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The rise of shadow banking

Both the EU Central Bank and the International Monetary Fund published reports recently on the growth and risk of the shadow-banking sector. While estimating the size of the sector and identifying some immediate risks, both reports fail to identify the rise of finance, and in particular non-bank credit-creating entities, over recent decades as a systemic

How Speculation for Its Own Sake Pays Billions

by PETE DOLACK Taken from http://www.counterpunch.org/2015/05/15/how-speculation-for-its-own-sake-pays-billions/ The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though

Economic misery and bloody chaos

By Tommy McKearney The soap opera that surrounded SYRIZA’s limp attempt to negotiate with the vicious, agenda-driven European Union, led by the financial sector, has understandably captured huge attention during the recent past. As with all the best action within that genre, viewers were kept in mock suspense while the inevitable dénouement was played out. Pundits

Study shows that European Robin Hood Tax would pay off big

Taken from the National Union of Public & General Employees (Canada) While Canada’s Conservative government continues to reject the idea of a Financial Transactions Tax (FTT) evidence is growing that it is a proposal that could bring big benefits. Eleven governments in the European Union are working out final details of a regional financial transactions tax,

Interview with Thomas Kenny co-author of Socialism of ‘Betrayed Behind the Collapse of the Soviet Union, 1917-1991′

Given the instability and anarchy we have seen and are still seeing in the market capitalist system what do you see as the merits of a planned economic system?    Only when the class character of the state has changed after a socialist revolution and when a working-class, revolutionary party sets the basic direction of

The rise of shadow banking

Both the EU Central Bank and the International Monetary Fund published reports recently on the growth and risk of the shadow-banking sector.
While estimating the size of the sector and identifying some immediate risks, both reports fail to identify the rise of finance, and in particular non-bank credit-creating entities, over recent decades as a systemic aspect of monopolisation, stagnation, and over-accumulation.
Both reports also promote the “positive” aspects of shadow banking and see it having a role in releasing credit where other financial institutions might not venture. As the IMF put it, “the challenge for policy-makers is to maximise the benefits of shadow banking.”
The IMF defines shadow banking as credit intermediation outside the conventional banking system—or non-bank entities that create credit. This is a broad definition, making shadow banking about a quarter of total financial intermediation. It therefore includes pension funds, insurance entities, hedge funds, structured investment vehicles, mortgage services rights (collectors of interest and debt), and derivative product companies, which are often special-purpose vehicles.
The Financial Stability Board has been monitoring shadow banking since 2011 and has reported that the United States, Britain and the euro area have the largest shadow-banking systems. Britain’s accounts for more than 360 per cent of GDP, while those of the United States and the euro area are closer to 200 per cent.
But Ireland (also included in the euro area) stands out. The shadow-banking system here has been estimated to be in the region of €1.7 trillion—almost 11 times our GNP. This is without doubt related to global tax evasion and the fact that many corporations pay less than 1 per cent tax, never mind the official rate of 12½ per cent.
The growth of the shadow-banking system has created new risks and instabilities within the system, but it has also provided a much-need avenue for investment. Its importance as an avenue for investment far exceeds the risks it creates with regard to the reproduction of capital, and so there have been few serious attempts to control, isolate or regulate the sector. In fact the IMF makes it clear that, as regulation has increased in the normal banking industry, shadow banking has grown, as if to imply that regulation is futile and that shadow banking should be embraced and normalised.
Seven years after the crisis erupted, the crucial role played by finance, financial products and investment avenues is obvious. There will be no serious attempt to control capital merely to mitigate its worst instabilities by establishing publicly funded bail-out mechanisms or to increase the confidence of investors in finance. This is monopoly capitalism in the twenty-first century.

Taken from Socialist Voice, http://www.communistpartyofireland.ie/sv/07-shadow.html

How Speculation for Its Own Sake Pays Billions

by PETE DOLACK

Taken from http://www.counterpunch.org/2015/05/15/how-speculation-for-its-own-sake-pays-billions/

The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though that total is, it is barely more than half of what the top 25 took in a year earlier.

All together now: Awwww. Yes, somehow these speculators will have to get by on a paltry average of $467 million.

Institutional Investor’s Alpha magazine — one can hear their editors’ teeth gnashing at their heroes’ bitter fate — lamented that 2014 was the worst year since the 2008 stock meltdown for hedge-fund managers in announcing its “Rich List.”

Nonetheless, some observers might believe that these moguls earned somebody serious money to collect such enormous paychecks. But that wasn’t necessarily the case. For the sixth consecutive year, hedge funds fell short of the average stock-market performance, returning a composite average of three percent. Perhaps the 25 hedge-fund managers who hauled in the most money for themselves were better? Not really. Alpha reports that the hedge funds of at least 12 of the individuals on its top 25 list posted gains below the 2014 average.

The S&P 500 Index, the broadest measure of U.S. stock markets, gained 11.4 percent in 2014 and the benchmark Dow Jones Industrial Average gained 7.5 percent. So somebody throwing darts, or parking their money in a passive fund that tracks a major index, would have done as well or better in many cases. Despite their subpar performances, hedge-fund managers continue to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money.

So it’s heads, Wall Street wins and tails, Wall Street wins. And hedge funders pay less in taxes. Much of their income is classified as capital gains under U.S. tax law, and the tax rate on capital gains are much less than on regular income.

Imposing austerity on others is a job never finished

What is that hedge-fund managers do to “earn” such enormous sums of money? Let us take a look. The top person on the 2014 list is Kenneth Griffin of Citadel Capital, who hauled in $1.3 billion for the year. Citadel makes lots of money through computerized high-speed trading — buying and selling securities in microseconds to take advantage of momentary price changes. Apparently allowing computers to do the work leaves Mr. Griffin with time to pursue his hobby of widening inequality still more.

Not content with the fact that his 2014 earnings are equal to the combined median wage of 26,000 U.S. workers, he contributed $10 million to an Illinois campaign that seeks to cut workers’-compensation benefits, make it illegal for employees to contribute to political campaigns through their union, abolish prevailing-wage laws and render union dues collections much more difficult. He’s also contributed millions to the Koch brothers’ war chest. Mr. Griffin’s firm also owns a stake in ServiceMaster, a company that profits from the privatization of public services by firing employees and rehiring them at lower wages.

A Huffington Post article, noting that Mr. Griffin is also a major donor to Chicago Mayor Rahm Emanuel, nonetheless reports that he believes Mayor 1% is too soft on public employees despite the mayor’s attacks on pensions and teachers. The article said:

“Griffin, alone, could fund all of Chicago’s pension liabilities for [2014] (estimated at $692 million) and still have $208 million [from his 2013 income] left to scrap by on. Yet Griffin is terribly worried that the mayor is being too soft on retirees. He castigated Chicago and Illinois politicians for not making ‘tough choices,’ blaming Democrats who control city, county and state government for not fixing pension, education and crime problems.”

Second on the hedge-fund list is James Simons of Renaissance Technologies. Although Alpha reported that he no longer runs his firm on a day-to-day basis and “spends a good chunk of the year on his 226-foot yacht,” Mr. Simons hauled in $1.2 billion in 2014. His firm employs physicists, others scientists and mathematicians to develop models for its computerized trading. Alas, speculation pays much more than scientific research that might benefit humanity.

Buy, strip, profit, repeat

Third on the list is Raymond Dalio of Bridgewater Associates, who took in $1.1 billion in 2014. He specializes in bond and currency speculation. Fourth on the list is William Ackman of Pershing Square Capital Management, who is what the corporate media likes to call an “activist investor.” In other words, someone who buys stock in a company and immediately demands massive cuts so he can make a large short-term profit is an “activist investor” because he does this more loudly than others.

Mr. Ackman hauled in $950 million in 2014. Forbes magazine, as consistent a cheerleader for the corporate overclass as any institution, summed him up this way last year:

“[H]edge fund billionaire William Ackman has tried to destroy a company that sells diet shakes, played a prominent role in nearly driving a 112-year-old retailer into the ground [and] helped launch a hostile takeover of a pharmaceutical company in a way that the Securities & Exchange Commission is reportedly examining for potential violations of insider trading law. Now, Ackman is suing the U.S. government.”

He is suing the U.S. government because it is taking the profits from federal housing-loan programs Fannie Mae and Freddie Mac to recoup money used to bail them out rather than handing the profits over to speculators such as himself. Never mind that the government spent hundreds of billions of dollars bailing out speculators. Among his most recent exploits, he was involved in two separate deals that would have moved a U.S. corporation’s headquarters to Canada so that it could avoid paying taxes, savings that would be earmarked for speculators’ wallets.

No summation of hedge-fund greed would be complete without a mention of Paul Singer, another entrant on the Alpha list. The vulture capitalist specializes in buying debt at pennies on the dollar and then demands to be paid the full face value, regardless of human cost. Among other exploits, he has seized an Argentine naval ship, demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two banks he bought four years earlier.

The outsized renumeration of financiers is due to the disproportionate size of the financial industry. A rough calculation estimates that in 11 business days speculators trade instruments and contracts with a value greater than all the products and services produced by the entire world in one year. In other words, a year’s worth of gross world product is traded in about two weeks on the world’s stock, bond, derivative, futures and foreign-exchange markets.

Such frenzied trading, often involving high-speed computers and ever more exotic betting, has little to do with actual economic needs and much to do with extracting money by ever more imaginative needs. Such is a system that values financial engineering more than human life.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.

Economic misery and bloody chaos

By Tommy McKearney

The soap opera that surrounded SYRIZA’s limp attempt to negotiate with the vicious, agenda-driven European Union, led by the financial sector, has understandably captured huge attention during the recent past. As with all the best action within that genre, viewers were kept in mock suspense while the inevitable dénouement was played out.
Pundits spoke solemnly about the risk of Greece leaving the EU, of threats to financial stability, or a break-up of the euro zone. Meanwhile the new government in Athens stuck out its chest and talked of taking on the mighty German finance ministry and the other members of the Troika. That the drama ended for SYRIZA with a timid whimper rather than anything so unsettling as a bang was, unfortunately, all too predictable.
The new Greek prime minister, Aléxis Tsípras, may be a handsome and articulate addition on the European political stage but he is no Fidel Castro. His finance minister, Varoufákis, strikes a dashing pose as he tours the Continent’s capitals, but, photograph him as you may, he hasn’t the steel of a Che.
Therein lies the essence of the Greek people’s disappointment. Not only did they need a determined and purposeful socialist government and instead got social democrats, but a hard-pressed population was allowed to believe that a different and better outcome was possible.
Not that any genuine socialist or working-class activist can be anything other than dismayed by what has happened. Many on the left throughout Europe greeted SYRIZA’s election victory with genuine enthusiasm. The Greek people had rejected a plundering, neo-liberal programme imposed on them by international financiers, and it appeared, from the newly elected government’s declarations, that someone, somewhere was finally prepared to reject the demands of rentier capitalism. That the initial rhetoric proved hollow is a set-back for all on the left, as early optimism (and not only in Greece) may well be replaced by disenchantment.
How often—some may justifiably ask—can we raise expectations before people stop believing in the possibility of meaningful change?
It would be a mistake, nevertheless, to ascribe the failure of SYRIZA to personal inadequacies, betrayal, or lack of moral fibre. The Greek social democrats’ misfortune was to be bit players in a much greater game, and one in which their leadership mistakenly believed they could effect change while staying within the parameters of the present system. The response to this regrettable situation should not be the sterile cry of “We told you so” but to endeavour to promote a deeper understanding of what went wrong, and why.
Following the crisis in capitalism created by the economic crash of 2008, Europe’s ruling class and its vehicle of delivery, the European Union, is in no mood to endure any challenge to its authority or to tolerate developments that might undermine its power. Like a wounded beast, the ruling class is even more aggressive and dangerous than it was when feeling stronger.
The nature of its response to this present crisis is manifesting itself in two different but related theatres. One is being played out with the Greek government and people; the other is the ever more lethal and dangerous conflict raging in Donets and the wider Don Basin. While acting tough in the negotiations between Athens and the Troika, the EU and its allies are also pursuing their agenda in eastern Europe.
Following a well-practised routine, the western European media prepared the ground as they promoted a narrative asserting that Russia and its president, Vladimir Putin, were intent on an aggressive policy of invasion and expansion. Old, crude anti-Soviet rhetoric was regurgitated. In February the second in command of NATO’s forces in Europe, General Adrian Bradshaw, told the Royal United Services Institute (the elite’s strategic think-tank in London) that NATO forces must prepare for a large-scale conventional assault by Russia on an eastern European member-state.¹ Shortly thereafter the British prime minister, David Cameron, announced that he is to send military personnel to Kiev to train the regime’s troops, and give additional funding to the BBC to “counteract Russian propaganda.”²
Ignored in the telling of this scaremongering and sabre-rattling was the fact that the EU and the United States had encouraged a coup against an elected government in Kiev, and supported its replacement with a regime that made no secret of its hostility to Moscow and to Russian-speaking Ukrainians. No mention either of NATO’s encroachment into an area of immense strategic sensitivity to a country that lost 26 million citizens within living memory. Donets is, after all, only a two-hour journey by car from the Russian city of Volgograd (or Stalingrad, as it was known when assaulted by Nazi Germany in 1942).
Deliberately concealed, moreover, is an underlying calculation being made by upper echelons of the dominant capitalist power-brokers in the United States and western Europe. Relentlessly pursuing, over the past few decades, a short-term neo-liberal policy of profit maximisation at all costs, they have caused their own manufacturing industries to re-establish themselves outside their home countries, often to the “BRIC” countries (Brazil, Russia, India, and China). Inevitably this has led to a decline in their own productive capacity, forcing them to become ever more dependent on finance and services.
In the long run this creates a dilemma for the western powers, because economic history and experience clearly demonstrate that finance follows production, rather than the reverse. Inevitably this must mean a decline in their global hegemony—unless, that is, they can offset this trend by a related policy of (a) using debt to subdue some and (b) undermining any potential zone of economic competition among others.
Yet the ruling order in the West persists with this twin-track policy, with the obvious intention that debt burdens will crush, contain and confound the social-democratically inclined states of Europe while creating chaos elsewhere, preventing the emergence of a rival economic powerhouse.³ The cynical unifying calculation in this strategy is that, with the absence of an alternative economic bloc, the indebted have fewer options and the BRICs have fewer outlets. Those who believe they won the “Cold War” by threatening mutual self-destruction now seem to feel they can retain influence by a stratagem of “We’ll rule or we’ll wreck.”
And the evidence to substantiate this assertion? The proof lies in the absence of any other possible or plausible explanation for the behaviour of those world leaders who have imposed economic misery on vast sections of the European and American working class, while bringing bloody chaos to the Middle East, Africa, Afghanistan, and now Ukraine. No rational market economist has demonstrated that austerity can achieve anything other than deflation and loss of production. No sane individual has ever argued that western intervention in North Africa, the Middle East, Afghanistan, Pakistan, Iraq, Syria or Russia can lead to anything other than world-engulfing catastrophe.
The adage that socialism is the only alternative to barbarism, or worse, has never held more validity than now.

1. Sam Jones, “NATO warned to prepare for move on territory,” Financial Times, 21 February 2015.
2. Chris Green, “British troops to ‘train soldiers in Ukraine’,” Independent (London), 24 February 2015.
3. For those who may argue that China disproves this contention it would be worth their while reading Martin Wolf’s article “How addiction to debt came even to China,” Financial Times (24 February 2015).

Study shows that European Robin Hood Tax would pay off big

Taken from the National Union of Public & General Employees (Canada)

While Canada’s Conservative government continues to reject the idea of a Financial Transactions Tax (FTT) evidence is growing that it is a proposal that could bring big benefits.

Eleven governments in the European Union are working out final details of a regional financial transactions tax, with a January 2016 deadline for implementation. As part of this process, the German Social Democratic Party commissioned a study from the prestigious German Institute for Economic Research (known as DIW).

Advocates for a Robin Hood Tax have argued that applying a small tax to trade of stocks and derivatives would discourage short-term, speculative trading while generating significant revenue. The study released by DIW indicates that the money raised would exceed what has been previously projected.

Massive benefit to Germany

Sarah Anderson, from the Global Economy Project at the Institute for Policy Studies, notes (link is external)that “Germany alone can expect anywhere from 18 to nearly 45 billion euros per year from a serious regional financial transactions tax, depending on how the tax affects trading levels, according to DIW. That translates into a potential benefit of about US$48 billion in an economy one-fifth the size of the United States.”

DIW estimates are based on the European Commission’s proposed rates of 0.1 percent on stock and bond trades and 0.01 percent on derivatives.

The DIW also assumed that the 11 governments would adopt the European Commission’s anti-avoidance mechanism.

Similar benefits to other countries studied

DIW also examined three of the other participating countries and came up with revenue estimates of 14 to 36 billion euros for France, 3 to 6 billion for Italy, and 700 million to 1.5 billion for Austria.

“For these four European countries combined, the total potential revenue estimate comes to considerably more than a previous European Commission projection of up to 31 billion euros for all 11 participating governments,” said Anderson.

Opposition from banks

“These impressive revenue numbers could shrivel, of course, if the European governments cave in to pressure from the financial industry. After several years of trying to kill the initiative altogether, European financial institutions have had to accept the inevitability of a financial transaction tax. Their focus now: pushing for exemptions that would render a new financial transactions tax virtually meaningless,” explained Anderson.

“In particular, the big banks would like to exclude from the tax all trades in derivatives, the potentially highly lucrative financial instruments that played a major role in the 2008 financial crisis.”

However, DIW notes that if derivatives are exempted, “most of the potential revenue from FTT is lost.” Indeed, Germany and France would lose approximately 90 percent of the expected revenues.

This is partly due to expectations that traders would respond to the exemption by shifting into derivatives to circumvent the tax.

Still, advocates point out that the case for a Financial Transactions Tax (or Robin Hood Tax) is becoming stronger.

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada’s largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good.

Interview with Thomas Kenny co-author of Socialism of ‘Betrayed Behind the Collapse of the Soviet Union, 1917-1991′

Socialism Betrayed

Given the instability and anarchy we have seen and are still seeing in the market capitalist system what do you see as the merits of a planned economic system? 

 

Only when the class character of the state has changed after a socialist revolution and when a working-class, revolutionary party sets the basic direction of policy, can there be a comprehensively planned system.

Capitalism sometimes claims to “plan.” But state-monopoly capitalism, capitalism’s current form, must leave undisturbed the privileges of private monopoly. Therefore it cannot plan comprehensively except to some extent in a wartime emergency when private capital is willing to cede some powers to the capitalist state.

The 20th century is a fair basis for comparison. The system of socialism based on working class rule, collective or state ownership of property and state planning proved a remarkable success in comparison with capitalism.

The younger generation needs to hear this truth. The socialist system proved itself capable of providing sustained, rapid economic growth over six decades, notable technical and scientific innovations, unprecedented economic and social benefits to all its citizens, all the while defending itself from invasion and other forms of military pressure, combatting subversion, sabotage, and threats, and offering economic aid, technical assistance, and military protection to other nations struggling for independence and socialism.

Consider socialism in relation to the evils of the US capitalist economy, the economy I know the best. For more than a century the US economy has been  dominated by giant monopolies. Monopolization grows ever more extreme.  The dominant world power since 1945, US imperialism is now in a state of permanent, global war. The US military is in action in scores of countries. Overseas US military bases number about 1000 by some reckonings. A $600 billion yearly military budget pays for this.

Capitalism’s boom-bust economic cycle has become more violent in recent decades. The recovery from the 2008 crash is still weak and tentative in the US. The unrestricted export of capital and jobs has de-industrialized many industrial areas, resulting in good union jobs in manufacturing being replaced by low-wage service jobs often held by undocumented immigrants, alongside the fabulous wealth of a tenth of one percent. There is homelessness for millions.

Ugly political features stem from these economic realities: a tendency to restrict (bourgeois) democracy, e.g., the US Supreme Court decision to end all restriction on corporate donations to election campaigns; the Republican Party campaign to roll back the Voting Rights Act. There is the growing paralysis of Congress, an institution that seemingly can muster the will only to authorize tax cuts for corporations, fund new wars, and strive to make the tax system more regressive.

Racism is an old US evil. It creates monopoly superprofits from high unemployment rates and low wages for most Black workers. Today, it is still expressed in police violence in Black urban areas, and mass incarceration of young Black men.

The Leninist law of uneven development operates on so many levels. Vast regions of the US South and US West, largely non-union, are home to  the most backward forms of  political belief and religiosity. The political representatives from these regions are now dominant in Congress.  We have a culture sick with gun insanity and resultant frequent mass shootings of innocents. The gun lobby always blocks reform. There is brutal treatment of undocumented immigrants. The present Administration deports them on a greater scale than the  Bush Administration did.  The vaunted health care “reform” of 2010 was written by the private insurers. We have a corporate media degraded to mindless “info-tainment. “ It excludes dissenting voices.

We have a “justice” system that operates along blatant class lines. Torture in Guantanamo and the rendition “black sites”? Nobody goes to prison except a few corporals. An aggression against Iraq based on a Big Lie by top US officials? Nobody goes to prison. A trillion-dollar bailout for banks whose illegal, fraudulent practices were the proximate cause of the crash of 2008? Nobody goes to prison. Secret NSA spying on the world? Nobody goes to prison. Pollution of the environment to the point of triggering climate change? Nobody goes to prison

A socialist economy’s superiority should be discussed concretely. Look at the main socialist country over most of the 20th century, the USSR. Bahman Azad’s fine book Heroic Struggle, Bitter Defeat summarizes its accomplishments.

In the first two five-year plans, industrial production grew at an average annual rate of 11 percent. From1928 to 1940, the industrial sector grew from 28 percent to 45 percent of the economy. Between 1928 and 1937, heavy manufacturing output’s share of total manufacturing output grew from 31 percent to 63 percent.

The illiteracy rate dropped from 56 percent to 20 percent. The number of graduates from high school, specialized schools and universities jumped. Moreover, in this period, the state began providing free education, free health services, and social insurance, and after 1936 the state gave subsidies to single mothers and to mothers with many children. These accomplishments, Azad notes, were “impressive and historically unprecedented.”

Between 1941 and 1953, the Soviet Union defeated fascist Germany and rebuilt after the devastation of the war. By 1948 overall industrial output exceeded that of 1940, and by 1952 it exceeded 1940 by two and a half times. The Soviet Union developed and forced the imperialist West into a Cold War stalemate.

But at what cost, both human and environment, does that kind of growth come?

 

Admittedly, problems existed, notably acute agricultural shortages, and even the achievements, made in conditions of hostile encirclement, exacted a certain cost in terms of lives, living standards, socialist democracy, and collective leadership, but the achievements had occurred nonetheless.

Social reformists love to sneer at the phrase “real, existing socialism,” a term that Soviet writers often used.  Reformism usually puts the phrase in quotation marks, holding it up to scorn.  In so doing they reveal their own political limitations. They prefer to discuss socialism as an imagined ideal, not what really developed in the harsh reality of 20th century class struggle and all its contradictions.

Twentieth-century socialism came into being amidst the most trying historical circumstances. What were those circumstances?  Imperialist war, civil war, invasion, blockade, arms race, subversion, making a beginning on socialist construction from a low level of development.

Who or what imposed those circumstances? Imperialism imposed the cost, created the emergency, created the choice: either breakneck industrialization or defeat.

The deformities and distortions that existed in 20th century socialism were due to the imperialist onslaught against the new revolutionary states, not to the intrinsic nature of socialism. I can’t prove this by pointing to a historical example, because we have no example — yet — of a socialist revolution that had an easy birth and a conflict-free childhood.

But we can find other, indirect evidence for the truth of this point. As for one kind of human cost, consider the repression that took place in the late 1930s. I like the point made by Hans Heinz Holz  “the despotic aspects of Soviet socialism occurred in the period of its encirclement.” In the late 1930s the Soviet leaders were not imagining the threat of pro-fascist Fifth Columns, which were coming to power in one country after another, financed and orchestrated by German imperialism. Austria 1934; Spain 1936-1939, and many other places. Harsh measures were necessary

Another example: the forced collectivization that took place after 1929. Its speed was dictated by the necessity of accelerating industrialization.  The industrialization would be paid for out of the heightened agricultural efficiency. The Soviet leaders would have preferred to collectivize slowly and by persuasion and example. They said so at the time.  They did not have the luxury of a slow pace.

I remember that after 1989 as Western journalists toured Eastern Europe they delighted in pointing out the mixed environmental record of, say, the GDR. But the same considerations apply. Under pressure, GDR economic planners cut corners on environmental protections. There was no internal private capitalist profit motive driving socialist enterprises to pollute.  When they were not under external pressure, the environmental record of the socialist states was superb.

Apologists of capitalism claim that, whatever its other shortcomings, capitalism is more “democratic.” Nonsense. If the word “democracy” means the empowerment of working people, then the Soviet Union had democratic features that surpassed any capitalist society. The Soviet state had a greater percentage of workers involved in the Party and government than was the case with parties and governments in capitalist countries.

The extent of income equality, the extent of free education, health care and other social services, guarantees of employment, the early retirement age, the lack of inflation, the subsidies for housing, food, and other basics, and so forth, made it obvious that this was a society run in the class interests of working people. The epic efforts to build socialist industry and agriculture and defend the country during World War II could not have occurred without active popular participation. Thirty-five million people were involved in the soviets (councils).

Soviet trade unions had powers over such things as production goals, dismissals, and their own schools and vacation resorts that few, if any, trade unions in capitalist countries could claim. Unless there is enormous pressure from below, capitalist states never challenge corporate property. Advocates of the superiority of Western democracy ignore class exploitation, focus on process not substance, and give credit for capitalist democracy to capital, not its real defender and promoter, the modern working class. They compare capitalist democracy’s achievements to its past, but, asymmetrically, compare socialist democracy’s achievements to an imagined ideal.

Similar glowing accounts could be given with respect to other socialist countries. Cuba, China, North Korea, Vietnam, Laos. Specific national conditions (isolation, blockade, partition, invasion) have affected each one of them, slowing or distorting development. In each country, the balance between the planned and the unplanned sector has been different at various stages of development.

How did the planned socialist economic approach fare in the Soviet Union?  How did it work and what were its characteristics?

 

The merits of a planned socialist economy are many. Faster growth of the productive forces being one. Most socialist revolutions so far have occurred in countries of medium and low development. Standards of living rise steadily. There is stable, proportionate development of the economy, instead of anarchy. Soon there is low or no unemployment. There is no economic boom bust cycle. Socialism ends the fear of technological unemployment. It is egalitarian with regard to national minorities, women, and other oppressed groups. Socialism has a massive commitment to science and culture. It ends the colossal wastefulness inherent in competition. It overcomes poverty and homelessness.

The Soviet Union, for example, not only eliminated the exploiting classes of the old order, but also ended inflation, unemployment, most racial and national discrimination, grinding poverty, and glaring inequalities of wealth, income, education, and opportunity.

In fifty years, the country went from an industrial production that was only 12 percent of that in the United States to industrial production that was 80 percent and an agricultural output 85 percent of the U.S. Though Soviet per capita consumption remained lower than in the U.S., no society had ever increased living standards and consumption so rapidly in such a short period of time for allots people. Employment was guaranteed. Free education was available for all, from kindergarten through secondary schools (general, technical and vocational), universities, and after-work schools. Besides free tuition, post-secondary students received living stipends.

Free health care existed for all, with about twice as many doctors per person as in the United States. Workers who were injured or ill had job guarantees and sick pay. In the mid-1970s, workers averaged 21.2 working days of vacation (a month’s vacation), and sanitariums, resorts, and children’s camps were either free or subsidized. Trade unions had the power to veto firings and recall managers. The state regulated all prices and subsidized the cost of basic food and housing. Rents constituted only 2-3 percent of the family budget; water and utilities only 4-5 percent. No segregated housing by income existed. Though some neighborhoods were reserved for high officials, elsewhere plant managers, nurses, professors and janitors lived side by side.

The government included cultural and intellectual growth as part of the effort to enhance living standards. State subsidies kept the price of books, periodicals and cultural events at a minimum. As a result, workers often owned their own libraries, and the average family subscribed to four periodicals. UNESCO reported that Soviet citizens read more books and saw more films than any other people in the world. Every year the number of people visiting museums equaled nearly half entire population, and attendance at theaters, concerts, and other performances surpassed the total population. The government made a concerted effort to raise the literacy and living standards of the most backward areas and to encourage the cultural expression of the more than a hundred nationality groups that constituted the Soviet Union. In Kirghizia, for example, only one out of every five hundred people could read and write in 1917, but fifty years later nearly everyone could.

In 1983, American sociologist Albert Szymanski reviewed a variety of Western studies of Soviet income distribution and living standards. He found that the highest paid people in the Soviet Union were prominent artists, writers, professors, administrators, and scientists, who earned as high as 1,200 to 1,500 rubles a month. Leading government officials earned about 600 rubles a month; enterprise directors from 190 to 400 rubles a month; and workers about 150 rubles a month. Consequently, the highest incomes amounted to only 10 times the average worker’s wages, while in the United States the highest paid corporate chieftains made 115 times the wages of workers. Privileges that came with high office, such as special stores and official automobiles, remained small and limited and did not offset a continuous, forty-year trend toward greater egalitarianism.

The opposite trend occurred in the main capitalist country, the United States, where by the late 1990s, corporate heads were making 480 times the wages of the average worker. Though the tendency to level wages and incomes created problems, the overall equalization of living conditions in the Soviet Union represented an unprecedented feat in human history. The equalization was furthered by a pricing policy that fixed the cost of luxuries above their value and of necessities below their value. It was also furthered by a steadily increasing “social wage,” that is, the provision of an increasing number of free or subsidized social benefits. Beside those already mentioned, the benefits included, paid maternity leave, inexpensive childcare and generous pensions.

Szymanski concluded, “While the Soviet social structure may not match the Communist or socialist ideal, it is both qualitatively different from, and more equalitarian than, that of Western capitalist countries. Socialism has made a radical difference in favor of the working class.”

There were two broadly different approaches to Soviet planning, 1) War Communism and 2) the New Economic Policy (NEP).  What emerged was the planned economy in the so called Stalin era, 1929-1953. Can you explain what these were, why they came about and what were their merits?

 

“War communism, ” in my opinion, is really a misnomer (though widely used) for the improvisational, emergency measures taken  in 1919-21 by the Soviet state when the Russian economy was staggering from defeat in the First World War and the chaos of the Civil War. It involved, in part, forcible appropriation of peasant production by the Bolshevik state to feed the starving cities. Peasant anger at such confiscations (and peasants were about 80% of the people) threatened the peasant support for the revolution. In 1921 Lenin replaced it with NEP which partly restored normal market relations in the countryside and allowed for expansion of capitalist relations of production in many areas of the economy, until such time as the economy recovered to pre-war levels.

As you suggest, there was a two-sidedness. But it would be more accurate, I think, to say that there were two main tendencies in all of Soviet politics and economic policy, a right-wing tendency and a left-wing tendency.

This two-sidededness had class roots. Two revolutionary classes made the Bolshevik revolution, the working class and the petty bourgeoisie (i.e., the middle and poor peasants). Throughout the history of the Soviet Union two trends always battled in politics: a right wing, which incorporated the ideas and methods of capitalists, and a left wing which supported class struggle, a strong communist party, and an uncompromising defence of working class leadership. These two currents appeared even before the October Revolution: the Menshevik trend, on the one hand, and the Bolshevik trend on the other. Later, this fight polarized around Bukharin and Stalin, Khrushchev and Molotov, Brezhnev and Andropov, and Gorbachev and Ligachev. The whole history of the USSR can be seen in the light of the struggle between these two trends. However, in the late 1980s, Gorbachev, along with the right wing, won a complete victory.

Your book with co-author Roger Keeran,  Socialism Betrayed Behind the Collapse of the Soviet Union,  1917-1991 has a unique understanding of the collapse of the Soviet Union, can you explain briefly how you see this historic event?

 

Others saw that the Soviet downfall stemmed directly from Gorbachev’s policies rather than from some structural crisis. This means that the word “dismantling” is actually a more accurate metaphor than “collapse.” Others saw that two trends had existed in Soviet politics from the revolution through Gorbachev. Still others saw that a second economy (private, illegal) had developed and grown strong in the bowels of socialism in the 30 years before 1985.

Our more or less singular contribution was to see that these phenomena were linked, that they both explained the Soviet collapse and showed that the collapse was not at all inevitable.

In the aftermath of 1991, Marxists and Communists had  trouble applying their usual, scientific  method of historical materialism to the Soviet downfall,  given the axiom, pushed since the Khrushchev era, that there was no longer a class struggle in the USSR, there was no exploiting class, that corruption and black markets  were survivals from the past, if they existed at all, and that, therefore, there was no material basis for pro-capitalist consciousness .

It turns out, we discovered, there was such a basis — the second economy. But Marxist economists had not studied it.

Our thesis was that the Soviet collapse occurred in the main because of the policies that Mikhail Gorbachev pursued after 1986. The deeper question is where did these policies come from? These policies did not drop from the sky, nor were they the only possible ones to address existing problems. They derived from a debate within the Communist movement, nearly as old as Marxism itself, over how to build a socialist society.

In order to explain the lineage of Gorbachev’s policies before and after 1985, we discuss the two main tendencies or trends in the Soviet debate over building socialism. The ongoing debate centered on this question: under the particular circumstances obtaining at any given time, how should Communists build socialism? The left position favored pushing forward class struggle, the interests of the working class and the power of the Communist Party, and the right position favored retreats or compromises and the incorporation of various capitalist ideas into socialism. In this sense, “left” and “right” were not synonyms for good and bad. Rather, the correctness or appropriateness of a policy had to do with whether it best represented the immediate and long-term interests of socialism under existing conditions. The history of Soviet politics was thus a complex matter.

On the one hand, Vladimir Lenin, who fearlessly pushed forward the class struggle for socialism, at times, favored compromise, as in the Treaty of Brest-Litovsk and the New Economic Policy. On the other hand, Nikita Khrushchev, who often favored incorporating certain Western ideas, at the same time favored a “leftist” policy of greater wage equality. We did not provide a full history and evaluation of Soviet politics but rather a useful, if simplified, backdrop for the later argument that Gorbachev’s early policies resembled the leftwing Communist tradition represented in the main by Vladimir Lenin, Joseph Stalin, and Yuri Andropov, while his later policies resembled the rightwing Communist tradition represented in the main by Nicolai Bukharin and Nikita Khrushchev.

After 1985, Gorbachev’s policies moved to the right, in the sense that they involved what might be called a social democratic vision of socialism that weakened the Communist Party, compromised with capitalism, and incorporated into Soviet socialism certain aspects of capitalist private property, markets, and political forms.

We argue that Gorbachev’s shift in policies had a material basis. The reason for Gorbachev’s shift was the development within socialism of a “second economy” of private enterprise and with it a new and growing petty bourgeois stratum and a new level of Party corruption. The growth of the second economy reflected the problems of the “first economy,” the socialized sector, in meeting the rising expectations of the people. It also reflected the laxness of the authorities in enforcing the law against illegal economic activity, and the failure of the Party to recognize the corrosive effects of private economic activity.

Are there lessons for Cuba today from this, given some of the ‘reforms’ it has introduced?

My co-author Roger Keeran and I visited Cuba in 2011 and 2014. The two articles we wrote after the trips to Cuba — and further study of the recent Cuban reforms — have reinforced our conclusion that there are lessons. But Cuba seems to have learned the lessons.

Obviously, the Soviet Union and Cuba represent two entirely different countries with very different histories and situations. A significant difference has been the economic, commercial and financial blockade imposed by the U.S. on Cuba.  Though the Soviet Union also experienced an economic blockade for two decades, the Cuban blockade has lasted longer and cost comparatively more. Now over fifty years old, the blockade has cost the Cubans by conservative estimates more than $104 billion in current prices and, if one takes into account the devaluation of the dollar against the price of gold,  $975 billion. Without the blockade, the Cuban standard of living today might well equal that of Western Europe.

Nevertheless, there are general laws of socialist construction. In spite of obvious differences, Cuba and the Soviet Union shared some features. Both the Soviet Union and Cuba had economies based on public ownership and centralized planning and had the political leadership of a Communist Party, and both Soviet society in 1985 and Cuban society in 2011 faced some similar problems, though to different degrees.

For example, both societies had two currencies, a hard currency geared to international trade and a domestic currency. The Soviet hard currency, whose use was illegal for most citizens, was limited to tourists, diplomats and a few others and was used only in hard currency shops. The Cuban hard currency, however, is not illegal, and many Cubans earn it legally by working in the tourist industry, by earning it as bonuses in certain workplaces, or by receiving it legally as remittances from relatives abroad. The existence of two currencies creates more problems in Cuba than it did in the Soviet Union.

The great disparity in value between pesos (CUP) and hard currency (CUC) (25 to 1) led to a number of problems including a growing inequality between those with access to hard currency and those without, and a brain drain from the professions without access to hard currency to those like tourism with such access.  Driving a cab and receiving hard currency tips could gain more income than teaching.  This was clearly demoralizing and inefficient.

In another example, a second economy, or black market existed in both societies.   In the Soviet Union, however, it represented a greater problem than in Cuba.  Compared to the second economy in Cuba, that in the Soviet Union had  existed  for a longer period, was more widespread and highly developed, and was often linked to national minorities and an organized “mafia.”

In some ways, the Cuban and Soviet problems resembled each other. There was a lack of productivity and efficiency, an insufficiency of quality consumer goods, a shortage of initiative and sense of ownership and responsibility in the workplace, an inadequate diffusion of computer technology, and so forth.

Moreover, one could easily find similarities between the economic remedies proposed by Yuri Andropov in 1983 or even the early Gorbachev policies and the Cuban program of actualization (“updating” in English) proposed in 2011.   For example, both reform efforts hoped to increase efficiency, productivity, motivation and quality by linking compensation to effort, by decentralizing control and responsibility, developing joint ventures with foreign capitalists, encouraging cooperatives, and allowing more latitude to private enterprise.

The Soviet and Cuban situations differed in one outstanding way. The Cuban   process of reform involved rank and file Communists and workers to a much greater extent than the Soviet one. In Cuba, from the development of the reform guidelines in 2010 through their ongoing implementation in 2014, the entire process embraced  mass involvement and the building of mass consensus. The process began in December 2010 through February 2011 with discussions by the people as a whole, followed by discussions by the party in every province, and then followed by discussions at the Sixth PCC Congress in April. In total 163,079 meetings occurred, involving 8,913,838 participants. These discussions modified or incorporated with others 68 percent of the original 291 guidelines, modified 181 others, and created 36 new guidelines. Discussion of the guidelines also occurred in the letters page of Granma, radio phone-ins, internet blogs and trade unions. One observer noted:  “A key point here is that the drafting of new employment law involves a process of consultation with the CTC (the central confederation of trade unions) so detailed and extensive that unions have a de facto veto.”

In the Soviet Union, in 1983 Yuri Andropov initiated economic reforms with workplace discussions.  Under Gorbachev, however, rank and file discussion of changes took the form mainly of public relations and photo opportunities. The broad discussions, encouragement of criticism, and building of consensus were mostly missing from the Gorbachev reform process.

Our book did show that undermining socialist ownership, planning, social benefits and internationalism required the simultaneous erosion of the authority of the Communist Party and the institutions of socialist democracy.

If any “good” has come of the Soviet downfall, it is that Cuba has learned this lesson. Cuba translated and published our book Socialism Betrayed (Socialismo Traicionado) in 2014, with a foreword by one of the now free Cuban Five, Ramon Labanino and we were invited to speak at the book launch at the Havana Book Fair.

WEALTH: HAVING IT ALL AND WANTING MORE

Oxfam report on global wealth distribution, accumulation and inequality.

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Full report below:

Having it all and wanting more

 

Robots replacing human factory workers at faster pace

article reprinted from the LA Times –

http://www.latimes.com/business/la-fi-robots-jobs-20150211-story.html

Cheaper, better robots will replace human workers in the world’s factories at a faster pace over the next decade, pushing manufacturing labor costs down 16 percent, a report Tuesday said.

The Boston Consulting Group predicts that investment in industrial robots will grow 10 percent a year in the world’s 25-biggest export nations through 2025, up from 2 percent to 3 percent a year now. The investment will pay off in lower costs and increased efficiency.Robots will cut labor costs by 33 percent in South Korea, 25 percent in Japan, 24 percent in Canada and 22 percent in the United States and Taiwan. Only 10 percent of jobs that can be automated have already been taken by robots. By 2025, the machines will have more than 23 percent, Boston Consulting forecasts.

Robots are getting cheaper. The cost of owning and operating a robotic spot welder, for instance, has tumbled from $182,000 in 2005 to $133,000 last year, and will drop to $103,000 by 2025, Boston Consulting says.

And the new machines can do more things. Old robots could only operate in predictable environments. The newer ones use improved sensors to react to the unexpected.In a separate report, RBC Global Asset Management notes that robots can be reprogrammed far faster and more efficiently than humans can be retrained when products are updated or replaced — a crucial advantage at a time when smartphones and other products quickly fade into obsolescence.

“As labor costs rise around the world, it is becoming increasingly critical that manufacturers rapidly take steps to improve their output per worker to stay competitive,” said Harold Sirkin, a senior partner at Boston Consulting and co-author of the report. “Companies are finding that advances in robotics and other manufacturing technologies offer some of the best opportunities to sharply improve productivity.”

Boston Consulting studied 21 industries in 25 countries last year, interviewing experts and clients and consulting government and industry reports.

The rise of robots won’t be limited to developed countries with their aging, high-cost workforces. Even low-wage China will use robots to slash labor costs by 18 percent, Boston consulting predicts.Increasing automation is likely to change the way companies evaluate where to open and expand factories. Boston Consulting expects that manufacturers will “no longer simply chase cheap labor.” Factories will employ fewer people, and those that remain are more likely to be highly skilled. That could lure more manufacturers back to the United States from lower-wage emerging market countries.

The better is yet to come

A Social Vision and an Economic Strategy for Ireland in the 21st Century

By Dr Tom Healy of http://www.nerinstitute.net/

NERI Vision

In recent years, both parts of Ireland underwent a deep economic crisis that impacted on employment, incomes and social infrastructure. Although levels of prosperity exceed those of earlier generations, inequality in the ownership of wealth and in the distribution of income is likely to have increased – at least before taxes and social transfers are taken into account. Future trends in economic well-being are uncertain as Ireland adjusts to a rapidly changing world.  Continuing shocks in areas such as banking, property prices, unemployment and energy supply and cost – to mention only some – are likely to constitute sources of stress for social cohesion, democracy and sustainable economies.

This paper reviews the key economic and associated social challenges in the coming three decades and suggests an overarching framework to better understand:

  • Why the cycle of bust and boom has not been abolished;
  • What options and choices are open to communities in each part of the island; and
  • How synergies on an all-island (Ireland) and cross-island (Ireland and Great Britain) basis be harnessed.

The paper is intended as a contribution to a debate on our economic future and how we can achieve very different outcomes to those experienced up to now. Underlying a vision for the 2040’s is an emphasis on:

  • Human rights – economic and social; and
  • Security and sustainability of economic well-being which transcend conventional measures of economic prosperity.

This paper is not intended as a blueprint or a set model to be applied or rolled out. Rather, it suggests a different way of approaching public policy based on different norms and values – in practice – to those incorporated into public decision-making in the recent decades.

Although constituting two separate jurisdictions with very different characteristics and policy institutions, the Paper seeks to identify a unified perspective for the whole island and its relationship to the neighbouring island. This is without prejudice to the existing or future constitutional arrangements and preferences of any country or part thereof.

Author

Dr Tom Healy

 

SHADOW BANKING AROUND THE GLOBE: HOW LARGE, AND HOW RISKY?

This Chapter 2 of an IMF economic report.

IMF Shadow Banking

The chapter describes the growth and risks of and regulatory responses to shadow banking—financial intermediaries or activities involved in credit intermediation outside the regular banking system, and therefore lacking a formal safety net.

The largest shadow banking systems are found in advanced economies, where more narrowly defined shadow banking measures indicate stagnation, while broader measures (which include investment funds) generally show continued growth since the global financial crisis. In emerging market economies, the growth of shadow banking has been strong, outpacing that of the traditional banking system.

 

Do the Young Unemployed Need the Incentive of Reduced Social Welfare?

Budget 2014 introduced significant cuts to Jobseeker’s Allowance (which is means tested) for young workers. The payment to new entrants aged 22-24 is reduced from €144 to €100 per week, and for those aged 25 the payment is reduced from €188 to €144 per week. The stated aim is to “ensure that young people are better off in education, employment or training than claiming”, and the Government hopes to save €32 million from the measure.

Full report by NERI Neri research