finance is supported against all other interests in Britain. The government’s promotion of mutual banking was and is a smokescreen to camouflage their real intentions from the gullible who still think “we are all in this together” or that “austerity economics” works.
Far from promoting mutual banking, what they really were doing was signalling to their financier friends to attack and destroy mutual banking as they did with building societies in the late 1990s.
The Co-op was encouraged to merge with the Britannia Building Society in 2009 to expand its financial base. The Britannia had very close links with the trade union mutual and building societies dating back to 1856. But the Britannia and six other building societies were the target of predatory raids in the late 1990s during the destruction of building societies – when their assets were stripped and they were converted or absorbed into banks.
As far as the misnamed banking “industry” is concerned, building societies are juicy morsels ripe for eating. But how much cleverer to get a mutual bank to eat the building societies, rather than the high street raiders, and then devour the mutual!
The merger with Britannia was given the green light by the Financial Services Authority (FSA), which found nothing amiss with Britannia’s accounts. At the same time the Co-op was encouraged to take over 631 branches of Lloyds Bank, after it crashed in the 2007-8 banking crisis.
As the merger with Britannia developed, toxic debts totalling over £600 million were identified from loans geared to the buy-to-let housing market, sub-prime market scam etc. The FSA missed most of those debts. In fact it only identified between £30 million and £40 million in dodgy loans. The combination of dodgy Britannia debt, the Co-op choking on trying to swallow the Lloyds branches, poor management and inefficient computer systems, sent the overwhelmed Co-op into spiralling decline.
Gaping hole
A gaping hole of £1.5 billion emerged in the Co-op’s accounts. Britain’s largest mutual was faced with bankruptcy, or begging for a government bailout as their non-ethical competitors had done previously, or seeking a market solution. Seeking a market solution was not really an option as the “market” had already seen an opportunity, a solution which suited them. Aggressive share and bond purchase by the US hedge companies gave them financial control of the bank.
The ensuing “rescue” has turned the Co-op into yet another unethical bank. Job losses of 10 per cent amongst the 10,300 workforce have been announced. 15 per cent closure of branches, 50 out of 324, are to follow. A shift to online and Internet banking will see the Co-op float not only on the Stock Exchange but very likely off-shore.
The 170-year tradition of the Rochdale Society of Equitable Pioneers, which established in 1844 their mutual banking opposition to capitalist banking, will be well and truly dead. How long will the ethical principles of the Co-op remain, now ownership of the bank has transferred from its 4.7 million customers to shareholders, tax exiles, finance houses and other con artists? How long can the “Co-op” name and mutual banking regulations be applied to the Co-op? The very basis of the bank has changed. Vince Cable, Secretary of State for Business is already being challenged under the Companies Act, section 76, to seek governance assurances from the new owners to uphold the Co-op’s ethical principles and rules – but this is a futile effort to disguise the truth
All the proponents of expanding the Co-op into a huge high street challenger to the so-called big four banks have now departed. The Co-op as was lies in ruins, occupied by the very forces the mutual banking ethos was supposed to see off. Is this an accident or deliberate plan by those ideologues of the so-called free market who saw the opportunity to destroy a national entity, with the largest customer base opposed to the culture of high street banking? In the last 18 months the Co-op has seen thousands of new accounts opened as banking customers fled from the big four banks and their dodgy practices. Now a coup by hedge fund managers, ably assisted by expansionist greed and self-interested management, has wiped out the refuge of millions of customers who are not enamoured of the corruption of bankers. The attack on the Co-op, a working class institution, is similar to the attacks on other national institutions and entities – the NHS, the BBC – which market capitalism also wishes to devour.
Worldwide banking, despite the 2007-8 crisis and subsequent crash, has seen two interesting phenomena: job losses and rising profits. In 2008, 795,000 workers were employed in banking. That figure has dropped by around 24 per cent in 2013 to 606,000 – RBS had 78,000 job losses, HSBC 59,000, Lloyds 31,000, Barclays 21,000. Lloyds posted half year profits of £2.1 billion in August, RBS £826 million for the quarter ending in March, and HSBC £5.4 billion in the first quarter of 2013.
The Co-op has been truly smashed, its assets grabbed – and a 170-year tradition in working class history and exercise of power different to capitalist ethos brought to an end. ■ |
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Post by dodger on Dec 18, 2013 17:52:57 GMT
Helping themselves
WORKERS, FEB 2013 ISSUE
When all the political parties agree on something, you just know there’s something fishy going on. Miliband and Cameron, Livingstone and Johnson, they all love the City of London. What a jewel it is, how vital it is to the British economy. But the reverse is true.
The City squats on Britain like a toad, flicking out its tongue from time to time to snaffle titbits. It has turned parasitism into an art. It takes our money, swirls it round, skims it off and lo, the money has gone. Its role as an engine to raise money to finance industry is long gone.
Note how all its admirers talk about the City as a “global” centre. The fact that London is the capital of Britain is downplayed, a geographical anomaly. The City does not serve Britain, nor does it aim to serve Britain – it serves “the world”. But “the world” is a comfortably vague concept: actually, the City serves itself. As they say in the best Mafia films, it’s nothing personal, just business.
Last year Aditya Chakrabortty reported in The Guardian on how little of financial lending goes towards production. Citing figures from the Manchester-based Centre for Research on Socio-Cultural Change – funded by the Economic and Social Research Council – he wrote: “In March 2008, just over three-quarters – 76.2% – of [the value of] all bank and building-society loans went either to other financial firms or on property for mortgages. Less than a quarter – 23.8% – went to what you might call the productive part of the economy – non-financial businesses.” And of that 23.8 per cent, how much went to manufacturing industry?
In December, a report by the TUC provided more evidence about the real effect of the City of London on Britain’s wider economy. Despite the increase in financial services in the past 30 years the wages share of national income has fallen from 59 per cent to 53 per cent, whereas the share of profits has risen from 25 per cent to 29 per cent – a massive redistribution of wealth.
The report’s authors put this down to the decline in manufacturing (where more organised workers managed to make inroads into the value they created). They also found that the financial services share of total profits has risen from 1 per cent in 1980 to 15 per cent now, while research and development has fallen in the same period.
So rising profits for the City have benefited only a small number of investors and not the wider economy, while starving industry of investment.
The banks played a big part in causing the economic crash and even now are resisting any reforms. Given the huge bail-outs the banks have had, Britain clearly can’t afford them. It’s not even obvious that we need capitalist banks like these to finance the economy.
Given the urgent need to overcome the influence of the finance sector and rebalance the economy towards manufacturing and engineering, why are we pumping yet more money into their maws in the shape of quantitative easing? Instead, a sensible, rational government would be investing directly in real production through a bank run and controlled by the state. ■
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Post by dodger on Dec 30, 2013 2:38:19 GMT
Capital Punishment
Posted on July 11, 2012 by imarxman
The public revelation of the Libor rigging, whereby interest rates were manipulated to favour bank profits, has become another episode in the soap opera that is an everyday story of financial folk. Since 2008 and what was promoted as the sub-prime crisis it has been an almost constant cry of, “it’s the banks what done it”.
However, as in TV dramas, beware the red herring. While the culpability of banks and financiers, interested only in maximising interest (that is, profit) for themselves, is undeniable, the mistake is in viewing them as prime suspects.
There is a tendency to consider banks and other financial institutions as somehow separated from what is often referred to as “the real economy”, productive industry. If only the bankers would support their manufacturing counterparts with sufficient investment all would be well, or so it is claimed.
The only problem with this attitude is that it is at least 100 years out of date. It was certainly the case that in the late eighteenth and for much of the nineteenth centuries, during the industrial revolution, there were two distinct forms of capital.
Industrial capital consisted of the new machinery and engines, factories and mills, the labour of the workers. Brought together, raw materials were transformed into saleable commodities in which the surplus value created by that portion of workers’ labour not covered by wages was the source of profit.
To fund the initial purchase of machines, factories and all else required, industrialists required access to wealth. This existed as financial capital, built up and largely stored in banks before industry developed. An industrialist borrowed a sum of money that then became his to use in ways of no concern to the bank as long as it was returned as agreed with interest.
The two types of capital, industrial and financial, interacted but remained separate. As technology continued to advance, thereby becoming ever more expensive, and capitalism itself spread from Britain to other parts of the world increasing investment opportunities, so the two types of capital began to merge into one, just as small individual firms came together in larger conglomerates.
By the turn of the twentieth century it became clear the dichotomy between the two capitals had largely disappeared to be replaced by dominant finance capital. Essentially, finance capital integrated industrial and financial capitalism at a time when the tendency was towards monopoly.
Competition between individual firms was being replaced by the domination of whole industries by a few giant enterprises, trusts or cartels. These industrial giants interpenetrated with financial institutions going through the same process.
Today, for example, the management of pension funds by huge financial institutions have given them control over considerable blocks of shares with the potential of influencing industrial development. Directors, on the boards of industrial and financial companies, move between the two or sit on both simultaneously.
Finance capital is not the linking of one bank with one industrial firm: it is bank capital of a few huge monopolist banks merged with monopoly associations of industrialists, across national borders.
This blurs the distinction between financial and industrial capitals through multinational corporations encompassing industrial production, commerce and banking functions such as money dealing and control of investment funds. Thus, short-term returns on investment have become paramount.
So it is that stock market operators have developed computer programmes to buy shares in huge amounts, hold them for a split second while the share-price rises, and then off-load them. This is very different to the early days of manufacturing when banks were satisfied with more modest, if safer, returns from loans to independent industrialists.
Now, when a financial crisis arises it is likely to precipitate a general economic depression, such is the interlinking. However, economic crises are, and always have been, a recurrent feature of capitalism; a financial crisis is usually a symptom, rather than the cause, of generalised recession.
Bankers have not caused the present economic catastrophe per se; it is a feature of capitalism made so much worse and widespread through monopoly capitalism. Those bankers fiddling the Libor were essentially doing what was expected of them, maximising the potential for profit.
The clamour in parliament for an investigation, whether parliamentary or judicial, merely reflects the role of the state in attempting to maintain equilibrium between capitalists with conflicting interests. Rogue traders may be edited out of the script, but the fundamental difficulties created by finance capital will remain.
As long as capitalism is allowed to exist no amount of regulation can control it. Only by taking possession of the accumulated wealth and directing its use for the common good can alter that. And only the organised working class, conscious of itself and its own potential, is able to do this. Until such a time the prospect is continuing capital punishment.
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Post by dodger on Dec 31, 2013 7:49:46 GMT
In the name of balancing the public purse we are witnessing the dismantling of the welfare state. What we need is the rebuilding of our industry…
Debt, the only thing capitalism gives us
www.workers.org.uk/features/feat_0911/debt.htmlWORKERS, SEPT 2011 ISSUE The net debt of the public sector stands at £900 billion – and rising. This is a shocking figure, but hardly surprising. Debt has always been a feature of modern economies.
Up until the 1690s, the British state raised new taxes to fund its war debts, but the Nine Years’ War with France left government finances in ruins. The war spurred government to recognise the need to rebuild a powerful navy in order to compete for power globally.
As there were no public funds available, a group of money lenders offered to supply money to the king, and £1.2 million was raised in 12 days. The terms of the loan were an astonishing 8 per cent interest per annum plus a £4,000 per annum service charge for the management of the loan.
This was the birth of the Bank of England. Interestingly, the massive industrial effort involved in rebuilding the Navy began to transform the economy. It was this industrial (and agricultural) transformation, alongside the power of the Navy, which combined to make Britain the dominant world power of the late eighteenth and early nineteenth centuries.
And the national debt rose: from £12 million in 1700 to £850 million by the end of the Napoleonic wars in 1815. The First World War brought another increase, from £650 million in 1914 to £7.4 billion in 1919. After the Second World War the debt had grown to £24.7 billion, a staggering 250 per cent of Gross Domestic Product.
Some 150 years ago, in his great work Capital, Marx made the following observation. “…The system of public credits (national debt), whose early beginnings can be traced in Genoa and Venice before the close of the Middle Ages, spread all over Europe during the manufacturing period. The colonial system, with its seaborne commerce and its trading wars, served as a forcing house. National Debt, i.e. the sale of the State, gives the capitalist era its characteristic stamp.”
Born out of the need for debt: the Bank of England.
Presciently, Marx went on to say “… The only part of the so-called national wealth that actually enters into the possession of the peoples is their national debt. Hence, logically enough, the modern doctrine that a nation grows richer the more deeply it is in debt. Public credit becomes the credo of capital. With the rise of the system of national debt, want of faith in this institution comes to be regarded as the unpardonable sin, the sin against the Holy Ghost.”
And how the chickens have come home to roost, as we see a generation of young people who have been conditioned to see debt as natural, a part of everyday life.
If we take time to digest Marx’s challenging assertions, particularly when he attacks the prevailing wisdom that scepticism about national debt is a sin, we hear a distant echo of the ever-present mantra of today.
Now it is financiers or “the markets” that are guilty of that sin, speculating that nations may be unable to pay their debts. And unlike them we are required to be believers. How many times have we been told that we must cough up to restore confidence in the system? Bail out the banks to restore confidence. During the present crisis, this has been the cornerstone of government policy – to shore up the system at all costs.
Punitive cost
And the cost as we speak is punitive. In the name of balancing the public purse we are witnessing the dismantling of the welfare state. The attack on pensions, the onslaught on health and local government, are all necessary, we are told, to staunch the haemorrhaging of public spending. “We have been living beyond our means” cry politicians of every side, with no room for discussion. It pays us to examine this proposition in a little more detail.
The Thatcher period was characterised by the destruction of swathes of British industry, which in past has always enabled us to pay for the things we needed and wanted. This loss of national earning power was the price the government at the time was prepared to pay to attempt absolute control over British workers.
When we finally repudiated her and her ilk in 1997, we should have demanded a programme of reinvestment and rebuilding of industry, much as happened after World War Two. What we got was the Blair/Brown years, when manufacturing continued to slide, and Britain borrowed massively to preserve the appearance of normality.
The problem with this kind of borrowing is that it simply postpones the day when the debt is called in. Fine when your lenders believe they will have no difficulty in recovering their loan. But when you borrow further to pay the interest on the loan, your creditworthiness comes into question. Then the cost of borrowing goes up and government finances spiral further and further out of control.
This is a direct consequence of pinning your faith in speculative finance and its promise of fast bucks today, instead of generating wealth the old fashioned way, by making things and selling them.
We have seen the same sorry spectacle being played out across the Atlantic these past few weeks, with Republicans locking horns with Obama in a game of brinkmanship over whether to cut public spending dramatically or raise the previously agreed ceiling for borrowing. A rock and a hard place that one, since neither will restore dynamism to America’s becalmed economy.
The decision by the aptly named credit ratings agency Standard & Poor’s to downgrade US creditworthiness from AAA to AA+ (below that of the Isle of Man) has rocked corporate America. Many feel betrayed by an unpatriotic American institution and seek to blame the messenger. They would do well to reflect that it was the decision of credit rating agencies such as S&P to slap AAA ratings on dubious sub-prime mortgages that precipitated the present crisis.
Back to Britain and what we know best. It cannot be denied that we have been spending more than we can earn. Present government policy seeks to redress that imbalance by reducing spending. Hence the proposals to cut state spending on benefits for example. And everyone knows someone who knows someone living the life of Reilly, with a six-bedroom house, exotic foreign holidays, a gas guzzling 4x4 and all courtesy of the taxpayer.
Tax evasion
Yes, there is abuse. And yes, where it goes on (and it is endemic in parts of our class) it should be stopped. But if we are serious about getting public finances in order we need to look at the big players. Tax evasion is currently running at £15 billion, compared to benefit fraud at £1 billion.
And that is as nothing compared to the (legal) avoidance of tax by large companies through sharp practice, loopholes, off-shore accounts, tax havens and the like. The relatively recent development of protesters sitting in peacefully to draw attention to the tax avoidance of major high street retailers and others has successfully raised general awareness of this practice, which has all the morality of fare dodging but on a corporate scale.
And now we have the debate over whether the 50 per cent tax rate for the wealthy should be scrapped. George Osborne whines that a punitive tax regime will drive the skilled and the entrepreneurial abroad. Yet even that doyen of finance capital, billionaire US investor Warren Buffet is arguing that the wealthy are not discouraged by higher taxes. Osborne’s proposal, naturally, would be financed by yet more draconian cuts in public services.
And of course, there is the greatest loss of all to public revenue, which is represented by unemployment. Latest figures show that a further 38,000 are estimated to be out of work this month. That is another 38,000 who will be claiming benefits (albeit reduced), 38,000 buying fewer goods and services, 38,000 who will not be creating wealth.
Any prudent householder seeks to live within their means. So too for the nation. If we are spending more than we earn let’s address it. Let’s cut what we don’t need. Britain’s public spending shopping list currently stands at just over £700 billion. Defence (for which read attack) costs us £37 billion, excluding the spending – said to be from “reserves” – to fund Britain’s criminal involvement in Libya.
Are munitions for battleships and fighter planes better for this country than schools and hospitals? International aid costs £6.2 billion. EU contributions cost £7.9 billion. Even the interest on the debt we owe stands at £43 billion a year. If there are to be public spending cuts, let’s open the books and have a real debate about what we need and what we don’t need.
But more importantly, we have got to get to the nub of the question. If earnings and spending are out of balance, instead of concentrating exclusively on the spending side of the equation, we need to recover that understanding that a successful economy can only be built on industrial foundations.
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Post by dodger on Jan 7, 2014 20:20:44 GMT
Brilliant study of the effects of finance capital, 7 Jan 2014
This Will Podmore review is from: The Road to Recovery: How and Why Economic Policy Must Change (Hardcover)
Andrew Smithers, Chairman of Smithers & Co. Ltd., has 45 years of experience in international investment. He is not the most likely critic of recent economic policy, but in this excellent book, he shows that our problems are structural not cyclical, and therefore urges radical policy changes.
He argues that current CEO incentives caused the present depression (and also the huge gap between high and average pay). A growing share of CEOs' incomes comes from bonuses and options rather than as salary. This change in the structure of incentives, not a loss of confidence, nor general uncertainty (which is surely standard), nor a rise in anti-business rhetoric, has changed business behaviour.
Smithers sums up, "Money spent on buying shares will boost managements' bonuses more than money spent on capital equipment ..." So they have the strongest incentives to cut investment and raise prices.
So firms under-invest. He points out, "Since 2008, the proportion of cash flow invested in capital equipment is the lowest on record and the proportion spent on buy-backs is at or near its highest level." "the proportion of cash generated from depreciation and profits after tax that is currently being invested in plant and equipment is the lowest in the US that it has been in the post-war era and the proportion returned to shareholders is nearly 55%." In Britain, gross investment in 2012 was just 14.2 per cent of GDP, against a world average of 23.8 per cent. Productivity is down by 5 per cent since the crash.
Managements "benefit when cash or debt is used to finance buy-backs and suffer when they are used to finance investments in plant and equipment. The natural impact of this rise in the perceived cost of capital is to make management prefer to use more labour rather than more capital to achieve a given output."
Firms are even more excessively indebted than before the crash. But they are not borrowing to invest: "companies are far from seeking to improve their balance sheets. If they were, they would be repaying debt, but in practice they are choosing to spend their cash flow and any new debt that they can borrow by buying back their equity at a rapid rate."
In all, managers are rewarded for extracting short-term rents while running their companies into the ground. They have become not captains of industry but agents of destruction, a predatory elite, whose interests conflict with the interests of the economy and of the vast majority of the people.
All these failings are particularly acute in the financial sector. Further, our bailouts are giving bankers the money to buy political power: "we are, ... in effect, currently subsidising bankers to make political contributions aimed both at preserving their subsidies and their industry's ability to obtain excessive profits through inadequate competition."
The government policy of keeping interest rates low produces not greater investment but higher profits. As Smithers observes, "Whereas low interest rates would have been likely to stimulate investment in the past, by lowering the cost of capital, the impact is different today. The cost of capital, as perceived by management, is not reduced but the cost of buying back equity is." And, "low interest rates today seem to encourage companies to buy their own shares or those of other companies through takeovers, rather than to increase their capital spending on new plant and equipment."
The corporate sector cash deficit must be balanced by cash surpluses in either the public, household or foreign sectors. The government's preferred solution seems to be for foreigners to own ever more of our country's wealth.
The government refuses to admit the disastrous effect of its policies. So its Office for Budget Responsibility continually makes absurdly optimistic forecasts, for example, that the economy would grow by 5.7 per cent from Q1 2010 to Q2 2012. It grew by 0.9 per cent. Consumer spending, investment, productivity and exports were all lower than expected, and inflation was higher than expected. Smithers sums up, "Both higher than expected inflation and lower than expected investment reduce demand and thus account for the excessive optimism that the forecasters have had regarding growth."
The author also criticises the eurozone's `policy of needless austerity'. Ireland's national debt before the crisis was 28 per cent of its GDP. The cost of bailing out its banks pushed its debt up to 109 per cent of GDP. Its GDP in Q4 2011 was 12 per cent down on Q4 2007.
Smithers warns us that another crash is all too likely, given the continuing high levels of company debt and overvaluation of assets. He points out that before each of the three great financial crises - the Wall Street crash of 1929, Japan's stock market crash in 1990, and 2008's crash - there was a very high level of private sector debt, and in each case a sharp fall in asset prices triggered the crash.
He notes that the government policy of "`quantitative easing' ... involves central banks buying assets and thus pushing up their prices." And, "Not only does it seem likely that bonds are massively overpriced but we can be reasonably sure that a likely cause of this is the fact that the Bank of England and the Federal Reserve have been buying them heavily. ... Only those who have faith in the efficiency of financial markets at pricing assets can surely expect that massive buying of bonds by central banks will not push up their prices and will probably push them up to absurd levels. ... the bond buying by central banks has added to the risks that we suffer from an overvalued bond market by contributing to the overvaluation of the US equity market ..."
He warns, "important classes of asset prices today, including US bonds and equities and UK house prices, may be dangerously high." He notes, "houses in the UK are roughly three times more expensive than those in the US relative to household incomes and, unlike US prices, they have barely fallen from their peak levels. The reason for the relatively high cost of UK housing is not the cost of materials or labour; it is the price of land ..." He observes that the standard `Efficient Markets Hypothesis' denies the importance of asset prices by assuming, not proving, that they are always correct.
Smithers concludes that we must separate casino banking from ordinary retail banking. We have to de-fang the finance sector, and make it serve industry not itself.
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Post by dodger on Jan 7, 2014 20:33:23 GMT
Useful study of the moral limits we must put on markets, 7 Jan 2014
This William Podmore review is from: What Money Can't Buy: The Moral Limits of Markets (Paperback)
Michael Sandel is the Anne T. and Robert M. Bass Professor of Government at Harvard University. In this remarkable book, he argues against the commercialisation of society. "These uses of markets to allocate health, education, public safety, national security, criminal justice, environmental protection, recreation, procreation, and other social goods were for the most part unheard of thirty years ago."
He distinguishes two kinds of arguments against markets - the fairness argument and the corruption argument. "The fairness argument does not object to marketizing certain goods on the grounds that they are precious or sacred or priceless; it objects to buying and selling goods against a background of inequality severe enough to create unfair bargaining positions. It offers no basis for objecting to the commodification of goods (whether sex or kidneys or college admissions) in a society whose background conditions are fair.
He continues, "The corruption argument, by contrast, focuses on the character of the goods themselves and the norms that should govern them. So it cannot be met simply by establishing fair bargaining conditions. Even in a society without unjust differences of power and wealth, there would still be things that money should not buy. This is because markets are not mere mechanisms; they embody certain values. And sometimes, market values crowd out nonmarket norms worth caring about."
He concludes, "The crowding-out phenomenon has big implications for economics. It calls into question the use of market mechanisms and market reasoning in many aspects of social life, including financial incentives to motivate performance in education, health care, the workplace, voluntary associations, civic life, and other settings in which intrinsic motivations or moral commitments matter."
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Post by dodger on Jan 28, 2014 18:09:12 GMT
www.workers.org.uk/features/feat_0214/crisis.html
The financial turmoil since 2007 is a crisis in the making similar to pre-1914, which marked the end of the first period of capitalist globalisation...
The crisis hasn’t gone away – it’s still growing
WORKERS, FEB 2014 ISSUE It’s clear to most people that government talk of an economic upturn, largely unchallenged in the media, is fanciful. But equally fanciful is the view of many workers that the crisis must be fatalistically accepted and is one which will set itself right in the end.
 Just 3 per cent of bank assets are earmarked for investment in industry.
1000 Words/shutterstock.com To encourage this outlook the government has spread the falsehood that its borrowing has only been possible due to low interest rates that show the confidence institutional investors place in its ability to run the economy.The reality is that the government has been buying political time through the monetary device of quantitative easing (QE). Since 2008 we have had one government department, the Treasury, issue a total of £375 billion of IOUs (gilts) to another, the Bank of England.This circular flow of money printing between two government departments was played out further during 2013 when the Treasury accepted the transfer of £34 bn of “interest” that had accrued in the Bank of England account. The interest had arisen from the debt the Treasury itself had issued in the first place.The £34 billion of fictitious “interest” plus the proceeds from the “fire sale” of the Post Office has since been used to bolster the 2013/14 public accounts.The book keeping deception has allowed “honey I shrunk the deficit” Osborne to announce that he has narrowed this year’s budgetary shortfall (deficit). More to the point is the recent comment by the UK Debt Management Office stating that Britain will find it hard to convince investors to buy government debt in the years ahead.Put another way, it’s saying that now that the Bank of England is maxed out to the tune of £375 billion, who will step in to cover the yearly deficits from 2014/15 onwards and what assets will they demand in return, using the cloak of privatisation?Britain is not alone in this type of false economy, but in terms of relative scale we are head and shoulders above the other governments and their central banks which have been issuing vast sums of money to prop up balance sheets.This has led not to a reduction in debt, nor to the hyper-inflation we were always told would immediately follow (that may come later as if out of the blue), but to huge private gains enriching the finance capitalist class. The combined net paper worth of the world’s billionaires has doubled since 2009.Writing on 11 November in the Wall Street Journal under the headline “Confessions of a Quantitative Easer “, former US Federal Reserve official Andrew Huszar admitted, “the central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”Huszar wrote, “Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the US central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings, and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.”EU bailouts also enrich the rich: 77 per cent of the €207 billion of the so-called “Greek bailout” went to large investors to prevent them incurring a huge capital loss due to a spike in Greek bond yields.The bailout did not go to the people whose savings and pensions have been shattered.Meanwhile, here in Britain household debt is at a record level according to figures from the Bank of England. Individuals now owe a total of £1.43 trillion, including mortgage debt. The previous high was in September 2008, just before the effects of the financial crisis began to bite.Families are having to borrow to deal with the higher cost of living. But workers' impoverishment can appear to be masked when like now there has been a recent rise in asset values in the form of speculative newbuild housing (plonked in fields) and rising stock markets.Paradox
This apparent surge in some workers’ personal wealth can be so great that households substantially increase consumption out of current income. If stock and real estate ownership is widely distributed we can experience the seeming paradox of households assuming that their savings are rising significantly even as the country’s actual savings rate declines.As savings decline relative to GDP and with inward capital flows being used partly to satisfy speculative demand for additional housing, the consequence must be that imports grow much faster than exports and the country’s trade deficit will expand. This explanation neatly sums up the “recovery” set against the backdrop of Britain's ever-worsening trade deficit.This summary comes from The Great Rebalancing by Michael Pettis, who in his book dissects in far greater detail contemporary balance of trade theory. He shows that we are living through a massive balance of payments crisis that is hiding under the meaningless title of a “credit crunch”.Even the new Bank of England Governor admitted that the so-called recovery was based on a new housing boom, not on real growth: “Right now in the UK as a whole the recovery is being led by the housing sector”, he said in October in an interview in the Western Mail. But he still claimed that the property market is “not in a bubble”.The big five banks hold £6 trillion in assets, but have earmarked just £200 billion to invest in our industries – 3 per cent. As of August, bank loans outstanding to UK residents were £2.4 trillion, 160 per cent of GDP. Out of this, wrote Martin Wolf in the Financial Times in January, 34 per cent went to financial institutions, 42.7 per cent to households, secured on houses, 10.1 per cent to real estate and building, and just 1.4 per cent to manufacturing. So banks mainly used their existing property assets to finance new loans. And three-quarters of loans to business went to finance and property firms.Privatisation
In the 1990s, Germany and France privatised their banking sectors. In 1997 the World Trade Organization opened up trade in financial services. Then, when the EU introduced the euro, the banks could use their easy access to money to try to win new business by lending to the poorer countries of the EU, which could use euros and get cheap foreign loans. These countries are now tightly bound in keeping with the EU’s political intent, which comes straight from the drawing boards of 1940s Nazi Germany. There the common currency was first thought up and discussed, rather than the post-1945 project portrayed by today’s euro-fanatics.It is up to workers of other countries to sort themselves out but we British workers have been stuck in the wrong groove for far too long. A country that runs a trade deficit has to have foreign capital inflows to meet its balance of payments.In Britain these inflows have been euphemistically called inward investment, but countries that export capital to Britain do not do it as a favour. They export it as a way of importing demand for Britain to buy their goods and maintain their employment levels at British workers’ expense.
Having been politically anaesthetised by credit, we are now on course for an overdue collision with reality.
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Post by dodger on Feb 20, 2014 14:35:49 GMT
Brilliant on how we need to use the state to rebuild Britain, 20 Feb 2014
This William Podmore review is from: The Entrepreneurial State: Debunking Public vs. Private Sector Myths (Anthem Other Canon Economics) (Paperback)
Mariana Mazzucato is professor of economics at the University of Sussex. In this superb study, she shows how the US state made the key high-risk investments in biotechnology, nanotechnology and the Internet 15-20 years before the private sector moved in
US government investments were key to creating the mass production system, the aviation industry, the space programme, IT, Internet, nuclear power and nanotechnology. 77 of the 88 most important innovations fully depended on federal support.
Brazil’s state investment bank’s return - on its productive, not speculative, investments - was 21.2 per cent in 2012, which Brazil reinvested in health and education. KfW, Germany’s state investment bank, made $3 billion profits in 2012.
Pfizer did not leave Sandwich in Kent to go to Boston USA because of lower US taxes, but because the USA’s public sector National Institutes of Health spend $30 billion a year ($624 billion since 1976) building the knowledge base on which private pharmaceutical firms thrive. The NIHs support 325,000 researchers in 3,000 universities, medical schools and other research bodies. NIH laboratories, not private firms, produced 75 per cent of new drugs.
The Internet, the global positioning system, touch-screen displays, and communications technology underpinned Apple’s iPhone and iPad. Apple did not develop any of these; it integrated them into a new architecture.
Cutting investment in R&D and in higher education cuts growth, witness Italy. It has cut its R&D and higher education, so its economy has shrunk since 2000. British companies’ spending on R&D is falling. Thatcher’s tax cuts did not increase investment.
Mazzucato writes, “rather than giving handouts to small companies in the hope that they will grow, it is better to give contracts to young companies that have already demonstrated ambition. It is more effective to commission the technologies that require innovation than to hand out subsidies in the hope that innovation will follow.”
In the innovation process, bankers and shareholders are not the only risk-takers; workers and taxpayers are too. Financial services in fact extract value from the economy. She writes, “an increasing number of researchers have criticized the venture capital model of science, indicating that significant investor speculation has a detrimental effect on the underlying innovation. The fact that so many venture capital backed biotech companies end up producing nothing, yet make millions for the venture capital firms that sell them on the open market is highly problematic.”
She cites Philip Mirowski, who described the venture capital model as: “… commercialized scientific research in the absence of any product lines, heavily dependent upon early-stage venture capital and a later IPO [Initial Public Offering on the stock market] launch, deriving from or displacing academic research, with mergers and acquisitions as the most common terminal state, pitched to facilitate the outsourcing of R&D from large corporations bent upon shedding their previous in-house capacity.”
In 2012 the top nine Apple executives got an average of $45.72 million. The average Chinese worker at Foxconn, which assembles Apple’s products, got $4,622. So the employer/worker pay ratio was 9,892/1. She asks, “Where is the future in such a system of socialized risk and privatized rewards?”
US companies lobby for yet more tax breaks and for lower rates of tax on incomes, corporate incomes and capital gains. Apple uses corporate tax havens - the Netherlands, Ireland, the British Virgin Islands and Luxembourg - as do Google, Amazon and Microsoft. The 30 top US companies pay almost no tax in the USA. GE [General Electric] paid tax at a rate of 1.8 per cent between 2002 and 2011, when the US corporate tax rate was 35.1 per cent. GE has 1,000 workers organising their use of tax benefits and havens.
The laissez-faire approach has proved to be useless. It offers us nothing. We need a state that actively develops our skills and our industries.
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Post by dodger on Apr 4, 2014 12:53:59 GMT
www.workers.org.uk/opinion/opinion_0414/pensions.htmlTwo trillion ways to rebuild BritainWORKERS, APR 2014 ISSUE The government’s pension proposals in the March 2014 budget came as no surprise. Easier access to cash for workers with personal pensions or money-purchase pension pots is simply an invitation to spend the money to prop up current consumption, mostly of imports. At the same time our production capacity continues to decline. Are we, as the government would like, a hand-to-mouth people without thought for the future?
Instead of consuming overpriced imports we could put production first to rebuild Britain. We have the world’s second highest level of accumulated pension assets – £2 trillion, mostly held in collective final-salary pension schemes, not in the headline-grabbing personal pensions. We also have over a million workers toiling beyond age 65 and more than 900,000 young people between 18 and 23 unemployed, with many other workers of all ages part-time underemployed. That’s not economically efficient, but it is politically repressive.
It’s seemingly unconnected, but keep an eye on the appointment of Nemat Shafik as Deputy Governor of the Bank of England the day before the budget. As a Deputy Managing Director of the IMF fresh from the Greek campaign, her remit is to prepare markets for the unwinding of the £375 billion of quantitative easing currently sitting on the Bank of England balance sheet.
What this IMF stooge in the Bank of England will attempt to do under the guise of “regulatory prudence” will be to lock our final-salary pension assets into non-performing government debt at those very same rates that Osborne says represent such poor value to personal-pension savers.
Many with personal pensions also have final salary pensions. So we are all potentially exposed to the same IMF trick: they will to set up a mechanism to dump useless debt onto our pension funds at top prices that will then plummet, causing a pensions failure.
To oppose and prevent this we should be demanding a massive hike in the state pension payable at age 60 for both men and women. We should also recognise there is absolutely no need to pre-fund pensions with vast sums of accumulated capital. This would immediately free up our £2 trillion to rebuild and employ our youth.
This in turn would allow our pensions capital accumulated from our past labour to be used to rebuild for our future labour, instead of allowing it to be deployed for stock exchange speculation or to back non-performing government debt or to be squandered on imports from the euro prison camp.
Instead, with increased productive capacity, we could openly trade at best rates throughout the world while easily paying out high pensions to our elderly from the immediate proceeds of our labour. This is known as planning.
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Post by dodger on Nov 14, 2014 15:26:56 GMT
imarxman.wordpress.com/2014/10/22/the-decline-of-capitalism-1/
The Decline of Capitalism* 1
Posted on October 22, 2014 by imarxman The crisis that erupted in 2008 was the latest in a sequence emerging from the failure of post Second World War prosperity in the 1970s. Each succeeding crisis has proved more serious than those preceding it.
Nationally, and globally, crisis has plagued the advanced industrial, increasingly de-industrial, countries. The 1970s saw inflation, increasing public debt in the ‘80s followed developing private debt in the 1990s as finance capital became evermore dominant.
This has resulted in the notion of social progress under capitalism becoming increasingly discredited. Continuing decline in economic growth, burgeoning indebtedness both public and private and increasing economic inequality have become persistent factors.
A general ideological acceptance of capitalism depends on there being a sense of social progress and equity by the majority who do not possess capital. Inequality affects capitalism directly, being a drag on productivity and undermining demand.
The perceived distribution of wealth is adversely affected by low growth as concessions to the poor become regarded as economically problematic. Virtually stagnant wages and public service cutbacks are compensated for through financial arrangements, credit, exacerbating indebtedness.
Crises have always been a feature of capitalism, being the way economic imbalances were structurally corrected. However, since the mid-1970s decline appears to have become a continuing process.
The 2008 crash resulted in much international activity in governmental and financial institutions to repair the damage and prevent future shocks. Years later little has been achieved to suggest any solutions have been found.
Finance capital appears to have recovered with profits, dividends, salaries and bonuses restored. Governments remain in thrall as proposed regulation wallows in a slough of lobbying and negotiations.
Central banks, through quantitative easing, have provided financial institutions with cheap cash which is either stock piled or used to buy government debt rather than being invested in industry or infrastructure. Meanwhile growth remains almost stagnant with any employment creation largely low paid and insecure.
Economic liquidity has not translated into economic expansion while inequality continues to increase, with any income growth being absorbed by the top 1% of earners, and most of that by a small fraction of the 1%.
There is recognition that conjuring money for financial institutions cannot continue indefinitely. Yet, whenever it’s proposed to ease this down stock markets plummet. In June, 2013, the Bank for International Settlements (BIS) based in Basel issued its annual report stating that central banks had collective balance sheets three times pre-crisis levels, and rising.
While they had prevented financial collapse, the requirement was to return economies to strong and sustainable growth. However, it was beyond to capacity of those central banks to bring this about. What they had secured was merely a breathing space.
The problem is no advantage has been taken of that space because the banks’ policies and low interest rates have allowed the private sector to reduce its capital borrowing, governments to manage national debts and delay economic and financial reforms.
The difficulty in returning to conventional monetary policy for a national central bank, such as the Bank of England, is political exposure to the stock market ructions that follow.
Cutting the seemingly unlimited money supply requires capitalism to enact neo-liberal economic reforms. The consequence of such policies must be ever increasing austerity for most, while the few receive ever higher incentives, taking even greater shares of the national income.
Either way – continuing cheap money with all its financial consequence and long-term unsustainability, or neo-liberal reforms, or a toxic mix of the two – means the working class will bear the brunt of capitalism’s continuing decline.
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Source: “How capitalism Will End” by Wolfgang Steeck
@ www.philosophersforchange.org
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