FROM CORPORATE BAILOUTS TO AUSTERITY MEASURES:
SHIFTING FURTHER THE BURDEN OF CRISIS TO THE PEOPLE
By Prof. Jose Maria Sison
Chairperson, International League of Peoples’ Struggle
July 7, 2010
Since 2008 the major capitalist powers have wantonly used public money to bail out the big banks and corporations, thus allowing these to show profits on their balance sheets and to conjure the false illusion of recovery in financial markets but in fact aggravating the economic crisis through the contraction of production and the loss of jobs and homes among the working people. The use of public money to provide relief to the so-called troubled assets of the big banks and corporations has resulted in huge fiscal deficits, a public debt bubble that has begun to burst and an undeniable depression that can no longer be euphemistically termed as a mere recession.
The recent Group of Twenty (G-20) summit in Toronto, Canada sought to find common ground in securing global capitalism from the worsening economic and financial crisis. Led by the United States, the European Union and Japan, the big powers misrepresented the rapidly growing fiscal deficits and public debt as the result of excessive stimulus to production and social spending that need to to be restrained through austerity measures. In fact, the steep rise of fiscal deficits and public debt in the imperialist countries has been accompanied by decline of production, unemployment and erosion of social benefits.
The austerity measures are meant to counter the inflationary effect of public spending for corporate welfare in order to further shift the burden of crisis to the people. They include further reduction of wages and social benefits and increases of taxes on consumption of the working class and the rest of the people. Such measures are bound to aggravate the economic crisis by causing further decline in production, more layoffs, loss of welfare benefits and accelerated deterioration of social services. The Toronto summit showed signs of divisions among the major capitalist powers on how to protect themselves from the crisis, on the kind and extent of stimulus programs and austerity measures to undertake and on what financial regulation and reforms to carry out.
At the previous G-20 summit in Pittsburgh, USA in September 2009, a year after the eruption of the crisis in the US, the big powers congratulated themselves for having supposedly fended off a depression and putting global capitalism on the path of recovery. Developments since then have clearly shown the optimistic forecasts to be wrong and more than ever confirm the fact that neither have the root causes of the crisis been addressed nor have effective counter-crisis measures been adopted from the lore of the New Deal or Keynesianism tto stimulate consumer demand and production.
The imperialist powers have clung to their neoliberal dogma and to further financialization of their economies by providing huge amounts of public money to the big banks and corporations for profit-making on their books of accounts while cutting labor costs and evading the need to expand production and employment. Consequently, a protracted kind of depression has further taken hold of the imperialist countries and the rest of the world.
The capitalist global economy, measured in world real gross domestic product (GDP), contracted by more than 2% last year despite claims of a return to positive growth since the last months of 2009. Such spurious claims have been conjured through some US$11.0 trillion of public money doled out by states as bailouts to their giant monopoly banks, investment firms and manufacturing firms in quick reaction to the financial collapse in late 2008.
The supposed recovery has only been in terms of momentary statistical growth and corporate profits on books of accounts and in the stock market rather than in terms of production, employment and improvement of the people’s living conditions. According to ILO figures in 2009, global unemployment increased from 178 million in 2007 to 239 million in 2009, which is the highest level ever recorded. Of course, these official figures grossly underestimate the true extent of the jobs crisis by excluding the unemployed workers who have stopped to apply for jobs or who are on so-called retraining programs and by not taking into account the fall in the quality of jobs and the decreases in working hours and pay (casualization and part-timing).
The US illustrates well how corporate profits and upper class wealth, not jobs, are at the center of government claims to economic recovery. US real GDP began to contract from the start of 2008 to the first quarter of 2009 by as much as 6.5%. The government began a massive rescue effort to try to stem this decline and to date has spent, loaned or at least committed to spend or lend if necessary over US$13 trillion, an amount almost equivalent to the value of US GDP for an entire year. US GDP growth turned positive in the third quarter of 2009, peaked at 5.6% in the fourth quarter, but quickly started slowing down again to 2.7% in the first quarter of 2010.
US corporate profits correspondingly increased by 7.7% in 2009 and then by a massive 56.5% in the first quarter of 2010 to US$1.6 trillion (from US$1.2 trillion in the first quarter of 2009). Yet the US working class is suffering its deepest and most prolonged jobs crisis since the Great Depression. Fifteen million workers were officially reported as jobless in May 2010, at a 9.7% unemployment rate, apart from 1.1 million discouraged workers and 8.8 million involuntary part-time workers. Their prospects remain dire and dismal with house prices falling again, looming cutbacks in state and local budgets, and European troubles cutting further into exports. These will mean less jobs, more people losing their unemployment benefits, health insurance and homes, and greater poverty and misery.
The jobs crisis is likewise severe in the other imperialist countries. Growth resumed in the 27 countries of the European Union in the third quarter of 2009 but by May 2010 some 23.1 million were still unemployed, a 1.8 million increase from the year before and reaching a record 9.6% jobless rate. The Japanese economy has contracted by more than 5% in 2009 and is being dragged back down to deep recession by deflation and weak domestic demand. As officially reported, unemployment reached 3.5 million in May 2010, at a rate of 5.2 %.
The raging global jobs crisis worsens even as profits have risen and the rich keep getting richer. The richest one percent of the world’s households have even increased their wealth from US$36 trillion in 2008 to US$44 trillion in 2009, with the super-rich top 0.1 % increasing their wealth from US$19 trillion to US$23 trillion. Taxpayer-funded bailouts and so-called stimulus programs for the banks, financial institutions and firms, which have been speciously justified as good for the economy and the people, have in the main preserved and enlarged the wealth of the monopoly bourgeoisie, especially the finance oligarchy.
In the backward and dependent countries, incomes from trade, remittances, investments and development remain stagnant and are likely to decrease as the global depression deepens. Decreasing demand from the imperialist countries for primary commodities, migrant labor and low value-added semi-manufactures has led to shut downs and job losses. Trade and budgetary deficits and unpayable debt burdens afflict all the underdeveloped countries. These countries are being pushed further down to ever deepening levels of chronic depression as the imperialist countries adopt austerity measures in their homeground and push other countries to do the same, with the notable exception of China which the imperialists have been pushing to upvalue its currency, import and consume more and draw down its export surpluses and foreign exchange reserves.
Sovereign debt crisis
The hyped global recovery is not just false by not being productively beneficial to the people but also artificial by being unsustainable. The enormous state-funded bailouts have grossly inflated public deficits and debt and generated the sovereign debt bubble in the imperialist countries and client states. The public debt bubble has in fact begun to burst in certain countries, threatening to precipitate another financial and economic collapse even deeper and more far-reaching than the meltdown triggered in 2008.
The US government deficit increased four-fold from being equivalent to 2.5% of GDP in 2007 to 10.9% in 2009, reaching US$1.6 trillion. This caused US gross federal debt to rise to US$12.9 trillion in 2009, or equivalent to 90.4% of GDP. In turn the general government deficit of the EU-27 countries increased nine-fold from 0.8% of GDP in 2007 to 6.8% in 2009, reaching 801.9 billion euros. Over that period Germany’s fiscal situation deteriorated from a 0.2% of GDP surplus to a deficit of 3.3%, the United Kingdom’s deficit increased from 2.8% to 11.5%, and France’s deficit from 2.7% to 7.5 %. EU-27 debt correspondingly rose to 8.7 trillion euros, equivalent to 73.6% of GDP.
These levels are unprecedented and clearly unsustainable. In the advanced economies, gross general government debt averaged around 60% in the years before the crisis, reached 75% in 2007, and are certain to breach 110% by 2014 at the latest even if the temporary so-called stimulus measures are withdrawn. Group of Seven (G-7) debt-to-GDP ratios are already near 100% which approaches levels immediately after the Second World War yet without the prospect of a post-war reconstruction boom to drive recovery.
The recent 110 billion euro bailout of Greece by the EU and IMF marks the entry into the next phase of the global crisis into sovereign debt difficulties. In 2009, Greece among the weaker European countries had the worst combination of a deficit equivalent to 13.6% of GDP (second worst) and of debt equivalent to 115.1% of GDP (second worst). The bailout requires harsh austerity measures: freezing public sector pay until 2014, increasing the VAT from 19% to 23%, a 10% increase in taxes on fuel, alcohol and tobacco, and increasing the retirement age from 61 to 63. As it is the EU has also already agreed on a 750 billion euro rescue package for other possible bankruptcies in the Eurozone. The number of those in the PIIGS category (Portugal, Ireland, Italy, Greece and Spain) is bound to increase.
The imperialist countries and other big powers face the dilemma between, on the one hand, continued deficit spending supposedly to boost collapsing economies and, on the other hand, building up unpayable public debt. Without fundamental reforms to benefit the working classes and the middle strata, cutbacks on government deficit spending ( which has been touted as stimulating demand but in fact boosting the book profits of monopoly banks and corporations without any expansion of production and employment) will further deepen the state of depression in the world capitalist system. However, continuing with the fiscal deficits without generating production will rapidly inflate a sovereign debt bubble that will likewise cause enormous unprecedented financial and economic turmoil worldwide when it fully bursts and runs completely out of control.
Either situation means that billions of working people around the world will be driven into deeper acute misery and backwardness. Widespread defaults and financial meltdowns are looming and, as it is, the early concerns about sovereign debt sustainability are already causing havoc on currency markets as well as spilling over into financial and commodity markets.
The bursting of the private debt bubble and collapse in demand in 2008 was momentarily mitigated by an inflating public debt bubble and stimulus programs. But when the public debt bubble fully bursts and with no other source of new demand, the reality of global depression will become more undeniable than ever before. The people will suffer further unemployment and drastic cuts in social services (education, health, housing, welfare and pensions) increased poverty levels, mortality rates and hunger, with; all these compounded by governments raising the people’s tax burden to maintain operations and pay off the public debt from year to year.
The imperialist powers have used the crisis as the reason for developing the G-20 into a mechanism for greater global financial and economic governance. US president Barack Obama at the Pittsburgh summit declared the G-20 the premier forum for global economic coordination, in conjunction with the IMF and World Bank (WB) which remain firmly in US control. The group includes such other big economies as China, India, Brazil and Russia to reflect a supposedly multi-polar world order and collectively represents two-thirds of the world’s population, four-fifths of world trade, and over 85% global output. The policy directions the G-20 sets are therefore significant.
The G-20 summit in Toronto concluded with the apparent consensus that government deficits and debts would be reduced in the long-term but would be a problem to be approached differently in the short-term by different countries. There appeared to be some disagreements among the major G-20 members (especially the US, EU, Japan and China) on the pace of reducing budget deficits but the communique set general albeit non-binding directions and called for a halving of budget deficits by 2013 and stabilizing debt-to-GDP ratios by 2016.
The imperialist countries seek to impose austerity measures on themselves as well as on the underdeveloped and dependent countries. A recent report released by the UNICEF examined the fiscal outlook of 86 underdeveloped countries and found that nearly 40% of the governments are planning to cut spending in 2010-2011 by an average of 2.6% of GDP (by as much as 13% in some countries). These cuts are being instigated by the IMF which has advised the removal of fuel or food subsidies, public sector downsizing, wage cuts and pension reforms at a time when the populations in these countries are still confronting widespread chronic unemployment, rising prices of food and fuel, and the adverse impacts of climate change.
Public outrage at the use of taxpayer money for the multi-billion dollar bailouts compelled governments to commit sweeping financial regulation and reforms supposedly to rein in the excesses and reckless practices of bankers and financial speculators. However nearly two years into the crisis progress in the G-20 towards these supposed reforms is extremely little and slow, with gaping loopholes on the steps being taken and little consensus on the measures to come. Finance capital is voracious and always acts to shift the burden of crisis to the people. There are no real measures that can significantly curb the rapacity of the monopoly finance capitalists and the irrational and destructive character and course of the financial system.
It is not surprising that no consensus was reached on the specific banking and finance proposals. Decisions on these were put off to the next G-20 summit in Seoul, South Korea in November. The proposals included that of Europe for a bank levy to fund future bailouts, as well as global bank and financial transactions taxes and that of the US for more stringent rules on bank capital requirements and liquidity.
The most visible disagreement was between the US and such European countries as Germany and the UK on fiscal consolidation. The US expressed preference for a slow exit from so-called stimulus measures as opposed to Europe which, already facing a public debt crisis, preferred more rapid implementation of spending cutbacks and tax increases to cut government deficits and reduce pressures on public debt.
These differences in position reflect differences in their respective economies (such as reliance on speculative finance and on exports) and in how the crisis has specifically affected each of them so far (such as the real or perceived strengths of country banking systems). In part they also reflect confidence in the US that even as it is somewhat diminished in economic and financial clout it remains the world’s lone superpower and that amidst deepening crisis it is still perceived as the relatively safest haven for capital. At any rate, the big powers tend to adopt and implement policies as they individually see fit according to their national or ultra-national interest.
The G-20 notably backpedaled on making any firm time-bound commitments to complete the Doha round of World Trade Organization (WTO) talks on multilateral liberalization after targeting the end of 2010 for this in the Pittsburgh Communique. Conspicuously mentioned for the first time is the openness to bilateral and regional deals. This manifests the intent of the big powers to consolidate and expand their respective trade and investment blocs. The advanced capitalist powers alwaysl seek to preserve their profits and positions at the expense of their rival powers. Inter-imperialist contradictions characterize the world capitalist system.
It is also important to highlight the fact that none of the so-called reforms pushed by the G-20 address the underlying core issues inherent to monopoly capitalism and that are at the heart of its exploitativeness, instability, grossly uneven distribution of the social wealth, and the poverty and restricted consumption of the masses. Financial sector deregulation was a key part of the previous decades of neoliberal globalization that started in the 1980s, accelerated in the 1990s and exploded in the 2000s with financial values bloating far beyond what the real economy could sustain or justify.
The worst features of the world capitalist system are being laid bare as the banks, the corporations and the imperialist states fail to solve the crisis and all the problems that they have generated and try ceaselessly to shift the burden of crisis to the dominated countries and the working people. First, public money has been used to bail out the big banks and corporations. Then the public deficits and public debts lead to the further exploitation of the people through austerity measures. There is a pressing need for the people to comprehend how the world capitalist system exploits and oppresses them and to strengthen their resolve and struggle to replace the system with one that is truly free, democratic, just and progressive.
The International League of Peoples’ Struggle (ILPS) congratulates all the people and organized forces involved in the massive mobilizations in Toronto, reaching some 30,000 demonstrators at the peak. The protest mass actions were organized despite repressive security measures and effectively exposed the true anti-people and anti-democratic nature of what has been touted as the largest, most expensive and most heavily secured meeting of global leaders in history, costing at least US$1.2 billion.
There was a security crackdown in the run-up to the summit with harassment and pre-emptive arrests of activists, forcible displacement of homeless people, and expanded police powers for violating civil liberties and political rights. The summit itself was held in the middle of a security zone ringed by six (6) kilometres of barbed wire and concrete barriers, and secured by over 10,000 soldiers, police and paramilitary personnel on foot, horseback, armoured cars, patrol boats and helicopters. Marchers were eventually dispersed violently with tear gas, truncheons, plastic bullets, pepper spray and sonic cannons, and over 600 people were arrested.
The huge mass protests against the G-20 in Toronto were driven by the deep inequities of the global order with bailouts for the rich and a vast and rapidly widening gap between the imperialist countries and the underdeveloped countries as well as between the ruling classes and the great mass of working people. The mass protests reflected and echoed the widespread strikes, protest rallies and other forms of popular resistance in the the G-20 countries and elsewhere in the world.
A broad range of issues were raised against the G-20, including the bailouts for the banks and corporations, high rates of unemployment and homelessness, the brutal attacks on the rights of the working people, the decline of incomes and the erosion of hard-won social benefits for the working people, the austerity measures to further exploit and impoverish the people, the imperialist aggression in Iraq and Afghanistan, the US-Israel Zionist oppression of the Palestinian people, climate change and corporate environmental destruction.
The broad masses of the people condemned the G-20, the IMF, World Bank and the WTO as instruments of exploitation and called for a world economy that promotes the well-being of humanity. They demanded a new and better world, free from imperialism, exploiting classes and all forms of discrimination, truly democratic, socially just, all-roundedly progressive, peaceful and characterized by people’s solidarity and harmony with the environment. They asserted that the people by their own mass struggles can effectively resist imperialism and all reaction, liberate themselves and bring about fundamental social change. ###