Bankrupt states - bankrupt system

Things aren’t going well in Europe. France is totally bankrupt, according to employment minister Michel Sapin. According to the radio interview he actually said, “there is a state but it is a totally bankrupt state”.

Though immediately denied by the country’s finance minister Pierre Moscovic, Sapin’s candid comment does much to explain the flight of the country’s super-rich. They don’t like the government’s plans to increase taxes on the wealthy. At the same time, president Hollande’s government appears to be floundering in the face of the crisis.

Movie star Gerard Depardieu has been given a Russian passport by president Putin. Bernard Arnault, an entrepreneur operating in the luxury goods market was – until he left for Belgium a few days ago – the country's richest citizen and listed by the Billionaires Index as the 14th richest person in the world. And now it seems former president Nicholas Sarkozy is heading to London with his heiress wife Carla Bruni for “economic” reasons.

No doubt they’ll be welcomed by the ConDem’s Home Secretary Theresa May, despite her increasingly tough stand against immigration which, she says, pushes up house prices, forces people onto benefits, and suppresses wages for the low-paid. But May’s tired attempt to blame the foreigners for the worsening state of the British economy won’t wash.

In the totally interconnected and interdependent economy of global corporations, neither France, nor any other country in Europe, or indeed the rest of the world, is immune from the rapid disintegration now under way. 

The muted optimism promoted by Davos World Economic Forum spin-doctors – accompanied by a warning against nationalist protectionism from Klaus Schwab, the WEF’s founder – is already out of date.

The latest figures from Spain have joined Sapin’s candid admission in introducing a note of reality. Spain’s retail sales crashed by 10.7% in December, compared with the same month in 2011. The retail slump actually accelerated, from 7.8% for November and an annual rate for 2012 of 6.8%.

With unemployment soaring and incomes falling, retail sales in Spain have now fallen for 30 months in row and the decline has quickened since the prime minister, Mariano Rajoy, implemented further austerity measures – increasing VAT, slashing services, wages, jobs and pensions. Unemployment rose above 26% last month – a jaw-dropping 60% amongst young people – and is predicted to climb higher. Declining car and house sales indicate that the economy will continue to shrink. The deeper you look the worse it gets.

Production from Spain’s car industry has fallen below 2 million vehicles for the first time since 1993, crashing 17% last year. The industry has shrunk by a third from its high point before the 2007-8 crash. Car exports plunged even faster, plummeting 18% and dimming hopes that foreign trade can lift the economy out of slump as internal demand shrinks.

The Citigroup bank says it now expects Spain's economy to contract by 2.2% this year and another 2% in 2014, pushing unemployment to 28%. The bank is clear that Spain’s programme of austerity is being overwhelmed by the effects of the slump. The country’s public debt will surge from 88% to 110% of GDP in just two years.

Whether they admit it or not, capitalist states throughout the world are bankrupt. Their debts can never be repaid.  The USA’s world-beating debt has its political class in a stranglehold of mutually assured destruction. Deep across-the-board spending cuts seem certain to kick in on March 1 through what is known as the “sequester”.

It’s not only the states that are bankrupt, it’s the entire system of profit-hungry capital accumulation that is unsustainable and dangerously out of control. At Davos, there was talk of the “worst of the crisis being over”. All the indications are that the opposite is true.   

Gerry Gold

Economics editor

The real cause of growing global inequality

At a global level, the top 1% (60 million people), and particularly the even more select few in the top 0.01% (600,000 individuals – there are around 1,200 billionaires in the world), the last 30 years has been an incredible feeding frenzy.

Inequality has grown dramatically in many countries. In the US the share of national income going to the top 1% has doubled since 1980 from 10 to 20%. For the top 0.01% it has quadrupled to levels never seen before.

This goes way beyond America. In the UK inequality is rapidly returning to levels not seen since the time of Charles Dickens. In China the top 10% now take home nearly 60% of the income. Chinese inequality levels are now similar to those in South Africa, which are now the most unequal country on earth. Even in many of the poorest countries, inequality has rapidly grown.

Globally, the incomes of the top 1% have increased 60% in 20 years. The growth in income for the 0.01% has been even greater. Following the financial crisis, the process has accelerated, with the top 1% further increasing their share of income.

The luxury goods market has registered double digit growth every year since the crisis hit. Whether it is a sports car or a super-yacht, caviar or champagne, there has never been a bigger demand for the most expensive luxuries.

These are some of the statistics collected together in “The cost of inequality: how wealth and income extremes hurt us all”. This is Oxfam’s contribution to an avalanche of analyses and opinions tumbling out in the days leading up to the gathering of the super-rich and their hangers-on in Davos this week.

Mostly they are aimed at trying to steer the discussion and debate amongst the rich and powerful leaders of the global corporations who make up the membership of World Economic Forum.      

But in its oh-so-gentle warning “Occupy protests demonstrated the increasing public

anger and feeling that inequality has gone too far”, Oxfam isn’t telling the WEF something it doesn’t know already. “Severe Income Disparity” is, after all, one of the top ten global risks featured in the report the WEF commissioned for itself.

There may well be quite a number of well-meaning, even enlightened multi-billionaires in attendance, in between visits to the ski slopes. After all, Bill Gates and Warren Buffet are way up there on the list of the world’s richest and having seen the writing on the wall they’ve committed to giving away truly huge amounts of money. Buffet is even calling for greater taxes on the rich.

Oxfam argues that extreme wealth and inequality is economically inefficient, politically corrosive, socially divisive, environmentally destructive, unethical and not inevitable. The charity lists a range of measures to reduce the gap that have worked in the past, and could work in the future.

But what they don’t do is to look behind the shocking statistics to explain why the disparity between rich and poor has grown so far and so fast in the last 30 years. If they did, they’d be looking at a profit-driven social, economic and political system which for its survival ensures that the ownership of the world’s resources is concentrated in fewer and fewer hands

In the good times, at least, the value of those resources expands by putting more and more people to work and paying them a declining share of what they produce until they are no longer able to afford the things they produce. And then, in the consequential bad times (like now), the same system is driven to destroy the surplus capacity that is the result of all that accumulation.

So yesterday, the International Labour Organisation reported that the number of unemployed globally is expected to pass the 200 million mark this year. The WEF has nothing to offer humanity and the anger that Oxfam refers to needs to be channelled into making the Davos gathering history.

Gerry Gold

Economics editor

Davos elites warn of "perfect global storm" threat

Listening to the ConDems lecturing the low-waged and unemployed about “fairness” as they cut their state benefits when measured against inflation, reinforces the view of a government at war with ordinary people while protecting the rich and powerful.

The policy adds weight to the contents of the latest edition of Global Risks, which the World Economic Forum produces each year before the world’s ruling elites gather at Davos to try and reshape the world in their image.

At the centre of its concerns are the prospects of loss of confidence in government leadership and the threat of increasing unrest as inequality widens. With the ConDems held in contempt by large sections in society, and Labour presenting itself as Coalition Lite, the WEF is right to be concerned.

The report was published on the day that European Union joblessness reached a new record high. Youth unemployment in Spain has passed 56%. No wonder Global Risks says that a eurozone meltdown cannot be ruled out.

The report is a 80-page crystallisation of responses from “1,000 experts from industry, government, academia and civil society who were asked to review a landscape of 50 global risks”. Presented in the language of systems theory, the results are sobering:

“Continued stress on the global economic system is positioned to absorb the attention of leaders for the foreseeable future. Meanwhile, the Earth’s environmental system is simultaneously coming under increasing stress. Future simultaneous shocks to both systems could trigger the ‘perfect global storm’, with potentially insurmountable consequences.”

Just like any membership organisation, the WEF’s over-riding concern is for the impact these threats will have on the prosperity of its members. So who are they, what does the WEF do for them, and what is it that they see as being under threat?

The WEF ranks high in the organisations through which the collective needs of the global corporations are brought together to influence the thoughts and actions of the rich and powerful and through them to guide the work of the world’s governments.

It’s A-Z lists of strategic and industry partners comprise the big players in every industry from ABB, one of the world's leading engineering companies to Zurich Insurance Group, a leading insurance provider with a global network of subsidiaries.

The WEF runs several highly sophisticated and well-funded “global leadership programmes. Its has a forum of 200 to 300 “Young Global Leaders”.  A Network of Global Agenda Councils of over 1,500 “premier thought leaders” commit their “extensive knowledge, expertise and passion to jointly shape the global, regional and industry agenda”. 

Academia isn’t left out. As well as The Knowledge Advisory Group (KAG) - senior administrators, provosts or vice-presidents who have been nominated by their university to participate – the Global University Leaders Forum (GULF) is a community comprising of 25–30 heads of top global universities. 

All of these “communities” are brought together every year at Davos. Their task this year is to consider how to mitigate the effects of the major risks – to somehow find a way of using these risks to increase profitability for themselves. Their collective enterprise is recognition of the need for them to band together to protect the integrity of the capitalist system of production, distribution and exchange.

This is how the global ruling class works. They think, analyse, develop plans and strategies, lobby and line up political proxies to put into practice what the WEF considers necessary. What the WEF tells us is that  global, collective analysis and decision-making is crucial if not critical.

While the WEF plots and plans we would do well to do the same because change isn’t going to happen otherwise. Much can be learned from the techniques the WEF deploy, not just to counteract the power of the capitalist elites but to replace it with a community of peoples and their interests.

Gerry Gold

Economics editor

They were all in it together, not just Goodwin

At last! Something we can agree with Labour’s former chancellor, Alistair Darling, on. Fred Goodwin (formerly Sir) should not be singled out by the establishment.

Goodwin certainly had a big hand in the virtual destruction of the three-century old Royal Bank of Scotland, but he was far from alone in his responsibility for the causal chain of events that brought the global financial system to the brink in 2008.

There’s an entire class of people whose positions should be on the line for allowing and encouraging the massive expansion of the system of credit and debt.

The Financial Services Authority, the toothless body created by the previous government, cheered from the sidelines as balance sheets more and more resembled a house of cards.

Darling’s New Labour government was at the forefront of ensuring London’s role as the base for the world’s banks and other gambling houses.

But can any of them be blamed for doing their jobs? Surely they were just doing what was necessary to keep the economy on the growth path? Yes indeed.

Having thrown in their lot with capitalism - the social and economic system that distributes profits extracted from the value-generating activities of those employed in the production of commodities to otherwise disinterested shareholders - they also became its playthings.

But it was their choice, and they are collectively responsible. And as the crisis intensifies it exposes more of those who constitute that collective web of responsibility.

Now the inner logic of the system has brought 25 of the 27 governments of the European Union together in a most terrible Faustian pact.

What they are calling a “fiscal union” is a drawing together of the otherwise helpless in an unprecedented assault on their populations. Their intention is to ensure that the entire population of Europe gets to experience the austerity conditions already wrecking the lives of the 50% of young people without jobs in Greece and Spain.

And all with the objective of a “return to growth” at some time in the distant future.

So what are the prospects?

Fresh from chairing the global economy session at the World Economic Forum in Davos, eminent Financial Times commentator Martin Wolf has this to say about the fiscal union:

“The IMF now forecasts a recession in the eurozone this year, with a decline of 0.5 per cent in overall gross domestic product. GDP is forecast to fall sharply in Italy and Spain, and stagnate in France and Germany. This is a terrible environment for countries seeking to cut fiscal deficits. Forecasts are far from satisfactory for other high-income countries. But the eurozone is the most dangerous part of the world economy: only there do we see important governments – Italy and Spain – menaced by a loss of creditworthiness.”

And in a chilling forecast, Wolf looks back to guess at the future:

“Just as it was not the dominant cause of the collapse, but rather sloppy lending and improvident private borrowing, so fiscal discipline is not the cure. This attempt to vindicate the catastrophic austerity of Heinrich Brüning, German chancellor in 1930-1932, is horrifying.”

A repeat of the ensuing events in Germany is indeed horrifying to contemplate. There can’t be such a repeat. The debt-fuelled growth that produced global corporations more powerful than any single country means that today’s crisis affects all countries simultaneously.

The capitalist system of production and its inseparable financial twin have been on life-support since 2008. It’s time to pull the plug.

Young, workers, the unemployed, students and older people must now draw together in a global network of People’s Assemblies. They can establish the power not only to settle accounts with those responsible for the crisis but build a society motivated by meeting human needs in place of the narrow interests of shareholders.

Gerry Gold
Economics editor

A Britain divided by class and wealth

Sometimes it takes a comedian to tell it as it is. Rory Bremner just about summed up the real state of affairs as he mused in the columns of the Financial Times.

“I heard of a country where they are capping benefit payments and charging single parents for access to the Child Support Agency," observes. "And, there is also a country which plans to spend around £100bn on transport and the Olympics. I wonder, are these two countries related?”

He could have also pointed to the just-under £1m bonus payment offered to largely-state owned Royal Bank of Scotland head Stephen Hester. And while Hester has now turned it down, he won’t be short of money. He still has his salary of £1.2 million to look forward to. So he’s not likely to have to give up his chalet in Verbier, Switzerland or his 350-acre estate in Oxfordshire.

Bremner is right. There is the Britain inhabited by bankers, financiers, hedge fund owners and grandees of all kinds – and there is the rest. And as the dust settles, the only bleeping Labour can summon up is to claim credit for adding its voice to the complaints.

The reality is that the economy is deteriorating and that the issue of bankers’ bonuses will pale in comparison to what is coming up. Britain’s debt has now reached the £1 trillion and the UK economy shrank by 0.2 % at the end of 2011. Unemployment is rising fast, with one million 16-24 year-olds (22%) now out of work in the UK.

School leavers, students and other youth in the UK are joining the 23 million unemployed in the European Union, and some 200 million world wide. Spain has 50% youth unemployment while in the United States the figure stands at 23 %.

At the World Economic Forum meeting which has just ended in Davos, Switzerland, economic elites described youth unemployment as “a cancer in society”. The world is “sitting on a social and economic time bomb.... not a crisis but a disaster”, they said.

They are right. As around 40 million young people globally enter the workforce each year, it doesn’t take rocket science to work out that massive, long-term unemployment amongst young people will have explosive political results. Most people are aware knows that it was the lack of a real future – combined with years of political repression - which sparked the Arab Spring and the downfall of tyrants in Tunisia, Egypt and elsewhere during 2011. The lack of a future for an entire generation, globally is what is at stake.

For all their wealth and power, the bankers, company bosses and politicians, the truth is that the so-called masters of the global capitalist economy remain at a loss and are deeply divided. While the IMF is calls for austerity, financier George Soros said that the fiscal cuts, which Germany supports, could even lead to a "lost decade" of economic stagnation in Europe.

"This German insistence on austerity could destroy the European Union," he said. "This is reality, this is the harsh reality that we need to face. It is not written in stone, the future is not predetermined. We determine the future, so it would be well within the possibilities of the authorities to change it."

We have to agree, at least partly, with Soros. Austerity and cuts are not the answer and we can determine the future (albeit in a different way to what Soros imagines would happen if policy makers followed his ideas for reviving capitalism).

The top 1% rely on the rest to remain in their places and accept that the system is what it is and can never be transformed in a fundamental way. So developing an alternative outlook to that which views Britain’s class-based, class-divided society as impregnable is absolutely vital.

Corinna Lotz
A World to Win secretary

Debt contagion spreads

In the aftermath of Davos, the annual skiing trip for the bankers, businessmen and tame governments of the global economy, one key theme runs through the post-mortems in the wake of the economic and financial crash: the free market requirements of corporations are in open conflict with the political constraints of a world of capitalist nation-states.

The Financial Times’ Martin Wolf, who moderated the “economic outlook” session sums it up like this: “We have a globalised economy, but politics remains local. In times of crisis, the pressure to look after the former dominates the latter.” What Wolf is indicating is that local “politics” either gets in the way and/or is not up to the job. He is right but Wolf fails to grasp that the contradiction between globalising corporations and nation-state politics is insoluble.

So struggling to take much if any comfort from the less-than-impressive signs of a return to growth after renewed and unprecedented overdoses of “stimulus”, the talk in darkened corners is now turning to “rebalancing the global economy” with all the unspecified pain for millions that brings in its wake.

The crash exposed massive over-capacity in production around the world, after decades of the increasingly credit-led investment needed to maintain the expansion on which capital feeds. In the last 12 months, many countries have relied on individual attempts at rescuing domestic economies, creating export-led growth as a result.

But it isn’t happening.

Whilst the stimulus enabled banks to refill their capital balances, and, particularly in China allowed production to continue and even grow, it has failed to get people buying. Consumers aren’t consuming.

In countries like Spain, the United States and the United Kingdom and its nearest neighbour Ireland, as well as some of the countries of the former Soviet Union consumption was funded by borrowing against absurd inflation in property prices. Property prices have collapsed, so consumption collapsed. It can’t be restored to previous levels. The patient has suffered a near fatal illness.

Growth certainly hasn’t returned to countries like the Ukraine where GDP fell 14% last year. All across the world unemployment is high and soaring, hours and wages are being cut. Pensions wiped out. In the US, where some of the production numbers look positive, Lawrence Summers, Barack Obama’s principal economic adviser, admits “what we are seeing in the US and perhaps in other places, is a statistical recovery and a human recession”.

The obscure language of the financial commentators can be difficult to untangle at times, but the threatening messages are getting clearer day by day. They speak on behalf of the global investors, speculators who move vast funds to the source of highest return. And the message to governments is this – those with an excess of debt had better give up on stimulus pretty soon to avoid the growing threat of state bankruptcy that is spreading like a global contagion.

Italy, Portugal, Spain, the UK, Iceland are joining Greece - which has its hand out for help to the International Monetary Fund and the European Union – in the emergency ward. Those with excess savings like China had better get their people increasing their consumption pronto, or face the consequences.

No wonder the political crisis is growing in all the major economies. Cut spending and the economy will dive (or die); don’t cut spending and the state faces bankruptcy. In short, there are no answers within the present framework. That doesn’t mean the forces of extreme reaction will give up and go home. If conventional nation-state politics won’t work, there is always the danger of unconventional “solutions”.

In our draft Manifesto of Revolutionary Solutions we set out our proposals to bring this obscene and increasingly dangerous system to its end. Join the discussion.

Gerry Gold
Economics editor

Globalisation 'virus' hits Davos

Spare a thought for the great and the not-so-good who have gathered for the annual party of the rich and the powerful at the luxury resort of Davos in the Swiss mountains for the World Economic Forum (WEF). The 2,500 or so attendees, including 41 heads of state, have been obliged to scale down from the most expensive champagnes like Dom Perignon to “normal champagne”, according to reports. Some benighted delegates are even downgrading from champagne to white wine, according to a local hotelier. 

But the real difficulty they face is that the “Davos consensus”, which has hitherto prevailed at these and similar gatherings – that free-market, globalised capitalism would create a better world – is in now tatters. WEF founder, economist Klaus Schwab, even believes that the present downturn has led to an outbreak of schizophrenia at Davos. 

In his view, the present economic downturn is in reality an accumulation of “an imbalance in the global system, a credit crisis: above all a confidence crisis and a systems crisis”.  In addition, he points to other emergencies – global warming and water shortage, which have to be addressed as well. Schwab’s remedy is a new approach to global confidence and the creation of “an ethical value base and a better, more enhanced, co-ordinated and regulated global system”. 

But the dream of a new consensus is just that. The agreement made at the first G20 summit of developing nations, held last year in Washington, broke down in just a few days, after Russia and India imposed tariffs. Many in Davos will now be watching Wen Jiabao and Vladimir Putin, the Chinese and Russian prime ministers, as well as the leading Indian and US representatives, for further signs of economic nationalism. 

These multiple and interconnected economic, political and ecological crises demonstrate the dialectic at work. The very dynamics of globalised capital that powered decades of growth and expansion over the last four decades have turned into their own opposite. Instead of growth, there is contraction – an unprecedented fall in wealth. As one commentator points out, “the globalisation of the economy appears to have done the opposite [of leading to steadily rising prosperity] – spreading a dangerous economic virus around the world and creating the threat of another global depression”. 

The latest US National Intelligence Council report says that “the international system – as constructed following the Second World War - will be unrecognisable” while former US deputy treasury secretary Roger C Altman notes that “the financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the US and Europe”. These are serious observations, to put it mildly. 

The severity and depth of the global crisis is forcing a new sobriety and concentrating minds at Davos. The triumphalism of the 1990s has disappeared, almost in an instant. The chastened advocates of capital will muse and drink and ski in their mountain retreat. They will fawn over brutal dictators like Putin and Jiabao. They will ponder “solutions” to force those who create value into unemployment, homelessness and poverty. 

But for ordinary people who are the victims of their system, the threatening catastrophe presents a great challenge. It’s clear that any “new systems of governance” will focus on an attempt to survive the crisis by preserving the rule of rich political and economic elites at the expense of the many – those who in fact create the values and wealth we all depend on for our survival. In the People’s Charter for Democracy, A World to Win outlines concrete solutions to the crisis which preserve and maintain the positive sides of globalisation while replacing the destructive, profit-motivated system of private ownership. The disarray at Davos should spur our efforts to build an irresistible momentum for revolutionary change along these lines. 

Corinna Lotz
AWTW secretary

Corporations warn against bail-out risk

Massive government spending to support financial institutions in countries including the US, United Kingdom, France, Italy, Spain and Australia will significantly further damage the weakening global economy, especially if, as predicted, China suffers a sharp slowdown this year. Those are not my words but come from an organisation that speaks for the major global corporations.

The World Economic Forum (WEF) is deeply concerned about the prospects for 2009 and beyond – and it shows. Its new report, Global Risks 2009, highlights the interconnectedness of financial, economic, environmental, social and political risks.

The WEF’s real worry is that the political response is inappropriate and too short-term, thereby adding to the long-term consequences of the global economic and financial crisis. There are also warnings that the worsening crisis will have multiple adverse impacts on the environment, food security, health and political stability with dire consequences for the half of the world’s population already living in areas of high water stress.

In a reference to the countless billions thrown at the banking system – another $20 billion was handed over to the Bank of America last night while everyone was asleep – the WEF warns: “It is dangerous to address immediate concerns without remedying the root causes of the problem, or sowing the seeds of new ones whose impact will not be immediate but may be strongly felt at a later date.”

Adding to existing debt, the key to the rescue plans promoted by Gordon Brown and Barack Obama, will intensify the downward spiral, the report says. Global share values will be driven further below the already steep drop-off of more than 50% on average as massive selling floods the markets.

The report dismisses deflation as a “short-term risk” and then forecasts that state pump-priming to try and rescue the global economy can easily lead to rapidly rising prices and adds: “Economic history is littered with periods during which governments reduced their debt burden through inflation.” Are the authors referring to the Weimar Republic in Germany in the early 1920s, whose collapse created conditions for the Nazi Party to flourish? We don’t know.

The WEF’s warnings coincided with a severe deterioration in the credit ratings for Greece only days after it was placed “on watch” following weeks of unrest. In the past week the ratings agency S&P also reviewed ten other high-rated industrialised western countries, warning Ireland, Portugal and Spain that their ratings are under threat too. Thomas Mayer, chief European economist at Deutsche Bank, said: "The downgrade of Greece is a wake-up call to everyone that there is a price to pay for taking on big levels of debt."

Ironically constituted as a non-profit foundation, the WEF is the collective voice of the global corporations with more than 1,000 member companies, typically with a turnover of more than US$5 billion. Its annual meeting in Davos, Switzerland, is designed to set the agenda for the world’s political leaders who revel in the luxury and limelight offered by the glittering event.

The crisis has changed all that and the language of the risk report is intended to convey a deep concern, reinforcing the public face of its headline commitment to “improving the state of the world”. It clearly reflects the concern in the corporate community that short-term actions by governments like New Labour do not address the problem of restoring profitability, which is the sole criterion by which capitalism judges itself.

Two things are implied here: governments are a hindrance rather than a help in this crisis and massive cuts in state spending are required to get capitalism back on its feet. We have been warned.

Gerry Gold
Economics editor