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– accompanied by a warning against nationalist protectionism from Klaus Schwab, the WEF’s founder – is already out of date.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

The revolution will be digitised

US vice-president Joe Biden has raised the stakes in a global cyber war between those fighting for the right to information about the secret activities of governments and those who protect the warmongering interests of global capital.

By denouncing WikilLeaks founder Julian Assange as “a high-tech terrorist who has put lives and jobs in jeopardy”, he virtually signed a death warrant. Biden also confirmed that the US government is actively seeking a way of charging Assange with espionage.

After originally downplaying the leaks, the second most powerful man in the US Biden has added to Sarah Palin’s baying for blood. Palin has called for Assange to be pursued "with the same urgency we pursue al-Qaeda and Taliban leaders”. And we know how the US treats “enemy combatants”.

Assange and his lawyers are currently fighting his extradition to Sweden where the WikiLeaks founder faces charges of sexual molestation, the subject of a salacious witch-hunt in yesterday’s Mail on Sunday. Accusations by two Swedish women he met last August are being talked up in order to cloud the real issues and fuel a character assassination campaign.

The real problem, as Assange himself has said, for the world’s political leaders is not simply that WikiLeaks continues to exist as an organisation. It is the courage of the whistleblowers inside state institutions who actually provide the leaks in the first place.

People like US army intelligence officer Bradley Manning. Manning, who is accused of handing over 90,000 classified Afghan war logs to WikiLeaks, has just turned 23 after being held in solitary confinement for 200 days.

He is detained at Marine Corps Base Quantico, in Virginia. He spends 23 hours a day alone in a standard-sized cell, with a sink, a toilet, and a bed. US website, The Daily Beast, writes:

The conditions under which Bradley Manning is being held would traumatize anyone. . . He lives alone in a small cell, denied human contact. He is forced to wear shackles when outside of his cell, and when he meets with the few people allowed to visit him, they sit with a glass partition between them … When he was first arrested, Manning was put on suicide watch, but his status was quickly changed to “Prevention of Injury” watch (POI), and under this lesser pretence he has been forced into his life of mind-numbing tedium.

Manning is not the only young person who involved in this secretive cyber and information war. In the past fortnight, the conflict over WikiLeaks drew in thousands of “hacktivists” who brought down credit card companies who refused to process WikiLeaks transactions. A hackers’ collective called Anonymous, organised a mass “DDoS” attack on websites which acted against Assange and WikiLeaks.

DDoS means “Distributed Denial of Service”, and involves the use of “collaborative tools where supporters can voluntarily attach their machines to a botnet in order to assist with a DDoS attack. The preferred tools are usually some version of the Low Orbit Ion Cannon (LOIC) software.”

Sound like a sci-fi thriller? It is – except it’s true. And young people around the world are being arrested for it. Two Dutch hackers, one aged 19 and another 16 were seized last week, as was a 17-year-old in Manchester. The Met now even has a special e-crime unit called PCeU which specialises in tracking down such people. In Switzerland and Sweden this hackers’ movement has taken the political form of the Pirate Parties.

The case of Julian Assange is about much more than one Australian campaigner. It has taken the war against non-democratic, repressive and secret states into a new dimension. For all Biden’s bluster, the Americans can’t shut down WikiLeaks because its site is replicated by supporters around the globe.

In Britain, students used social networking and micro-blogging to mobilise recently, giving the police the run-around. The notion of the all-seeing, all-powerful state is taking a battering. There is no doubt that the revolution will be digitised!

Corinna Lotz
A World to Win secretary

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