World Capitalism in Crisis – Part Two

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By Alan Woods   | [print_link]

Monday, 29 September 2008

Bankruptcy of bourgeois economics

The economists persistently clung to the old illusion that a worldwide slump was impossible, that they had learned the lessons of the past (as a drunken man learns his lesson after every hangover). They argued that the financial crisis would be confined to the USA, that the US economy would be somehow “decoupled” from the rest of the world (thus contradicting everything they had previously said about globalisation); that Europe and China would become the new motor forces of the world economy and so on.

How hollow these arguments sound today! Real estate prices are falling globally. The global economy is slowing. European economies are already slowing markedly and, with the inevitability of further bank failures and a shortage of available capital and credit, this process will continue. It is true that so far the so-called emerging-market countries have continued to grow, but it is unthinkable that they can remain aloof from the general crisis as capital flows dry up and commodity prices recede. Of course, this process will take place over time and will be uneven. Some countries will enter into crisis sooner, others later. But in the end, they will all be drawn in.

It is a matter of indifference in which country the crisis begins. The main thing is that under modern conditions it will inevitably pass from one county and continent to another. In this case it began in the USA, which is the country that had carried the mania of speculation to the furthest extreme. But soon after, and against all the prognostications of the economists, it spread to Ireland, Spain, Britain, and the whole of Europe. Its repercussions will reach Latin America, Asia and Africa. One country after another will fall like dominoes. China will not escape, although for the moment it is still going forward.

In a crisis the capitalists are compelled to resort to extraordinary measures to corner a share of a decreased market. They resort to discount selling, dumping and other methods to undercut their competitors. By so doing, they aggravate the crisis by fomenting a deflationary downward spiral. People delay their purchases in the expectation of lower prices, and thus push prices lower still. We see this phenomenon most clearly in the housing market.

The contagion spreads like an uncontrollable epidemic from one country to another. It will become evident that every country has over-exported (that is, over-produced) and also over-imported (over-traded). (See Capital, Volume 3, p. 481) It will be evident that every one of them had stretched credit too far and stoked the fires of inflation and speculation, which now must be extinguished, no matter what the pain. That is to say, it is not a question of this country or that, of this bank or this individual speculator or that, but of the system itself. It is true that no downturn lasts forever. In the long run a new equilibrium is reached, prices stabilize, profitability is restored and a new cycle commences. But this is nowhere in sight as yet. The downturn has not ended. It has barely begun. Nobody knows how long it will last. And anyway, as Keynes once put it: “In the long run we are all dead.”

It is easy to be wise after the event. The bourgeois economists are excellent at predicting things that have already occurred. In this respect they are similar to the authors of the Old Testament, who with unerring accuracy predicted historical events that had occurred several hundred years earlier. Gullible folk like the Jehovah’s witnesses are greatly impressed by this, citing it as proof of Divine Inspiration of the Bible. Others, of a more sceptical and scientific persuasion, greet such “predictions” with loud guffaws. The same people who ridiculed the Marxists and assured us that there would be no crises are now wailing and wringing their hands. They inform us that we are in the deepest crisis since the Thirties, and hope that nobody will notice the glaring contradiction between this and what they were saying only yesterday.

The simple fact is this: that for the last twenty or thirty years the bourgeois economists have understood nothing, anticipated nothing and foreseen nothing. They have been unable to predict either booms or slumps. They have spent decades trying to persuade us that the economic cycle had been abolished, that mass unemployment was a thing of the past, that the monster of inflation had been tamed, and so on and so forth. All the reformist politicians naturally accepted this nonsense as good coin. In Britain, Gordon Brown boasted: “the cycle of boom-and-bust has been abolished.” Now he is left rubbing his backside as the British economy slides into recession. All this shows that bourgeois economics is fit for nothing except to justify a degenerate and bankrupt system.

What we predicted

Let us compare the perspectives of the Marxists with those of the bourgeois. In contrast to the bourgeois economists who committed the grave error of believing their own propaganda, the Marxist tendency explained the reality of the situation. In the Document On a Knife’s Edge: Perspectives for the world economy written in 1999 we wrote the following:

“In the past it was said that the role of the Fed was to take away the punch bowl just when the party was getting into its swing. But this is no longer the case. While publicly paying lip service to financial probity and austerity, Alan Greenspan has been prepared to tolerate the creation of the biggest orgy of financial speculation in history, although he must realise the dangers involved. He is like the emperor Nero fiddling while Rome burned. In fact, by raising interest rates by a paltry quarter of a percent, he has poured petrol on the flames. Thus the old motto is shown to be true: ‘Whom the gods wish to destroy, they first make mad.'”

In the same document we read:

“The fundamental barriers to the development of the productive forces in the modern epoch are private ownership of the means of production and the nation state. However, for a time, capitalism can partially get round these barriers by a series of means, such as the development of world trade and the expansion of credit. Marx long ago explained the role of credit in the capitalist system. It is a means whereby the market can be taken beyond its normal limits. In the same way, the expansion of world trade can provide a way out for a time, but only at the cost of preparing even more catastrophic crises in the future:

” ‘Capitalist production is continually engaged in the attempt to overcome these immanent barriers, but it overcomes them only by means which again place the same barriers in its way in a more formidable size.

” ‘The real barrier of capitalist production is capital itself’. (Marx, Capital, vol. 3, 15; 2-3.)

“The circuit of capitalist production depends, among other things, on credit. The solvency of one link in the chain depends upon the solvency of another. The chain can be broken at numerous points. Sooner or later, credit must be paid off in cash. This fact is all too frequently forgotten by those who become indebted during the process of capitalist upswing. In the first phase of capitalist expansion, credit acts as a spur to production: ‘the development of the productive process extends the credit, and credit leads to an extension of industrial and commercial operations.’ (Marx,Capital, vol. 3, p. 470.)

“This, however, is only one side of the coin. The rapid expansion of credit and debt pushes the market beyond its normal limits, but at a certain point this must turn into its opposite. During the boom, credit appears to be limitless, like the Horn of Plenty in ancient Greek mythology. But as soon as a crisis appears, the illusion is shattered. Returns are delayed, commodities are unsaleable in glutted markets, and prices fall. The development of the world market does not alter this fundamental process, but merely gives it a vastly greater scope in which to manifest itself. The accumulation of debt in the last analysis makes the crisis even deeper and more prolonged than what it would otherwise have been. The recent history of Japan is more than sufficient to confirm this. After a decade of boom characterised by rapidly increasing assets and share prices, the bubble was finally burst by a sharp increase in interest rates. The situation was very similar to that of the USA at the present time. On December 25th, 1989 the Bank of Japan raised interest rates, caused the sharp fall in the Stock Exchange, but since land prices still continued to rise, a new interest rate rise was necessary. Finally interest rates were raised to six per cent and by the end of the year share prices had fallen sharply by 40 per cent. Thereafter, the Bank of Japan kept interest rates high. At that time the Bank of Japan was praised by economists for its prudent handling of the economy. But the result was to prolong the recession for a decade.

“With globalisation, and the abolition of the restraints on credit and financial transactions, the scope for expansion has never been greater, but neither has the potential for a worldwide crash. However, it is not the case that crises are caused by fictitious capital, stock exchange swindles and excessive use of credit. Marx explains this in the third volume of capital:

” ‘Let us also disregard these sham transactions and speculations, which the credit system favours. Then, a crisis could only be explained as the result of a disproportion of production between the consumption of the capitalists and their accumulation. But as matters stand, the replacement of the capital invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class. The ultimate reason for all real crises always have remained the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.’ (Marx, Capital, vol. 3, p. 472.)

“The expansion of world trade and the opening up of new markets in Asia also provided a temporary boost, but only at the cost of provoking an even bigger collapse. This is the shape of things to come.”

These lines were written almost a decade ago, when the overwhelming majority of bourgeois economists were still denying the possibility of a world slump. We are entitled to ask: who understood the processes of the world economy better, and who made the correct predictions – the bourgeois economists or the Marxists?

Can China save the world?

The old proverb says that a drowning man will clutch at a straw. The bourgeoisie and its apologists, alarmed at the depth of the crisis, are looking around for a straw to save them from going under. Until recently, their hopes were resting on Asia, and China in particular. But China’s economy is now firmly embedded in the world market and will reflect all its volatility. A recent article by Geoff Dyer in the Financial Times carried the instructive titleBeijing’s burden: A slowing China bodes ill for the world economy.

Despite the US downturn, exports have continued to grow strongly, expanding 22 per cent in the first eight months of 2008. Part of the explanation is that Chinese companies have continued to find new markets for their products in other booming developing economies. But this is only delaying the inevitable. After the crisis on Wall Street and stagnation in Europe and Japan, investors are beginning to ask if China too might enter into crisis. After five years of rapid growth, the Chinese economy is clearly slowing even now. A growth rate of anything less than eight per cent would have big implications for China and the global economy. The economists are also worried about the banking sector in China.

There are already symptoms of problems in the export market. The garment industry in Guangdong is experiencing severe stress. According to provincial statistics, January-July exports of garments and accessories fell 31 per cent from the same period last year to $13.3bn (£7.2bn, €9.1bn). Exports of plastic goods, toys and lamps are also stagnant or falling. This has coincided with weak demand from the US, where retail sales fell in July and again in August. Guangdong’s overall export growth to the US slowed to 6.3 per cent over the first seven months of this year. That cannot be a coincidence.

A strong euro and a 27 per cent increase in Guangdong’s exports to Europe have compensated for a weak dollar and a shrinking US market. But there is growing evidence of a sharp contraction in Europe, which is also one of China’s biggest markets. This will eventually start to impact on Chinese exports. “This could be the calm before the storm,” says Stephen Green, an economist at Standard Chartered in Shanghai.

There are even bigger concerns about the property market, which has been one of the principal components of the investment boom driving the Chinese economy in recent years. Sales have declined and floor area under construction fell in August, while production of steel, cement and air conditioners was flat or down in the month – another sign of weak activity. Analysts say that mortgage approvals have also dropped sharply in recent months. “We believe the likelihood of a property sector meltdown in China is high,” says Jerry Lou, an analyst at Morgan Stanley in Shanghai.

If the property market falls sharply over the next year, that will have serious consequences for the banking sector. If the growth in gross domestic product falls much below 8 per cent next year, that would cause an even sharper fall in house prices, accompanied by a collapse in private sector investment. The social and political consequences would be considerable.

There are warning signs in other parts of the economy. The crash in the stock market has had a negative effect on consumer confidence. The rate of increase in urban incomes has dropped sharply this year. Sales of cars have fallen in the past month by 6 per cent and airline travel has been sharply lower this summer. Gome, the country’s biggest electronics retailer, said that sales per square metre in its shops fell by 3 per cent in the second quarter.

The government has cut the rate of interest, which indicates that it fears a crisis. However, its scope for manoeuvre in monetary policy is limited by the fear of reigniting inflation. That peaked at 8.7 per cent in February before falling to 4.9 per cent in August. Zhou Xiaochuan, head of the central bank, said this month: “Inflation has indeed slowed over the past several months, but we cannot relax because the rate may rebound.”

A slump in China, or even a serious slowdown in growth would have a very serious effect on the world market, starting with the commodity producing countries in Africa, the Middle East and Latin America. Copper prices, for example, have fallen 23 per cent in the past two months, partly due to fears over Chinese consumption of the metal, which has fallen by more than half this year.

On spivs and speculators

There is a mood of growing anger and hostility towards “the market”, that is to say, towards capitalism. Reacting to this mood, bourgeois politicians like Alec Salmond of the Scottish National Party tries to draw the anger of the public away from capitalism itself and towards a specific sector of the capitalist class – the “spivs and speculators” of high finance.

Suddenly it has become fashionable among politicians to condemn these mysterious individuals who have laid low venerable institutions such as The Bank of Scotland. This respectable old lady, we are informed, has been around for three hundred years and has survived the Napoleonic Wars, the Wall Street Crash and the First and Second World Wars, only to be destroyed by a gang of greedy sharks in designer suits and dark glasses. This kind of “explanation” explains nothing at all. How does it come about that a small number of greedy individuals possess such phenomenal power? Who are these people? What are their names? Where do they live? Nobody knows. But it is always useful in a crisis to have somebody to blame, and if this somebody happens to be perfectly anonymous and untraceable, so much the better.

Suddenly, these “spivs and speculators” begin to play the same role in economics that Al-Qaeda plays in international politics. In reality, all bankers and capitalists are spivs and speculators. They must be because the capitalist system is based on spivvery and speculation. It is also based upon greed. To deny greed is to deny the workings of the market economy, which is based on the profit motive, that is, greed. Greed for profit is what ultimately drives the capitalist system and has been driving it ever since it was born. Ah yes, but they have become too greedy and they are earning too much! This is what David Walker, the president and chief executive of the Peter G. Peterson Foundation and former Comptroller General of the United States has to say:

“Are there lessons from the sub-prime crisis? The answer is yes. The recent actions had to be taken because the government failed to establish an effective regulatory structure in connection with mortgages, derivatives and other securities. Greed was rampant. Fannie Mae and Freddie Mac strayed from their original mission, becoming too focused on profit and personal gain rather than their public purpose. Lax oversight was facilitated by powerful Wall Street lobbies and the lobbying of Fannie Mae and Freddie Mac.” (The Financial Times, September 22, 2008)

This is perfectly true. Whereas workers are paid a bonus according to results, the bosses pay themselves obscene amounts whether they get results or not. When a company is doing well the workers may get a little more in wages or bonuses, but the bosses pay themselves millions in handouts. When the company is doing badly, the workers are paid nothing, but the bosses still pay themselves lavishly. And when the company reaches the point of bankruptcy, the workers are sacked with little or no compensation (often without even a pension), whereas the bosses who have ruined the company walk away with extravagant golden handshakes.

These facts are well known. For years the workers have been muttering under their breath about the injustice and inequality. But since the economy was going forward, and since the market appeared to be delivering results for everybody (albeit very unequal results), and since the public was subjected to a deafening chorus in the newspapers and on television, and since the politicians of every party were unanimous, they accepted as good coin the argument that “what was good for the ‘wealth creators’ (i.e. the bosses) is good for me.”

Brown’s stupidity

On this side of the Atlantic the processes we see in the USA are reproduced, but only in the form of a clumsy and pathetic caricature. At the Labour Party conference Gordon Brown moaned about the City’s “irresponsibility” and said bonuses were, in some respects, “unacceptable”. Alistair Darling, Chancellor of the Exchequer, echoed the prime minister’s comments. But their “attacks” resembled a man hitting a rhinoceros with a feather duster. Compared with John McCain and Barack Obama’s scathing comments about Wall Street they were as weak as dishwater.

The mealy-mouthed bowing and scraping of Brown and Darling at the Labour Party congress indicates that they have spent so much time grovelling before the City of London that they are no longer able to straighten their backs. In a situation where hundreds of thousands of workers are suddenly threatened with losing their jobs, their homes and their savings, even the most dim-witted reformist ought to be able to realize that a denunciation of the swindles and profiteering of the bankers would be immensely popular. It is a proof of the complete bankruptcy and stupidity of these so-called Labour leaders that they are not even capable of adopting the demagogic attacks on Big Business that have been made by Obama and McCain.

They are not even as radical as the Church of England, the two most senior figures of which have condemned the corrupt practices of the financial traders. In an article in The Spectator, Archbishop of Canterbury Dr. Rowan Williams attacked “paper transactions with no concrete outcome beyond profit for traders”. When such trading went badly, it caused “real and crippling damage”, he said.

Dr. Williams drew attention to the financial industry’s trading of debts, which he said had “without accountability… been the motor of astronomical financial gain for many in recent years”. He said the current financial crisis “exposes the element of basic unreality in the situation – the truth that almost unimaginable wealth has been generated by equally unimaginable levels of fiction, paper transactions with no concrete outcome beyond profit for traders”. The archbishop continued: “Given that the risk to social stability overall in these processes has been shown to be so enormous, it is no use pretending that the financial world can maintain indefinitely the degree of exemption from scrutiny and regulation that it has got used to.” (My emphasis, AW)

Here we have the essence of the matter. The representatives of capitalism (including the religious ones) can feel the ground trembling under their feet. They fear the social and political consequences of the crisis, which posesan enormous risk to social stability, and appeal to the government and the bosses to do something about it before it is too late. But what does Dr. Williams propose? He says only that “loosening up a financial regime” is sometimes needed to foster enterprise and create wealth to “draw whole populations out of poverty”. That is a noble aspiration – and one that is entirely impossible to realize on this sinful earth.

Even more scathing was his colleague, Dr Sentamu, the Archbishop of York. Lloyds TSB, a major British bank, had announced the previous week that it had agreed a £12.2bn takeover of HBOS after shares in the latter plummeted. Since the takeover, many commentators have criticised traders who sold borrowed shares below their current price, betting that prices would fall further before they bought them back.

Dr Sentamu told the annual dinner of the Worshipful Company of International Bankers: “We find ourselves in a market system which seems to have taken its rules of trade from Alice in Wonderland.” And he went on: “To a bystander like me, those who made £190m deliberately underselling the shares of HBOS, in spite of a very strong capital base, and drove it into the arms of Lloyds TSB, are clearly bank robbers and asset strippers.”

Such strong language from a man of God was most unexpected and doubtless had an unfortunate effect on the digestion of the Worshipful Company. The assembled bankers were also not very happy to hear the Archbishop’s comments on the plan of the US Treasury to set up a fund worth up to $700bn (£382bn) to buy back much of the bad debt held by banks and other financial institutions.

The archbishop acknowledged the need for stable financial systems if poverty was to be eradicated, but added: “One of the ironies about this financial crisis is that it makes action on poverty look utterly achievable. It would cost $5bn (£2.7bn) to save six million children’s lives. World leaders could find 140 times that amount for the banking system in a week. How can they tell us that action for the poorest is too expensive?”

As I write this article, world leaders will be meeting in the US to mark progress in the Millennium Development Goals, a set of targets to reduce global poverty and improve living standards by 2015. We may place our trust in the Lord and hope that the Archbishop’s stern admonishments have had the desired effect, but all our experience leads us to doubt that it will be the case.

Even The Financial Times noted:

“Even in the boom times, few people smile warmly as they contrast their modest incomes with the enormous bonuses of the fortunate few.

“Simple envy has now become justifiable anger, first at the damage the financial meltdown has inflicted on the innocent, and now at the series of blank cheques the taxpayer has had to write out under duress. The backlash is well under way. Yet it is worth distinguishing excessive bonuses from pay that encourages recklessness. Fat-cat pay deals are a matter only for the shareholders who fund them. But rewarding recklessness is a problem for us all.

“Too many investment managers have been paid well for performance that looked impressive but contained the seeds of catastrophe. The catastrophe has arrived, investors have been wiped out, the taxpayers are next in line, and yet managers keep the bonuses they collected in the years of plenty.”

But then, to rectify the balance, it adds:

“To their credit, Mr. Brown and Mr. Darling have focused not on high salaries but on pay schemes that reward gamblers.”

The fact that those who buy and sell shares are all gamblers and that gambling on the stock market is their trade, is tactfully ignored.

The FT journalist continues (and somehow manages to keep a straight face):

“The next step now lies with the Financial Services Authority, the City regulator, but the problem is easier to spot than to solve. The challenge is to pay traders and investment managers for their true performance. If that were easy, shareholders would do so routinely. One imperfect approach is make some bonuses conditional on long-term performance, deferring payment until the dust has settled, or to insist that managers put some of their own wealth at risk. Yet hard-and-fast rules are hard to imagine.

“The most practical way forward is for the FSA to consider incentive schemes as part of its overall review of the stability of financial companies. It is optimistic to expect too much of such an effort, but legislation on City bonuses would be hopelessly counterproductive. Such laws are easily evaded by concealing risks or sending them overseas.”

The policies of New Labour are clearly dictated by the latest editorials of the Financial Times.

“Concentrated economics”

Lenin once remarked that politics is concentrated economics. The economic crisis that is sweeping the world is having very serious effects on the psychology of all classes, beginning with the capitalists themselves. In a period when capitalism was going forward, the pressure of bourgeois ideas on the working class and its organizations was redoubled. In Britain there has not been a serious economic recession for more than two decades. Therefore, the arguments of the bourgeois politicians and economists (the two work hand in glove) about the miraculous qualities of the “free market” found an echo even in the working class, but particularly in its leadership.

This was the material basis for the total degeneration of the Social Democracy and the “Communist” Parties in Europe and of the trade union leaders everywhere. In Britain, which was in the vanguard of the capitalist counterrevolution for the past three decades, it was the soil on which New Labourism was spawned and flourished under the leadership of the Reverend Anthony Blair.

For the activists of the Labour movement, this period was a nightmare that appeared to have no ending. There seemed to be no limit to the degeneration of the leaders of the mass organizations, no depth to which they were not capable of sinking, no vile action they were incapable of performing to please the ruling class and, of course, the Market. The despondency of the activists led to apathy and the emptying out of the mass traditional organizations, which were filled up with middle class careerists looking for jobs and promotion. This in turn, led to a further lurch to the right, which further deepened the disillusionment of the workers. This was a vicious circle that fed upon itself and it has lasted until now. But now things are beginning to change rapidly.

Human consciousness in general is conservative. People normally fear change and cling to what is familiar. Habit, routine and tradition weigh heavily on the consciousness of the masses, which lags behind events. But at critical moments in history events are accelerated to the critical point at which consciousness catches up with a bang. We have now reached such a critical point.

What is true of the industrialized nations of the world is ten times truer of what is sometimes referred to as the “Third World”. The number of those living in extreme poverty is rising rapidly in Asia, Africa and Latin America. A report published recently by the United Nations said that a quarter of all children in the developing world are underweight; more than 500,000 women die annually in childbirth or of complications from pregnancy; and a third of developing countries’ growing urban population live in slums. A report of the Inter-American Bank this summer warned that increasing prices would push 26 million people in Latin America into conditions of absolute penury. This was the position after a long period of economic growth on a world scale. This was the best that capitalism had to offer. What will happen under conditions of crisis?

We are therefore faced with a worldwide phenomenon that is pregnant with revolutionary implications. Thus, globalisation manifests itself as a global crisis of capitalism.

What is the solution?

It is argued that the present crisis is the result of regulatory failure to guard against excessive risk-taking in the financial system, especially in the US. It is further argued that “we must ensure it does not happen again”. This is ironic indeed! For the past three decades the bourgeois economists and politicians argued precisely the opposite: that all regulations were bad for business and should be abolished (this was particularly advocated for the financial sector).

The demagogic declarations about the need to curb excessive bonuses and regulate boardroom pay are just so much hot air. How are these miracles to be performed? By what mechanism? The bankers have a thousand ways of evading regulation. They keep off-the-books accounts that make it all but impossible for regulators to discover their fraudulent activities. Even the US government uses similar tricks to disguise the real dimensions of its budget deficit.

The argument in favour of regulating the stock markets is absurd, as was the decision to ban (temporarily) the practice of “selling short”. In order that the markets can function, it is necessary for people to buy and sell shares, and they must do so on the basis of estimating whether the share price is going to rise or fall. The idea that it is permissible to buy shares only when they are rising is clearly an absurdity.

The credit rating agencies, which were supposed to distinguish good credit from bad, rated securitised mortgage packages without looking at the weaknesses of underlying mortgages. Similarly, purchasers of American debt issued by Fannie Mae and Freddie Mac cheerfully assumed that the US government guaranteed it. The result is that the US taxpayer now stands behind more than $5,000bn in mortgages and it is too soon to say what the final bill will be.

The conclusion is quite clear. Either we have a free market based on the pursuit of profit, or we have a nationalized planned economy. But “regulated capitalism” is a contradiction in terms. In another article, The Financial Times puts the question far more clearly:

“no matter what hare-brained ideas politicians come up with to curb controversial pay packets, bright minds in finance will find a way round them or exit the regulated part of the industry.”

What is necessary is to abolish these grotesque casinos that decide the fates of millions altogether and replace capitalist anarchy with a rational society based on a planned economy. It is said that the measures taken by Bush and Brown represent nationalization. But these measures have nothing in common with the socialist idea of nationalization. They are not intended to remove economic power from the hands of the wealthy parasites who constitute a monstrous burden on society and an obstacle in the path of progress. On the contrary, they represent an attempt to protect the interest of these parasites by giving them vast subsidies, paid for out of the pockets of the working class and the middle class.

Socialists are radically opposed to these policies, which have nothing in common with genuine nationalization and are only a kind of state capitalism, intended to safeguard the capitalist system. They lead inevitably to an increase in monopolization, mass sackings, bank closures, higher mortgages and other anti-working class measures. The bankers are rewarded for their nefarious activities by the state, which buys up all their losses, then spends further vast amounts of the taxpayer’s money to make them profitable, and when this has been done, to sell them back to the bankers, who from this will make a double killing at the expense of society. Then they can resume their speculating and thieving all over again.

What is necessary is to take the commanding heights of the economy out of private hands, by nationalizing the banks and insurance companies and big companies with minimum compensation on the basis of proven need only. Only when the productive forces are in the hands of society, will it be possible to establish a rational socialist plan of production, where decisions are taken in the interests of society, not of a handful of wealthy parasites and speculators.

That is the fundamental aim of socialism. It is an idea that will now be understood and welcomed by millions of people who previously regarded it as it as something strange and alien. The people demonstrating on the streets of New York against the Bush Plan were not socialists. Twelve months ago they would probably still have been defenders of the free market. They have never read Marx and doubtless see themselves as patriotic Americans. But life teaches and in situations like this people learn more in a few days than in a lifetime. The working people of the United States are learning fast. And, as Victor Hugo once said: “No army is so powerful as an idea whose time has come.”

London, September 26, 2008


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