The era of neo-liberal market madness has crashed. It is not the end of capitalism by a long shot, but it is the end of capitalism as we have known it for the last twenty years or so. We have been told over and over again that neo-liberalism represented a new paradigm for capitalism that had overcome the boom bust cycles and created an unprecedented growth. That view of capitalism pushed by our leaders has just taken a massive hit – economically and ideologically.
The financial crisis starkly reveals the inability of their system to solve the food, oil and climate crises that already threatens the lives of billions on the planet.
We can’t know at this stage how this will end – the scale of the recession, how many more companies will collapse, etc. But we do know that crisis is back at the heart of the system and the rich have no intention of paying for the mess they have caused. The failures of the system will be dramatically exposed to a far wider number of people who will have to grapple with the consequences for their jobs and living standards.
The spectacular collapse of major banks in the US and Europe heralds a financial crisis on a scale not seen since the Great Depression. The US Federal Reserve bank is desperately trying to get Congress to pass a bill providing US$700 billion to bail out collapsing financial institutions.
But there is no guarantee that the rescue package is going to work such is the scale of the rot in the system.
The US$700 billion is on top of the $85 billion loaned directly to AIG and the previous bail-out of Bear Stearns ($30 billion), the takeover of Freddie Mac and Fannie Mae in the US and the 50 million pounds bail out of Northern Rock in the UK.
Lehman Brothers was allowed to go bankrupt, but Freddie Mac, Fannie Mae and then AIG were simply too big to go to be allowed to go to the wall. The risk was that the collapse would take more substantial parts of the financial system with it and produce a spiraling melt down of the economy.
The IMF says that US, Britain, France, Germany are already on the brink of recession.
It is the end of the neo-liberal worship of the free market. The US has effectively nationalised the majority of the US financial system. Even the last standing investment banks, Goldman Sachs and Morgan Stanley, are now under Federal regulation.
The free market has never been free – millions of people paid the price for the reign of the free market since Thatcher and Reagan in the 1980s, as the rich got richer and inequality grew as neo-liberalism spread globally. In the US, the present collapse has already cost workers their homes, their savings, and their jobs. The bail-out amounts to a massive subsidy to the big banks of over US$2300 for every person in the US.
The financial and credit crisis will inevitably impact on the real economy. As the cost of money and uncertainty rises, businesses scale back on new investments. Some of these effects can already be seen in the US. As the home market turns down it affects all kinds of spending – construction material, white goods. As people spend less money on all kinds of goods, places like Wal Mart, etc sack staff. Unemployment grows.
Who’s to Blame?
Some apologists for the market fundamentalists are blaming the crisis on a lack of regulation or rogue traders. The ban on naked short selling (an astonishing funny money arrangement that sums up the madness of the market, in which traders trade in shares they don’t own in the gamble that the price of the shares they are trading will actually fall) reflects this view that the problem can be fixed with some tinkering at the edges of the system.
But the problem is much deeper – naked short selling did not produce the sub-prime credit crisis that is at the root of the present crash. It is the mad drive for profit that is at the heart of the crisis and no amount of regulation or re-regulation will over come that.
The credit crunch is a product of a deeper problem pointed out by Karl Marx. There is a crisis of profitability in the system itself that has seen companies pour billions into financial speculation rather than make productive investments to build new factories.
The crisis in Australia
In Australia, the scale of the crisis is not so severe – yet. But we have already seen jobs being cut in the car industry, banks, Qantas and Telstra. Inflation and interest rate rises have eaten into living standards.
The stock market crash has dramatically hit superannuation savings. The hope that China and the resource boom will be enough to save the Australian economy look a little more forlorn.
Kevin Rudd and his New Labor government have been arguing against wage rises to keep pace with inflation. The demand for wage increases of at least 5 per cent a year is one way to make sure that the bosses pay for their crisis.
It is yet another reason for the union movement to fight to scrap ALL of Howard’s WorkChoices laws. The WorkChoices Lite changes being proposed by Rudd and Gillard still restricts the right to strike and limits the right to organise. It is a disgrace that a Federal Labor government is keeping Howard’s construction industry anti-union watchdog, the ABCC.
Rudd is also stalling on raising pensions; a move that will impact on even more people who will rely on aged pensions as superannuation falls. State governments are trying to impose pay caps on public servants. As the crisis bites there will be more calls for workers to tighten their belts.
But the latest reports of the extraordinary bank profits – a profit margin of 54.8 percent and an income of A$31.9 billion from interest rates alone – shows where the money to maintain wages, conditions, and pay for increased benefits, pensions, can come from. The years of economic rationalism under Hawke, Keating and Howard has seen company profits pushed to their highest rate in 50 years.
Taxing the rich and the profits of the big corporations could raise more billions on top of the $30 billion surplus in the federal government’s coffers right now.
The successful fight to stop the privatisation of power in NSW has even more significance in the current crisis. It shows how the power of the unions can be used to challenge the privatisation, user-pays frenzy that has dominated mainstream economics for the last three decades.
The intervention of the US to prop up/take over failing banks highlights a dramatic contradiction. Government can find trillions of dollars for the cowboy capitalists but cannot find the money to do anything about climate change or poverty.
Fighting For Change
On top of the wars in Iraq and Afghanistan, and the climate crisis, the crash has brought all the instability and madness of capitalism to the fore. Millions will now be questioning the whole basis of the system. Marxist ideas and explanations of the crisis have renewed relevance and immediacy. And socialists have a renewed role in fanning the flames of every bit of resistance.