By JEFF MACKLER
The simultaneous recessions unfolding in the three major components of the world capitalist system-the United States, Europe, and Japan-portend increasing misery not only for the workers of these bitterly competing nations and their associated trading blocs but for the workers and farmers of the entire planet.
Not a day passes when one or another aspect of this crisis is not openly discussed in the corporate media-from the point of view of the frightened rich, of course. There are no media spokespersons for the world’s workers and poor, 25 percent of whose deaths each year come from AIDS, tuberculosis, malaria, and intestinal-related illness.
The economies of the underdeveloped world have already contracted to levels not seen in modern times. Whole continents stand impoverished, industries ruined, and environments destroyed while billions are sentenced to die from disease and starvation, not to mention civil war and imperialist military intervention.
From the vantage point of U.S. and world imperialism the central problem to be resolved at any cost is the continuing decline in the average rate of profit brought on by a level of ruthless global corporate competition unknown since the outbreak of World War II. Saturated world markets and declining profits have dramatically increased plant closures and unemployment, while decreasing wages everywhere.
Mexico hurt by U.S. recession
A Dec. 26 New York Times “Money & Business” section article, entitled, “Fallout from U.S. Recession Drifts South Into Mexico” reveals some key elements in the unfolding world economic crisis.
In Mexico, for the first time in two decades, there has been a net yearly loss in jobs-200,000, in the maquiladora industry alone. Overall unemployment in Mexico approaches 40 percent.
The U.S.owned maquiladora plants (of which 90 percent have operated in the U.S. border region) produce and export everything from televisions, auto parts, and toys to the latest in high-technology products. Until recently, the average Mexican employee earned a daily take-home pay of $4-5 for entry-level manufacturing jobs. But in today’s cut-throat world markets, $4-5 a day is more than U.S. capitalists can afford and continue to make profits.
The Times article reports, “Even after a recovery begins in the broader North American economy, this region may never be the same because the 2000-mile border is pricing itself out of the low-skill manufacturing market.”
Average daily wages in El Salvador are $1.59, The Times notes. In the Dominican Republic they stand at $1.53. In Indonesia the figure is $1.19, and in China 43 cents per day.
The advantages of extremely low wages in these nations, coupled with recent declines in shipping costs, have made it more profitable to move plants across the globe rather than a mile across the U.S. border.
Maquiladoras (owned by Fortune 500 companies like General Electric, Alcoa Aluminum, and Delphi Automotive Systems) generate $60 billion in exports yearly. But they are no longer sufficiently profitable for U.S. corporations who negotiate the exploitation of cheap Mexican labor with Mexico’s capitalist elite.
U.S. maquiladoras paid Mexico more than $400 million in corporate taxes last year and an additional $1.3 billion in social security. Additional billions in federal income taxes are taken by the Mexican government from the wages of Mexican workers. The maquiladoras also pay Mexico some $2-3 per day per worker-allegedly for child care, housing, and health care.
In reality, the Mexican government “sells” cheap labor to U.S. corporations in return for payments to the Mexican treasury that largely benefit Mexico’s ruling elite. The vast majority of Mexico’s population has experienced a dramatic decline in living standards in past decades while a small layer has benefited from U.S. corporate investment.
Mexico’s President Vincente Fox wants to keep it that way-that is, to advance the interests of his class, the tiny minority of the rich and their hangers-on, at the expense of everyone else.
“In southern Mexico,” says Fox (The New York Times, Dec. 26), “we are establishing the same conditions as Guatemala or China.” But under the conditions of present day inter-imperialist rivalry, a daily wage of $1.50 or less is still too high, especially when the deal includes additional payoffs and taxes to Mexico’s state bureaucracy and ruling elites.
Many of Mexico’s U.S.-owned maquiladoras are moving to China, where the Stalinist bureaucracy is even more amenable to the demands of world capitalism.
Argentina defaults on its debt
Argentina’s $132 billion default on its “obligations” to world capitalism’s banks is the largest in modern history and the only default in memory that was allowed to take place by the U.S.-dominated IMF.
“Argentina’s Chaos Raises New Doubts on Monetary Fund” is the title of another Times article (Dec. 22), where the views, often conflicting, of the ruling rich are discussed with an eye to what to do when the next inevitable default approaches.
The same debate was opened in 1997 with the failure of the Asian and Russian economies. The decision at that time was to hold the line and use rapidly depleting IMF and World Bank funds for bailouts of one sort or another. But it became clear that the Humpty Dumpty of the world debt owed by poor nations, not to mention the rich, was far beyond the resources of the IMF or any other such institution or nation state.
Eventually, the deficit spending that has become a common feature of all capitalist economies, large and small, will reach a point of no return. In the economic arena, the imperialist banking institutions fear nothing more than the prospect of their client debtors simultaneously proclaiming that they will not and cannot pay.
Indeed, the entire world is awash with unpayable debt, with Japan and the U.S. heading the list in owing $5-6 trillion each to the world’s major banking institutions. A default by either of these nations, and/or a default by a combination of smaller economies, could well trigger a worldwide economic meltdown exceeding the scale of 1929.
Should the IMF have loaned more to prevent the Argentine default, or perhaps delayed payments due, or restructured the loans? Or should the world’s bankers have cut their losses and bailed out months ago when it became clear that default was inevitable? “Why throw good money after bad?” they say. These were the questions that The Times reporter sought to answer, with no success.
In August the IMF did restructure Argentina’s debt to avoid a default, at least temporarily. In return the government agreed to impose strict financial guidelines, focusing on sharp spending cuts in public employment, wage cuts, curtailment of pension payments, and slashes in social services. The working class was slated to pay back the imperialist banks for the debts incurred by Argentine capitalists.
Argentina’s corrupt Peronist-led trade union bureaucracy, under pressure from the ranks, responded with yet another one-day nationwide general strike, the seventh in the past two years, and empty bluster. The austerity continued for another five months.
In late December a mass demonstration of 100,000 in Buenos Aires, and mass mobilizations across the country, coupled with widespread supermarket looting by hungry workers and the unemployed as well as strikes in critical sectors of the economy, drove the weak government of Fernando Rua from office.
The angry masses of the unemployed, 18.3 percent by the official count and 40 percent in Buenos Aires, demanded that the government default rather than pay off the world’s exploiting capitalists.
The government’s response was to decree a “state of siege.” Troops fired on demonstrators, killing 12 and leaving 150 wounded.
Within days the new government, led temporarily by Peronist political boss Rodriguez Saa, revoked the cutback decrees of the old regime that had slashed government pay and pensions by 13 percent.
But there was a hitch-it was not clear whether the pensions would be paid. And there was another hitch. The restored cuts are to be paid, “as soon as possible,” not in pesos but in a special new currency, the argentino.
Government presses will now proceed to mint argentinos, admitting that they are not backed by government assets or anything else other than, in Rodriguez Saa’s words, “all the buildings and lands that are the property of the state.”
The argentino is initially to be issued at a U.S. dollar’s equivalent, but no one believes that the free-floating currency will retain its value for long. When the Argentine currency was last taken off the dollar standard a decade ago, its value declined to 1/100 of a cent, as Argentina’s inflation rate soared to 5000 percent annually.
For the moment, Argentina continued to peg its main currency, the peso, on a one-to-one basis with the dollar. But thousands of citizens, fearing that the peso would soon be devalued, tried desperately to withdraw their money from the banks before it depreciated. They soon learned that Argentina’s Central Bank preferred to close its offices rather than allow the population to withdraw cash in dollars or pesos, not to mention pay wages or pensions in these equivalent currencies.
In early December the government, fearing a run on its banks that could, according to the Dec. 31 New York Times, “lead to a collapse of the entire financial system,” limited withdrawals to $1000 per month.
The Central Bank said that individuals and companies had a total of $61 billion deposited in dollars and pesos as of Dec. 20. The daily newspaper La Nacion reported, however, that only $13 billion was on deposit, the rest having been loaned.
The discrepancy highlights the depth of Argentina’s crisis. The country is in debt to imperialist banks to the point that it cannot afford to pay the interest on its $132 billion debt, not to mention a portion of the principle. And so, the only choices were to cut expenditures to virtually zero (an impossibility) or to default.
Rodriguez Saa’s choice was to print what could only become worthless money and hope against hope that somewhere down the line a more practical solution would be found. Neither ruling party offered one. Within a week, Rodriguez Saa himself resigned as interim president and his entire cabinet followed suit.
Several days later, members of the congress elected a new president, also from the Peronist party, Eduardo Duhalde, who confirmed that the peso would be devalued.
The northern province of Tucaman had already issued bonds totaling $1.3 billion to pay government employees and suppliers but announced that for the next three months at least there were no funds to make payments on these notes. Tucaman workers may now be paid in argentinos if at all.
“Though there were unique elements,” concludes The Times. “Argentina’s demise seems certain to add doubts about the wisdom of bailouts, doubts that have grown in recent years. Nearly every major financial rescue effort, including those in Mexico, Thailand, Indonesia, South Korea, Russia, and Brazil, have come under intense scrutiny from the left and the right, albeit for widely varying reasons.”
There have always been “doubts” about the wisdom of capitalist bailouts, that is, about loaning money to either individuals or governments whose financial status is questionable. The United States and its imperialist competitors have never been motivated by altruism in these matters.
For the past 70 years and longer, no country on earth, with the exception of Japan, has been allowed to enter the exclusive group of highly industrialized nations. Simply put, world capitalism has no interest in fostering the growth and development of future competitors.
The poor nations of the earth, the colonies of yesteryear, today are effectively the neo-colonies or semi-colonies of the major imperialist powers. Some have achieved, through momentous struggles of the oppressed and exploited, a semblance of limited national independence. But it is an independence in the framework of capitalist exploitation, wherein the vast majority still toil to enrich the few.
In recent decades, world imperialism has cultivated the growth of a small relatively prosperous layer of people in the underdeveloped world, whose standard of living approaches their counterparts in the industrialized world and who are paraded internationally as symbols of the success of capitalist development.
But this thin layer, some 4-8 percent of the population, depending on the country, exists at the expense of the impoverished masses and is itself, in the context of capitalism’s worldwide decline, in the process of decline. Many of Argentina’s protesters were from middle-class layers, whose momentary rise is today threatened with instant reversal.
Today, the stability of the entire capitalist world is in doubt, including the United States. This was not so obvious in 1997 and earlier when tens of billions of dollars in IMF funds were available to stave off defaults. Not so today.
In the case of Mexico, as with most other bailouts, neither the Mexican people nor government ever saw the “bailout” funds. Imperialist bankers simply paid Mexico’s debts to U.S. creditors by various means, the sum total of which was to further subordinate Mexico’s economy to the U.S. and further increase its unpayable debt. Mexico’s bailout involved the Clinton administration’s guaranteeing its multi-billionaire banking backers that they would not be left holding the bag.
Argentina today faces the same dilemma that virtually all poor nations confront in the age of imperialism. No underdeveloped nation can effectively compete on world markets dominated by the world’s superpowers in regard to virtually every commodity produced.
Technology and productivity levels in the U.S., Japan, and Europe far exceed anything imaginable in a poor nation. With modern technology, rice, for example, can be produced more cheaply in California with a minimum of farm labor than in the poorest nations of the world, where wages are paid, if at all, in pennies, and large numbers of peasants are required.
Argentina’s productivity, for example, has not improved for 31 years. In contrast, U.S. productivity has increased 80 percent in the same period, with a baseline starting point, of course, already more than a half century ahead.
The Argentine default was allowed to happen. It signifies that world capitalism fears “throwing good money after bad,” more than the idea that Argentina’s default will encourage, en masse, defaults in the trillions of dollars owed to imperialist banks by the world’s other debtor nations.
The rise in the class struggle in Argentina has also been factored into the imperialist equation. When tens of thousands mobilize to demand that Argentine workers be paid their wages and pensions as opposed to the imperialist banks, options become more limited.
The Japanese yen plummets
“The Yen’s Relentless Downhill Slide” is the title of another exposition of world capitalism’s dilemma in The New York Times: “The value of the Japanese yen fell 11 straight days ending Dec 28 at 132 to the dollar, the longest losing steak since 1971.” In less than a month, the Japanese government essentially allowed the yen to lose 7 percent of its value.
For Japanese capitalists fighting their way out of the fourth major recession in the past 10 years, currency devaluation has become the government’s momentary weapon of choice. Devalued yen make Japanese exports cheaper and thus better able to further penetrate foreign markets.
The acknowledged worldwide superiority of Japanese cars, based on superior technology, has already given the Japanese a $3000 per car advantage in the U.S. market, where more than 30 percent of all cars sold are Japanese.
The Big Three response has been to enter the technology race in earnest by modernizing plants and shifting production to low-wage areas. Hundreds of thousands of autoworkers have been permanently fired. With the onset of the current recession, U.S. automakers have reduced financing to zero percent interest at a cost of more than $3000 per car. But the Japanese devaluation will further erode sales of U.S. cars.
The Bush administration has continually warned Japan against trying to “export its way of out of recession.” In plain talk, Bush (and Clinton before him) threatened Japanese competitors that the United States is prepared to retaliate by similarly attacking vulnerable Japanese commodities, including foodstuffs-where U.S. technology is far superior.
Japan’s devaluation is likely to bring on similar devaluations elsewhere, as others similarly degrade their currency to promote exports. Of course, a weakened currency increases the cost of foreign imports, the burden of which will be passed onto the Japanese working population.
The worldwide hype about “free trade” disappears when any capitalist nation finds its sacred marketplace invaded by superior foreign products. On paper, Japanese cars are allowed free access to the U.S. market. In fact, the Japanese will be punished severely as they attempt to do so. The realities of worldwide capitalist production make such conflicts inevitable.
Japanese capitalist exporters like Honda, Toyota, Canon, and Sony reaped tens of millions of dollars in an instant with the yen devaluation. The Japanese stock market, which has lost 25 percent over the past year, immediately rose 2.6 percent in late December on news of the yen’s fall.
The U.S. economy
The U.S. gross domestic product shrunk 1.3 percent in the third quarter-the largest U.S. drop in a decade. In the same period, profits dropped among the Standard and Poor’s index of 500 major U.S. corporations by 22 percent. Analysts are forecasting a drop of another 21-22 percent in the fourth quarter.
For the fiscal year 2002, the projected $313 billion budget surplus has been readjusted to a $40 billion deficit, with additional deficit budgets projected at least through 2004.
Within months, the media-hyped euphoria that drove the $1.35 trillion bi-partisan 10-year tax cut to U.S. corporations through the Congress has disappeared and along with it any remaining illusions about capitalist stability. The ruling rich will now employ every measure at their disposal to shore up a failing capitalism.
In February, Bush will unveil his $2 trillion-plus budget for the 2003 fiscal year. Undoubtedly, massive increases will be projected for the military and for the new corporate welfare “anti-terrorist” programs to come under the new budget category, “national security.”
Military spending, and now “national security” expenditures, are designed to serve two fundamental purposes under capitalism: (1) They boost profit levels of major corporations that can no longer reap huge profits, or any profits, in the face of ferocious worldwide competition. (2) They act to defend and advance U.S. economic interests abroad through military means.
The inflated Cold War military budgets of the past can no longer be justified in the name of anti-communism; hence the new bogeyman, terrorism. In both cases the beneficiaries are the corporations of the ruling rich who receive bloated contracts for the manufacture of military products like aircraft carriers and jet planes in markets where there are few, if any, competitors.
But even multi-year trillion-dollar gifts to corporate war producers are insufficient when a globalized world economy squeezes profits to the bone and worse. New avenues are always sought to rip off the public treasury for additional hundreds of billions.
The latest is a gift by the Internal Revenue Service to crooked corporations. The Dec. 26 New York Times tells the story in an article entitled, “IRS Offers Amnesty to Companies That Admit Tax Indiscretion,” which reports that $14.7 billion yearly in federal income taxes was “saved” by some 95 “indiscrete” corporations who used illegal tax shelters. The 95 represent what The Times calls just a “slice” of the 1700 large corporations who use such shelters that involve transactions having no economic significance but create the appearance of legitimate expenses that can be deducted.
The 95 companies have “confessed” to illegally sheltering an amount equal to $1 per week for every man, woman, and child in the country. The Times reports that such indiscretions are “common” among large corporations.
IRS commissioner Larry R. Langdon reported that the medium and large corporations he surveyed utilized some 413 illegal shelters and avoided $16.2 billion in potential taxes. Of course, this is the tip of the iceberg when it comes to tax avoidance. The legal mechanism written into the tax code reduces corporate taxation to the barest minimum.
The IRS amnesty consists in not imposing an additional 20 percent penalty on unpaid taxes. “This is our Christmas present to the big companies,” said Langdon.
The new IRS data also comes as the Bush administration is pressing to give more than $200 billion in new tax breaks to U.S. corporations, “an economic stimulus program” to pour additional billions into corporate coffers. At every turn both Bush and his predecessor, William Clinton, act in the interests of their ruling-class mentors.
While The Times called Clinton “the best president corporate America ever had,” the crisis of capitalism demands that Bush exceed his predecessor in zeal for guarding the corporate gates.
Bush campaigned on a platform that included giving taxpayers the “right” to keep a portion of their Social Security payments for investment in the stock market, which at that time served as a haven for foreign investors whose rates of profit had been severely diminished due to the general crisis in the world economy.
The resultant but momentary meteoric rise in the market afforded Bush’s proposal some semblance of credibility. Its massive decline today has left millions of Americans with pension plans that have been severely reduced or eliminated.
The Enron Corporation, whose stock recently plummeted from $90 per share to less than 42 cents is a case in point. The Congressional testimony of a 61-year-old Florida woman with Enron stock holdings that shrank from $700,000 to $20,418 was indicative of what corporate America has in store for all pension holders. As with Argentina and Mexico, the U.S. corporate elite know no limits when it comes to implementing the deadly logic of the predatory profit system.
But as Marx noted over and again, “Capitalism creates its own gravediggers.” In due time, in our time, working people the world over will organize to defend their interests and therein, the interests of all humanity.
They will challenge the system of war, racism, poverty, disease, exploitation, and oppression on every front and in the process create a magnificent new world where the satisfaction of human needs, not corporate profit, prevails. They will risk all to create a truly democratic society to finally implement the rule of the vast majority, a socialist society, in contrast to the current rule of the plundering capitalist few.