Dec 31, 1999
The year just finished was a good one according to financial commentators from the capitalist world. The financial crisis which had ravaged first Southeast Asia, then Russia, did not transform itself into a generalized crash. Of course, the situation of the working population in these countries severely worsened, with factory closures and increased unemployment; but this doesn't concern the financial world.
The commentators happily announced that only one of the main imperialist powers, Japan, is still facing a recession. By contrast, they celebrated the economic prosperity of the U.S., and some even claim that, after eight years of uninterrupted growth, the main imperialist power has experienced one of the longest recession-free periods in its history. Although Western Europe is lagging behind, commentators still discovered hopeful signs lurking in the European Union. As for the poor countries, the commentators had little to say. No economic miracles this year!
Judging from the profits made by the large industrial companies, the situation is indeed satisfactory for the capitalist class. Since the beginning of the '80s, the rate of profit has been increasing. But this trend, which is continuing, is paid for by worsening conditions for the working population by the increased exploitation of those who retain a job while a significant proportion of the working class is confined to total, partial or periodic unemployment.
In most countries of the European Union, official unemployment remains relatively high. In the U.S. there may be only 4% officially unemployed, with an additional one percent who aren't counted because they've given up looking for work, but those figures seriously understate the problem. Leaving aside the massaging of official statistics, there remains the problem of the precarious nature of employment: 30% of all U.S. workers are employed in "contingent" jobs, that is, part-time, temporary, on-call or contract work.
The capitalists have taken advantage of the relationship of forces produced by unemployment to increase the degree of exploitation cutting real wages, increasing the intensity of labor and increasing the working hours.
Over the last few years, productive activities seem to have regained a level of profitability comparable to that of financial activities. The fact that companies engaged in production have consistently generated high profits is not, however, due to a generalized widening of markets comparable to what happened in the period preceding the crisis. The so-called consumption recovery referred to in the bourgeois press concerns only increased consumption by the petty and big bourgeoisie. But any increase in demand for consumer goods can only be limited, given the extent of unemployment and the reduced purchasing power of the working population. Finally, despite the restoration of a high rate of profit, investment levels in enterprises engaged in production are lower than they were before the crisis. Moreover, this investment has gone less into fixed capital and more into equipment which, compared to past investment, does not tie up capital for a long period.
The continuous growth of profits by companies engaged in production is the almost exclusive result of increased exploitation: as much or even more goods than before the crisis are being produced by fewer, worse-paid workers.
The higher profits which have been generated in production are used to buy up other companies in order to gain their share of the market. This is what the capitalists call investment today.
The last year saw a long series of mergers and takeovers in some cases, "friendly"; but in other cases, carried out via battles in the stock market involving enormous funds. A recent report published by a United Nations commission refers to "an impressive current of mergers and takeovers" and notes that on a world scale the sums involved in these operations "reached 411 billion dollars in 1998, or 74% higher than in 1997, which was already 45% higher than the previous year." This report adds that "the transactions carried out during the first half of 1999 are already equivalent to that carried out over the whole of 1998." Even leaving aside cases where companies are bought for purely speculative reasons, the mergers which have been carried out usually had purely financial aims they did not result in increased productive capacity nor in the creation of new jobs. When Renault took advantage of the Asian crisis to buy a share of Nissan, such "investment" did not create new factories on the contrary it will result in factory closures. The present "restructuring" trend in the production sector (as well as in the banking and large-scale retail sectors) has two inseparable components increasing concentration of capital and more job cuts.
An increasing proportion of capital is concentrated in the hands of a small number of large multinationals. The U.N. report mentioned above refers to a hundred companies with a total direct workforce of six million people and a total turnover of six billion dollars, describing them as the "new masters of the world" who "impose their views and reshape the world."
The 60,000 multinationals which, together, account for 25% of the world's production, are indeed the masters not so "new" though of the world economy and rule over the lives of six billion human beings.
Starting in the 1980s, profits accumulated in the hands of the capitalists were used almost exclusively to feed the financial sphere. This is still somewhat the case at the end of the century. But for several years now, capital from the purely financial sphere has been placed in enterprises engaged in production.
Finance capital's domination over productive capital is as old as imperialism itself. During the past century, the role played by the financial and banking systems has gone much beyond that of centralizing money in order to make it available (in the form of credit) to the economy, thereby allowing capital to circulate as rapidly as possible and facilitating the equalization of the rate of profit.
Since 1974-75 (when the present period of frequent economic recessions and weak recoveries began), financial investments have been more profitable than productive investments. Thus, an increasing share of existing capital has been placed in the financial sphere. So, too, have so-called "financial products" mushroomed, as have investment funds.
These investment funds, which manage the liquid capital owned by enterprises and rich individuals, represent an enormous power. The largest among them manage funds for a total value larger than that of all shares quoted on the Paris stock market. In other words, they can buy enough shares in the largest multinationals to be able to impose on them the strategy they want.
In France, for example, investment and pension funds own a third, or even half, of the shares in some of the country's largest companies, including BNP, Saint-Gobain, Elf-Total and Pinault-Printemps. These funds are not concerned with the long-term development of a company, but rather with its ability to generate at least a 15% return on investment. According to the financial milieus, this level of return is what is required to generate a higher than average increase in share prices, and thus in the wealth of the shareholders. What these investment funds are after is not so much growth and stability of dividend payments as a rapid increase in share prices.
Thus the placements made by these investment funds are volatile. As soon as financial returns no longer seem to be guaranteed, they withdraw their cash. The result is that the strategy adopted by productive companies is largely dictated by the short-term movements of share prices on stock markets.
The fact that vast amounts of capital in search of short-term profitable return flow into the productive sphere leaves the door wide open to all kinds of speculations.
Like the banking system, the stock market has always been an indispensable instrument for the capitalist economy by facilitating the collection and concentration of available funds and, in theory at least, their transformation into productive capital. Today, however, the prices of shares (each of which represents the ownership of a portion of the issuing company) are no longer boosted only by the actual profits made from today's production. They are being pushed up even more by the anticipation of future profits or even just of increasing stock prices.
The surrealist skyrocketing of share prices in companies related to the Internet illustrates this phenomenon. The capitalization of the Internet company Yahoo!(i.e., the total price of all its shares in the stock market) is larger than that of the oil giant Texaco or of General Motors, the biggest company in the world, measured in terms of sales. Some idea of this mania is given in the figures for initial public offerings of stock (companies selling shares of their stock for the first time). In 1999, 93 billion dollars worth of new offerings came on the market, half of which were Internet companies. Almost three quarters of new companies (and 93% of Internet companies) had made no profit whatsoever when they issued their first stock. Just a few years ago, a company could not have issued stock until it was profitable. Today, obviously, stock is being purchased not in anticipation of dividends, but in anticipation that prices on the stock exchange will keep going up. In other words, a speculative fever today grips Wall Street.
Market operators speculate on shares today in the same way they speculated on Asian currencies yesterday (or against them), with the same predictable result.
The increasing dependence of productive companies (and therefore of the production of real goods) on speculative capital and its unpredictable turmoil represents a permanent threat hanging over the world economy. Even though the Asian crisis did not spread, its very existence was a reminder of this threat.
The development of investment funds is the tribute paid by productive capital to finance capital. The fact that both spheres of capital are doing well is the expression of the increased exploitation of the working class. Productive capital has been able to pass on the entire burden of finance capital's parasitism to the working class.
One of the roles of the banking system has always been to channel the savings of the popular classes towards big business. It is doing so today on a greater scale than ever. Pension funds, which collect the savings made by wage-earners for their retirement, have become major players in international speculation. The much greater role played by these funds is a consequence not only of deregulation on the global level, but also of the weakening of social protections everywhere as states finance their handouts to big business from the budgets of social programs.
Degenerating capitalism is turning a growing section of the working class into "forced savers." Those whose wages are too small to let them save for retirement or to pay for a decent health insurance will have to rely, at best, on public or private charity; at worst, they will have nothing to live on, once retired.
In many respects, what is today called "financial globalization" (i.e. the freedom for capital to move across borders in its search for new fields of investment) is not a new phenomenon. It was at least as important at the beginning of this century as it is today. With gold as the instrument of international payments, and with all the main imperialist currencies convertible into gold, the movement of capital around the globe in search of profitable investments came up against fewer obstacles then than it does today.
A first set of regulations was introduced during World War I. Then came the crisis of 1929 and World War II which led the various states, including the biggest imperialist powers, to abandon the convertibility of their currencies into gold (only partly for the U.S., but totally for the other countries); they also adopted regulations over financial transactions as well as controls over currency and capital flows. The current "financial globalization" is the result of a number of factors: first, the repeal of state controls through the deregulation of the past two decades; second, the ending of barriers between national financial markets which allowed them to become interpenetrated; and, finally, the ending of the banks' monopoly which had allowed them to be the only ones operating in the financial markets.
This "financial globalization" has, in turn, given a formidable boost to the growth of financial operations. It becomes impossible to even measure the extent of financial transactions, let alone to control them.
The very nature of deregulation is, however, a reminder of the fact that this "financial globalization" is not the result of an economic evolution which would leave the states totally impotent. On the contrary this "financial globalization" came about with the help of governments only too willing to rid finance capital of the obstacles which stood in its way. Deregulation was the work of these governments.
The proportion of the state budgets used to help out the capitalist class has reached record levels. The world's largest multinationals depend on the power of their states to make their interests prevail: in international negotiations, as at home; by diplomacy or, when ultimately necessary, by military force.
The looting and exploitation of the poor countries still plays a vital role in the prosperity of the imperialist bourgeoisies. This looting increasingly is carried out through the usurious interest rates paid by the poor countries to the Western financial system. At the same time, the imperialists more and more have been putting their hands on the profitable sectors of the poor countries' economies after having seen their control weaken for some years following the nationalizations of the decolonization period.
One of the features of "financial globalization" is the pressure put on the poor countries to privatize their nationalized companies and lift all obstacles to the circulation of capital. This deprives these countries of the limited means to resist imperialism's grasp that some of them had created. Even China seems on the way to a rapid return to private capitalism. It envisages making its currency convertible, generalizing privatization and joining the WTO, that is, to open itself up increasingly to imperialist goods and capital. By resuming links with imperialism, the privileged layers of Chinese society may hope to improve their lot, as do the parasitic bourgeoisies of all the poor countries but even this is not certain. In China as elsewhere, western investments if they are not purely speculative will go only to the few sectors of the economy which are profitable. Privatization will inevitably result in factory closures and the destruction of a more or less significant part of the national industry. After the sacrifices the Chinese regime once imposed on the working population to build this industry, this same working population will now have to pay the cost for its destruction through massive unemployment.
Even in its periods of expansion, capitalism developed the economy irrationally as far as real needs were concerned, and it increased the gap between the bourgeoisies and the working classes as well as the gap between the rich and the poor countries. However, since the beginning of the crisis, the capitalist economy has resorted increasingly to usurious methods. Steeped in putrefaction, its so-called "legitimate" economy has become interpenetrated with the criminal economy drugs, arms trafficking, corruption. This economy cannot be ameliorated, amended nor reformed.
The war that the working class will have to wage is not against "globalization," but against capitalism. The fundamental objectives of this war have not changed since they were formulated by Marx and since the working-class revolution in Russia tried to implement them.