The answer is not financial regulation but overthrowing capitalism

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There’s going to be a crash and it will be a hard one” “Absolutely no one believes in the rescue plans. They know that the market is screwed and the stock exchange is finished”. “Traders don’t give a damn about how the economy can be saved; our job is to make money in this situation”. “Every night I dream of a new recession”. “In 1929 a few people made money from the crash; today everyone can do it, not just the elites”. “This economic crisis is like a cancer”. “Prepare yourselves! It’s not the moment to hope that the government will solve the problem. Governments don’t rule the world. Goldman Sachs rules the world. This bank doesn’t care about rescue plans”. “I predict that in less than 12 months the savings of millions of people are going to vanish and that’s just the beginning”. These are all from a talk on the BBC on 26 September by the London trader Alessio Rastani. This video has since created a real buzz on the internet[1].

Obviously we agree with the dark perspective drawn up by this economist. Without trying to make equally precise predictions, we can still affirm without hesitation that capitalism is going to continue its nosedive, that the crisis will get worse and more devastating, and that a growing part of humanity is going to suffer the consequences.

The declaration by Alessio Rastani is feeding one of the biggest lies of recent years: that the planet is in trouble because of finance, and only because of finance: “It’s Goldman Sachs that rules the world”. And all the voices of the left, of the extreme left, of the ‘anti-globalisation’ brigade join the chorus: ‘This is awful! Here is the cause of all our troubles. We have to take back control of the economy. We have to put limits on the banks and on speculation. We have to fight for a stronger and more humane state!’ This kind of talk has been going on non-stop since the collapse of the US banking giant Lehman Brothers in 2008. Today, even part of the classical right wing has bought into this ‘radical’ critique of ‘wild’ finance, calling for a more moral approach and for a greater role for the state. All this propaganda is nothing but a desperate ideological smokescreen to hide the real causes of the contemporary cataclysm: the historic bankruptcy of capitalism. This is not a matter of nuances or terminology. Accusing neo-liberalism and accusing capitalism are fundamentally different. On the one hand, you have the illusion that this system of exploitation can be reformed. On the other hand you have the understanding that capitalism has no future, that it has to be destroyed from top to bottom and replaced by a new society. We can therefore understand why the ruling class, its media and its experts use up so much energy pointing the finger at the irresponsibility of finance and blaming it for all the current economic ills: they are trying to divert attention from the system, to derail all the reflection going on about the need for a radical change, i.e. for a revolution.

‘It’s the financial traders’ fault’ or, the search for scapegoats

For the last four years, each stock market crash has been accompanied by a tale of dodgy trading. In January 2008, the Jerome Kirviel scandal hit the headlines. He was found responsible for the fiasco at the French bank Societé Générale after losing 4.82 billion euros through bad investments. The real reason for this crisis, the housing bubble in the US, was pushed into the background. In December 2008, the investor Bernard Madoff was investigated for a 65 billion dollar fraud. He became the biggest crook of all time, which conveniently distracted attention from the downfall of the US giant Lehman Brothers. In September 2011, the trader Kweku Adoboli at the Swiss bank UBS was accused of a 2.3 billion dollar fraud. This affair, ‘by chance’, came to light when the world economy was again in full disarray.

Obviously, everyone knows that these individuals are just scapegoats. The strings being pulled by the banks to justify their own crimes are just a bit too thick not be noticed. But the intense media propaganda does make it possible to focus everyone’s attention on the rotten world of high finance. The image of these speculating sharks is being used to fill our heads and fog our thoughts.

Let’s step back and think for a moment: how can these various events in themselves explain why the world economy is on the brink of collapse? However revolting these billion dollar frauds may be at a time when millions are dying of hunger all over the world, however cynical and shameful the words of Alessio Rastani when he says he hopes that he can get rich by speculating on stock market crashes, none of this explains the scale of the world economic crisis which today is hitting every sector and every country. The capitalists, whether they are bankers or captains of industry, have always sought for the maximum of profit without the slightest concern for the welfare of humanity. None of this is new. From its inception, capitalism has always been a system of inhuman exploitation. The barbaric and bloody plunder of Africa and Asia in the 18th and 19th centuries is tragic proof of that. The kleptocracy of the traders and the bankers therefore tells us nothing about the current crisis. If crooked financial dealings are now resulting in colossal losses and sometimes threaten to tip banks over the edge, it’s really a result of the fragility brought about by the crisis and not the other way round. If, for example, Lehman Brothers went bust in 2008 it wasn’t because of its irresponsible investment policies but because the American housing market collapsed in the summer of 2007 and because this bank found itself holding masses of valueless debts. With the subprime crisis, the households of America were shown to be insolvent and the loans given to them would never be repaid.

‘It’s the fault of the credit rating agencies’ or, blaming the thermometer for the fever

The credit ratings agencies are also under fire. At the end of 2007, they were accused of incompetence because they neglected the weight of the sovereign debts of states. Today they are being accused of the opposite, of giving too much emphasis to sovereign debt in the Eurozone (for Moody’s) and the USA (for Standard and Poor’s).

It is true that these agencies have particular interests, that their judgement is not neutral. The Chinese ratings agencies were the first to downgrade the creditworthiness of the American state, and the American agencies are more severe towards Europe than towards their own country. And it’s true that with each downgrade, the financiers seized the opportunity to speculate, further accelerating the deterioration of the economic situation. The specialists can then talk about ‘self-fulfilling prophecies’.

But the reality is that all these agencies completely underestimate the gravity of the situation: the ratings they hand out are far too high in relation to the real capacity of the banks, the enterprises, and certain states to repay their debts. It’s in the interest of these agencies not to be too critical of the economic essentials because that would create panic, and the world economy is the branch they are all sitting on. When they downgrade the ratings, it’s in order to maintain a minimum of credibility. To totally deny the seriousness of the situation facing the world economy would be grotesque and no one would believe them: from the standpoint of the ruling class, it is more intelligent to recognise certain weaknesses in order to cover up the basic problems of the system. All those who are currently blaming the ratings agencies are well aware of this. If they complain about the quality of the thermometer, it is to prevent us thinking about the strange illness affecting world capitalism, out of fear of admitting that the illness is incurable and is getting worse.

‘It’s the fault of finance’ or, confusing the symptom with the disease

The criticisms of the traders and the ratings agencies is part of much bigger propaganda campaign about the madness and hypertrophy of the financial sector. As always, this lying ideology is based on a grain of truth; it cannot be denied that in the last few decades the world of finance has indeed become an obese and increasingly irrational monstrosity.

Proof is legion. In 2008, the sum total of global financial transactions rose to 2,200,000 billion dollars, as against a world GNP of 55,000 billion[2]. The speculative economy is therefore around 40 times bigger than the so-called ‘real’ economy! And these billions have over the years been invested in increasingly crazy and self-destructive ways. One edifying example: the short sale mechanism. What is this about? “In the short sale mechanism, we begin by selling an asset which we don’t possess in order to buy it back later on. The aim of this trick is obviously to sell an asset at a certain price and buy it back at a lower price in order to pocket the difference. As we see, the mechanism is the complete opposite of buying something and then selling it”[3].

Concretely, short selling involves a huge flow of speculative finance around certain assets, betting on a fall in their price, and this can sometimes lead to the collapse of the targeted asset. This has now become a scandal and a lot of economists and politicians even tell us that this is the main problem, THE cause of the bankruptcy of Greece or the fall of the euro. Their solution is therefore simple: forbid short selling and all will go well in the best of all possible worlds. It’s true that short selling is utter madness and that it is accelerating the destruction of whole swathes of the economy. But that’s the point: it is merely ‘accelerating’ and is not the cause. You need a raging economic crisis in the first place for such deals to be so profitable. The fact that the capitalists are gambling not on a rise in the market but on its fall shows how little trust they have in the future of the world economy. This is also why there are less and less long-term, stable investments: investors are out for a killing in the very short term, without any concern for the longevity of enterprises and especially of factories, since there are almost no industrial sectors than can ensure long term profits. And here, finally, we are getting to the heart of the problem: the so-called ‘real’ or ‘traditional’ economy’ has been in a mess for decades. Capital is in flight from this sphere because it is less and less profitable. The world economy is saturated and commodities can’t be sold, the factories are not producing and accumulating. Result, the capitalists invest their money in speculation, the ‘virtual’ economy. Hence the hypertrophy of finance, which is just a symptom of the incurable disease of capitalism: overproduction.

‘It’s the fault of neo-liberalism’ or, how to tie the exploited to the state

Those who see the problem as neo-liberalism also agree that the real economy is in deep trouble. But they don’t for one moment attribute this to the impossibility of capitalism to go on developing. They deny that the system has become decadent and is in its death agony. The anti-globalisation ideologists blame the destruction of industry since the 1960s on bad political choices and thus on neo-liberal ideology. For them as for our trader Alessio Rastani, “it’s Goldman Sachs which rules the world”. So they fight for more state, more regulation, more social policies. Beginning from the critique of neo-liberalism, they come up with a new mirage to lead us on: statism. “With more state control over finances, we can build a new economy, more social and more prosperous”.

But a bit more state won’t make it possible to resolve capitalism’s economic problems. Let’s say it again: what undermines this system is its tendency to produce more commodities than the markets can absorb. For decades, they have managed to avoid the paralysis of the economy by creating an artificial market based on debt. In other words, since the 1960s capitalism has been living on credit. This is why, today, households, companies, banks and states are all groaning under a vast mountain of debts and why the current recession is called the ‘credit crisis’. Now, since 2008, and the failure of Lehman Brothers, what have the states been doing via their central banks, in particular the Fed and the European Central Bank? They have been injecting billions of dollars to prevent further bankruptcies. And where do these billions come from? From new debts! All they are doing is displacing private debt onto the public sphere, so preparing the ground for bankruptcies of entire states, as we are already seeing with Greece. The economic storms that lie ahead threaten to be of unprecedented violence[4].

‘But if it can’t control the crisis, the state could at least protect us and be more social’ says the whole chorus of the left. This is to forget that the state has always been the worst of bosses. Nationalisations have never been good news for the workers. After the Second World War, the big wave of nationalisations had the aim of reviving the apparatus of production that had been destroyed in the war, and were accompanied by a much intensified pace of work. At the time, Thorez, the general secretary of the French Communist Party and vice-president of the De Gaulle government, launched his famous appeal to the working class of France, especially the workers of the nationalised enterprises: “If miners die at their posts, their wives will replace them”; or again: “pull in your belts for national reconstruction” and “strikes are a weapon of the trusts”. Welcome to the wonderful world of the nationalised enterprise! There is nothing unexpected or surprising in all this. Since the experience of the Paris Commune in 1871, communist revolutionaries have always insisted on the viscerally anti-working class function of the state: “The modern state, no matter what its form, is essentially a capitalist machine, the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more it actually becomes the national capitalist, the more citizens does it exploit. The workers remain wage workers - proletarians. The capitalist relation is not done away with. It is rather brought to a head”. Friedrich Engels wrote these lines in 1878, which showed that even at that time the state was beginning to spread its tentacles to the whole of society, to take over the whole of the national economy, public enterprises as well as the big private firms. Since then, state capitalism has only got stronger: each national bourgeoisie is ranged behind its state to wage the merciless commercial war that goes on between all countries.

‘The BRICS will save us’, or praying for an economic miracle

Brazil, Russia, India, China and South Africa (the BRICS) have in the last few years shown a remarkable degree of economic success. China in particular is now seen as the world’s second biggest economic power, and many think it will soon dethrone the USA. This flamboyant achievement has led economists to hope that this group of countries could become the new locomotive of the world economy, just like the USA after the Second World War. Recently, given the risk of the Eurozone exploding as a result of the sovereign debt crisis, China has even proposed partly filling Italy’s coffers. The anti-globalisation crew see a reason for rejoicing here: since they argue that the American supremacy of neo-liberalism is the worst of all scourges, the rise of the BRICS will result in a more balanced, fairer world. This hope in the development of the BRICS, shared by the big bourgeoisie and the ‘anti-capitalists’, is not only comical: it also shows how deeply they are attached to the capitalist world.

This hope is going to be dashed. There’s a touch of déjà-vu about this ‘economic miracle’ business. Argentina and the Asian tigers in the 80s and 90s, or, more recently, Ireland, Spain and Iceland, were all at various times put forward as ‘economic miracles’. And like all miracles it turned out to be a con. All these countries owed their rapid growth to unbridled debt. They therefore all came to the same sticky end: recession and bankruptcy. It will be the same for the BRICS. Already there is growing concern about the level of debt in the Chinese provinces and about the rise of inflation. The president of the sovereign fund China Investment Corp, Gao Xiping, has recently said that “we are not saviours. We have to save ourselves”. It couldn’t be put more clearly!

The truth is that capitalism has no solution and no future

Capitalism can no longer be reformed. To be a realist, you have to admit that only the revolution can prevent catastrophe. Capitalism, like slavery and serfdom before it, is a system of exploitation which is condemned to disappear. Having developed and expanded for over two hundred years, above all in the 18th and 19thcenturies, having conquered the planet, capitalism entered loudly into its period of decline when it unleashed the First World War. The Great Depression of the 1930s, then the terrible slaughter of the Second World War, confirmed the obsolescence of this system and the necessity to put an end to it if humanity is to survive. But from the 1950s on there have not been crises as violent as the one in 1929. The bourgeoisie has learned how to limit the damage and revive the economy, which has left many believing that today’s crisis is yet another in a series of downturns and that growth will once again come back, as it has done over the last 60 or so years. In reality, the successive recessions of 1967, 1970-71, 1974-75, 1991-93, 1997-98 (in Asia) and 2001-2002 merely paved the way for today’s drama. Each time the bourgeoisie only managed to get the world economy going again by opening up the sluice-gates of credit. It has never succeeded in getting to the root of the problem: chronic overproduction. All it has done is put off the day of reckoning by the resort to credit and today the system is suffocating under the weight of all this debt. No sector, no state is spared. This headlong plunge into debt is reaching its limits. Does this mean that the economy is going to grind to a total halt? Obviously not. The bourgeoisie will debate the options it has before it, which boil down to a choice between cholera and the plague: draconian austerity or a monetary re-launch. The first leads to brutal recession, the second to uncontrollable inflation.

From now on, the alternation between short phases of recession and long periods of revival financed by credit is behind us: unemployment is going to explode and poverty and barbarism are going to spread dramatically. If there are phases of recovery (as in 2010), they will be no more than very fleeting gasps of air followed by new economic disasters. All those who claim the contrary are a bit like the suicide who jumped from the top of the Empire State Building and at each stage of his descent declared that ‘it’s all going well so far’. Let’s not forget that at the beginning of the Great Depression, US president Hoover also told us that “prosperity is just around the corner”. The only uncertainty is what will be the fate of humanity. Will it go down with capitalism? Or will it be able to construct a new world of solidarity and mutual aid, without classes or state, exploitation or profit? As Frederick Engels wrote more than a century ago: “bourgeois society is faced with a dilemma: transition to socialism or a relapse into barbarism”. The key to this future is in the hands of the working class, of its struggles uniting workers, the unemployed, the retired and young people in precarious jobs.  

Pawel 29/9/11


[4]. The idea of ‘more Europe’ or ‘more world government’ is yet another dead-end. Whether they act alone or with others, states have no real and lasting solution. Coming together might allow them to slow down the advance of the crisis just as their divisions accelerate it.