While most of us have been riveted upon the economic miseries and policy responses of the crisis in the US, the disease has spread widely through the world. For most, first notice of a problem began with mounting housing foreclosures and declining home values. The popular notion is that this infection spread to associated financial firms, migrated to the entire financial industry, attacked the consumer economy and now has the global economy bed-ridden. While this disease model is useful as far as it goes, it is time to put this metaphor aside. For the most part, it masks the inherent flaws in capitalism as well as the intense – often covert – struggles that accompany and shape these developments. With the exception of the momentous rejection of the initial bailout proposal (see “Bloody Friday“), the effort to right a listing capitalist system has been depicted as a united, all-class common project of a consenting public led by forthright and solution-oriented policy makers. Opinion shapers have constructed the image of a grand project – like the patriotic “war on terror” – that requires common effort and sacrifice. Nothing could be further from the truth. Instead, the answers to the crisis have disguised political, economic, personal, and national interests vying for advantages in a time of profound economic havoc and change.
The radical neo-liberals of the Bush administration were practitioners of an equally radical policy of de-regulation and total confidence in market mechanisms. The idea of correcting self-correcting processes was completely unimaginable to these disciples of Mises, von Hayek, and Friedman. Thus, when the first signs of problems arose, they relied on the financial sector – with a little fiscal juice from the Federal Reserve in terms of a $29 billion dollar loan incentive to JP Morgan Chase to absorb the troubled Bear Sterns into the latter company at a bargain basement price. When shareholders squealed, JP Morgan Chase adjusted the price to appease them and policy makers were satisfied that all problems could be solved by allowing the big fish to swallow the wounded fish with little market intervention.
But all was not right within the ruling class camp. Many exponents of market theology – recalling the Greenspan era interventions in the high-tech collapse of 2001 – saw the speculative crisis of 2008 as a direct result of meddling with a market that needed to unravel to correct the excesses of financial misadventure. These advocates of the “moral hazard” approach – ultra-fundamentalism – prescribed a total hands-off approach to troubled financials. Extending our nautical metaphor, we might describe this view as: Let the wounded fish die.
This view was quickly put to test with the Lehman Brothers collapse in September. Rather than arrange a suitable marriage for this firm, the Bush policy makers surrendered to the “moral hazard” school and let the venerated firm (founded in the 1800’s; entered the financial sector in 1906) die a painful death – the largest bankruptcy in US history.
US policy makers and their European and Asian counterparts soon saw the folly of this strategy which has been unceremoniously buried in the ensuing struggle for a crisis solution. Lehmann Brothers’ engagement in the exotica of financial speculation – derivatives of every kind – and their connections to the international banking community nearly brought the whole structure down in one fell swoop.
With mortgage giant Fanny Mae and insurance power AIG on the verge of collapse in the wake of the Lehman Brothers bankruptcy, Bush policy makers – and their compliant two-party accomplices (the “moral hazard” school in the Republican Party held out) – panicked. They sought a massive bail-out which they were quick to call a “rescue” of the financial sector. In truth, neither word was appropriate to describe the looting of public wealth.
Of course policy makers honestly wanted an effective solution, but they were limited by their ideological predilections and the inherent behavior of a profit-driven firm. Capitalists, like a school of fish, scatter when faced with danger, seeking their own survival. Thus, the individual firms sought relief, but relief that would likely gain an advantage in the sphere of competition; corporate CEO’s are not committed to the well-being of the corporate sector, but to the profit of their own firm. With the bait of $700 billion of public funding, each firm began to salivate over the myriad profit making opportunities now available. Some grabbed the money to make good their compensation commitments to executives, some saw a chance to fund buy outs of other corporations, and some took the money to posture themselves as more stable and sound in the eyes of the stock market and potential customers. None of these individual acts moved the financial sector one further step closer to a system-wide recovery. Nor could they do so. They only serve to prove once again that individual solutions are seldom conducive to social goals.
The estimated $3.5-5 trillion of public funds dedicated to the financial sector to date is a waste. Not because this loot was not meant to help that sector, but because it could not and will not accomplish the goal of recovery. Instead the bailout fed the big fish with already overly voracious appetites. While pundits cried that many of these firms were too big to fail, the “rescue’ attempt only reassured these same firms that they would not be allowed to fail regardless of what booty they extracted from the public treasury.
We find evidence for this perfidy in the acknowledgement by the Federal Reserve that there was really no “credit crunch” in the real economy – the economy of the productive sector and the consumer sector. As reported in The Wall Street Journal (“Banks Keep Lending, but That Isn’t Easing the Crisis” November 17, 2008), “Banks are actually lending at record levels. Their commercial and industrial loans, at $1.6 trillion in early November, were up 15% from a year earlier and grew at a 35% annual rate over the last three months… Home equity loans, at $578 billion, were up 21% from a year ago and grew at a 48% annual rate in three months.” The “crunch” is actually in the financial sector where firms, in a hyper-intense struggle for survival and competitive advantage, refuse to loan to one another. As the WSJ notes: “…the kinds of loans that typically get resold and packaged into securities… fell by 46% in the August-to-October period from the same period a year earlier.”
In order to sneak into the $700 billion bailout scam, insurance companies are now buying small banks to qualify for public funds designated for the banking industry. In mid-November four insurance companies purchased tiny savings and loans in Goodland, Indiana; Maple Grove, Minnesota; Crofton, Maryland; and Sanford, Florida. Greed runs wild.
We find, then, in the financial bailout, not a struggle, but a scramble by financial parasites to loot the public, imposing an enormous debt obligation on every citizen. More importantly, the capitalist class will ring its greedy hands and cry impoverishment and fiscal responsibility when the time comes –which it inevitably will – to offer a rescue plan for the millions made desperate by the economic crisis. Round one, in this covert class struggle goes to the capitalists.
The second round draws the productive sector of the economy into a struggle for a bite at the public largesse so far only available to the financial sector. The domestic auto industry – despite an enormously advantageous restructuring of its obligations to autoworkers – finds itself struggling in the face of a steep decline in demand for its products. Dire predictions of the possible bankruptcy of GM, Ford, and Chrysler are likely justified. In the recent past – with the airline industry, for example – the Bush administration and its bi-partisan legislative colleagues were disposed to allow ailing corporations to use the bankruptcy maneuver to restructure at the expense of employees and creditors. After all, that’s the way they crafted the bankruptcy laws – to violate existing labor contracts. In the case of the airlines, the industry emerged richer and viable and the employees were left with Wal-Mart-like compensation. That option is available to the auto industry.
But a second option has been constructed that would give the domestic auto industry a healthy dose – maybe $50 billion or more – of public funding. But this “solution” would produce virtually the same result: a radical restructuring of the industry with accompanying plant closings and layoffs. GM has already indicated – in internal planning for a once hoped for publicly funded merger with Chrysler – a potential reduction in the work force of roughly 25%. Of course that estimate preceded the recent collapse in demand that would invite even greater cuts.
The autoworkers’ union (the UAW) supports the bailout proposal, possibly out of justifiable fear of the bankruptcy option. No doubt the leaders are keenly aware of how the airline union contracts were dismantled to pillage the workers before the bankruptcy courts. In addition, they may think their unholy VEBA agreement to take over the health care obligations of retirees and current workers will fare better with a bailout, especially in light of GM’s recent failure to meet a substantial VEBA payment. (The UAW could easily dispose of its VEBA concerns if it would throw its not inconsequential power and influence behind HR676, the initiative to establish a universal, single-payer, not-for-profit health system in the US. As the largest single bloc of endangered health insurance beneficiaries, their plight would certainly count as a powerful argument to move quickly and decisively on the question.)
But this is shortsighted and desperate class collaboration. Either option will result in massive layoffs and plant closings. Either option will devastate the standards of living of autoworkers.
Of course the auto industry – or, rather, the fate of autoworkers – is of the first importance. Nothing in either option really addresses their future other than deciding how many will be out of work and how much further they will have to sacrifice in order to maintain employment. This is only the latest chapter in a decades long “restructuring” of an industry, a restructuring built on job reduction, grueling, intensified increases in labor productivity, wage and benefit cuts and hyper-exploitation. While the industry indeed suffers, they have carefully crafted their answers around a strategy of recovery on the backs of the workers. Like the financial sector, the auto industry plans to “restructure” the economic crisis into a great opportunity.
The third, and best option, is nationalization of the entire industry. The weakness of the auto industry presents an unprecedented and advantageous opportunity to take the auto industry into public ownership. With share prices at fifty year lows, there would be no imaginable better moment to do this. Taken under democratic control, organized with top down worker participation and without the waste and excess of profit pursuit, the industry could make a quick recovery and better serve the needs of society rather than the greed of the capitalist class.
I would add that there is no better time to restructure the social role of the automobile industry and encourage its rapid growth in areas beyond building cars that no one needs and – today – no one wants. In World War II, the industry was rapidly and effectively shifted to supplying war needs over consumer products. Similarly, the nationalized industry could be directed towards building products for mass, public transit. With existing mass transit overburdened and in need of renovation and with a renewed interest in expanding the undeveloped and neglected networks of public transportation, this restructuring could not only save the existing jobs, but increase the employment opportunities for thousands of new hires while improving the environment and quality of life for millions.
The auto crisis converges on a broader transportation crisis associated with crumbling roads and bridges, costly, crowded, and inconvenient airline transportation, and fewer and fewer alternatives. The US is half a century behind the train systems of most of the rest of the world despite the rapidly growing ridership of Amtrak. The proposed high-speed network between Chicago and many other Midwestern cities will cost a fraction of the current federal giveaways. Imagine linking every major city with a regional network of super-fast trains that rival the European and Asian systems. The current deep crisis affords a rare opportunity to rethink the US transportation system and establish a new vision for the future while increasing employment and providing a welcome stimulus.
The crisis of the auto industry is only the first wave of problems awaiting the productive and service sectors of the economy. As consumption continues to collapse, no other industry will escape the grinder of shrinking demand and excess capacity. From the steel industry to the gambling business jobs and incomes will be pitted against the fate of the capitalist enterprise and, fundamentally, the restoration of profit. And the choices will crystallize: either social ownership – nationalization – or the further impoverishment of the majority of working people. In the recent past, capitalism’s health – profit growth – has been restored at the expense of workers and consumers. This crisis offers an opportunity to reverse this trend. There could be no better time to aggressively raise the red banner of socialism.
The Global Crack-up
The economic crisis has reversed the post-Soviet process of international integration – so-called “globalization.” As with the Great Depression, the economic crisis strikes different economies in different ways. Despite efforts to integrate the world economies, the international division of labor and the differing levels of development foreclose a unified solution to economic distress. The weak efforts at joint action, the conferences, the summits, etc cannot succeed simply because every nation has different interests and problems, a condition that will only become more acute as the crisis mounts. In the past, the most economically powerful country, the US, could impose a solution to regional problems as it has before in Asia and South America. With the US economy the most seriously wounded, this is now highly unlikely.
We see great stress on the European Union. Germany’s export driven economy is collapsing. France, on the other hand, has yet to feel the full force of the crisis. Italy maintains staggering debt and an already stagnant economy. Spain’s real estate and building boom is rapidly contracting. In the face of these disparate, but debilitating expressions of the world economic crisis, it is highly unlikely that the Union will come up with common solutions. Indeed, the unraveling of the EU is a possibility.
The People’s Republic of China presents a special, volatile, and critical ingredient in the fate of the global economy. The controversial choice of the Communist Party of China to embark on a market-driven economy with a strong measure of private ownership can be debated at another time. But there is no question that the PRC is an important and vital player in the world market, particularly as an exporter. The PRC has been a leading supplier of consumer goods and credit to the US. By buying securities with their enormous surplus of dollars, they have enabled the US to employ these dollars to feed the exploding deficit. As the economic crisis devastates US imports, the PRC is faced with a rapid decline in demand – factories are closing, unemployment is escalating, and unrest is growing. The domestic market has taken a hit – auto sales began to slow in the summer – thanks to a slowing of economic growth.
The CPC has responded quickly with a $500 billion stimulus program for domestic investment. Unlike the US bailout program, this stimulus will promote the growth of the domestic economy and signals a substantial shift from relying on global trade. It is impossible to tell if this new direction will be temporary or expand; no doubt there are differing views within the CPC. But in any case, this plan will likely be paid for with PRC dollar reserves. Moreover, the PRC response casts some doubt that it will play the same role in the world economy in the future, a turn of events that will greatly affect any recovery in the US and the EU.
Like the Great Depression, international cooperation towards solving this crisis will prove an elusive goal.
Some Lessons of the Great Depression
We are not all in the same boat. The sooner we dispel ourselves of this now popular notion, the sooner we do justice to our predecessors who fought for Social Security, unemployment insurance, strong unions and a better life for the working man and woman. Of course the Roosevelt administration, in its early years, promoted this notion just as the Obama administration will do in the coming months. In the early New Deal the goal was to achieve class-neutral recovery; the administration would have been perfectly happy to have simply turned the clock back to 1928. But if they had achieved that end, there would not have been the great gains won by working people after 1933. It was an unprecedented left/labor initiative that seized the opportunities of economic crisis to empower working people and win popular reforms that bettered their lives for years to come. Some would like us to be in a boat where working people row while the captains of industry and finance guide the boat to a safe haven and return to business as usual. That, after all, was the common view of most politicians of both parties in The Great Depression. That is the view espoused by political elites today who offer hundreds of billions of the future earnings of working people to restart an economy pillaged by corporate self-indulgence. One need only look at Roosevelt’s heralded National Industrial Recovery Act to see the common approach. The subtitle reads: “An Act to Encourage National Industrial Recovery, to Foster Fair Competition, and to Provide for the Construction of Certain Useful Public Works, and for Other Purposes.” Of course in the often cited section 7a (one paragraph in 20 pages), there is some provision to ease the obstacles for workers to organize, though no provisions to enforce the same. Nonetheless, the left and labor rallied around section 7a and moved forward as though it meant more than it said.
While the Democratic majority debates a stimulus package, foreclosures mount and unemployment rises. Nothing offered so far approaches the actions taken even before Roosevelt assumed the Presidency. Hoover’s Emergency Relief and Construction Act, approved on July 21, 1932, made funds available for “relief and work relief to needy and distressed people” suffering from unemployment. In addition, monies were set aside in Title III for literally hundreds of public works projects for everything from highways to dams to army barracks.
Today’s news brings word of a stimulus package in preparation by President-elect Obama’s team that promises 2.5 million jobs over the next two years in infrastructure projects and alternative energy. This is a most welcome departure from the Bush/Paulson approach to corporate hand-outs. While this is a commendable beginning, it is just a beginning. As we see from Hoover’s Emergency Relief and Construction Act, we are only starting down a path trod in the Great Depression by Herbert Hoover in 1932. The key then, as it is now, is to organize and educate millions to the possibility of radical change for the betterment of working people. As the plan is revealed, there will be an intense struggle to shape the plan. We know with certainty that corporate interests will attempt to bleed the initiative; they will make every effort to draw profit from every nook and cranny. Will the left and labor fight to shape the plan with the same vigor? Or will they complacently place their trust in the good will of elected officials to represent their interests? Every gain of the working class in The Great Depression was won by militant action.
Behind the many legislative acts of the thirties were hundreds of thousands of working people organized in unions, unemployed councils, farmers’ organizations, youth groups, veterans groups, civil rights organizations, and many other formations often led by the left pushing beyond the limits of “recovery.” They were able to put the option of socialism before the people of the US. We should do no less.