The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

The Capitalist Economy in 2006

Oct 29, 2006

The following article is a translation of a text adopted by Lutte Ouvrière, the revolutionary workers organization in France (Trotskyist) and appearing in Lutte de Classe number 101, December 2006-January 2007. It gives an overall view of the current state of the capitalist economy, touching on many of the problems we see around us every day.

The economic situation has not changed a lot in the last year, neither in its reality nor in the way it has been presented by the political leaders of the bourgeoisie and their economists.

This year, the chief economist of the International Monetary Fund, Raghuram Rajan, congratulated himself because "the global economic expansion has been stronger in this period than at any time since the early 1970s." (Les Echos, September 15 and 16, 2006)

What they call "global growth" has been driven by the monetary expenditures of the U.S. and the growth of China in the world market, as well as the financial placements it put in the U.S.

Some commentators dampen this optimism, stressing that for many years U.S. consumer spending—mostly by the vast petty bourgeoisie—has been based on easy credit and thus the growth of personal debt. Abundant bank credit is guaranteed by home mortgages, that is, the largely speculative price of real estate. Yet, the speculative bubble in real estate is now in the process of deflating.

The hope expressed by many commentators for a "soft landing" is only another way of saying that there is a real danger that the fall in housing prices could be sudden and translate into a rash of defaults on debt that could trigger a banking crisis.

To the surprise of bourgeois economists, even the rise in oil prices that lasted until the summer of 2006 and then began to fall, did not compromise the increase in profits. If the hike in oil prices led to increased corporate costs, this expense was offset by an increase in the exploitation of labor.

The global economy has been in what is called a growth cycle since 2002. Of course, over the last year, as in previous years, only profits really grew. There has not been a significant increase in the forces of production. The growth in production for expanding markets—linked mainly to information technology and mobile phones or, as usual, the production of luxury goods—does not compensate for the decline in older sectors, where there are factory closings and massive unemployment.

Remember, the preceding cycle had the same kind of growth. And that cycle ended with the stock market crisis of 2001-2002, especially the crash of the so-called new economy stocks.

A Crisis Dating Back to the Early 1970s

The long period of economic stagnation or meager production increases, which has characterized the capitalist economy since the early 1970s, may have manifested itself through diverse crises: monetary, oil, stock market, and production. But it originated in the falling rate of profit beginning in the middle of the 1960s. Like all crises of the capitalist economy, this crisis translated into a fall in investment, layoffs and the closing of workplaces, thus rapidly increasing the number of unemployed, and by a freezing of wages.

Every government in the world has carried out austerity programs aimed at helping the capitalist class to reestablish a rising rate of profit. They have done away with, either progressively or brutally, all legal obstacles aimed at mitigating exploitation. Austerity policies have also been used to increase those parts of the state budget that aid the capitalist class, reducing all those parts of the budget that finance other things, especially public services.

Starting in the first years of the 1980s, the rate of profit increased once again. It attained the rate of profit that preceded the crisis, and then bypassed it by the end of the 1980s.

When capitalism was more or less competitive, re-establishment of the rate of profit set the stage for a rebound in productive investment, job creation, therefore a reduction in unemployment and a new period of rising production—until the next crisis set in.

Nothing like that has happened for more than 30 years. There have been cyclical fluctuations. But at no time did they set the stage for a substantial rebound in investment. Thus, unemployment has remained at high levels in all the imperialist countries.

The rate of profit was not re-established by some impersonal economic mechanism. No, it was brought about by a concerted joint offensive by the bosses and the State apparatuses in all the countries. The attacks took different forms, varied over time and to a certain extent according to the situation in each country. Due to its economic strength and the role of the dollar in the world economy, the United States was able to push some of the consequences of the crisis onto the lesser imperialist powers, and therefore come out in better shape. At the same time, all the imperialist powers pushed the consequences of their own crisis onto the underdeveloped countries. For example, the French government’s devaluation of the CFA franc [money used in France’s former African colonies] brought about an improvement in the competitive position of French companies operating in Africa, at the expense of the laboring classes in France’s former colonies in Africa. In those African countries, the population’s standard of living fell precipitously.

The one constant in this whole evolution has been the continual worsening of wages in proportion to capital revenues. That has been due to the fall of real wages, as well as the reduction in the number of jobs and the increase in unemployment.

The bourgeoisie has profited everywhere from a relationship of forces that favored it, resulting from growing unemployment, which weighs heavily on the morale of the working class, and from the betrayal by parties with political influence in the working class, including the Stalinist parties. [We could add here, by the acquiescence and in most cases open support by the top union apparatuses in the U.S. for every demand made by the corporations for concessions.]

Attempts of the Bourgeoisie to Re-establish the Rate of Profit

It is useful to recall the way the bourgeoisie and its state reoriented its attitude facing the crisis starting in the 1980s. The first years were marked by investments by the states to supplement capitalist investment and by subsidies to the capitalists financed by an expansion in the money supply, thus igniting a rapid inflation. After a few years, they moved to reduce, if not eliminate the inflation. This reorientation did not reduce the war carried out by big capital against the laboring classes. It did, however, considerably reinforce the domination of finance capital over industrial capital.

The inflationary spiral of the first phase of the crisis had an advantage for the capitalists since it greatly reduced wage earners’ buying power. But it also cost the capitalists something, since it undermined real interest rates, reducing the income received from interest-bearing financial placements. This hurt financial activities. And it also caused problems for international commerce, since inflation and interest rates varied from one country to the next.

So, to make up the budget deficit they replaced the monetary printing press with loans from the financial system. Since the capitalist class was not able nor wanted to invest in productive activity, this option offered them greater possibilities to place their money. They bought bonds issued by the treasuries of different countries’ States or one of the multiple other forms of debt issued by central or local governments.

What followed for 20 years was the incessantly growing debt of all the countries’ States, starting with the U.S., that is, the biggest. Once put in place, this system functioned automatically on its own. Debt service absorbed a growing part of government budgets. To make the growing debt payments, they were forced to borrow more. The different forms of public debt constantly fed the financial markets.

Deregulation—that is the lifting of all legal barriers between the respective functions of banks, insurance companies and industrial or commercial enterprises—meant that all companies have access to the financial markets. They can lend or borrow money, buy or sell treasury bonds and other financial instruments.

New kinds of financial institutions appeared or took off at a dizzying speed. These included investment funds, pension funds, speculative funds, etc. Such funds specialized in intervening in financial markets to realize profits that seemed to have no relationship to productive activity.

This evolution engendered the financialization of the entire economy, which we have discussed many times in the past. It also cemented the dominant position of financial capital over industrial capital. Of course, financial and industrial capital are two expressions of the same capital. But their functions are different, with major consequences on the functioning of the entire economy. The current phase of so-called "growth" is being carried out on the basis of previous developments. It does not differ from earlier phases, in particular the one that ended with the stock market crisis of 2001-2002. But now the accumulated capitals are much larger, and it is much easier to place or move them from one region of the planet to the other—even in search of greater short-term profitability. After all, the financial network that encircles the world with speculative instruments continues to expand with rapid speed.

The Dominance of Finance Capital over Industrial Capital

Fundamentally, the domination of financial capital over industrial capital is as old as imperialism. Lenin already emphasized this in "Imperialism, the Highest Stage of Capitalism."

"It is characteristic of capitalism in general that the ownership of capital is separated from the application of capital to production, that money capital is separated from industrial or productive capital, and that the rentier who lives entirely on income obtained from money capital, is separated from the entrepreneur and from all who are directly concerned in the management of capital. Imperialism, or the domination of finance capital, is that highest stage of capitalism in which this separation reaches vast proportions. The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially "powerful" states stand out among all the rest."

In a report significantly titled, "Is Corporate Investment Being Carried Out in a Normal Fashion?" the Bulletin of the Bank of France of August 2006 rejoiced that "As a percentage of the gross domestic product (GDP), corporate profits are at their highest level in decades. This reflects both the strength of the current economic cycle and the restructuring processes that have taken place since 2001." This bankers’ publication, which takes no account of what such restructuring represents in layoffs and sacrifices of all sorts for the workforce, adds: "This evolution is normal and healthy." A banker has no reason to speak otherwise! However, the Bulletin does underline that there is "a global imbalance," which it considers to be "much bigger than before," inside the G7, the group of the most powerful industrial countries—a gap between the reserves held by private companies and their productive investment. And the Bulletin emphasizes that "globally during 2005, the corporate sector loaned 1.3 trillion more dollars to other sectors of the economy than it borrowed from them. This situation without precedent appears paradoxical and is pregnant with enormous consequences."

In an economy that is really growing, companies usually borrow money from their banks in order to invest in productive activity. But in the current economy, the opposite is happening. Companies accumulate enormous amounts of liquid capital, which—lacking the will and the ability to invest—they put at the service of the financial system.

The same Bulletin of the Bank of France notes a restarting of investments in the first trimester of 2006, which could appear impressive for the U.S. or Japan. But it adds that this apparent rapid growth is explained by the very low level of investment before then. And it points out that, in relationship to GDP, "the ratio of investments is at its lowest levels in many decades for all the countries of the G7."

It comments, with this sense of euphemism which characterizes the velvet world of the bank, that "it is possible that the behavior of the companies could stem from, at least in part, a very strong aversion to risk in anything concerning new investment."

The majority of profit produced by companies is redistributed to stockholders under the form of dividends or of stock buy-backs by companies in order to increase the benefits distributed to shareholders. In the United States, for example, "since the beginning of 2005, close to half of all profits were used to buy back stock (as opposed to 10% in the 1960s)." (From Economic Alternatives—September 2006).

Le Monde Economie, September 26, 2006, emphasized the same thing, adding that "stock buy backs are not substitutes for the payments of dividends. The same companies are generally doing both things. In France, for example, TOTAL is paying dividends and on top of that, buying back its stock." This is significant because TOTAL is the French company that has made the highest profits for several years, but it is also among the companies that invests very little.

This lack of investment has led to a much faster increase in great fortunes than in corporate profits. The number of billionaires on the planet has increased from 476 in 2003 to 582 in 2004 to 691 in 2005. In two years, their net accumulated wealth jumped from 1.4 trillion dollars to 2.2 trillion dollars, higher than the GDP of France. Thus we see a 20% growth in the production of luxury goods: top-of-the-line cars, yachts, private jets, jewelry or luxury household items, etc. These markets for luxury goods are the only consumer markets to really expand.

What Did the Corporations Do with All Their Profits?

In the previous cycle, which ended with the stock market crisis of 2001-2002, there had already been a big increase of accumulated corporate profits, which companies poured into "mergers and acquisitions." One company bought another company, which was often a competitor. The company then grabbed up factories, distribution networks and the existing client base. But above all, it put its hands on the surplus value produced by the workers of the company it had bought up. By the end of the 1990s, mergers and acquisitions constituted more than three-quarters of all foreign direct investment. The stock market crisis of 2001-2002 temporarily brought this to a halt. But for the last two or three years, it has reached an even higher level than before.

We must remember that even the vocabulary of bourgeois economists is biased. And the facts they use tend to cover over reality, rather than clarify it. What is called "foreign direct investment" (FDI) means only that an owner of capital has bought more than 10% of the shares of a foreign company. More often than not, the company is an already existing company, and the investor "invests’ only to weigh on corporate decisions and, of course, to skim off a share of the profits.

Even if the statistics for "foreign direct investment" include real investments—that is, the creation of new factories—mergers and acquisitions still constitute the heart and major part of foreign investment activity. This is what lies behind the following formulation by "Le Monde Economie" (October 10, 2006): "In the last 20 years, the flow of foreign direct investment has exploded from 40 billion dollars in the early 1980s, to 900 billion dollars in 2005."

One part of corporate mergers and acquisitions is speculative. But this speculation—unlike that in the vast wave of things like paintings by great artists or fine wines, for which there is quite a huge speculative market—has a rational aspect to it. Speculators make huge gains by "drawing" from global surplus value, which itself is originally produced in productive enterprises. When markets stagnate or expand very slowly, profits can be doubled or tripled by taking over another part of the existing market.

The struggle between the big trusts to buy and sell each other does not bring about the augmentation of productive forces, nor social wealth. It leads only to greater concentration.

There isn’t even necessarily greater concentration in production, which could represent a certain rationalization. Instead, there is only financial concentration. To cite only one example, which is somewhat unique, of Mittal, the capitalist from India, who gained control over the steel sector. Mittal did not make his fortune by building new steel complexes. Instead he paid low prices for steel companies that were considered obsolete and on the auction block in poor counties (Trinidad and Tobago) and in the ex-USSR (Kazakhstan). After restructuring through layoffs, he found himself with enough capital to extend his zone of activity, still specializing in buying up relatively weak companies whenever he had a chance, from Algeria to Germany, from the Czech Republic to the United States. Having become the largest producer of steel, he then took control of his principal competition, Arcelor, after a stock market battle.

Draining Still More Wealth from the Poor Countries

While investments by the big financial groupings stagnate in their own country, and more generally in the imperialist countries, a certain amount of real investment has flowed into what are officially called "emerging markets."

Thus, Peugeot-Citroen, the French automobile trust, invests in Western Europe only when it is absolutely necessary, for example, to bring out a new car model. It even dis-invests, like it did in closing its only factory in Great Britain. But at the same time, it makes real investments in Eastern Europe, building a new factory in the Czech city of Kolin, in collaboration with Toyota, as well as building one by itself in the Slovak city of Trnava. The government of Slovakia, a poor country, has underwritten one-third of the investment. It has also paid for and carried out work to make the site viable, such as the construction of roads, etc.

Although labor in Eastern Europe is effectively three or four times cheaper than in Western Europe, cheap labor is not the main reason for this investment—as opposed to all the usual propaganda. The main reason is to have access to a still growing Eastern European automobile market.

In general, the big trusts invest abroad mainly in order to get access to big consumer markets. During the epoch when trade barriers were high, the traditional way to get around these barriers was to be implanted in different countries. Today, it is all the more essential to be near markets with their particular cultures, especially since more subtle forms of protectionism have replaced overt trade barriers.

But there have only been a relatively small number of real investments in poor countries. In some cases, local markets can develop in countries that are poor, but that already have a relatively developed industrial base. Such a base itself becomes the source of economic demand (Brazil or Mexico, for example, or in the countries of eastern Europe). In the case of a country like China, the fact that the local market is growing comes from the brutal exploitation of labor and the development of a privileged class. And even if this privileged class is small compared to the entire country, it still represents a larger market than those found in many imperialist countries.

In this regard, it is completely stupid to talk about some kind of catastrophic future for a country like China, with claims that it will have as high a proportion of cars as in the imperialist West, along with the consumption of steel, oil, etc., and everything this implies. There is no economic development for the whole of China. A minority of 5% or 10% of the population is enriching itself at the expense of the overwhelming majority of the population. And there is also a huge gulf inside this minority between those whose income is the equivalent of the Western petty bourgeoisie and the tiny minority of the minority that is as wealthy as it is ostentatious.

It is often claimed that, because China has bought up dollars and above all U.S. Treasury bonds worth 20% of the U.S. budget deficit, the fate of the U.S. economy is in China’s hands. Of course, there is an aspect in the financial relations between the states of "I"ve got you by your goatee, and you"ve got me by mine." But the 900 billion dollars deposited by China in American banks come from the super exploitation of the Chinese working class, especially the tens of millions of migrant workers, former peasants thrown off the land, without any rights or recourse. This is 900 billion dollars NOT being invested to build new roads, infrastructure or, above all, to improve the situation of the population in China. Ultimately, this money finances the American petty bourgeoisie’s borrowing.

It is fashionable in sensational press accounts to bandy about the increasing amounts of reserves, in dollars or U.S. Treasury bonds, held by a certain number of poor countries. Eight East Asian countries, including not only China, but South Korea, Singapore, Malaysia and Indonesia, have more than doubled their reserves in dollars over the last eight years.

But the Nobel Prize economist, Joseph Stiglitz, who had been the chief economist of the World Bank and the ex-economic adviser to U.S. President Clinton, insists that these billions of deposited dollars serve as vehicles for a considerable theft from these countries by the banking systems in the imperialist countries. "The real cost of these reserves for the developing countries is 300 billion dollars per year. That is considerable."

This drain of money from the poor countries to the U.S. treasury is one of the more disastrous consequences in the functioning of the world economy. These considerable sums coming from the poor countries are not being used to develop their economies and still less to improve the situation of their populations. Instead, they simply feed into the global financial system.

Surplus Capital and Growing Impoverishment

The existence of enormous capital surpluses and the difficulty for those who possess this capital to find profitable places to put it is not a new problem. It is one of the aspects at the origin of the imperialist stage of capitalist development. As Lenin put it:

"On the threshold of the twentieth century we see the formation of a new type of monopoly: first, monopolist associations of capitalists in all capitalistically developed countries; second, the monopolist position of a few very rich countries, in which the accumulation of capital has reached gigantic proportions. An enormous "surplus of capital" has arisen in the advanced countries. It goes without saying that if capitalism could develop agriculture, which today is everywhere lagging terribly behind industry, if it could raise the living standards of the masses, who in spite of the amazing technical progress are everywhere still half-starved and poverty-stricken, there could be no question of a surplus of capital. But if capitalism did these things it would not be capitalism; for both uneven development and a semi-starvation level of existence of the masses are fundamental and inevitable conditions and constitute premises of this mode of production. As long as capitalism remains what it is, surplus capital will be utilized not for the purpose of raising the standard of living of the masses in a given country, for this would mean a decline in profits for the capitalists, but for the purpose of increasing profits by exporting capital abroad to the backward countries."

There is nothing in these lines that should be changed, not even what he further refers to as "petty-bourgeois critics of capitalism," whose labels change from one epoch to another, but who in calling for "annulling third world debts’ or for "doing away with the IMF" or at least its dictates, can only aim at dulling the claws of capitalism, because they have no perspective of destroying it.

We could even update Lenin’s description, by adding that, at the beginning of the 20th century, the export of capital to backward countries tended to take the form of investments in production more than it does today. These investments were always made to serve the needs of the imperialist centers. Above all, they contributed to integrating the backward countries into the imperialist system in a subordinate position.

But even in Africa, some infrastructure was built, although it was only a few roads, railroad lines, ports and canals. Of course, these were constructed under colonial domination and they were indispensable for ripping out what had been pillaged.

Today, big capital is only interested (this is especially true of how the French operate in their old colonial empire) in using the infrastructure constructed in the past until it is completely used up. Bolloré, which bought up the railroad line from Abidjan to Ouagadougou, makes use of it, but does not build one new centimeter of rail. Of course, the port of Abidjan—Bolloré"s own property for the most part—required some investment, if only to keep up with the development of technology for cargo ships.

The rest of the capital placed in most of the African countries is usurious, money loaned to governments at such high rates that sub-Saharan Africa, the poorest region in the world, sends more money back to the imperialist countries than it receives.

African countries with valuable raw materials and whose central States have been shattered into pieces and replaced by the anarchy of armed bands—as in Congo ex-Zaire—are victims of an economy based on plunder. Their mines are pillaged practically without any investment, except for the gratuity thrown to the local war lord. Their forests are plundered for the rare materials found there.

Capitalism was born at the time of the "Triangular Trade," which bled Africa of human beings through the slave trade, practically without entering the continent’s interior, transforming minor kings and local warlords into predatory collaborators.

In our time period, senile capitalism does the same thing, but on a much vaster scale. Instead of offering guns as gifts, the capitalists offer much more deadly weapons. The victims are no longer sent across the ocean to be sold in America. They die from the continuous wars and famines that ensue from them. People are victimized on a much greater scale. There were, for example, an estimated four million victims in the wars and famine just in Congo-Kinshasa.

The Casino Economy

The competition between huge and even more huge companies to buy up each other is translated into a rapid increase in the price of the stock of the companies involved. The increase is accentuated by speculation, not only in the shares of the company trying to buy up another company or in the company that is targeted, but well beyond that. There are specialists who try to guess which company could be the subject of a takeover, hostile or friendly. They sell their tips, just like the daily racing form sells its predictions on which horses will place. Stock prices of companies that could be taken over often increase. This totally irrational mechanism in a capitalism crippled by speculation explains a news report in Le Monde Diplomatique in October 2006:"In the beginning of September, Ford Motors announced that it had lost seven billion dollars for the year and shares of Ford stock jumped up 20%."

The result of this speculation is a new stock market boom. It isn’t the first. The preceding one led in January 14, 2000 to a record high in the Dow of 11,723. In 2002, the stock market crash brought the index back down to 7,733, that is, a drop of 34% in 32 months. The 2000 record high was beaten on October 23, 2006 when the Dow hit 12,100.

How far will the boom go and when will it end? No one can predict that in this anarchic capitalist system. One can only speculate...

The Paris Stock Exchange’s CAC 40 Index did not increase at the same rate. In October 2000 it stood at 6,064. Over the next two years, it really collapsed, hitting 2,758, a drop of 55%. Currently it stands at 5,375, twice as high as its low point in 2002.

In early 2006, however, a mini stock market crisis led to a temporary drop in stock prices. The fear of those in the market was that there would be a new crash, comparable to what has taken place four or five times in the long period that began in 1970 (the Mexican crisis, the Asian crisis, the "new economy" crisis, etc.).

The market in raw materials, including minerals, energy and foods (such as wheat) has always been speculative. This has been especially true in the current cycle of speculation.

In 2005-06, metal prices—and with them, the stock prices for mining companies—hit record highs not seen for decades, not since they were first listed on the stock market. It is well-known that from 1999 to 2006, the price of oil increased by seven times, going from $10 per barrel to more than $70 this past summer, before it fell back to $56. The price of copper was six times higher than it was five years ago. Aluminum, zinc and nickel experienced similar price increases.

Usually, the increase in demand in a few countries, such as China, is blamed for these increases. But if increased demand from China translated into price hikes in these raw materials, it is because the trusts in each sector had the same policy as the trusts in oil: rather than invest, they take super profits from the same amount of production, allowing prices to spiral upward. The basis of price increases is the under-investment by trusts that dominate the extraction and transformation of the different raw materials. Once prices begin to rise, speculation drives the increase higher still.

Industries that use particular raw materials, trying to anticipate demand in order to protect themselves, often speculate on future prices. But they are not the only ones to speculate. So do financial companies which specialize in speculation in all raw materials.

In France alone, there are 36 investment funds that specialize in profiting from speculation in raw materials. This has paid off quite well up until now, given that these investment funds registered an increase in their profits of 103% over three years!

Price increases are not the only consequence of the massive introduction of speculative funds in raw materials speculation. The economic pages of Le Figaro on May 29, 2006 underscored the growth in the role of speculative funds in the energy sector. It also noted that this resulted in "the extreme volatility of these markets which brought about a loss for a ton copper of more than $1,000 in one day in mid-May. These markets alternate between hot and cold."

In mid-September, the specter of a new financial crisis appeared, starting from the primary metals sector. In one weekend, the Amaranth speculative fund lost five billion Euros, two-thirds of its capital, speculating that the price of natural gas would continue to increase. Instead, exactly at that point, its price began to fall (Le Monde Economie, October 6, 2006).

With the exception of some oil producing countries—such as the emirates in the Middle East and Russia—most producing states benefitted very little from this increase in raw material prices. As for their populations, they did not benefit at all. Even many of the oil producing countries, especially in Africa, have to import gasoline from international markets for their own local markets, even while they are increasing their production of crude oil. The oil trusts simply don’t invest. There are no refineries in these countries, or the ones that are there don’t function. In Nigeria, one of the principal oil producers in Africa, there are only two oil refineries and they are so obsolete, they practically no longer operate. To a great degree, what is earned through exporting crude oil is canceled out by having to import refined oil products like gasoline.

More generally, the role of investment funds, that is, speculative funds, has been growing steadily between 2000 and 2006. The financial activities they directed tripled in the same period, going from 520 billion dollars to 1.54 trillion dollars. Banks, insurance companies and other financial institutions are not exactly models of transparency. But investment funds, usually based in offshore investment havens like the Cayman Islands, escape all regulatory control. Increasingly, they have gone from playing an auxiliary role to being the major player in the buying and selling of big companies.

When these investment funds are involved in a company, they change the way the company is managed, since their main preoccupation is to extract the maximum profit in the least amount of time. Production takes a back seat to financial machinations, putting the company in play as a takeover target, carving the company up in order to sell it "piece by piece."

There is no limit to the financiers’ imagination for creating new financial instruments derived from different forms of credit. Their schemes are so complicated and convoluted, not even their inventors understand how they operate.

Le Monde Diplomatique of October 2006 in an article entitled, "An Economy of the Sorcerer’s Apprentice," cites the American financier Warren Buffet, who, with the second largest fortune on the planet, "is in a good position to understand the underside of finance." According to Le Monde, Buffet believes that "credit derivatives are weapons of mass destruction."

"Globalization": The Rule of the Strongest

It is fashionable in the anti-globalization milieu to consider investment funds, their functioning and their location in offshore investment havens like malignant tumors on the body of the capitalist economy. That they are malignant tumors is certainly true. But since they are an integral part of the system on which they are parasitic, they are also inoperable. Investment funds are the concrete expression of capitalism today. They are capitalism today. They are inseparable from the banks, insurance companies, the big companies, that is, of the wealthy who place their money in a speculative way. (One has to be rich to participate in these funds, since in the U.S. it takes a minimum of $250,000 to get into one of them.)

Capitalism’s supporters today claim that globalization has allowed international trade to develop without obstructions, and that a world without protectionist barriers would allow all economies to find their little place in the sun of global business. In reality, only capital is able to move freely across borders. People are not able to, as is shown every day in the news, but neither is merchandise really.

The international market is not at all a free market, not so long as there are national markets. As all markets, the international market is a jungle, where the only thing that counts is the relationship of forces. Despite all the speeches about "globalization," national states continue to be an integral part of this relationship of forces.

Most countries on the planet are engaged in these negotiation-marathons with exotic names, like the last one, "The Doha Round." They are supposed to work out accords for generalized free exchange at the scale of the planet. The negotiations are supposed to arrive at multilateral accords, that is, agreements which give each country the same access to markets as all the other countries, and under the same conditions. The role of the World Trade Organization (WTO) is supposedly to assure respect for the rules of this system of international free trade.

"Le Monde Economie" of June 20, 2006, nonetheless observes, "since the creation of the WTO in 1995, not one multilateral agreement has been signed, while the number of regional and bilateral accords has exploded." In other words, the WTO doesn’t do much. And the anti-globalization activists who fight against the WTO as the symbol of capitalism truly are tilting at windmills!

As for the bi-lateral and tri-lateral agreements, while they may be aimed at facilitating commerce between countries, they also constitute a protectionist obstacle to all those countries that aren’t a part of the agreements.

The same goes for regional agreements. For example, the Common Market of 9 or 12 countries assured free exchange between imperialist countries of about the same level. But free exchange took place only inside the Common Market. Toward the exterior, these countries were protectionist.

Moreover, the agreement between imperialist countries and one or more poor countries is the modern juridical equivalent of the old system of economic spheres of influence. These agreements lead back to relations of domination by the imperialist countries over one or more poor countries. For example, since 1994, the U.S., Canada and Mexico are linked by the North American Free Trade Agreement (NAFTA). NAFTA opened up Mexico to the import of American goods, it facilitated the functioning of the maquiladoras, those zones where companies based on American capital pay Mexican wages. But nothing is more symbolic of this agreement than the wall that the U.S. is in the process of erecting between the two countries. The wall is meant to be impenetrable in one direction and porous in the other...

In encompassing the poorest countries of Eastern Europe, the old Common Market which had become the European Union, integrated inside its borders the relations of domination by imperialist countries over dominated ones. They have yet to decide to build a real wall. Nonetheless, "free circulation" does not have the same meaning when one moves from the eastern poor part, as it does going in the other direction. And a significant example: Great Britain is placing restrictions on the entry of Rumanian and Bulgarian immigrant workers precisely at the same time that Rumania and Bulgaria have become officially a part of the European Union.

To Conclude

The current phase of the capitalist economy is supposed to be growing. Yet:

" Never has there been such a concentration of wealth on the one hand, nor, on the other hand, so many poor people and so much poverty;

" Never in the poorest parts of the planet have so many peasants been thrown off the land and so many proletarians in the big cities without any possibility of employment in modern industry;

" Never have the contradictions been bigger between the financial world, with networks that cover the entire planet, with capital circulating at the speed of light, or close to it, and the real world of people and their products; with the movement of people blocked by barbed wire and walls; their products braked by sophisticated protectionism;

" Rarely has the system appeared so fragile. Unfortunately, this is due to internal contradictions, and not the blows of the class struggle with the conscious goal of overthrowing the anachronistic social order;

" Rarely has the capitalist organization of the economy, based on the market and profit, appeared so clearly destructive, so obviously unable to respond to the problems of humanity despite the incredible means at its disposal.

Looking toward the future, the revolutionary workers’ movement—observing for more than a century that capitalism does not represent progress; at most, only stagnation; at worst, regression—has posed the alternative: socialism or barbarism. Only the rebirth of the revolutionary workers movement can stop the plunge into barbarism.