The global capitalist crisis (Part 2) Factors behind the crisis The following article was published in "The Guardian", newspaper of the Communist Party of Australia in its issue of Wednesday, November 11th, 1998. Contact address: 65 Campbell Street, Surry Hills. Sydney. 2010 Australia. Fax: (612) 9281 5795. Email: <[EMAIL PROTECTED]> Webpage: http://www.peg.apc.org/~guardian Subscription rates on request. ****************************** By Anna Pha Although comparisons are being made with the Great Depression of the 1930s, the factors behind the present crisis are far more complex and the situation appears to be far more unstable and serious than at that time. There are a number of main and interconnected aspects to the crisis. There is a crisis of overproduction resulting from the vastly intensified exploitation of the working people of every country, together with the consequences of monopolisation, speculation and the predominance of finance capital over industrial capital. All are compounding the crisis. In pursuit of power, control and privileges, the TNCs are imposing economic rationalist policies on governments and these are also accentuating the economic, political and social crisis of capitalism. Intensified exploitation At the heart of the crisis is the intensified exploitation of labour. There is an unprecedented attack on the wages, hours of work and conditions of the working people. Millions of workers throughout the world have been laid off and the sackings continue. At the same time those in full-time employment are working longer hours. One third of full-time employees in Australia work an average of more than 49 hours per week often without overtime payments. Their wages and conditions are subjected to an all out offensive as every employer attempts to cut costs by lowering wages. Their aim is to win a larger share of the market and make more profits. At the same time, millions of other workers have only insecure, casual or part-time jobs. No corner of the earth is immune from the pressure to become "internationally competitive". Workers are being cajoled to chase "international benchmarks" and "world's best practice". They are told that competition is going to lead to new prosperity. But these propaganda aims hide the pitting of worker against worker and country against country as the TNCs play one off against another to secure for themselves the lowest wages, the longest hours, the worst conditions of work -- and the highest profits. As a consequence of these policies, large sections of the world's population are experiencing rapid impoverishment, mass unemployment and homelessness, and cuts to education, health and many welfare programs. At the very time the pauperisation of the working people means that they cannot buy the goods and services that their labour produces, there are tremendous increases in the productivity of labour brought about mainly by technological change but also by speed-up. Overproduction One reflection of overproduction is clearly seen in the oversupply of raw materials and the resulting fall in prices. According to the <BI>Economist's<D> commodity price index, (that is, raw materials) has fallen an average of 30 per cent since May 1997. Australia and Canada as major exporters of raw materials have been seriously affected along with many of the less industrialised countries. Oil prices fell from $22 a barrel in September 1997 to $13 in August 1998 even though the US-imposed blockade of Iraq has kept that country's oil off the international market. If Iraq were to again become an exporter, prices would fall even further. The price of gold has fallen from upwards of $380 per ounce to the present $290. Similar stories can be told about coal, other minerals, paper and many other commodities. One Australian mine has just signed a contract to sell steaming coal at $14 a tonne -- down from $38-$40 one and a half years ago. The capacity exists globally to produce 60 million cars a year but the number of cars actually sold is around 44 million -- an excess capacity of 27 per cent. The deliberate destruction of much of the industrial capacity of East Germany, the former Soviet Union and much of East Europe has not prevented this situation. Prior to the current crisis the Asian "tigers" had become accustomed to continuous growth and a steady influx of foreign capital. Companies built up high debt levels compared with their assets. This was possible and acceptable to banks (all competing for a share of the market) because booming exports kept the cash coming in to service debts. In 1996 the demand for electronics and other goods that formed the bulk of exports from these economies began to fall and trade slowed down. As overproduction set in the banks became nervous and began pulling their capital out, thereby setting the scene for the events that followed in 1997. The workforces of the industrialising third world countries, in particular, have felt the full impact of the crisis so far and are being subjected to super-exploitation by the transnational corporations (TNCs) and financial institutions. Parasitic capital There has been a significant structural change between the two main branches of capital -- industrial and finance capital. The financial sector represented by the banks, insurance companies and broking firms has grown sharply in absolute and relative strength, relative to industrial capital. In Australia the combined assets of the financial institutions more than doubled as a percentage of GDP between the 1960s and the 1990s. Most of that growth occurred in the period following deregulation of the banks by the Labor Government in the second half of the 1980s. In the newly industrialised countries (``emerging markets'') these most parasitic and speculative forms of capital are growing at one and a half times the rate of the economies they have invaded. The process of "globalisation", spurred on by the imposition of economic rationalist policies (with help from the International Monetary Fund (IMF)), has well and truly consolidated the position of financial institutions as the most dominant capital. To meet the demands of the banks to pay back past borrowings by governments with interest, governments are now privatising every possible publicly-owned enterprise and institution. They are also jumping to fulfill the demand of the big financial institutions that they cut outlays to education, health, housing, science, culture, etc and thereby reduce budget deficits. At the same time there are more and more demands coming from private enterprise that taxpayers money be used to bail-out the banks and other privately run enterprises that now find themselves in trouble. An example of this is the $850 billion allocated recently by the Japanese Government to bail out the bankrupt Japanese banks. Monopolisation and sackings The problems have been compounded by mergers, takeovers and plant closures. Just as cars, electronics, tobacco, soft drinks, and other manufactures are dominated by a few monopolies, the finance sector is now dominated by around 10 powerful financial institutions -- the biggest banks and brokering companies. Ten years ago there were 20 major financial houses in the world. Chase Chemical was born out of the merger of the Chemical Bank, one of the biggest players in the world foreign exchange markets, and Chase. Last year the Union Bank of Switzerland and the Swiss Banking Corporation merged to form Swiss Bank, the biggest merger ever in banking -- worth $70 billion. This year two of the largest banks and insurance companies -- Citicorp and the Travelers Group (including Salomon Smith Barney) announced their merger to form the largest bank in the USA. Now BankAmerica is the US's biggest banking group having merged with NationsBank on September 30, 1998. And then there is Merrill Lynch, JP Morgan, Bankers Trust and ABN Amro (Dutch based) which are major lenders to the notorious hedge funds. These financial conglomerates are based on massive accumulations of wealth, concentrated in the hands of a handful of men and the odd woman. They have wealth at their disposal which is many times larger than that available to most governments. In Australia, the big four banks are pressing the government to allow them to amalgamate. Don Argus, the CEO of National (formerly National Australia Bank), called on the government only last week to allow these big banks to merge otherwise National might go off-shore. These banks and financial institutions have masses of capital at their disposal to invest and speculate with. They use their own accumulated wealth, the resources of other capitalists and the workers' savings as well. Superannuation funds, credit societies, investment trusts and other small funds pass on the savings of workers and retirees for use by these giant financial bodies. These conglomerates are major shareholders on stockmarkets, hold seats on the boards of the major industrial companies and increasingly influence and control the financial affairs of whole countries and their governments. Together with every merger comes a downsizing of the workforce and a contraction of the services extended to the population generally. We are told that these mergers allow companies to rationalise their operations, that they become more "efficient" and that customers will receive better and cheaper service. The opposite is generally the outcome. Speculation The role of banks and insurance companies has changed considerably. A very large percentage of their capital (accumulated assets) and the capital of their clients is directed to purely speculative activities. The major financial conglomerates trade in currencies, buy and sell shares, deal in derivatives, bonds and other financial products. They offer insurance, manage investments and give investment advice. They underwrite privatisations by governments, as well holding cheque and savings accounts and lending money which are the more traditional activities of banks. Twenty years ago a bank might have made 80 or 90 percent of its profit by reaping the difference (margin) between the interest it received on home and other loans and the interest it paid to depositors and bill and bond holders. Banks now draw a relatively small percentage (and in some cases none), of their income from acting as simple intermediaries between depositors and borrowers. Home loans are no longer a major source of bank profit for the big banks. Some financial institutions are making up to 50 percent of their profits from purely speculative activities. Around US$1,500 billion (A$2,400 billion) in currency is traded daily on global markets. Currency trading has grown by 46 per cent in the last four years alone. Of this, only 2.5 percent is for "real economy" transactions such as trade, tourism, loans or genuine investment on stockmarkets. The other 97.5 percent is pure speculation -- the casino economy. In the '70s the speculative component was 20 percent. The diversion of considerable amounts of wealth from wages and from the productive and other socially and economically useful spheres of investment into the most parasitic and speculative forms of capital is a major factor in the present crisis and instability that capitalism faces. ********************** Next Week: A look at how hedge funds, derivatives and other speculative transactions work and how they damage every economy. The Guardian | Phone: (02) 9212 6855 65 Campbell Street, | Fax: (02) 9281 5795 Surry Hills. 2010 | Email: [EMAIL PROTECTED] Sydney. Australia. Website: http://peg.apc.org/~guardian
