Third instalment of write-up by Arindam Sen, which has also been published by a booklet with the same title. Continued from Liberation December.

Grand Feast for Cannibals

The crisis is no doubt global, but the fundamental law of uneven development of capitalism remains in operation. Thus on an international scale you cannot equate the performance or position of Germany, US and China for example with Spain, Greece or even France, not to speak of poorer nations.

Nor can we overlook the enormous disparities in performance within the euro zone. While Southern Europe is caught in deep, long depression, German exports in 2011 set a record of a trillion Euros with its trade surplus reaching 158 billion Euros, that too after a 155 billion surplus in 2010. (BBC News, 8 February, 2012). Of course, this is not to ignore recent data on the inevitable German slowdown.

Again, differences in youth unemployment (among jobseekers between 16 and 25 years) figures are quite pronounced: Spain 48.7%, Greece 47.2%, Italy 31%, and Portugal 30.8% as against Germany 7.8%, Austria 8.2% and Netherlands 8.6%. The concentration of high youth unemployment in Southern Europe explains why mass street protests are centred there. On the other side of the same coin is the fact that the great mass of unemployed youth provides a handy tool for employers to threaten and replace older permanent workers drawing relatively higher wages.

We should also be careful enough to note that while the working people and the capitalist system as such are suffering badly, the top 1 % have sufficient clout and power of manipulation to continue to amass enormous fortunes. Thus in the US, “the profit margins of the S&P 500 (top 500 companies identified by the American rating agency Standard and Poor’s) leapt from 6% to 9% of the GDP in the past three years, a share last achieved three generations ago.” (Financial Times, 13 February, 2012). Another study reports, “US corporate profits are higher as a share of gross domestic product than at any time since 1950” (FT, 30 January, 2012).

In The Crisis, A View from Occupied America, an essay based on his opening plenary presentation at the 2012 Left Forum in New York City, William K. Tabb pointed out: “Between 2009 and 2011, 88 percent of national income growth went to corporate profits, while just 1 percent went to wages. In terms of personal income, in 2010 (the last year for which we have data) 93 percent of all income gains went to the top 1 percent of Americans. An early 2012 story in the Wall Street Journal said ‘U.S. companies are booking higher profits than ever. But ‘Corporate tax receipts as a share of profits are at their lowest level in at least 40 years.’”

The crux of the matter is that a mortal crisis did strike the capitalist class – Wall Street bankers in the first place – but the neoliberal state’s unprecedented massive transfer of wealth from the public treasury to the corporate sector quickly restored profits for the latter and furthered the centralisation of capital. Big financial corporations took bailouts and used them to engage in unscrupulous activities and become even bigger than before 2007.

Recently, debt defaults on the part of South European nations have resulted in substantial losses for banks in France, Germany and England and they are preparing for further ‘haircuts’. But while ordinary shareholders suffer, the corporate honchos know how to fast recover their losses, if any, and resume the personal accumulation spree.

The Elusive Search for a Solution

Right since 2007, governments have taken series of measures to tide over the crisis. Among recent ones, mention must be made of new financial regulations aimed at reducing global risks, such as the internationally agreed framework known as Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act of the United States. The Financial Stability Oversight Council (FSOC) established under the Dodd-Frank Act is mandated to identify and monitor excessive risks to the U.S. financial system arising, for example, from distress or failure of large banks or financial companies. The European Stability Mechanism (ESM) is another international organisation in formative stage which, if and when it becomes operational, will provide financial assistance to members of the Eurozone in financial difficulty. Critics have noted that the ESM provides excessive powers and immunity to the board of ESM Governors and severely curtails the economic sovereignty of its member states.

Central Banks in the US (the Federal Reserve), the UK (the Bank of England) and the Eurozone (European Central Bank) have taken recourse to quantitative easing>1 with doubtful effectiveness. In the US, QE3 (“3” refers to the third time such measure was taken after the crisis) announced in September 2012 has become a bone of contention between Republicans and Democrats. While the latter expect it to stimulate the economy and create jobs, the former opine that it will only create another asset bubble and harm the long term interests of the economy.

But all these measures, even bourgeois experts agree, do not adequately address risks in the international financial system and that the world economy is heading toward a steeper decline than what was experienced in 2008-09. The previous economic engines of global expansion have exhausted their potentialities. Manufacturing in the world’s biggest economy grew at its slowest pace in nearly three years last July, and the inevitable correction of the enormous US fiscal deficit (less spending and more taxes) will worsen the situation from 2013. As for the second largest economy in the world, Chinese factory output grew at its slowest rate in eight months. Overall, the BRIC countries, which provided a new impetus for growth during the first decade of this century, are de-accelerating more or less rapidly. With fewer resources, greater debt and increasing popular resistance to shouldering the burden of saving the capitalist system, nation states and international organs of finance capital are at a loss what to do.

Indeed, policy makers are running out of options. Monetary policy tools – such as reduction in interest rates and printing paper money or electronically generating virtual money – have also become ineffective through overuse. In 2008-09 and thereafter, recourse was taken to astronomical amounts of fiscal stimulus (mostly for bailing out banks and then even countries like Iceland and Greece) but that, on top of previously accumulated debts, resulted in unsustainable budget deficits and public debts in most advanced economies. So much so, that “austerity” – the opposite of fiscal stimulus – became the new mantra.

The Austerity Onslaught

But austerity, i.e., the savage spending cuts in an attempt to reassure bond markets, have led to growing political instability particularly in Europe, with the masses hitting the streets and toppling governments. And why not? The ruling bourgeoisie shamelessly call upon the working people to suffer the agony of austerity, but it is their policies that are solely responsible for the mountains of debt burden on individuals and nations. In the US for example, simultaneously with personal and household debt, national debt also skyrocketed and is projected to hit 75 percent of the national income in 2012 compared to the post-World War II low of 26 percent when Ronald Reagan took office, and 40 percent in 2008.

Behind this rise lie three major policy thrusts of the successive governments: the superpower syndrome that waste enormous resources on military expenditure; huge tax cuts for corporations and the rich, which reduce revenues drastically; and the costly bailouts of greedy banks. The responsibility thus rests squarely with the government(s).Why then should the public be asked to bear the burden of so-called austerity now?

Moreover, spending cuts are being imposed at a time when precisely the opposite poli¬cies are needed: a sharp increase in productive government investment and spending on crucial social programs to stimulate growth and employment. As the 2011 ILO Report observed,

“efforts to reduce public debt and deficits have disproportionately and counterproductively focused on labour market and social programmes. … For instance, cutting income support programmes may in the short-run lead to cost savings, but this can also lead to poverty and lower consumption with long-lasting effects on growth potential and individual well-being. Increasing active labour market spending by only half a per cent of GDP would increase employment by between 0.2 per cent and 1.2 per cent in the medium-term, depending on the country. Moreover, pro-employment programmes are not expensive to the public purse. ... there is scope for broadening tax bases, notably on property and certain financial transactions. Such measures would enhance economic efficiency and help share the burden of adjustment more equitably, thereby also contributing to appease social tensions.”

However, this is not acceptable to the lords of finance. Their opposition to a financial transaction tax is understandable, but that is not all. When state funds are routed through private financial institutions, they can use it for high-risk, high return investments like lending to Greece and Spain as well as stock and currency market operations. Direct state expenditure can contribute towards mitigating stagnation but do not offer this special privilege to high finance; rather it adds to the worry about unmanageable sovereign debt. Hence the opposition of governments dominated by bankers to such rational policies, reflecting a deep mismatch between the sectarian interests of the finance oligarchy and overall long-term interests of the capitalist system as a whole.

>It is such conflicts of interests between hegemonic monopoly finance capital and the rest of capitalist society – popularly perceived in the US as a tussle between Wall Street and Main Street – that find expression in the endless policy debates among economists and policymakers. While some advocate relatively progressive or regulatory reforms, others push for pseudo-changes that will safeguard the interests of the financial sector. Of course, academic debates and rational arguments do not decide policy orientation. Intra-class (between different sections of the bourgeoisie) and inter-class struggles do, with a given national-international political milieu – precisely the balance(s) of class forces in particular countries and on the global scale – also exerting a major influence. Such is the evidence of history, to which we now turn.

Crisis and Class Struggle: Lessons of History

Crisis always intensifies class struggle. Within the available space, we can only take brief glances at the most important flashpoints of the crises-class struggle interface, historical junctures which threw up new challenges for both capital and labour.

American Workers Win New Deal

Preceding and during the GD all kinds of “direct action” rocked the USA and tilted the balance of class forces in a way that made the New Deal possible. Howard Zinn in his “People’s History of America” gives us a graphic account of this process, which is all but suppressed in conventional accounts of the period. Here are stimulating extracts for you:

Democratic Party candidate Franklin D. Roosevelt took office in the spring of 1933 on the promise of relief from hard times. The reforms introduced by him “had to meet two pressing needs: to reorganize capitalism in such a way [as] to overcome the crisis and stabilize the system; also, to head off the alarming growth of spontaneous rebellion … .”

Right since 1931, “desperate people were not waiting for the government to help them; they were helping themselves, acting directly. All over the country, people organized spontaneously to stop evictions. Unemployed Councils came up all over the country, in many cases organized and led by communists. The Councils’ function was to prevent evictions of the destitute, or if evicted to bring pressure to bear on the Relief Commission to find a new home; if an unemployed worker had his gas or water turned off because he could not pay for it, to see the proper authorities; and so on. In Seattle, the fishermen’s union caught fish and exchanged them with people who picked fruit and vegetables, and those who cut wood exchanged that.

Perhaps the most remarkable example of self-help took place in the coal district of Pennsylvania, where teams of unemployed miners dug small mines on company property, mined coal, trucked it to cities, and sold it below the commercial rate. By 1934, 5 million tons of these “bootleg” coals were produced by twenty thousand men. When attempts were made to prosecute, local juries would not convict, local jailers would not imprison. Breaking through the confines of private property in order to live up to their own necessities, the miners’ action was, at the same time a manifestation of the most important part of class consciousness – namely, that the problems of the workers can be solved only by themselves.

“Were the New Dealers – Roosevelt and his advisers, the businessmen who supported him – also class-conscious? Did they understand that measures must be quickly taken, in 1933 and 1934, to give jobs, food baskets, relief, to wipe out the idea “that the problems of the workers can be solved only by themselves”? Perhaps, like the workers’ class consciousness, it was a set of actions arising not from held theory, but from instinctive practical necessity.

“Perhaps it was such a consciousness that led to the Wagner-Connery Bill, introduced in Congress in early 1934, to regulate labor disputes. That same summer of 1934, a strike of teamsters in Minneapolis was supported by other working people, and soon nothing was moving in the city. In the fall of that same year, 1934, came the largest strike of all- 325,000 textile workers in the South. They left the mills and set up flying squadrons in trucks and autos to move through the strike areas, picketing, battling guards, entering the mills, unbelting machinery. Here too, as in the other cases, the strike impetus came from the rank and file, against a reluctant union leadership at the top. The New York Times said: “The grave danger of the situation is that it will get completely out of the hands of the leaders.” In the rural South, too, organizing took place, often stimulated by Communists, but nourished by the grievances of poor whites and blacks who were tenant farmers or farm laborers, always in economic difficulties but hit even harder by the Depression. In 1934 and 1935 hundreds of thousands of workers, left out of the tightly controlled, exclusive unions of the American Federation of Labor, began organizing in the new mass production industries – auto, rubber, packinghouse. The AFL could not ignore them; it set up a Committee for Industrial Organization to organize these workers outside of craft lines, by industry, all workers in a plant belonging to one union. This Committee, headed by John Lewis, then broke away and became the CIO – the Congress of Industrial Organizations.

“But it was rank-and-file strikes and insurgencies that pushed the union leadership, AFL and CIO, into action. … A new kind of tactic began among rubber workers in Akron, Ohio, in the early thirties – the sit-down strike. The workers stayed in the plant instead of walking- out, and this had clear advantages: they were directly blocking the use of strikebreakers; they did not have to act through union officials but were in direct control of the situation themselves; they did not have to walk outside in the cold and rain, but had shelter; they were not isolated, as in their work, or on the picket line; they were thousands under one roof, free to talk to one another, to form a community of struggle.” In early 1936, when the Firestone rubber plants in Akron were faced with a wage cut and several union men were fired, a sit-down strike spread through all the plants. “A court issued an injunction against mass picketing. It was ignored, and ISO deputies were sworn in. But they soon faced ten thousand workers from all over Akron. In a month the strike was won.

“… In December of that year began the longest sit-down strike of all, at Fisher Body plant #1 in Flint, Michigan. … For forty days there was a community of two thousand strikers. … There were classes in parliamentary procedure, public speaking, history of the labor movement. Graduate students at the University of Michigan gave courses in journalism and creative writing.

“There were injunctions, but a procession of five thousand armed workers encircled the plant and there was no attempt to enforce the injunction. Police attacked with tear gas and the workers fought back with firehoses. Thirteen strikers were wounded by gunfire, but the police were driven back. The governor called out the National Guard. By this time the strike had spread to other General Motors plants. Finally there was a settlement, a six-month contract, leaving many questions unsettled but recognizing that from now on, the company would have to deal not with individuals but with a union.

“In 1936 there were forty-eight sitdown strikes. In 1937 there were 477 … even thirty members of a National Guard Company … now sat down themselves because they had not been paid.

“The sit-downs were especially dangerous to the system because they were not controlled by the regular union leadership. It was to stabilize the system in the face of labor unrest that the Wagner Act of 1935, setting up a National Labor Relations Board, had been passed. The wave of strikes in 1936, 1937, 1938, made the need even more pressing. The Wagner Act was challenged by a steel corporation in the courts, but the Supreme Court found it constitutional.”

Now, why did the ruling class accept the rapid growth of unions, which appear rather strange to us today? The explanation lies in the difference in situations. In our time the bourgeoisie find non-unionized workers more manageable; opposite was the case in those days of spontaneous, vigorous class action. Writes Zinn:

“Unions were not wanted by employers, but they were more controllable – more stabilizing for the system than the wildcat strikes, the factory occupations of the rank and file. In the spring of 1937, a New York Times article carried the headline “Unauthorized Sit-Downs Fought by CIO Unions.” The story read: “Strict orders have been issued to all organizers and representatives that they will be dismissed if they authorize any stoppages of work without the consent of the international officers. .. .” The Times quoted John L. Lewis, dynamic leader of the CIO: “A CIO contract is adequate protection against sit-downs, lie-downs, or any other kind of strike.” Thus, two sophisticated ways of controlling direct labor action developed in the mid-thirties. First, the National Labor Relations Board would give unions legal status, listen to them, settling certain of their grievances. Thus it could moderate labor rebellion by channeling energy into elections – just as the constitutional system channeled possibly troublesome energy into voting. The NLRB would set limits in economic conflict as voting did in political conflict. And second, the workers’ organization itself, the union, even a militant and aggressive union like the CIO, would channel the workers’ insurrectionary energy into contracts, negotiations, union meetings, and try to minimize strikes, in order to build large, influential, even respectable organizations.”

Thus it was that the exceptional circumstances of the GD – and of course the double threat of communism in USSR and fascism in Germany – forced upon the American bourgeoisie a relatively accommodating labour policy as one of the major components of the ND. When the situation improved somewhat after the war, and a new wave of strikes ensued in 1946, a partial rebalancing was effected through the Labor-Management Relations Act (or Taft Hartley Act) passed in June 1947. It amended the Wagner Act, defining, in particular, “unfair labor practices” on the part of unions. Thirty four years later, this very Act would be used by a Republican president to crush a major strike – an event symbolising the rollback of ND and initiation of the neoliberal regime.

[1]. Quantitative easing (QE) means a central bank buying financial assets from commercial banks and other private institutions in order to inject a pre-determined quantity of money into the economy. It increases the excess reserves of the banks, and raises the prices of the financial assets bought, which lowers their yield as percentage of the amount invested. When short-term interest rates are at or close to zero, the conventional policy of buying up government bonds can no longer lower interest rates. QE may then be used by the monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby further lowering longer-term interest rates. But there remains the risk that the policy may prove more effective than intended in acting against deflation – leading to higher inflation, or may not yield the desired result if banks do not find proper opportunities to lend out the additional reserves. In the specific case of QE 3 in the US, the primary aim seems to be buying up toxic mortgage-backed securities (MBS) as yet another step in the never-ending backdoor bailout of Wall Street banks and big investors.