Tag Archive for Capitalism

Book Review: 21st-century imperialism

Seán Edwards

John Smith, Imperialism in the Twenty-First Century: Globalization, Super-Exploitation, and Capitalism’s Final Crisis (New York: Monthly Review Press, 2016)

In 2002 Anne Daly produced a documentary called Race to the Bottom, provoked by a fire that killed fifty-two workers in a garment factory in Bangladesh. John Smith’s book begins with the Rana Plaza disaster in 2013, when another garment factory collapsed and 1,131 workers died. Clearly, the race to the bottom continues. 
The conditions derive from the cut-throat competition between suppliers in Bangladesh and other oppressed countries that is mandated by the transnational corporations in the imperialist countries. The more monopolised the garment industry in the North, the more intense the competition between countries, between businesses and between workers in the global South. Most of the profits accrue to the North. According to an example given in this book, only €0.95 of the price of a H&M tee-shirt sold in Germany for €4.95 stays in Bangladesh. 
Along with other examples of intensified exploitation, smartphone manufacture, and coffee-growing, John Smith connects the outsourcing of production to the lowest-wage economies with the nature of capitalism today. 
The twenty-first century dawned with capitalism—according to most observers in the media—swinging along nicely. The taoiseach of the time, Brian Cowan, cheerfully exclaimed that the era of booms and slumps was over. Only Marxists predicted a crash. (They would say that, wouldn’t they?) 
When the crash came, the economists and the politicians were taken by surprise. They are still thrashing about looking for an explanation, blaming each other, blaming deregulation, blaming rogue bankers, always addressing the superficialities, afraid to look into the abyss: the crisis of capitalism. 
Among the Marxists, Monthly Review Press not only saw the crash coming but described many of its features in advance. It has maintained a spirit of inquiry into the workings of contemporary capitalism, so it is appropriate that it is the publisher of John Smith’s book. This book is strictly about economics, not so much the political and military means of maintaining imperialist hegemony—that would be another book. 
The crash of 2007 was not a surprise; the only surprise is that it was delayed so long, which Smith endeavours to explain. 
One of the responses to the stagnation crisis of the 1970s was the drive to cut costs by moving production to countries with cheaper labour. This was closely associated with increasing financialisation, which the author insists is not a separate phenomenon. Both were facilitated by the advances in information technology. What began as an economic solution has become a pathology. After thirty years, it was fundamental to the new crisis. 
The outsourcing of production, ever seeking cheaper labour power, accelerated up to the crash of 2007: for example, Levi-Strauss, which in the 1960s operated sixty-three factories in the United States, closed its last factory there in 2004. The process was pushed also by the emergence of such retail giants as Walmart, Tesco, and Carrefour—commercial interests coming to dominate manufacturers and growers, at home and abroad. The pressure on suppliers inevitably leads to further pressure on wages. 
According to mainstream economics, the “developing countries” should be catching up with the developed. There is no sign of this happening, however (apart from a few special cases), for a number of reasons. 
The process is controlled by the transnational corporations, whether through direct investment or subcontracting. While there is free movement of capital, there is no free movement of labour. The reserve army of the unemployed and precariously employed is so large, and continues to be reinforced by the displacement of peasants from the land. 
Development is largely limited to the particular activities required by powerful corporations and by commercial and financial interests. It is unusual for a product to be manufactured entirely in one country. For example, transnational companies and their subcontractors operating in China typically assemble articles for export from parts made elsewhere. This keeps control in the hands of the corporation. 
The direct rule of the colonial powers has been more or less successfully replaced by neo-colonialism. Imperialist hegemony is enforced by economic means, in alliance with the local ruling class—not that force, or the threat of force, has been abandoned. Levelling up is just not happening. 
Meanwhile the wages and conditions of workers in the imperialist countries continue to deteriorate, with jobs in production only partly replaced by service employment. They are facing austerity policies imposed by governments and employers. These have so far met with only sporadic resistance, but this may be changing. 
John Smith argues at some length that Marx’s theory of surplus value needs to be interpreted in the global context of contemporary imperialism. As he sums up his argument, “global labour arbitrage—super-exploitation—that is forcing down the value of labour power, is now the increasingly predominant form of the capital-labour relationship.” This he sees as “a defining feature of the neoliberal era,” along with the financialisation with which it is closely associated. He makes the point that financial assets are largely derived from the surplus value extracted from super-exploited workers in low-wage countries. 
Behind the financial crisis of 2007 lay a crisis of production, that is, of capitalism itself, of imperialism. After nine years, no solution has been found. The policy of North American and European governments has been to protect business, keeping share prices up by “quantitative easing” and imposing austerity on working people. They have certainly succeeded in making the rich richer, but the underlying crisis remains, and is spreading to the oppressed countries, which depend on exporting to what is now a stagnant market. 
The return to Keynesian strategies and re-regulation advocated by the left is hardly more promising; nor is the “non-interference” proposed by some on the right. The author argues that there is no capitalist solution to the crisis. There has been, he maintains, an enormous growth in the working class, the industrial working class in particular, which includes women and men, all races and all religions, “more closely resembling the face of humanity than ever before”—a powerful force. 
Either humanity will destroy capitalism, or capitalism will destroy humanity. We are back to Marx: “Workers of all countries, unite!”—never more difficult, never more urgent, never more necessary.

Imperialism and Capitalism: Rethinking an Intimate Relationship

By Prof. James Petras and Prof. Henry Veltmeyer

Global Research, December 16, 2015

http://www.globalresearch.ca/imperialism-and-capitalism-rethinking-an-intimate-relationship/5496284

The literature on imperialism suffers from a fundamental confusion about the relationship between capitalism and imperialism. The aim of this paper is to remove this confusion. The paper is organised in three parts.

In Part I we state our own position of the capitalism-imperialism relation. In part II we discuss some major points at issue in the Marxist debate on imperialism. And in Part III we review the changing forms that imperialism has taken in Latin America in the course of the capitalist development process.

The main focus of the paper is on the form taken by imperialism in the current conjuncture of capitalist development, namely extractive capitalism. This conjuncture is characterised by the demise of neoliberalism as an economic model and a growing demand on the world market for energy, minerals and other “natural” resources—the political economy of natural resource development (large-scale investment in the acquisition of land and entailed resources, primary commodity exports). The fundamental dynamics of what we term “extractivist imperialism” are examined in the context of South America, which represents the most advanced but yet regressive form taken to date by capitalism in the new millennium. Our analysis of these dynamics is summarized in the form of twelve theses.

In this essay we are concerned with unravelling the intimate relation of imperialism to capitalism and clearing some confusion surrounding it. There are two major problems in the way these two concepts are often understood and used in the literature. In the liberal tradition of political science the projection of imperial power and associated dynamics are generally disconnected from capitalism and its economic dynamics, reducing imperialism to a quest for world domination based on a lust for power or purely geopolitical considerations by the guardians of the national interest in the most powerful countries. On the other hand, in the Marxist tradition of political economy, among world system theorists of the new imperialism there can be found the opposite tendency in which the institutional specificity of the state as an instrument of class power is ignored, and imperialism is reduced to a purely economic dynamic, essentially confusing imperialism with capitalism.

In this paper we argue that capitalism and imperialism are intimately connected but engage distinct dynamics in the geoeconomics and the geopolitics of capital that need to be clearly distinguished. We advance this argument in the Latin American context, with reference to the capitalist development process and associated dynamics in their temporal and spatial dimensions. But first we engage several points of dispute among Marxists in regard to imperialism. We then trace out the salient features of imperialism at various stages in the capitalist development process in Latin America.

The Marxist Debate on Imperialism: Points of Dispute

 

Almost all theories of contemporary imperialism, both in its (neo)Marxist and (neo)liberal variants, lack any but the crudest sociological analyses of the class and political character of the governing groups that direct the imperial state and its policies (Harvey 2003; Magdoff 2003; Amin 2001; Panitch and Leys 2004; Foster 2006; Hardt and Negri 2000). The same is true for contemporary theorizing about the imperial state, which is largely devoid of both institutional and class analysis.[1] Most theorists of imperialism resort to a form of economic reductionism in which the political and ideological dimensions of imperial power are downplayed or ignored, and categories such as “investments,” “trade” and “markets” are decontextualized and presented as historically disembodied entities that are comparable across space and time. Changes in the configuration of class relations and associated dynamics are then accounted for in terms of general economic categories such as “finance,” “manufacturing,” “banking” and “services” without any analysis of the political economy of capitalist development and class formation, or the nature and sources of financial wealth—illegal drug trade, money laundering, real estate speculation, etc. (Panitch and Leys 2004). As for the shifts in the political and economic orientation of governing capitalist politicians representing the imperial interests of the dominant class, resulting in the formation of links with other capitalists and imperialist centres with major consequences in the configuration of world power, they are glossed over in favour of abstract accounts of statistical shifts in economic measures of capital flows.

Contemporary theorizing about imperialism generally ignores the sociopolitical and ideological power configurations of imperial policy, as well as the role of international financial institutions such as the World Bank in shaping the institutional and policy framework of the new world order, which not only provides a system of global governance but the rules of engagement for the class war launched by the global capitalist class against labour in its different redoubts of organised resistance. The focus of most contemporary and recent studies of the dynamics of imperial power is on the projection of military power in the project of protecting and advancing the geopolitical interests of the United States and the geo-economic interests of monopoly capital in the middle east and other zones of capital accumulation, or on the economic operations of the large multinational corporations that dominate the global economy. In regard to the Middle East the main issue in these studies is the threat presented by radical Islam (and its forces of international terrorism) to accessing one of the world’s greatest reservoirs of fossil fuel as well as the imperialist project of world domination.

As for the multinational corporations that dominate the global economy they are viewed by theorists of the “new imperialism” as the major operational agency of imperial power in the world capitalist system, having displaced the nation-state in its power to advance the project of capital accumulation and the quest for world domination. While theorists and analysts in the liberal tradition continue their concern with the dynamics US foreign policy in the projection of imperial power, and Marxists in the tradition of international political economy and critical development studies continue to concentrate their analysis on the dynamics of state power, the theorists of the “new imperialism” concentrate almost entirely on the globalizing dynamics of monopoly capital.

Nevertheless, the dynamics of imperial power relations are political as well as economic, and do engage the political apparatus of the state. As for the economic dynamics, as theorized by Lenin in a very different context, they derive from the search by capital for profit and productive investments as well as cheaper sources of raw materials and labour and markets. In terms of these dynamics, particularly those that relate to the fusion of industrial and financial capital, the export of capital and the emergence of monopoly capital, Lenin theorized imperialism as the highest form of capitalism, a manifestation of its fundamental laws of development. However, while liberal theorists of imperialism tend to emphasize the political, and to isolate the political dimension of imperialism from its economic dynamics, viewing imperialism purely in terms of the quest for world domination or the pursuit of geopolitical strategic concerns and the national interest, Marxist theorists following Lenin recognize that the imperial state is a critical agency of capitalist development and a fundamental source of political and military power pursued in the service of capital, to ensure its dominion.[2]

From this Marxist perspective imperialism is understood in terms of its connection to capitalism, and the agency of the imperial state system—the projection of state power—in securing the conditions needed for capital accumulation. Not that there is a consensus on this point—on imperialism as the bearer of capital, an agency of capitalist development. William Robinson, for example, expands on the argument advanced by Hardt and Negri (2000) and other world system theorists that the “class relations of global capitalism are now so deeply internalized within every nation-state that the classical image of imperialism as a relation of external domination is outdated” (Robinson 2007, 7).[3] Although what these class relations might possibly be is unclear, as is the question as to what form imperialism takes under these circumstances (the dominion of capital over labour?), Robinson argues that in effect “national capitalist monopolies” no longer need to

“turn to the state for assistance . . . .” The corollary is that the state no longer needs to assume the responsibility for empire-building and the projection of imperial power is no longer concerned with the dynamics of capital accumulation.[4] In Robinson’s formulation “the system of nation-states . . . is no longer the organizing principle of capitalist development, or the primary institutional framework that shapes social and class forces and political dynamics” (Robinson 2007, 8).

Another assumption made by Robinson and shared by other world system theorists of transnational capital and “globally integrated enterprise” is that “if we are to get at the root of 21st century global social and political dynamics” the Marxist tradition of imperialism theory based on the classical statements of Lenin and Hilferding should be discarded. Based on the assumption of a world of rival national capitals and economies, conflict among core capitalist powers, the exploitation by these powers of peripheral regions, and “a nation-state centred framework for analysing global dynamics,” this theoretical tradition is entirely useless, incapable—according to Robinson—of grasping the fundamental contemporary dynamics of capitalist development (Robinson 2007, 6–7).[5]

If, as Robinson contends, capital no longer needs the imperial state does it mean that imperialism will wither away, or does it mean, as argued by Klare (2003, 51–52), that it will take the form of

“geopolitical competition . . . the contention between great powers and aspiring great powers for control over territory, resources, and important geographical positions such as ports and harbours . . . and other sources of wealth and influence.”

Or does it mean what Robinson and some—including Amin (2001), Arrighi (2005), Foster (2003) and others in the torrent of “new imperialism” literature that has appeared since 2001—have suggested or contend, namely that imperialism is advanced primarily, if not exclusively, in economic form via the agency of transnational(ized) corporations that represent an empire without imperialism, as Hardt and Negri would have it, or capitalism beyond imperialism, as Robinson sees it.

In opposition to this rather reductionist view of imperialism, we hold that imperial power is shaped predominantly by the imperial state and its policies that take as a given that what is perceived as in the “national interest” coincides with the concerns and interests, both economic and political, of the capitalist class—or the “private sector,” in the official discourse. Notwithstanding arguments to the contrary, and taking into consideration both its economic and political dynamics and its actual operations (investments, production, sales), imperialism now as before is clearly designed and works to advance the project of capital accumulation in whatever and in as many ways as possible—to penetrate existing and open up new markets, exploit labour as humanely as possible but as inhumanely as needed, extract surplus value from the direct producers where possible, and access as needed or process raw materials and minerals.

Insofar as the capitalist class is concerned the aim and the agenda of its individual and institutional members is to accumulate capital. As for the imperial state and its agents and agencies, including the World Bank and the agencies of international cooperation for security and development, the agenda is merely to pave the way for capital, to create the conditions needed for economic and social development. In neither case is uneven development of the forces of production and its social conditions (social inequality, unemployment, poverty, social and environmental degradation, etc.) on the agenda. Rather, these conditions are the unintended or “structural” consequences of capitalist development, and as such inevitable and acceptable costs of progress that need to be managed and, if and where possible, mitigated in the interest of both security and development.

Under these strategic and structural conditions it is illuminating but not particularly useful to measure the impact of imperialism merely in economic terms of the volume of capital inflows (FDI, bank loans, portfolio investments, etc.) and outflows (profit, interest payments, etc.).[6] This is because imperialism is a matter of class and state power, and as such an issue of politics and political economy—issues that are not brought into focus in an analysis of national accounts. At issue here are not only the structural dynamics of uneven capitalist development (the “development of underdevelopment,” in André Gunder Frank’s formulation) but social and international relations of power and competition between imperial and domestic classes, between officials and representatives of the imperial state and the state in “emerging economies” and “developing societies.”

Under current conditions of rapid economic growth and capitalist development on the southern periphery of the world system, these relations are very dynamic and changing. By no means can they be described today as relations of domination and subordination. In addition, members of the global ruling class (investors, financiers, big bankers, industrialists, etc.) must compete with each other not only in the same sector but in different countries within the world capitalist and imperialist system. This is not only a question of inter-capitalist and intra-imperialist rivalry. It is also a development and political issue embedded in the social structure of the capital-labour relation and the economic structure of international relations within the world system. For example, within the dynamic and changing structure of this complex system of class and international relations officials of the states with a subordinate position in the imperial state system will insist on the transfer of technological, management and marketing knowhow to strengthen the ability of their capitalists to compete and for them to make profit, extract rents and serve their “national interest.”

As for relations of “domination” and “dependence” among nations on the lines of a north-south divide the structure of global production, and international relations of domination and subordination, are dynamic and change over time, in part because the geopolitical and economic concerns of the nation-state subject to imperial power leads to a quest for relative autonomy by state officials and politicians in these countries as well as protection of the national interest. “Developments” along these lines have resulted in qualitative changes in the relations between established imperial and emerging capitalist states.[7] Therefore, theorizing that is focused only on an analysis of inflows and outflows of capital—as if the “host” country was a “blank factor”—or a focus on the structure of global production based on a fixed international division of labour, cannot account for the dynamics of capitalist development in countries and regions on the periphery of the system with those at the centre.[8] Nor can this type of economistic theorizing explain dynamic features of the world capitalist system, for example the shift in economic power from North America and Western Europe towards Asia—China and India, to be precise.

Capitalist Development, Class Struggle and Imperialism

In outlining his conception of Historical Materialism, the foundation of Marxism as a social science, Marx had argued that at each stage in the capitalist development process[9]—the development of the forces of production—can be found a corresponding system of class relations and struggle. For Marx this was a matter of fundamental principle arising out of a fundamental conflict between the forces and relations of production. But he could have added that at each stage of capitalist development can also be found both a corresponding and distinct form of class struggle based on the forces of resistance to this advance, as well as imperialism in one form or the other and distinctly understood as the projection of state power in the service of capital—to facilitate its advance in the sphere of international relations and secure its evolution into and as a world system. That is, the projection of state power in the quest for world domination—to establish hegemony over the world system—is a necessary condition of capitalist development. Capitalism requires the state not only to establish the necessary conditions of a capital accumulation process, but to ensure its inevitable expansion—the extension of the capital-labour relation, and its mechanism of economic exploitation (the extraction of surplus value from the labour of the direct producers)—into a world system.

Lenin had theorised this projection of state power in the service of capital as the most advanced stage in the capitalist development process, which includes a phase of “primitive accumulation” (in which the direct producers are separated from the land and their means of production) and a process by which the small-landholding agricultural producers or peasant farmers are proletarianized, converted and made over into a working class. As Lenin saw it imperialism so conceived (as the “highest stage of capitalism”) featured

(i) the fusion of industrial and financial capital;

(ii) the export of capital in the search for profitable outlets overseas;

(iii) the territorial division (and colonization) of the world by European capitalist powers within the institutional and policy framework of Pox Britannica (the hegemony and dominion of the United States); and

(iv) an international division of labour based on an international exchange of primary commodities for goods manufactured in the centre of the system. These features encompassed an economic dynamic of capital accumulation, but this dynamic and the economic structure of this system evidently required and was secured politically with the projection of state power, including military force.

Lenin astutely identified the fundamental structural features of the world capitalist system at this stage of development. However, it was misleading to characterise it as “imperialism” in that the projection of imperial class-based state power was a distinct feature of capitalism in an earlier phase in the evolution of capitalism as a world system, namely mercantilism, a system in which merchant’s capital was accumulated through the expropriation of natural resources as much as exploitation of labour as well as state-sanctioned and regulated international trade. And imperialism was also a distinct feature and an adjunct to the capital accumulation process in later periods of capitalist development, as discussed below.

Imperialism in an Era of State-led Capitalist Development (1950–80)

In the wake of the Second World War the United States emerged as an economic super-power, in command of at least one half of world industrial capacity and up to 80 percent of financial resources or capital for productive investment. Having replaced Great Britain as the leader of what were then described as the “forces of (economic and political) freedom,” and to counter a perceived potential threat from its Russian war-time ally, now the USSR, which had also emerged from the war as an industrial power but representing an alternative socialist system for expanding the forces of national production, the US led the construction of a capitalist world order in the form of the Bretton Woods system (Bienefeld 2013; Frieden 2006; Peet 2003).

This system included two “international financial institutions”—the International Monetary Fund (IMF) and what would become the World Bank—as well as a General Agreement on Tariffs and Trade (GATT), an institutional mechanism for negotiating agreements in the direction of free trade that would eventually emerge as the World Trade Organisation (WTO). This system provided a set of rules used to govern relations of international trade—rules that favoured the operations and expansion of what had emerged as a complex of predominantly US-based multinational corporations and thus the hegemony of US capital. However, it also provided the institutional framework of a project of international cooperation with the nation-building and development efforts of a large number of countries that were engaged in a war of national liberation and independence from the colonial powers that had subjugated them for so long.

In this context capitalism engaged a process of productive and social transformation—the transformation of an economic system based on agriculture and an agrarian society and social system based on pre-capitalist relations of production into a modern industrial capitalist system based on capitalist relations of production, or wage labour.[10] The basic mechanism of this transformation was exploitation of the “unlimited supply of surplus rural labour” released in the capitalist development of the forces of production in the agricultural sector (Lewis 1954).

This process of capitalist development, and the associated process of productive and social transformation, can be traced out in different countries and regions at different points of time. But the process unfolded in different ways, engaging different forces of change and resistance in the class struggle, in the countries at the centre of the system and those on the periphery. First, in peripheral regions (Latin America and the Caribbean, parts of Asia and Africa) were found countries that were struggling to escape colonial subjugation and imperialist exploitation as well as class rule. Governments in these countries were in a position to choose between a capitalist and a socialist path towards nation-building and economic development, a situation that called for a strategic and political response from the guardians of the capitalist world order.

The response: to assist the development process in these countries—for the states in the developed countries and the international organizations and financial institutions to provide technical and financial assistance (foreign aid, in the lexicon of international development) to the undeveloped and less developed countries on the periphery of the system. In this context it is possible to view the idea and the entire enterprise of international development through the lens of imperialist theory—as a distinct form of imperialism (Petras and Veltmeyer 2005a; Veltmeyer  2005).

There is considerable evidence to suggest that the most powerful states within the institutional framework and system what can now be described as Pax Americana (the hegemony and dominion of the United States) in the post-war era of capitalism began to deploy the idea of development as a means of facilitating the entry into and the operations of capital in peripheral countries…in the development of their forces of production and the accumulation of capital in the process. In this context diplomatic pressure and military force were deployed as required or dictated by circumstance, but only secondarily, i.e., as a strategy and tactic of last resort. Thus the projection of military force to achieve the geopolitical objectives of the imperial state used predominantly by the US state in the 1950s and early 60s to maintain imperial order in its backyard—Guatemala (1954), Cuba (1961), the Dominican Republic (1963, 1965), Brazil (1964), Guyana (1953) and Chile (1973).[11]

After the military coup engineered in Chile this strategy of direct military invention and sponsored military coups gave way to a war by proxy, which entailed the financing of both the policy-making apparatus re social and development programs and the repressive apparatus (the armed forces) deployed by its Latin American allies.

In the same way as the imperialist project of International Cooperation for Development was used in the 1950s and subsequently to discourage those countries seeking to liberate themselves from the yoke of colonialism from turning towards a socialist path towards national development, the US government as an imperialist state resorted to the idea of “development” as a means of preventing another “Cuba” and turning the “rural poor” away from the option of revolutionary change provided by the revolutionary movements that had emerged in Latin America (Petras and Veltmeyer 2007a).

The class struggle at the time (the 1950–60s) assumed two main forms. The first was as a land struggle waged by the peasantry, most of which had been either proletarianized (rendered landless) or semi-proletarianized (forced to take the labour path out of rural poverty).[12] Many of the proletarianized and impoverished peasants, separated from their means of production and livelihoods, chose to migrate and take the development path of labour staked out by the World Bank (2008) and the modernization theorists of “development.”

However, many others chose to resist rather than adjust to the forces of capitalist development operating on them, to join the revolutionary social movements in the form of “armies of national liberation”. But by means of a three-pronged strategy and policy of (i) land reform (expropriation and redistributing land to the tiller), (ii) integrated rural development (technical and financial assistance to the small landholding peasant or family farmer), and (iii) repression (use of the iron fist of armed force hidden within the velvet glove of integrated development) the imperial state, via its allies in the local states, managed to defeat or “bring to ground” the social movements engaged in the land struggle. The one exception was the Revolutionary Armed Forces of Colombia (FARC), which continues to be a powerful force of resistance against the incursions of capital in Colombia to this today.

The second major form of the class struggle at the time had to do with the capital-labour relation, and engaged the working class in an organised labour movement against capital and the state for higher wages and improved working conditions. This struggle was part of a global class war launched by capital in the 1970s in the context of a systemic crisis of overproduction (Crouch and Pizzorno 1978). One of a number of weapons deployed in this war was the power of the state, via its policymaking role, to fatally weaken the labour movement in its organizational capacity to negotiate collective contracts for higher wages and reduce the share of labour in national incomes.

This approach was particularly effective in Latin America, where the imperial state, via the international organisations and financial institutions at its command, was in a position to impose market-friendly “structural” reforms on the labour movement. As a result of these reforms in the capital-labour relation the share of labour (wages) in the distribution of national income in many Latin American countries was reduced by as much as 50 percent.[13] The purchasing power of the average wage in Argentina, for example, was less in 2010—after six years of economic recovery and export-led rapid economic growth—than it was in 1970. The loss in the purchasing power or value of wages was particularly sharp at the level of the government-regulated minimum wage, which the World Bank throughout the 1980s and 1990s tirelessly argued was the major cause of low income, poverty and informalisation in the region. For example, in Mexico, the country that followed the strictures of Washington and the World Bank in regard to deregulating the labour market, from 1980 to 2010, over three decade of neoliberalism, the minimum wage lost up to 77 percent of its value (Romero 2014).

While the imperial state was indirectly engaged in the land struggle via a program of international cooperation that was implemented by the Latin American state but financed by officials of the imperial state, imperialism vis-à-vis the labour movement took the form of an armed struggle against “subversives” (a broad urban coalition of forces of resistance mobilised by the “political left”).

The struggle was led by the armed forces of the Latin American state, particularly in Brazil and the southern cone of south America (Chile, Bolivia, Argentina, Uruguay), although financed by and (indirectly) under the strategic command of the US, and operating within the framework of an ideology and doctrine (the National Security Doctrine) fabricated within the ideological apparatus of the imperial state. By the end of the 1970s this movement had also suffered defeat, its forces in disarray and disarticulated under the combined weight of state repression and forces generated in the capitalist development process. With the defeat of both major fronts of the class struggle and popular movement, with the resurgence of the Right in the form of a counterrevolutionary political movement and an ideology of free market capitalism, the stage was set for a major turnaround in the correlation of opposing forces in the class struggle. Imperialism would have an important role to play in this process.

Imperialism and Capitalism in an Era of Neoliberal Globalization (1980–2000)

Neoliberalism as an ideology of free market capitalism and a doctrine of policy reform in the direction of free market capitalism—“the new economic model,” as it was termed in Latin America (Bulmer-Thomas, 2006)—was some four decades in the making, manufactured by a neoliberal thought collective put together by Van der Hayek (Mirowski and Plehwe 2009). It was not until the early 1980s that the necessary conditions for bringing these ideologues to state power, i.e., in a position to influence and dictate policy, were available or otherwise created. These conditions included an unresolved systemic crisis of overproduction, a fiscal crisis in the North and an impending debt crisis in the South, and the defeat of the popular movement in the class struggle over land and labour.

Under these conditions the imperial state, via its international organizations and financial institutions, mobilized its diverse powers and forces so as to mobilize the forces needed to reactivate the capital accumulation process. The main problem here—from a capitalist and imperialist perspective—was how to liberate the “forces of freedom” (to quote from George W. Bush’s 2012 National Security Report) from the regulatory constraints of the welfare-development state. The solution: a program of “structural reform” in macroeconomic policy (the vaunted structural adjustment program” constructed by economists at the World Bank and the IMF) within the framework of a Washington Consensus (Williamson 1990).

By 1990 all but four major Latin American states had succumbed or joined the Washington Consensus in regard to a program that was imposed on them as a conditionality of aid and access to capital markets to renegotiate the external debt. And in the 1990s, in a third cycle and generation of neoliberal reforms,[14] the governing neoliberal regimes in three of these states—Argentina, Brazil, Peru—had followed suit, generating conditions that would facilitate a massive inflow of productive capital in the form of Foreign Direct Investment (FDI) as well as a substantial inflow of unproductive or fictitious capital seeking to purchase the assets of existing lucrative but privatised state enterprises (Petras and Veltmeyer 2004).

What followed was what has been described as the “Golden Age of US Imperialism” (viz. the facilitated entry and productive operations of large-scale profit- and market-seeking investment capital), as well as the formation of powerful peasant and indigenous social movements to resist the neoliberal policy offensive and protest the destructive impact of neoliberal policies on their livelihoods and communities—movements no longer directed against the big landlords or corporate capital and agribusiness but against the policies of the local and imperial state (Petras and Veltmeyer 2005a, 2009, 2013). By the end of the decade these movements had successfully challenged the hegemony of neoliberalism in the region as an economic model and policy agenda. What resulted was a “red” and “pink” tide of regime change—a turn to the left in national politics and the formation of regimes oriented towards the “socialism of the 21st century (Venezuela, Bolivia, Ecuador) or a post-Washington consensus on the need for a more inclusive form of development—inclusionary state activism (Argentina, Brazil, Chile, Uruguay . . .).[15] The states formed in the so-called “red wave” of regime change constituted a new anti-imperialist front in the struggle against US imperialist intervention—another front to the one formed by the social movements in their resistance and direct action.

Salinas de Gortiari, Bush Senior, Mulroney

At the level of national politics the main issues was US intervention in Latin America affairs, including the funding of opposition groups in Venezuela, the economic blockade against Cuba, and the attempt by the US government to orchestrate a free trade agreement, first between the US and both Canada and Mexico, and then a continent-wide agreement (FTAA, or ALCA in its Spanish acronym). The US regime was successful in the first instance, but failed miserably in the second—having encountered powerful forces of resistance in the popular sector of many states, as well as widespread opposition within the political class and elements of the ruling class and the governing regime in countries such as Brazil.

Both imperialism and the anti-imperialist struggle in this conjuncture of capitalist development assumed different forms in different countries, but Colombia was unique in that the most powerful movement in the 1960s land struggle had never been defeated. With land still at the centre of the class struggle the existence and large-scale operations of what we might term narcocapitalism allowed the US imperial state to move with armed force against the major remaining obstacle to the capitalist development of agriculture in Colombia—to make the countryside safe for US capital—under the façade of a drug war waged by the government against the manufacturers of cocaine and the narco-trafficking. The mechanism of this imperial offensive was Plan Colombia, a US military and diplomatic aid initiative aimed at combating Colombian drug cartels and left-wing insurgent groups in Colombian territory. The plan was originally conceived between 1998 and 1999 by the administrations of Colombian President Andrés Pastrana Arango and US President Bill Clinton, as an anti-cocaine strategy but with the aim of ending the Colombian armed conflict and making the countryside safe for US capital (Vilar and Cottle 2011).

A third front in the imperialist offensive against the forces of resistance in the popular sector involved International cooperation and the agencies of international development. The strategy employed by these agencies was the same as successfully used in the 1960s and 1970s to dampen the fires of revolutionary ferment in the countryside: to offer the dispossessed peasants and the rural poor a non-confrontational alternative to social mobilization and direct collective action (Veltmeyer 2005). The strategy had a different outcome in different countries.

In Ecuador, home to the most powerful indigenous movement in the region—the Confederation of Indigenous Nationalities of Ecuador (CONAIE)—the strategy of ethnodevelopment orchestrated by the World Bank and the IDB resulted in dividing and weakening the movement, undermining its capacity to mobilise the forces of popular resistance (Petras and Veltmeyer 2009). For example, in just a few years Antonio Vargas, President of CONAIE and leader of the major indigenous uprising of the twentieth century, had been converted into the head of one of the most powerful NGOs in the region, with the capacity to disburse funds for local development microprojects and a resulting diminution in the power of CONAIE to mobilise the forces of resistance. By 2007, when Rafael Correa, a left-leaning economist, came to power as the country’s president, the indigenous movement led by CONAIE, was but a shadow of its former self, allowing the political left, in the form of Correa’s Citizens Movement, to push CONAIE and the indigenous movement aside in the political project of a “Citizen’s Revolution.”

The outcome was rather different in Bolivia, a paradigmatic case of anti-neoliberalism and anti-imperialism in the current conjuncture of the class struggle. Whereas the popular movement in Ecuador had been pushed aside in the capture of the instruments of state power by the Political Left, in Bolivia an extended process of class conflict and mass mobilization was the prelude and condition of the Political Left’s rise to power in the form of the Movement Towards Socialism (MAS). The water and gas “wars”, clashes with the military, and the dismissal of several corrupt and neoliberal governments, were all part of a cocktail that allowed for the emergence of a new political “actor” or instrument in the form of MAS, and the rise to power of Evo Morales, which was backed by the “social movements”—that encompassed both communities of indigenous “peasants,” a rural proletariat of landless workers, and diverse sectors of the organised working class (Dangl 2007; Farthing and Kohl 2006; Webber 2010).

Imperialism and Anti–Imperialism in an Era of Extractive Capitalism

The neoliberal “structural reform” agenda of the Washington Consensus facilitated a massive inflow of capital in the form of foreign direct investments directed towards non-traditional manufacturing, financial and high-tech information-rich services, and natural resource extraction.  The 1990s saw a six-fold increase in the inflows of FDI in the first four years of the decade and then another sharp increase from 1996 to 2001; in fewer than ten years the foreign capital accumulated by MNCs in the region had tripled (ECLAC 2012, 71) while profits soared. John Saxe-Fernandez, a well-known Mexico-based political economist, determined that over the course of the decade that the inflow of FDI had netted enormous profits, reflected in the net outflow of US$100 billion over the entire decade of (Saxe-Fernández and Núñez 2001).

Another major inflow occurred in the first decade of the new millennium in the context of a major expansion in the worldwide demand for natural resources and a consequent primary commodities boom in South America (Ocampo 2007). As shown by data presented in Table 1 this boom in the export of primary commodities in the energy sector of fossil and bio-fuels (oil and gas), as well as minerals and metals, and agrofood products primarily affected South America, which led a worldwide trend towards the (re)primarization of exports from the periphery of the system and the expansion of extractive capitalism.

The main targets and destination points for FDI in Latin America over the past two decades have been services (particularly banking and finance) and the natural resources sector: the exploration, extraction, and exploitation of fossil and biofuel sources of energy, precious metals and industrial minerals, and agrofood products. In the previous era of state-led development FDI had predominantly served as a means of financing the capitalist development of industry and a process of “productive transformation” (technological conversion and modernization), which was reflected in the geoeconomics of global capital and the dynamics of capital flows at the time. However, the new world order and two generations of neoliberal reforms dramatically improved conditions for capital, opening up in Latin America the market for goods manufactured in the North (the United States, Canada, and Europe) and providing greater opportunities for resource-seeking capital—consolidating the role of Latin America as a source and supplier of natural resources and exporter of primary commodities, a role that is reflected in the flows of productive investment in the region away towards the extractive industries (see Table 2).

At the turn into the new millennium the service sector accounted for almost half of FDI inflows, but data presented by ECLAC (2012, 50) point towards a steady and increasing flow of capital towards the natural resources sector in South America, especially mining, where Canadian capital took a predominant position, accounting for up to 70 percent of FDI in this sector (Arellano 2010). Over the course of the first decade in the new millennium the share of “resource seeking” capital in total FDI increased from 10 to 30 percent. In 2006 the inflow of “resource-seeking” investment capital grew by 49 percent to reach 59 billion US dollars, which exceeded the total FDI inflows of any year since economic liberalization began in the 1990s (UNCTAD 2007: 53).

Despite the global financial and economic crisis at the time, FDI flows towards Latin America and the Caribbean reached a record high in 2008 (128.3 billion US dollars), an extraordinary development considering that FDI flows worldwide at the time had shrunk by at least 15 percent. This countercyclical trend signalled the continuation of the primary commodities boom and the steady expansion of resource-seeking capital in the region.

The rapid expansion in the flow of FDI towards Latin America in the 1990s reflected the increased opportunities for capital accumulation provided by the neoliberal policy regimes in the region, but in the new millennium conditions for capitalist development had radically changed. In this new context, which included a major realignment of economic power and relations of trade in the world market, and the growth in both the demand for and the prices of primary commodities, the shift of FDI towards Latin America signified a major change in the geo-economics and geopolitics of global capital. Flows of FDI into Latin America from 2000 to 2007 for the first time exceeded those that went to America, only surpassed by Europe and Asia. And the global financial crisis brought about an even more radical change in the geo-economics of global capital in regard to both its regional distribution (increased flows to Latin America) and sectoral distribution (concentration in the extractive sector). In 2005, the “developing” and “emerging” economies attracted only 12 percent of global flows of productive capital but by 2010, against a background of a sharp decline in these flows, these economies were the destination point for over 50 percent of global FDI flows (CEPAL 2012. In the same year FDI flows into Latin America increased by 34.6 percent, well above the growth rate in Asia, which was only 6.7 percent (UNCTAD 2012: 52-54).

The flow of productive capital into Latin America has been fuelled by two factors: high prices for primary commodities, which attracted “natural-resource-seeking investment”, and the economic growth of the South American sub-region, which encouraged market-seeking investment. This flow of FDI was concentrated in four South American countries—Argentina, Brazil, Chile, and Colombia—which accounted for 89 percent of the sub-region’s total inflows. The extractive industry in these countries, particularly mining, absorbed the greatest share of these inflows. For example, in 2009, Latin America received 26 percent of global investments in mineral exploration (Sena-Fobomade 2011). Together with the expansion of oil and gas projects, mineral extraction constitutes the single most important source of export revenues for most countries in the region.

The Geopolitics of Capital in Latin America: The Dynamics of Extractive Imperialism

As noted, a wave of resource-seeking FDI was a major feature of the political economy of global capitalist development at the turn into the first decade of the new millennium. Another was the demise of neoliberalism as an economic doctrine and model—at least in South America, where powerful social movements successfully challenged this model. Over the past decade a number of governments in this sub-region, in riding a wave of anti-neoliberal sentiment generated by these movements experienced a process of regime change—a tilt towards the left and what has been described as “progressive extractivism” (Gudynas 2010).

The political victories of these democratically elected “progressive” regimes opened a new chapter in the class struggle and the anti-imperialist movement, notwithstanding the fact that the wide embrace of resource-seeking FDI, or extractive capital, has generated deep paradoxes for those progressive regimes in the region committed to addressing the inequality predicament and conditions of environmental degradation that are fast reaching crisis proportions as a result of the operations of extractive capital.

Some political leaders and social movements in this context speak of revolution in the context of moving towards “the socialism of the 21st century—Venezuela’s “Bolivarian” revolution, Bolivia’s “democratic and cultural revolution,” and Ecuador’s “citizens’ revolution”—and, together with several governments that have embraced the new developmentalism (the search for a more inclusive form of development), these regimes have indeed taken some steps in the direction of poverty reduction and social inclusion, using the additional fiscal revenues derived from resource rents to this purpose. Yet, like their more conservative neighbours—regimes such as Mexico and Colombia, committed to both neoliberalism and an alliance with “imperialism”—the left-leaning progressive regimes in the region find themselves entangled in a maze of renewed dependence on natural resource extraction (the “new extractivism”) and primary commodity exports (“reprimarization”). Further, as argued by Gudynas (2010), this new “progressive” extractivism is much like the old “classical” extractivism in its destruction of both the environment and livelihoods, and its erosion of the territorial rights and sovereignty of indigenous communities most directly affected by the operations of extractive capital, which continues to generate relations of intense social conflict.[16]

Despite the use by “progressive” centre-left governments of resource rents as a mechanism of social inclusion and direct cash transfers to the poor, it is not clear whether they are able to pursue revolutionary measures in their efforts to bring about a more inclusive and sustainable form of development, or a deepening of political and economic democratization, allowing the people to “live well”, while at the same time continuing to toe the line of extractive capital and its global assault on nature and livelihoods. The problem here is twofold. One is a continuing reliance of these left-leaning post-neoliberal regimes (indeed, all but Venezuela) on neoliberalism (“structural reforms”) at the level of macroeconomic public policy. The other problem relates to the so-called “new extractivism” based on “inclusionary state activism” as well as the continued reliance on FDI—and thus the need to strike a deal with global capital in regard to sharing the resource rents derived from the extraction process. The problem here is that in this relation of global capital to the local state the former is dominant and has the power, which is reflected in the tendency of the governments and policy regimes formed by the new Latin American Left, even those like Ecuador and Peru that have taken a “radical populist form,” to take the side of global capital (the multinational mining companies) in their relation of conflict with the communities that are directly affected by the extractive operations of these companies (see the various country case studies in Veltmeyer and Petras 2014).

Another indicator of the relation of dependency between global extractive capital and the Latin American state is the inability of the latter to regulate the former and the extraordinary profits that are made by the companies that operate in the extractive sector. It is estimated that given very low or, as in the case of Mexico, non-existent royalty rates and the typically lax and low tax regime on the exportation of minerals and minerals—a major factor in the export regime of a number of countries in the region (particularly Chile, Bolivia, Colombia, Peru) —over 70 percent of the value of these minerals and metals on the global market is appropriated by different groups of capitalists in the global production chain. For example, Financial Times reported on April 18, 2013 that from 2002 to 2008, during the height of the primary commodities boom, the biggest commodity traders harvested 250 billion US dollars in profits on their “investments.”[17]

At the same time, given the capital intensity of production in the extractive sector it is estimated that workers generally received less than ten percent of the value of the extracted resources. Typically, the benefits of economic growth brought about by the export of Latin America’s wealth of natural resources are externalised, while the exceedingly high social end environmental costs are internalised, borne by the communities most directly affected by the operations of extractive capital (Clark 2002; Veltmeyer and Petras 2014).

The continued reliance on the neoliberal model of structural reform within the framework of a post-Washington Consensus on the need to bring the state back into the development process, together with the turn towards and a continued reliance on extractive capital (“resource-seeking” FDI), constitute serious economic, social and political problems for Latin American states seeking to break away from the dictates of global capital and the clutches of imperial power. However, the turn of the State in Latin America towards regulation in regard to the operations of extractive capital, as well as the growing popular resistance and opposition to their destructive and negative socioenvironmental impacts of these operations, also constitute major problems for global capital. The difference is that the capitalists and companies that operate in the extractive sector are able to count on the support and massive resources and powers of the imperialist state.

In regard to the issue of regulation the states and international organisations that constitute imperialism have been able to mobilize their considerable resources and exercise their extensive powers to create a system of corporate self-regulation in the form of a doctrine of a Corporate Social Responsibility doctrine (Gordon 2010; MiningWatch Canada 2009).[18] With this doctrine the Latin American states that have turned to or resorted to a strategy of natural resource development have been under tremendous pressure to allow the companies that operate in the extractive sector to regulate themselves.

As for the issue of the resource wars and social conflicts that have surrounded the operations of extractive capital, particularly in the mining sector, over the past two decades the imperial state has come to the rescue of extractive capital time and time again. In this regard the Canadian state has been particularly aggressive in its unconditional and relentless support of the Canadian mining companies that dominate foreign investments in the industry—accounting as they for upwards of 70 percent of the capital invested in this subsector in Latin America.[19]

The support of the Canadian government for these companies, via diplomatic pressures exerted on Latin American governments in favour of corporate social responsibility, financial support and assistance in overcoming the widespread resistance to the extractive operations of Canadian mining companies in Latin America, has gone so far as to place the entire apparatus of Canada”s foreign aid program at the disposal of these companies (Engler 2012; Gordon 2010; Webber 2008).

Conclusion: Theses on the Imperialism of the 21st Century

The conclusions that we have drawn from our analysis of economic and political developments in Latin America over the past two decades can be summed up in the form of twelve theses:

1.The dynamic forces of capitalist development are both global in their reach and uneven in their outcomes. Furthermore the capital accumulation process engages both the geo-economics of capital—the advance of capital in time and place—and the agency of the imperial state in facilitating this advance: the geopolitics of capital.

  1. Class analysis provides an essential tool for grasping the changing economic and political dynamics of imperial power in the various conjunctures of capitalist development. It allows us to trace out different stages in the development of the forces of production and the corresponding relations of production and dynamics of class struggle. These dynamics, which we have traced out in the Latin American context, are both internal and international, implicating both the capital-labour relation and a north-south divide in the world capitalist system.
  2. Whereas in the 1980s imperialism was called upon to remove the obstacles to the advance of capital and to facilitate the flow of productive investment into the region in the new millennium it has been called upon to assist capital in its relation of conflict with the communities directly affected by the operations of extractive capital, as well as cope with the broader resistance movement.
  3. The shift in world economic power in the new millennium, and the new geoeconomics of capital in the region, have significant implications for US imperialism and US-Latin American relations, reducing both the scope of US state power and the capacity of Washington to dictate policy or dominate economic and political relations. This is reflected inter alia in the formation of CELAC, a new political organisation of states that explicitly excludes the United States and Canada, the two imperial states on the continent.
  4. The new millennium, in conditions of a heightened global demand for natural resources, the demise of neoliberalism as an economic model and a number of popular upheavals and mass mobilizations, released new forces of resistance and a dynamic process of regime change.
  5. The centre-left regimes that came to power under these conditions called for public ownership of society’s wealth of natural resources, the stratification and renationalization of privatized firms, the regulation of extractive capital in regard to its negative impact on livelihoods and the environment (mother nature), and the inclusionary activism of the state in securing a progressive redistribution of wealth and income. As in the 1990s, the fundamental agency of this political development process were the social movements with their social base in the indigenous communities of peasant farmers and a rural proletariat of landless or near-landless workers. These movements mobilized the forces of resistance against both the neoliberal agenda of “structural reform” in macroeconomic policy, the negative socio-environmental impact of extractive capitalism, and the projection of imperial power in the region.
  6. These forces of change and resistance did not lead to a break with capitalism. Instead some of “centre-left” regimes took power and, benefitting from high commodity prices, proceeded to stimulate an economic recovery and with it an improvement in the social condition of the population (extreme poverty). But the policies of these regimes led to the demobilization of the social movements and a normalization of relations with Washington, albeit with greater state autonomy. In this context Washington in this period lost allies and collaborator clients in Argentina, Brazil, Uruguay, Bolivia, Venezuela and Ecuador—and, subsequently faced strong opposition throughout the region. However, Washington retained or regained clients in Panama, Costa Rica, Honduras, Colombia, Peru, Mexico and Chile. Of equal importance the centre-left regimes that emerged in the region stabilized capitalism, holding the line or blocking any move to reverse the privatization policy of earlier regimes or to move substantively towards what President Hugo Chávez termed “the socialism of the 21st century.”
  7. The fluidity of US power relations with Latin America is a product of the continuities and changes that have unfolded in Latin America. Past hegemony continues to weigh heavily but the future augurs a continued decline. Barring major regime breakdowns in Latin America, the probability is of greater divergences in policy and a sharpening of existing contradictions between the spouting of rhetoric and political practice on the political left.
  8. In the sphere of military influence and political intervention, collaborators of the US suffered major setbacks in their attempted coups in Venezuela (2002, 2003) and Bolivia (2008), and in Ecuador with the closing of the military base in Manta; but they were successful in Honduras (2009). The US secured a military base agreement with Colombia, a major potential military ally against Venezuela, in 2009. However, with a change in the presidency in Colombia, Washington suffered a partial setback with the reconciliation between President Chávez and Santos. A lucrative 8 billion US dollars trade agreements with Venezuela trumped Colombia’s military-base agreements with Washington.

10.It is unlikely that the Latin American countries that are pursuing an extractivist strategy of national development based on the extraction of natural resources and the export of primary commodities will be able to sustain the rapid growth in the context of contradictions that are endemic to capitalism but that are sharper and have assumed particularly destructive form with extractive capitalism.

11.The destructive operations of extractive capital, facilitated and supported by the imperial state has generated powerful forces of resistance. These forces are changing the contours of the class struggle, which today is focused less on the land and the labour struggle than on the negative socio-environmental impacts of extractive capital and the dynamics of imperialist plunder and natural resource-grabbing.

12.The correlation of forces in the anti-imperialist struggle is unclear and changing, but it is evident that the United States has lost both power and influence. Taken together these historical continuities argue for greater caution in assuming a permanent shift in imperial power relations with Latin America. Nevertheless, there are powerful reasons to consider the decline in US power as a long-term and irreversible trend.

James Petras taught Sociology at Binghamton University

Henry Veltmeyer  teaches development studies at the Universidad Autónoma de Zacatecas

Monopoly capitalism and the Irish economy

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Two brilliant articles by Kieran Crilly published in this months Socialist Voice, magazine of the Communist Party of Ireland, look at monopoly capitalism in Ireland and expose the myth of competition which underlines much of the media presentation of the economy from establishment sources. Why? Because it is politically motivated by the desire to defend capitalism and increase its reach and strength over our lives. This well worth reading.

Kieran Crilly

Taken from the November Socialist Voice

Introductory orthodox economics is dominated by the concept of what is called “perfect competition.” This is based on four assumptions. (1) The industry or sector has a large number of small firms that cannot affect the price of the goods if they increase or decrease production. (2) All firms produce the exact same product. (3) It is easy to enter or leave the industry. (4) There is full knowledge of the prices and profits of all firms.

The reality is different.

The modern economy is dominated by large firms—monopolies and near-monopolies; and they set the prices for their products.

All goods in a modern economy are different in the eyes of the consumer, because of advertising and promotion.

In nearly all industries nowadays there are barriers to entry, so it is difficult for new firms to enter.

In some instances it is difficult to find out the price being charged: for example the tariffs of gas and electricity companies are so complicated that there are even comparison sites on the internet. The same applies to insurance and to mobile phones. And supermarkets change some of their prices by the day.

Most students study economics for one year and come away with the idea that the consumer has some say in the economy. We get consumers being urged to “shop around,” even though under a monopoly there is only one firm, and with oligopoly (a small number of firms dominating a sector) firms do not compete on price: they either collude (setting an agreed profit-maximising price) or follow the price set by the leading firm. Computers have made the setting of price to maximise profits easier. Firms (shareholders, through the profits they make) are the main beneficiaries of the economic system.

Students are taught that price is determined by supply and demand. But only demand exists while price is set by the monopolists and the firms in oligopoly to maximise profit. So supply is not relevant.

“Perfect competition” is Alice in Wonderland economics, used to hide the real structure of the economy. It is merely pro-capitalism ideology.

In this article we analyse different branches of the Irish economy according to the dominance of one firm or a small number of firms.

Supermarkets

This sector is dominated by five firms: Supervalu, Dunne’s, Tesco, Aldi, and Lidl. They give the impression of competing on price by taking full-page advertisements citing low prices for a small range of products. With these enticements they encourage people to do a full shopping in their stores, leading to increased sales and profits.

Aldi and Lidl (two German companies) have expanded rapidly and have put pressure on the existing firms. Tesco has responded by opening smaller and more expensive “express” branches. Dunne’s has reacted by introducing zero-hour contracts.

There is informal evidence that Tesco charges higher prices in Ireland than they do in Britain, and that Aldi and Lidl charge higher prices than they do in Germany. They all try to maximise profits and so maximise share prices for their shareholders.

Banks

Banking in Ireland is dominated by Allied Irish Bank, Bank of Ireland, Irish Permanent, Ulster Bank, and KBC.

Now, they do not compete on price for deposits or when they are lending. They try to confuse the public by offering a large number of different rates of interest on deposits. They also reduce rates without informing the depositor. They put small advertisements in the daily papers. For mortgages, Irish banks charge about 4 per cent, while their European counterparts charge 2 per cent. This is because they want to build up their capital so that they can be sold back to the private sector. In the case of Bank of Ireland it is to increase profits and share price for its shareholders.

So if you pay 4 per cent you will get a mortgage. It’s a “take it or leave it” proposition. The Central Bank does not regulate the interest rates in the interest of consumers.

Insurance companies

Insurance (motor and home) is dominated by six companies: FBD, Axa, Aviva, Liberty, Royal Sun Alliance (123.ie), and AIG. They have raised their prices on average by 20 per cent in the past year, but there is no way that customers can tell whether the price increase is justified.

As these are mainly subsidiaries of foreign companies, they may be taking advantage of Irish customers so that they can send back more profits to their parent companies. They are licensed by the Central Bank, but it does not regulate their prices. One would expect a regulation of prices with an oligopoly, where a small number of firms dominate, if the Central Bank were interested in consumers.

Mobile phones

There is only a small number of mobile phone manufacturers in the world. Apple, Samsung and Nokia dominate the market. They update their models regularly so that their older models become obsolete. They advertise heavily. They charge high prices for their products to maximise their profits.

There are three mobile network providers in Ireland: Meteor, Vodafone, and 3. Each provides a range of payment methods, and it is very difficult for customers to work out which is the best option for them. By confusing customers they aim to get the largest number of customers and maximise profits. They minimise costs by having a small number of retail outlets and a small head office staff. Once the network of masts is installed, maintenance costs are minimal.

Alcohol

The beer and cider sector is dominated by three companies: Diageo (Guinness), Bulmers, and Heineken. They set prices to maximise profits. They advertise heavily, and they sponsor sports and music events to attract young people into the drinking habit. They portray drink as a beneficial product, when all the medical evidence shows that in fact it is harmful.

The medical profession asked the government to introduce legislation that would ban drinks companies from sponsoring sports events. But the government of Fine Gael and the Labour Party put the profits of the drinks companies before the health of the population and decided not to introduce a ban.

The whiskey industry is dominated by two firms: Irish Distillers (Pernod Ricard) and Diageo. They are free from government regulation to set their prices to maximise profits.

Television satellite and cable companies

Satellite sports television is dominated by three companies: Sky, BT Sport, and Setanta. These companies offer billions for the right to screen live English premiership matches. They charge high monthly rentals to recoup their costs, and they make large profits.

Rupert Murdoch, the owner of Sky, was able to buy Fox News in the United States with the large profits he made in Britain and Ireland after Margaret Thatcher allowed him to set up Sky in the late 1980s.

The cable companies, UPC and now Eircom, are offering packages of phone, broadband and television; Sky is doing the same. You have to take all three services (a “bundle”) at a set price. The three companies are setting a similar price for the bundles. These offers are heavily advertised and are set at a low initial price to get new customers, who enable these firms maximise profits.

Terrestrial stations

RTE (including RTE1, RTE2, and TG4) is the state channel; its main rivals are TV3, BBC, UTV, and Channel 4. But it also has to compete with Sky.

The terrestrial channels are losing out to Sky, because they are buying up the rights to sports events which were available free. Sky has bought up the rights to some international soccer and rugby friendlies and GAA matches; if you haven’t got Sky you have no access to the matches.

Profit is the driving force for Sky in all of this. They gain extra income from new subscribers and from the extra advertising generated by the matches. Rupert Murdoch only wants Sky to grow and expand his empire.

Radio

National radio is dominated by RTE (Radio 1, Radio 2, Lyric, and Raidió na Gaeltachta). It is financed through the licence fee and advertising, and it competes for advertising with stations in the private sector. Getting funds from the licence fee impose an obligation on the television and radio stations to provide high-quality programming.

The private sector is dominated by two groups: Communicorp (Newstalk, Today FM, Dublin 98, Spin 1038, Spin Southwest, and TXFM), in which Denis O’Brien is a major shareholder, and UTV Radio Solutions (Dublin FM 104, Dublin Q102, Cork 96 FM, Limerick Live 95 FM, LMFM, U105, WLRFM, and Galway Bay FM).

The private stations aim to maximise profits, which they do by having wall-to-wall pop music. They have no commitment to high-quality programming. Because they are owned by businessmen it is probable that they have a pro-business and pro-conservative (Fine Gael and Fianna Fáil) bias in their news and their economic and political coverage.

National newspapers

Irish News and Media Group, with six titles, is the largest media group in the country. It comprises the Irish Independent, Herald, Irish Daily Mail, Irish Mail on Sunday, Sunday Independent, Sunday World, and 50 per cent of the Daily Star.

The Irish Times (owned by a trust), the Irish Examiner (owned by the Crosby family of Cork) and the Sunday Business Post (owned by Key Capital and Paul Cooke, Irish businessmen) are the other Irish-owned papers. The Irish Daily Mirror and Irish Sunday Mirror are owned by the British company Trinity Mirror. The Irish Sun, Irish Sun on Sunday and Sunday Times are owned by Murdoch companies.

There are only six owners of newspapers in Ireland, despite the number of titles. Each of these companies tries to maximise its profits. They have a lot of power, as they set the agenda of politics here. The same comment applies to them as was applied to radio stations.

Cement and building materials

Cement Roadstone (CRH Holdings) is the largest company quoted on the Irish Stock Exchange, and the only Irish company to appear among the top 160 companies in Europe by income in 2012. It had a 100 per cent monopoly in the production of cement until recent years, when the Quinn factory was set up in Co. Fermanagh.

There is a significant barrier to entry when cement is produced in an island country. The shipping and delivery costs for cement are high, because its ratio of value to weight is low. A tonne of cement is cheap, but the cost of transporting it from England to Ireland is high. So cement prices were kept high, and large profits flowed in. Using these profits, CRH was able to expand abroad. The company is also dominant in the building materials sector.

Non-alcoholic carbonated drinks (fizzy drinks)

This sector is dominated by the Coca-Cola Group and the Pepsi-Cola Group and to a lesser extent by the Cantrell and Cochrane Group. In recent years Coca-Cola has introduced a smaller bottle (200 ml) instead of the previous larger bottle (330 ml); but hotels, pubs and restaurants are charging the same price as previously, which has the same effect as a whopping 65 per cent increase in price.

These companies are good at fighting their corner when it comes to governments “interfering” in their market. Obesity has become a growing problem, especially among young people, and health experts have called for a sugar tax. Carbonated drinks contribute to obesity because they contain large amounts of sugar. Our pro-business government ignored the pleas of the medical profession and the health needs of our young people and dropped the idea of a sugar tax. The needs of business are more important than the health of the nation.

Motor vehicles

In 2014 a total of 93,361 new cars were sold. Of these, 23,825 (26 per cent) were supplied by the Volkswagen Group, 9,658 (10½ per cent) were Toyota, 9,040 (10 per cent) were Ford, 7,410 (8 per cent) were Hyundai, 6,691 (7 per cent) were Nissan, and 6,156 (6½ per cent) were Opel. Between them these six companies supplied a total of 62,776 cars, or 68 per cent of all cars bought in Ireland. There is competition among the few, but the last thing they want to do is to compete on price.

It is interesting that the Central Statistics Office does not collect information on car prices.

Petrol and diesel

Four companies—BP, Exxon Mobil, Chevron, and Royal Dutch Shell—dominate the petrol, diesel and heating-oil sectors. These were originally seven companies that merged to form three. From the late 1920s these companies shared production zones and transport costs and agreed sales prices. As a cartel, they colluded—and still collude—on price, and smaller operators follow suit.

No government would dare take on these companies, as they have overthrown governments and have pauperised countries, such as Nigeria.

Department stores (Dublin)

Three department stores—Arnott’s, Debenham’s, and Marks and Spenser—serve mainly middle-income people, with Dunne’s and Penney’s mainly serving ordinary people while Brown Thomas caters for the bourgeoisie.

Summary

There is nothing free about the “free market,” except that it is free from government regulation. But because nearly all branches of the economy, including those not listed above, are dominated by one or a small number of firms, the state should regulate these sectors much more in the interest of the majority of the population, who are being exploited by a relatively small number of firms.

Karl Marx Was Right

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Global Research, June 01, 2015
http://www.globalresearch.ca/karl-marx-was-right/5452795

Karl Marx exposed the peculiar dynamics of capitalism, or what he called “the bourgeois mode of production.” He foresaw that capitalism had built within it the seeds of its own destruction. He knew that reigning ideologies—think neoliberalism—were created to serve the interests of the elites and in particular the economic elites, since “the class which has the means of material production at its disposal, has control at the same time over the means of mental production” and “the ruling ideas are nothing more than the ideal expression of the dominant material relationships … the relationships which make one class the ruling one.” He saw that there would come a day when capitalism would exhaust its potential and collapse. He did not know when that day would come. Marx, as Meghnad Desai wrote, was “an astronomer of history, not an astrologer.” Marx was keenly aware of capitalism’s ability to innovate and adapt. But he also knew that capitalist expansion was not eternally sustainable. And as we witness the denouement of capitalism and the disintegration of globalism, Karl Marx is vindicated as capitalism’s most prescient and important critic.

In a preface to “The Contribution to the Critique of Political Economy” Marx wrote:

No social order ever disappears before all the productive forces for which there is room in it have been developed; and new higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself.

Therefore, mankind always sets itself only such tasks as it can solve; since looking at the matter more closely, we always find that the task itself arises only when the material conditions necessary for its solution already exist, or are at least in the process of formation.

Socialism, in other words, would not be possible until capitalism had exhausted its potential for further development. That the end is coming is hard now to dispute, although one would be foolish to predict when. We are called to study Marx to be ready.

The final stages of capitalism, Marx wrote, would be marked by developments that are intimately familiar to most of us. Unable to expand and generate profits at past levels, the capitalist system would begin to consume the structures that sustained it. It would prey upon, in the name of austerity, the working class and the poor, driving them ever deeper into debt and poverty and diminishing the capacity of the state to serve the needs of ordinary citizens. It would, as it has, increasingly relocate jobs, including both manufacturing and professional positions, to countries with cheap pools of laborers. Industries would mechanize their workplaces. This would trigger an economic assault on not only the working class but the middle class—the bulwark of a capitalist system—that would be disguised by the imposition of massive personal debt as incomes declined or remained stagnant. Politics would in the late stages of capitalism become subordinate to economics, leading to political parties hollowed out of any real political content and abjectly subservient to the dictates and money of global capitalism.

But as Marx warned, there is a limit to an economy built on scaffolding of debt expansion. There comes a moment, Marx knew, when there would be no new markets available and no new pools of people who could take on more debt. This is what happened with the subprime mortgage crisis. Once the banks cannot conjure up new subprime borrowers, the scheme falls apart and the system crashes.

Capitalist oligarchs, meanwhile, hoard huge sums of wealth—$18 trillion stashed in overseas tax havens—exacted as tribute from those they dominate, indebt and impoverish. Capitalism would, in the end, Marx said, turn on the so-called free market, along with the values and traditions it claims to defend. It would in its final stages pillage the systems and structures that made capitalism possible. It would resort, as it caused widespread suffering, to harsher forms of repression. It would attempt in a frantic last stand to maintain its profits by looting and pillaging state institutions, contradicting its stated nature.

Marx warned that in the later stages of capitalism huge corporations would exercise a monopoly on global markets. “The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe,” he wrote. “It must nestle everywhere, settle everywhere, establish connections everywhere.” These corporations, whether in the banking sector, the agricultural and food industries, the arms industries or the communications industries, would use their power, usually by seizing the mechanisms of state, to prevent anyone from challenging their monopoly. They would fix prices to maximize profit. They would, as they [have been doing], push through trade deals such as the TPP and CAFTA to further weaken the nation-state’s ability to impede exploitation by imposing environmental regulations or monitoring working conditions. And in the end these corporate monopolies would obliterate free market competition.

May 22 editorial in The New York Times gives us a window into what Marx said would characterize the late stages of capitalism:

As of this week, Citicorp, JPMorgan Chase, Barclays and Royal Bank of Scotland are felons, having pleaded guilty on Wednesday to criminal charges of conspiring to rig the value of the world’s currencies. According to the Justice Department, the lengthy and lucrative conspiracy enabled the banks to pad their profits without regard to fairness, the law or the public good.

The Times goes on:

The banks will pay fines totaling about $9 billion, assessed by the Justice Department as well as state, federal and foreign regulators. That seems like a sweet deal for a scam that lasted for at least five years, from the end of 2007 to the beginning of 2013, during which the banks’ revenue from foreign exchange was some $85 billion.

The final stages of what we call capitalism, as Marx grasped, is not capitalism at all. Corporations gobble down government expenditures, in essence taxpayer money, like pigs at a trough. The arms industry with its official $612 billion defense authorization bill—which ignores numerous other military expenditures tucked away in other budgets, raising our real expenditure on national security expenses to over $1 trillion a year—has gotten the government this year to commit to spending $348 billion over the next decade to modernize our nuclear weapons and build 12 new Ohio-class nuclear submarines, estimated at $8 billion each. Exactly how these two massive arms programs are supposed to address what we are told is the greatest threat of our time—the war on terror—is a mystery. After all, as far as I know, ISIS does not own a rowboat. We spend some $100 billion a year on intelligence—read surveillance—and 70 percent of that money goes to private contractors such as Booz Allen Hamilton, [which] gets 99 percent of its revenues from the U.S. government. And on top of this we are the largest exporters of arms in the world.

The fossil fuel industry swallows up $5.3 trillion a year worldwide in hidden costs to keep burning fossil fuels, according to the International Monetary Fund (IMF). This money, the IMF noted, is in addition to the $492 billion in direct subsidies offered by governments around the world through write-offs and write-downs and land-use loopholes. In a sane world these subsidies would be invested to free us from the deadly effects of carbon emissions caused by fossil fuels, but we do not live in a sane world.

Bloomberg News in the 2013 article “Why Should Taxpayers Give Big Banks $83 Billion a Year?” reported that economists had determined that government subsidies lower the big banks’ borrowing costs by about 0.8 percent.

“Multiplied by the total liabilities of the 10 largest U.S. banks by assets,” the report said, “it amounts to a taxpayer subsidy of $83 billion a year.”

“The top five banks—JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc.—account,” the report went on, “for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits. In other words, the banks occupying the commanding heights of the U.S. financial industry—with almost $9 trillion in assets, more than half the size of the U.S. economy—would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.”

Government expenditure accounts for 41 percent of GDP. Corporate capitalists intend to seize this money, hence the privatization of whole parts of the military, the push to privatize Social Security, the contracting of corporations to collect 70 percent of intelligence for our 16 intelligence agencies, as well as the privatization of prisons, schools and our disastrous for-profit health care service. None of these seizures of basic services make them more efficient or reduce costs. That is not the point. It is about feeding off the carcass of the state. And it ensures the disintegration of the structures that sustain capitalism itself. All this Marx got.

Marx illuminated these contradictions within capitalism. He understood that the idea of capitalism—free trade, free markets, individualism, innovation, self-development—works only in the utopian mind of a true believer such as Alan Greenspan, never in reality. The hoarding of wealth by a tiny capitalist elite, Marx foresaw, along with the exploitation of the workers, meant that the masses could no longer buy the products that propelled capitalism forward. Wealth becomes concentrated in the hands of a tiny elite—the world’s richest 1 percent will own more than half of the world’s wealth by next year.

The assault on the working class has been going on now for several decades. Salaries have remained stagnant or declined since the 1970s. Manufacturing has been shipped overseas, where workers in countries such as China or Bangladesh are paid as little as 22 cents an hour. The working poor, forced to compete with the labor of those who are little better than serfs in the global marketplace, proliferate across the American landscape, struggling to live at a subsistence level. Industries such as construction, which once provided well-paying unionized jobs, are the domain of nonunionized, often undocumented workers. Corporations import foreign engineers and software specialists that do professional work at one-third of the normal salary on H-1B, L-1 and other work visas. All these workers are bereft of the rights of citizens.

The capitalists respond to the collapse of their domestic economies, which they engineered, by becoming global loan sharks and speculators. They lend money at exorbitant interest rates to the working class and the poor, even if they know the money could never be repaid, and then sell these bundled debts, credit default swaps, bonds and stocks to pension funds, cities, investment firms and institutions. This late form of capitalism is built on what Marx called “fictitious capital.” And it leads, as Marx knew, to the vaporization of money.

Once subprime borrowers began to default, as these big banks and investment firms knew was inevitable, the global crash of 2008 took place. The government bailed out the banks, largely by printing money, but left the poor and the working class—not to mention students recently out of college—with crippling personal debt. Austerity became policy. The victims of financial fraud would be made to pay for that fraud. And what saved us from a full-blown depression was, in a tactic Marx would have found ironic, massive state intervention in the economy, including the nationalization of huge corporations such as AIG and General Motors.

What we saw in 2008 was the enactment of a welfare state for the rich, a kind of state socialism for the financial elites that Marx predicted. But with this comes an increased and volatile cycle of boom and bust, bringing the system closer to disintegration and collapse. We have undergone two major stock market crashes and the implosion of real estate prices in just the first decade of the 21st century.

The corporations that own the media have worked overtime to sell to a bewildered public the fiction that we are enjoying a recovery. Employment figures, through a variety of gimmicks, including erasing those who are unemployed for over a year from unemployment rolls, are a lie, as is nearly every other financial indicator pumped out for public consumption. We live, rather, in the twilight stages of global capitalism, which may be surprisingly more resilient than we expect, but which is ultimately terminal. Marx knew that once the market mechanism became the sole determining factor for the fate of the nation-state, as well as the natural world, both would be demolished. No one knows when this will happen. But that it will happen, perhaps within our lifetime, seems certain.

“The old is dying, the new struggles to be born, and in the interregnum there are many morbid symptoms,” Antonio Gramsci wrote.

What comes next is up to us.

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.

 

The Chronic Crisis, with Worse to Come?

Article from the excellent political economy blogger Zoltan Zigedy

http://zzs-blg.blogspot.ie/2014/09/the-chronic-crisis-with-worse-to-come.html

Looking back on the ten years following the 1929 stock market crash, Marxist economist and Science and Society co-editor, Vladimir D. Kazakevich, wrote of the “chronic crisis” that persisted throughout the nineteen thirties in the US (“The War and American Finance,” Science and Society, Spring 1940). Kazakevich drew attention to the stagnation that lasted over the decade, noting that after World War One, the United States became the most dominant economy in the world. Yet “[a]s the most powerful capitalist country, the United States developed particularly glaring financial weaknesses, attributable, for the most part, precisely to its foremost place in a capitalist world torn by economic contradiction and frustration.”
Kazakevich, a good Marxist instead of a born-again Keynesian, reflected on the collapse of growth of the capital goods sector through the New Deal decade: “These figures show how enormously capitalist activity had shrunk in the thirties as compared to the twenties. Most of the Federal expenditures of the New Deal period were directed towards sustaining the demand for consumers’ goods rather than for capital or producers’ goods… Although widely advocated, ‘priming of the pump’ from the end of consumers’ goods alone, has proved a complete failure as an economic measure for resuscitation of the capitalist organization harassed by a chronic crisis.”
Economic commentators today are increasingly nervous about a similar slump in capital goods accompanying our own “chronic crisis.” Because the growth of capital spending (and capital equipment spending) is running well below its long-term average of 8% (growing just 3% in 2013), the average age of industrial machinery and equipment in the US has surpassed 10 years, the highest average age since 1938 when Kazakevich was painting his dire picture! (The Wall Street Journal, 9-3-14) Thus, the slug-like motion of the US economy during the last seven years mimics in an important way the stagnation following the great crash initiating the Great Depression.
While capital spending may not now play quite the decisive role it played in the US economy during the 1930s, it remains a strong indicator of the hesitancy of managers to expand the productive core of the economy. They fail to see prospects for profit expansion in the extensive growth or retooling of the manufacturing sector. Of course that does not mean that managers are not seeking profits or investors are not seeking a return on investment. Managers have plowed more cash into mergers and acquisitions during the first half of 2014 than any time since 1999. That also is typically a part of capitalist restructuring after a severe crash. This rationalizing of capitalist production serves and has served to restore the growth of profit following a capitalist misadventure.
In the wake of the crash of 2007-2008 the US economy experienced a dramatic jump in labor productivity (in the absence of capital investment, this necessarily came largely from an increase in the rate of exploitation). Massive layoffs, plant closings, and weak union leadership combined wage stagnation with extreme speed up of a shrunken labor force. Profits ensued. And consequently the previously depressed rate of profit resumed its growth.
Unfortunately for the prospects of capitalism, the growth of productivity has petered out: its past 5-year average is only slightly more than half of the 20-year average, with productivity actually falling 1.7% in the first quarter of 2014. So this road to profit recovery and growth is seemingly closed.
Of course if the past productivity gains had been shared with the working class, capitalism likely would have experienced an increase in revenues (folks would have purchased more goods and services) and a rosier earnings outlook. But that did not happen. Adjusted for inflation, the cumulative growth of median household income has dropped precipitously since the crash, settling at the level of 1990. Consequently, corporate revenue growth peaked in the third quarter of 2011 and has shrunk ever since.
Thus, three signal measures promising profit-rate increases– capital investment, labor productivity, and revenue increases– are failing the US economy.
Not surprisingly, reported corporate profit growth has suffered. From its peak in the last quarter of 2009 (over 10%), it has receded steadily.
Profits, Profits, Profits!
It is important to emphasize that it is profits that fuel the capitalist system. While it seems an obvious point, it is the starting point of the Marxist theory of crisis. The capitalist system only appears healthy when the capitalist both holds capital and expects a return. He or she dreads two things: idle capital (capital with no prospect of return) and a stagnant or declining rate of return. Consequently, capitalism generates systemic growth if and only if capital is abundant, investment opportunities are rife, and the rate of profit is sufficiently enticing.
But this law of capitalist accumulation contains the seeds of capitalist crisis. As noted above, the growth of the rate of profit has been declining for some time. At the same time, the accumulation of capital is expanding faster than the overall US economy. The relative mass of profits– measured by US corporate profits as a percentage of GDP– reached unprecedented levels in the second quarter of 2014 (a level of profit/GDP only approached twice since 1947: immediately before the crash and in 1950). In other words, despite the fall in the rate of profit, the profit-generating capitalist engine is producing potential new capital faster than wealth is being produced. Three conclusions follow: capital is winning the class war, growth is lagging, and the mass of capital is growing relative to the size of the economy while the profit rate is declining.
And new capital must seek a home, a place to go to accumulate more capital.
Combine the profit-generated capital with the unprecedented cash held by corporations and the availability of cheap credit (nearly non-existent interest rates) and the capitalist class is faced with a daunting task of finding investment opportunities for a vast pool of capital.
If this sounds familiar, it is. Before the crash, many economic commentators noted that the investment world was awash in cash searching for opportunities. I wrote in April of 2007 (Tabloid Political Economy: The Coming DepressionMarxism-Leninism Today, April 5, 2007) that “Despite being awash in capital, financial power searches for investment opportunities to no avail. Economic theorists have been puzzled by the low returns available, even for high-risk or long-term investment. Under normal circumstances, risk and patience earn a premium in investment, but not today. Instead, the enormous pool of wealth concentrated in fewer hands can only lure borrowers at modest rates. There is simply too much accumulated wealth pursuing too few investment opportunities.”
It is this paradox of accumulation– two much capital, too few opportunities– that collapses the already stressed rate of profit and courts structural crisis (or deepening crisis, in our case). It is this paradox of accumulation that drives capital-gorged investors to pursue riskier and more ephemeral schemes.
Risk
Once again a vast pool of capital chases diminishing investment opportunities. Once again, as in the prelude to the crash, yields have shrunk, leading investors into riskier and more speculative investments. Pension funds and hedge funds are moving toward more arcane and less safe bets, hoping that return will outweigh the danger. As Richard Barley perceptively observes in the Wall Street Journal (August 11, 2014):
…there is a dearth of high quality securities. Yet there is still a global glut of capital seeking a home… All this creates incentives for financial engineering. In credit derivatives markets, there are signs investors are delving into esoteric structures. Citigroup reports a “large increase” in trading of products that slice and dice exposure to defaults in credit-default-swap indexes… Precrisis, low yields and seemingly benign market conditions led to the creation of instruments that ultimately few understood. The longer the reach for yield persists, the greater the chance that investors revisit the unhappy past.
For some time, the elusive “reach for yield” has driven a re-vitalized junk-bond market. In the five years after the crash, four of the ten fastest-growing bond funds held substantial quantities of low rated debt, according to WSJ analysts. They note that this “…development underscores the intense demand for investment returns since the 2008 crisis.”
But the flow of cash to the high yield market depressed yields to levels unseen since late 2007. They are rising again as investors sense that global economic turmoil and low yields signal danger.
The mania for mergers and acquisitions has also swung into dangerous, risky territory. Despite Federal guidelines urging the limitation of leverage to six times gross earnings by banks financing acquisitions, forty percent of private-equity takeovers in 2014 have exceeded the 6X rule. This rate is fast approaching the pre-crisis level of 2007.
The Wealth Effect
A seemingly robust stock market and a relatively stable US debt market join to create the illusion of a healthy, prosperous economy. They have, to great effect, masked the serious cracks in US capitalism.
The long anticipated Federal Reserve retreat from QE (Quantitative Easing: the purchase of US and other debt by the Fed) has not brought the disaster that many in the punditry and on Wall Street feared. Seldom noted, however, is the fact that the Peoples Republic of China has escalated its purchase of US treasuries nearly dollar for dollar against the Federal Reserve’s retreat.
The “stellar” performance of equities is another matter. One moderately alarming sign is the steady march of equity price-to-earnings ratios to a territory greater than the long-term average and to a level equal to or above that of 2006-2007. Of course this alone does not explain the market’s performance.
A puzzling aspect of equity price expansion is the historically low market activity in the post-crash period. What, then, has jacked up stock prices?
Part of the answer lies in corporate repurchases of shares, a practice that elevates the market price by taking stocks off the table. The Wall Street Journal (9-16-14) reports that $338.2 billion of equities were bought back by corporations in the first half of 2014, the most since 2007. The same report noted that corporations in the second quarter of 2014 spent “31% of their cash flow on buybacks.”
Corporations are hoarding cash and amassing debt at unprecedented levels (thanks to low interest rates, corporate bond issuance may approach $1.5 trillion this year, having grown geometrically over the last twenty years). Thus, corporate activity has shifted away from investing in future growth and toward mergers and acquisitions and stock buybacks, activities that bolster share inflation without creating underlying value.
Take Apple, for example. Sitting on vast quantities of cash, Apple nonetheless sold $12 billion worth of corporate bonds this year. At the same time, Apple repurchased $32.9 billion in Apple stocks, effectively driving up the price of those shares remaining in the market place.
Does this really create wealth? Or is it a ruse to keep the party going?
Interestingly, it’s not just the jaundiced Marxist eye that peers through the fog to see rocky shoals ahead. Rob Buckland, a CITIGROUP analyst, perceives the US economy as entering “phase three,” the phase preceding a marked downturn. Business Insider(August 15, 2014) summarizes Buckland’s phase three as follows:
Phase 3: This is the tricky part. Stocks are still flying high, but credit spreads are widening as investors become increasingly unwilling to finance further risk. Corporate CEOs have now experienced a lengthy period of gains and become risk-happy. (And we’d note that central banks are already talking about tightening credit by raising interest rates.) Bubbles can form in Phase 3, Buckland says, as the high-flying stock market ignores the early warning signs of the deteriorating credit market….(http://www.businessinsider.com/citi-economy-phase-3-where-bubbles-form-prior-to-crash-2014-8#ixzz3DcJqF9tH)
It is against this backdrop that worries are surfacing among investors. Some bearish hedge fund managers are investing anxiously in credit-default swaps and retreating from high risk. Discounting the distractions and illusions fostered by the monopoly media, serious students see the intractable crisis in Europe, the slowdown of the emerging market economies, the recent setbacks to Abe-nomics in Japan, and the loss of momentum in the economy of the Peoples Republic of China as adding to the contradictions lurking under the surface of the US economy.
Vladimir Kazakevich expressed fears in his 1940 article cited above that “…powerful interests on both sides of the Atlantic are likely to regard a war economy as an immediate solution for the chronic crisis…” Certainly his fears were well grounded. Militarism did prove able to “solve” the contradictions of global depression, at the enormous, unprecedented human cost of World War Two.
One cannot but wonder today if a similar logic is operating in the minds of US and NATO leaders who seem determined to stir hatred and belligerency. The newly emerged ISIS demons seem almost too perfect of a foe — almost a caricature of evil that may well bring an unprecedented level of US military might back to the Middle East. The “limited” US air campaign has already cost over a billion dollars, a nasty piece of military “pump priming” for the US economy.
And bear-baiting– poking Russia with threats, sanctions, and military engagement– is the new obsession of NATO, even at great economic cost to a prostrate Europe. The actions contemplated by militarists would push the risk level back to some of the worst days of the Cold War.
Is it now more and more apparent that only the “specter” of socialism can offer an answer to the chronic global crisis of capitalism and its attendants, xenophobia and war mongering?
Zoltan Zigedy

Karl Marx, 1818–1883

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Born in Germany in 1818, Karl Marx was and remains the political economist who most clearly expresses the will of working people to be free of the chains of slavery and oppression, seeing the economic system as the root of this.

In presenting the views of Marx it is important to note also the influence of his colleague and friend Frederick Engels.

Marx developed the labour theory of value and identified this as the key to understanding capitalism. As slave society and feudal society previously exploited the many for the benefit of the few, so too capitalism now exploits workers for the benefit of those with capital, which they use to employ others. Profit, for Marx, is created through the expropriation by capitalists of part of the value that labour creates. It is labour that creates the value of a product; yet workers do not receive that value in their wages—for if they did there would be no profit.

The competitive drive to increase profits increases the exploitation of workers and creates unemployment. This drive also creates periodic crises, through the over-production of goods and increased displacement of workers by technology.

Competition and crisis also drive the increased monopolisation of production and consequently of wealth, leading to even greater inequality and the potential for further crisis.

However, through the internationalisation and rationalisation of production, capitalism creates and organises its own “gravediggers,” in the form of the working class. According to Marx, it is this class alone whose material interests are tied to the ending of exploitation and competition and to the development of co-operative production and ultimately to what is commonly called socialism.

Marxs’ writings on this subject can be found at http://www.marxists.org/archive/marx/works/subject/economy/index.htm

Revealing capitalism in Ireland

This month (July 2012) the Irish Times launched a special web site, www.top1000.ie, that, in its own words, “contains details on all these [top 1,000] companies with the capability to search by industry, company and key employees, and to sort the information by turnover, assets, profit and employees.”

The companies listed cover both North and South and are judged according to their audited accounts from the last three years, covering turnover, profits, and number of employees, making the web site an invaluable resource in analysing the nature of capitalism in Ireland and the interests of the dominant section of the ruling class.

Without meaning to, I’m sure, it serves to show how exposed Ireland is to the instability of monopoly capitalism, and how dependent it is on foreign capital.

In essence, this list makes understandable the actions of the ruling class. They are not stupid, naïve, or weak. Their interests are inherently tied to the interests of the largely foreign monopoly capital that dominates our economy. They are not to be convinced of the error of their ways or the foolishness of their economics, because they are not foolish if you are part of the class that rules.

When they impose pay freezes or pay cuts they are not concerned with how this affects domestic demand: they are doing it to reduce the cost of production and increase the profits of global monopolies. When they ensure that bondholders are fully paid they are not doing this to release capital to small businesses: they are sending a clear message to international capital that in Ireland you will be looked after.

When they refuse to legislate for comprehensive collective bargaining, union recognition or the right to organise a union they are not doing so because the voluntary system has worked well for all sides: they are doing so to facilitate international capital in operating in a non-union environment.

This web site reveals the extent of the dominance of foreign monopolies and consequently the reliance and subservience of the Irish state to these monopolies.

Of the top 50 companies in turnover, 31 are foreign monopolies and 19 could be considered Irish companies. However, a closer examination of these “Irish” companies suggests that their interests are tied more to international operations than to a domestic market, meaning that their interests are aligned with those of their foreign monopoly friends.

Take CRH, for example: the great majority of its 76,000 employees are employed in the other thirty-five countries it operates in, and its profit of €711 million last year is largely based on overseas work. Likewise DCC Group: its 8,868 employees generated a profit of €185 million last year but it boasts on its Irish web site that 68 per cent of its operating profit came from Britain, 18 per cent from the rest of the world, and only 14 per cent from the Republic.

Where are their interests tied—to serving a domestic market and championing a strong independent Ireland? or serving overseas markets and championing a submissive Ireland that doesn’t rock the boat internationally?

Smurfit Kappa, considered an Irish company, employs 38,373 people but only 800 in Ireland. Kerry Group employs more than 24,000 people and made a profit of more than €400 million last year. Again, however, operating in more than twenty-five different countries and with customers in more than 140 countries, Kerry Group’s interests are tied to monopoly capital globally.

Likewise Ryanair: 8,500 employees, mostly overseas. Of United Drug’s operating profits, two-thirds were generated overseas: 41 per cent in Britain and 20 per cent in the United States. Its Irish business contributes a third of the company’s profits. And of its 4,500 employees only 750 are employed in Ireland.

Kingspan, the construction and insulation company, is based in Ireland but has larger overseas operations in other parts of Europe, the Middle East, the United States, and Australia. It has a turnover of €1½ billion, made an operating profit of €77.8 million last year, and employs 5,800 people globally.

Origin employs 1,415 people in its worldwide operations but only 100 of these in Ireland; it made a profit of €62½ million last year. Sisk, which has construction contracts all over the world, made a profit of €9 million last year, employing 1,132 people in Ireland out of a total of 2,000.      Diageo, formed from a merger between Guinness and the British hotel chain Grand Metropolitan, had a turnover of €1.9 billion and employs 1,500 people in Ireland. However, production is for a global market. The company’s global brand teams, based in Ireland, develop sales and marketing strategies to meet the needs of the company’s international markets.

Musgrave, one of Ireland’s most “successful” companies, began as a family shop in Cork in the 1870s. While still controlled by the family it is now a global operation, employing 55,000 people (34,000 in Ireland), with a turnover of €4½ billion, two thousand operations in Britain, and shops in Spain. The co-op IDB employs 4,000 people in Ireland but is driven by export need.

The exceptions to the rule—those Irish companies among the top fifty serving a domestic demand and employing primarily a domestic work force—are Dunne’s Stores (employs 16,000), Boyle Sports (employs 1,100), ESB (employs 1,275), Eircom (employs 7,000), Aer Lingus (employs 3,500), BWG (employs 900), and Tedcastle (employs 400).

So, of the nineteen Irish companies in the top fifty in terms of turnover, only six could be said to be interested in an Ireland with consuming, well-paid workers; the rest are more concerned with cheapening their production costs in Ireland or employing workers elsewhere. [NL]

Staggering levels of debt

The diagram above (taken from a recent report by the McKinsey Group of global business and financial consultants) shows the staggering level of debt in the Irish economy. Their analysis places the value of debt in Ireland at over 650 per cent of GDP—well ahead of other heavily indebted countries, including the United States, Japan, Britain, Greece, and Spain.

This 650 per cent is made up of personal, non-financial business, government and financial institutions’ debt. Of course a significant amount of the so-called government debt is actually finance’s also, while much of the financial institutions’ debt is just “resting in accounts” in Ireland’s tax haven, the International Financial Services Centre.

Nonetheless it is evidence of the decay of monopoly capitalism, such is its reliance on debt and debt-led innovations for the meagre growth it has achieved over the last few decades, and further evidence of the specific weakness of Ireland within the global order.

It also raises questions about many of the “alternatives” that are based on borrowing-led investment, or stimuli that don’t challenge the fundamental question of the ownership of production and wealth.

Alternatives must have at their core the objective of claiming wealth and production for labour and reducing the control that private capital and debt have over the system—otherwise they are not alternatives and will only exacerbate the contradictions within monopoly capitalism. [NL]