The Spark

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

Increasing prices:
The Convulsions of a Society in Crisis

Jun 12, 2008

The following article is excerpted and translated from Issue 114 of Lutte de Classe [Class Struggle], Summer 2008, a political journal edited by Lutte Ouvrière [Workers’ Struggle], a revolutionary Trotskyist organization of that name active in France.

... Skyrocketing oil prices were on the agenda at the G8 summit of the eight major industrial countries, with China, India, and Korea in attendance this time. Representatives of the countries discussed how oil price increases were threatening the economy. “If we do not do something about the situation, it could bring on a global economic recession,” shouted one minister of energy. But officials did nothing but talk. The price of oil will continue to rise if that’s what is wanted by the small handful of oil companies dominating the worldwide distribution of oil. Under capitalism the real power is not in the White House – where a discredited Texas clown is at home – nor in France’s Elysée Palace nor in England’s #10 Downing Street. The real power lies in the board rooms of the big industrial or financial companies.

The Skyrocketing Price of Oil

After several years of progressively higher prices, the price of oil really skyrocketed this year. For ordinary people in the rich countries, especially wage earners, this price increase in oil came on top of other price increases, especially food. These factors raised the cost of living... and also hit many small businesses, like trucking.

Of course there are many big companies that are also hit by the increase in oil prices, such as the airlines and the U.S. auto industry.

The rise in oil prices is another contributing factor in the instability of the world economy, which is buffeted by financial and banking crises. As always in a period of crisis, those who are the strongest will find the way to make others pay for their higher costs. Companies that don’t have such possibilities will sink, bringing down with them their entire workforce.

Some already are talking about the “third oil shock,” referring to the 1973 oil crisis that shook the world economy. What the oil shocks of 1973 and 2008 have in common is that they are both an expression of the economic crisis. More precisely, they represent the oil companies’ strategy to anticipate the consequences of the crisis. Yet, at the same time, they are a major aggravating factor in the crisis.

During the first oil shock, crude oil prices tripled in a few months. This time, the huge price increases came after a long period of gradual increases.

Within a period of seventeen years, from 1986 to 2003, crude oil prices remained relatively stable at $20 to $25 a barrel. In 1998 oil prices even dropped to $10 a barrel.

But since 2003, prices have never stopped going up. In early June 2008, the price of a barrel of oil on the world market approached $140. Prices had gone up over 500% in five years, that is, they are five times higher in 2008 than they were in 2003! And these prices are fourteen times higher than they were ten years ago, at their lowest point in 1998....

As during previous oil price increases, the government and news media strive mightily to invent explanations. These range from the changing climate to the political problems of one or another oil producing country, to the unquenchable thirst for oil of China or India.

And each time, the media pulls out the old refrain about how limited oil resources are. Despite the lies, the truth spilled out of the mouth of Jean-Jacques Mosconi, a director of French oil giant, Total: “The high price of oil is not caused by a lack of oil reserves but by a lack of productive capacity.”

Those old enough to remember the oil crisis of 1973 may recall the experts saying at that time that there were only 30 years of oil reserves left in the earth. In other words, the gas pumps should have dried up five years ago.

If there is a limit to the oil reserves, it has not been reached. The directors of Total expect a continual increase in worldwide production until about 2020; then they expect production to level off. They estimate their own reserves will last 40 years. And that doesn’t take into account any new discoveries during that time period.

Oil company directors are quick to blame the oil producing countries for the lack of oil production. During the G8 meeting in June, they called on OPEC, the Organization of Petroleum Exporting Countries, to increase their production. History repeats itself. Thirty years ago, political leaders and the news media accused the “oil sheiks” of causing the first oil shock. Today, they explain that it is caused by instability in Iraq – which is real but whose fault is that? – or in Nigeria. Sometimes they blame Malthusian policies of oil producing states that want to conserve their oil reserves. But the last decades have proven that the oil producing states, with their differing situations and interests, have never been able to agree on a common strategy... except when it corresponded to the wishes of the major oil companies. The major oil companies may not always control the extraction of oil but they control all refining and distribution. They are able to influence the petroleum markets much more than can OPEC, since each OPEC member carries out its own policy. In addition, there are plenty of oil producing countries that do not belong to OPEC, notably Russia and Norway, both large exporters.

Production Capacity Deliberately Reduced by the Oil Companies

The oil companies today are following the same strategy as the one that brought about the first oil shock of 1973. Instead of massively investing in exploration, instead of building new refineries and transport, such as super-tankers, pipelines, etc., they prefer, in a period of economic instability, to raise their prices to increase their massive profits. As a monopoly, they are able to implement this strategy.

To gain the maximum profits from oil with a minimum of investment is the best way for the oil companies to force consumers to pay in advance for exploration and future investments in new forms of energy, which the big oil companies plan to control.

The tendency for prices to rise, coming from the oil companies’ strategy, fosters speculation because other industrial and financial groups gamble on raw materials, especially oil.

This scenario is well known and described regularly by economic commentators. After being driven out of real estate speculation, massive amounts of capital in search of profits descended on raw materials.

Oil, in particular. Such an indispensable product necessarily attracts capital searching for a place to make a bigger profit when the price of oil seems to be permanently on the rise.

Investors or speculators buy a piece of paper representing a certain quantity of oil and then sell it at a comfortable profit at a specified date. The pieces of paper that represent the buying and selling take on a life of their own, being bought and sold in their turn.

According to a recent investigation by the newspaper Le Monde, these fixed term contracts for oil represent 30 to 35 times the volume of real trading in oil. According to a researcher at French bank, Société Generale: “From 2000 to 2006, the amount of oil has increased 13% while the amount of derivatives, that is, the speculative pieces of paper representing the buyings and sellings at fixed terms, increased 260%”!

In other words, this increase in speculative demand pulls prices upward. This speculation causes a much greater increase than does real demand by China or India!

How much does speculation account for the actual increase in oil prices? Who can say? The question has no real meaning since the oil companies themselves speculate on the prices of what they produce.

On June 6th, the price of a barrel of oil increased by $11 on the New York Mercantile Exchange in a single day, which has never happened in the entire history of the oil industry. Obviously it was not due to growing demand from China or India. Nor was it due to the hypothetical exhaustion of the oilfields in 40 years. It can be explained only by short term speculative maneuvers.

Speculative Boom in All Raw Materials

The same kind of thing is happening to most raw materials. We hear less about it because consumers are not directly affected by the rise in prices of copper, aluminum or nickel. But obviously they are indirectly affected because when these prices go up, the big companies pass on the price increases to consumers. Or at least the companies powerful enough to pass on price increases do so.

In any case, the prices of copper and aluminum have raced upward for three years. In 2003, a ton of copper traded for $1,544. By mid-February 2008, it peaked at $8,884 a ton.

Just as with oil, the big companies have decided not to invest and just as with oil, speculation has vastly increased the rise in prices.

Speculative funds don’t come from outside the industrial and banking universe, but rather emanate from that universe. These speculative funds may not know anything about copper, aluminum or nickel, but they know about financial instruments. That allows them to work with capital far beyond their own. They use the capital of the big capitalist groups that turn to them to make profits; they also mobilize credit from the banks. By speculating using largely borrowed money and by juggling a multitude of instruments that the world of finance has invented over the last 20 years, some groups have made 100% profit in just a year of buying and selling raw materials.

The massive amounts of capital flooding into markets for raw materials, which have been turned into financial assets like any other, do not correspond to the amounts of these products actually traded,” sadly wrote a commentator in Le Monde. The article adds that all this kind of trading corrupts “the normal functioning of the market.”

But where does the normal functioning of the market end? And at what point does it become cancerous?

It is the same capital. One part is invested in production to extract surplus value through exploitation, while another important and growing part is used for financial operations. These financial operations dealing with credit and currency exchange and the raising of capital are indispensable for the functioning of companies. Even “derivatives,” which today make up the most dangerous forms of speculation, were invented to protect corporations from various risks. The line between speculative capital and the so-called normal workings of capital is thin and quite elastic.

Despite the fact that raw materials have been turned into “financial assets,” they remain indispensable for industrial activity. Speculation does not take place in a financial sphere that is disconnected from production. So it enlarges the convulsions of the capitalist economy.

Partisans of the capitalist economy think that the market economy cannot be surpassed. They say society has not found anything better than the law of supply and demand to match society’s ability to produce and fulfill its needs. But this so-called “law” takes into account only the demands of those with the money to pay and thus rejects the elementary needs of most of humanity. Furthermore, with the growing financialization of the economy, even the demand of those who can pay becomes more and more of a fiction since it mixes demands corresponding to real needs and demands that come from speculation.

Food Has Become a “Financial Asset”

The consequences are particularly drastic when the raw material turned into a “financial asset” is food. It’s nothing new to speculate on cereals and thus starve people to death. But modern capitalism invented financial instruments that take this speculation to an unprecedented level. In so doing, it multiplies the number of victims.

Certainly, speculation does not explain everything. It only amplifies things. Behind the inability of a growing number of poor countries to feed their population is an entire evolution, a history intertwined with the history of capitalism.

After numerous hunger riots in the poor countries, the Food and Agriculture Organization of the United Nation, the FAO, held a summit on “food security.” Those blabbermouths produced a lot of resolutions and declarations about the 800 million people who regularly suffer from hunger and malnutrition, those reduced to famine by the brutal increase in agricultural prices.

The FAO’s director confronted the states with their responsibilities: “These sad developments are merely the chronicle of a predicted catastrophe.” Yes, it is a catastrophe and the whole world sees it coming. But no one does anything about it!

During the FAO summit the French agricultural minister gave what amounts to a sort of self-criticism: “After decolonization we didn’t provide enough aid to these countries to help them develop their agriculture and feed their population.”

“Not enough aid”? How dare he say it? What about the responsibility of colonization? French colonialism used the whip to impose the cultivation of cotton in Chad and oil seed in Senegal, to profit French companies Boussac and Lesieur! Big import-export companies got rich from the international trade in rice that replaced local food staples driven out by the cultivation of oil seed or cotton. And the French used forced labor to build the few railroad lines and roads designed for transporting those products back to France.

Self-sufficiency in food did not disappear by chance, or even by some decision of the local population. It was deliberately destroyed, first and foremost, by the colonial powers and then by the capitalist market.

The workings of the capitalist economy are so marvelous that the capitalists no longer need whips or forced labor to impose market crops for the rich countries on the farmers of the poor countries and their venal governments. Included for this overseas market are fruits and vegetables out of season, products which the local population never sees. The latest “innovation” taking up more and more land once used to produce food is the production of biofuels. A vicious circle is complete. Because they systematically increased the price of oil, the oil companies made the production of biofuels profitable enough to attract capital. Ever more peasants are forced to abandon food production. Instead of producing food, they must buy it in the marketplace. On the world market the agricultural production of the industrial countries, which is mechanized and often subsidized, is more profitable.

A number of poor countries, especially in Africa, although once self-sufficient in food, have become dependent on the world market, on its fluctuations, its convulsions and, as a consequence, on its speculators and its speculation.

Humanity has paid dearly for the basic inability of its economic order to satisfy the elementary needs of society. Not only is it unable to deal with shortages, it creates them!

A Fundamentally Irrational Economy

Political leaders are completely unable to avert the catastrophes brought about by the functioning of the economy. That is not their role. Their role is to open wide the coffers of the state to the big companies. It is to implement the policy required by the big companies. And it is also to justify this social order to the population. And when they do not fulfill this role efficiently, they are meant to be used as a safety valve: they are kicked out by elections in imperialist countries or by armed violence in poor countries. So the system goes on, and nobody sees the economic powers that manipulate them behind these political puppets.

What is happening in the rich industrial countries and more disastrously in the poor countries shows that the laboring classes have to defend themselves even to prevent a catastrophic decline in their living conditions.

The price increases for oil and other raw materials have already revived inflation worldwide, adding to the banking crisis and the subsequent credit crisis. These prices have also increased the rivalry between corporations involved in successive stages of production because they want to make their clients or their contractors pay for the increasing costs. Obviously, all of them look for ways to make their wage earners pay. Each company will try to compensate for the increase in the cost of raw materials by squeezing labor costs.

In all the countries, the first oil shock was followed by an offensive against all wage earners. The same thing is happening today. Over and over, there are commentaries asserting that wages must not go up so that price increases for raw materials and food staples don’t lead to high inflation. This is part of the psychological warfare against the working class carried out by the politicians and the lackeys in the media in the interests of the bourgeoisie. In other words, one more time the capitalist class will try to make the wage earners pay for the disorders of its economy and the plunder by its big trusts.

It has become vital for the working class to defend itself against the two main diseases that hit the productive class of this society: unemployment and the plunge in purchasing power of their wages.

To defend themselves against unemployment means to impose a redivision of work among everyone without a loss in wages. To defend themselves against the loss of purchasing power means a general increase in wages and a sliding scale of wages, that is, an automatic indexing of wages to the rise in prices. In addition to these two main objectives, the governments must be forced to repeal all the measures they have taken to impoverish the laboring classes in order to enrich the wealthy (like cuts in public services and schools and health care, increases in the age at which Social Security can be obtained, etc.)....

All these struggles are necessary to prevent the laboring classes from plunging into poverty. But they are purely defensive. As long as capitalism remains the economic and social organization, it will continue to reinforce the grip of the big groups over the planet, with all its dire consequences. That means continued rivalries over profits, speculation, colossal waste on the one hand and famine on the other. It is not possible to regulate the basic problems of society within the framework of the capitalist economy.

There are many who recognize and denounce the threat for humanity represented by the growing control by a few hundred big financial groups on the planet, those which dominate the production of raw materials, energy and food. Less numerous, however, are those who understand that this domination is inseparable from the capitalist order and that, for a long time, it has caused humanity to go backward. Today’s crisis and its dramatic consequences are the expression of the impasse of the economy and the failure of the bourgeoisie, the social class that dominates and feeds off the society.

The problem is not simply to be conscious of these problems but to prevent humanity from rushing toward a precipice. There is no other alternative to the present evolution of society than the political overthrow of the bourgeoisie and the destruction of its economic domination.

But for this alternative to be realized, what is necessary are forces that defend a policy with this perspective. The multiple and often massive and violent responses against the price increases for oil, raw materials and food show that capitalist society is no more stable than it was when a powerful workers movement consciously aimed at overthrowing it. The only difference is the profound retreat and atomization of the workers movement itself.

The plundering by the big capitalist groups, their contempt for the basic interests of the vast majority of the population causes, as it did in the past and as it will in the future, reaction by the population, riots and revolts. Many of these could ignite a revolutionary process able not only to threaten capitalism but to overthrow it.

Globalization – about which there is endless talk concluding that nothing can be done – is not just globalized plunder by the big trusts. It has also reinforced the global proletariat by transforming tens of millions of peasants in China, India or Africa into proletarians. It has brought them together in immense slums where there are the same conditions that existed in the industrial cities of England during its industrial revolution. But today’s slums exist on an incomparably larger scale. And globalization, as it pulls down certain barriers between nations, mixing peoples, unifies their destinies.

Revolutions are the conscious expression of unconscious processes that develop in the depths of society. What is missing and missing drastically today is this conscious expression, with the will to push economic and social evolution to their ultimate transformation: the expropriation of the bourgeoisie, the overthrow of capitalism and the reorganization of the economy on the basis of collective property.

More than a century ago, Trotsky spoke about the crisis of leadership of the working class. Today that leadership crisis has spread to the entire workers movement and its organizations. It is precisely this retreat of the workers movement that leaves the door open to all sorts of organizations, which are virulently reactionary, nationalist, fundamentalist and ethnicist. But paradoxically the fact that these reactionary forces act today shows that society is pregnant with serious social calamities.

Lenin said that bourgeois society is always oozing a multitude of crimes that can ignite a revolution. The hunger riots in the poor countries and, in a certain way, even the waves of protest against the rise in prices show that his remarks have not lost any of their currency. But in order that a revolt not be stifled as soon as it begins or for it not to be taken advantage of by forces ready to channel social anger but not to transform society, the proletariat has to be able to intervene in events as a social force conscious of its own political interests.

The only question of our epoch is how and when a political force capable of embodying this perspective will arise and win, on this basis, the confidence of the only social class able to carry out such a transformation – that is, the proletariat of our times in all its diversity.