Liberals Push Regulation Hoax

Economic Crisis and the Capitalist State

Break with the Democrats!

For a Workers Party That Fights for a Workers Government!

Part One

Throughout the capitalist world, the human cost of the worst economic crisis since the 1930s has been staggering. In the European Union (EU), where a financial crisis now threatens a renewed downturn, 23 million workers are out of work. Unemployment for those under 25 is running over 20 percent; in Spain, youth unemployment is over 44 percent.

The early stages of the current economic crisis overlapped with the 2008 hunger crisis, in which skyrocketing food prices raised the spectre of mass starvation (see “Imperialism Starves World’s Poor,” WV Nos. 919 and 920, 29 August and 12 September 2008). Since 2008, some 130 million additional people have been driven into the ranks of the chronically hungry and undernourished. In many countries food prices have barely fallen from their peaks of two years ago, and in some Asian markets staples like rice and wheat are today selling above their 2008 levels. The worldwide total of those who are desperately hungry has, for the first time, climbed to more than one billion people—roughly one-sixth of humanity.

In the U.S., the number of people classified as living in extreme poverty—those unable to provide for the most basic needs of food, shelter and health care—has risen by more than a third over the past decade and now totals 17 million. Some 15 million workers are officially unemployed, a record 46 percent of them for longer than six months. When those who are constrained to work part-time or have abandoned the job hunt are included in the count, the number rises to over 26 million—almost 17 percent of the workforce. Since the housing price bubble burst in 2007, there have been over seven million foreclosures. And the number of working people who face being thrown into the street is on the rise, with a record 932,000 foreclosures in the first quarter of this year, up 16 percent from the same period last year.

As always in racist capitalist America, black people, typically the last hired and first fired, have been hit the hardest. Even high-income black borrowers are 80 percent more likely to lose their homes to foreclosure than their white counterparts. Nationally, the jobless rate for young black men aged 16-24 has reached Great Depression levels of over 34 percent. In rust-belt states like Illinois, Wisconsin and Ohio, joblessness for blacks is running over 20 percent; in Michigan, the figure is expected to soon hit 27 percent. Nearly one out of two black men in Milwaukee is without a job. Children of immigrant, black, Latino or Native American parents are more than twice as likely as white children to be living in poverty.

Barack Obama and the banker-politicians in his administration, following in the steps of George W. Bush, showered hundreds of billions of taxpayers’ dollars on their financier friends and the auto bosses. Banks can borrow money from the Federal Reserve (the U.S. central bank) at 0.5 percent interest and purchase risk-free Treasury bonds paying 3 percent. Trying to kick-start the economy, the government is practically giving money away to the banks. This has in turn fueled a renewed speculative binge propelling a wide range of price bubbles, from corporate shares in stock exchanges to precious metals and fossil fuels—and food items.

Much of what currently looks like economic growth is in fact the froth generated by speculative bubbles. Over the past year, as millions were driven to the brink of starvation, the number of billionaires in the world increased by almost 30 percent to over 1,000. The net worth of this select club skyrocketed 50 percent and now totals a cool $3.6 trillion.

No sooner had Barack Obama signed into law his health care “reform”—a boondoggle for big business that cuts Medicare and taxes union health plans—than Washington was abuzz with talk of “retooling” Social Security by cutting benefits and increasing taxes, a task that his right-wing Republican predecessor, George W. Bush, took on without success. The New York Times (22 March) wrote that “the promise of future reductions would immediately reassure global markets fretful that the United States’ debt is already its highest since World War II.... That argument appeals to Mr. Obama.”

From the U.S. to the EU, capitalist governments are taking the ax to wages, pensions and social welfare programs in an attempt to make working people pay for the economic crisis. Simultaneously, they are mooting various financial regulation schemes in a vain attempt to overcome the sharp economic crises that are and always have been an inherent feature of the capitalist system. Chief among these measures is the much-ballyhooed bank “reform” that is passing through the U.S. Congress. When the final details were worked out, one Wall Street banker said, “We are all breathing a sigh of relief here…. We can live with this” (Financial Times, 25 June). At any rate, with the European financial crisis and the ongoing housing crisis in the U.S. threatening a “double-dip” recession, this amounts to something like moving the deck chairs on the Titanic.

This situation amply demonstrates the truth of the statement by Karl Marx and Friedrich Engels in the 1848 Communist Manifesto that “the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” This understanding represents a fundamental dividing line between ourselves—Marxist revolutionaries—and self-proclaimed “socialists” who promote illusions in the possibility of reforming the capitalist state, which in the U.S. they seek to do by exerting pressure on the Democratic Party. To such class collaborationism we counterpose the road of class struggle. The key is to break the political chains that shackle labor to the capitalist political parties and state. Break with the Democrats! For a workers party that fights for a workers government! There will be no end to the misery wrought by the capitalist rulers and their boom-bust economic system until the working class seizes power through a socialist revolution that smashes the capitalist state and erects in its place a workers state—the dictatorship of the proletariat.

Exploitation and Profit

The wealth of the capitalist class—the owners of the means of production—derives from the exploitation of labor. As Marx explained in Capital, his classic analysis of the capitalist economy, the wage-worker is constrained to sell to the capitalist his ability to work. The wage that a worker is paid corresponds to that part of the working day during which he produces the equivalent of what it costs to maintain himself and his family. The other part of the day, he works without remuneration, creating “surplus value,” which the capitalist pockets in the form of profit.

Over the past three and a half decades, in which working people in this country have largely been on the losing end of the class struggle, the rich have fabulously increased their wealth, mainly by holding down and driving down wages. Pay for production and other nonsupervisory workers—80 percent of the private workforce—is today 9 percent lower in real terms (i.e., adjusted for inflation) than it was in 1973. During that same period, labor productivity (output per worker) increased by more than 80 percent.

In short, capitalists have enormously ratcheted up what Marx called the rate of exploitation—the ratio of the share of the product of labor appropriated by the capitalists to the share represented by the worker’s wage. They did this by combining mass layoffs with extracting increased output from those workers still employed, including through forced overtime. Last year, through layoffs and short time, total hours worked decreased by 5 percent—twice as much as the 2.5 percent fall in gross domestic product. The London Economist (20 March) commented on these figures with evident approval: “America has gone on a diet: it has squeezed extra output from a smaller workforce and suffered a big rise in unemployment as a consequence.”

This likewise corresponds to Marx’s analysis of the basic laws governing the capitalist mode of production. Marx explained that the existence of a large pool of unemployed—the “industrial reserve army”—serves to restrain what he ironically referred to as workers’ “pretensions” to demand higher wages:

“The condemnation of one part of the working-class to enforced idleness by the over-work of the other part, and the converse, becomes a means of enriching the individual capitalists....

“The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active labour-army; during the periods of over-production and paroxysm, it holds its pretensions in check. Relative surplus-population is therefore the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital.”

—Capital, Volume I

To make ends meet, working families have increasingly gone into debt, maxing out credit cards and borrowing against the value of their homes. Americans today owe a staggering $13.5 trillion, or around $44,000 for every man, woman and child in the U.S. Any money that families have to spare after providing for essential needs is being spent not on consumption but on trying to ease that crushing debt burden. The average U.S. household today turns over more than 17 percent of its disposable income directly to financial capitalists to pay down mortgages, credit card debt and the like.

The current crisis has been exacerbated by the deindustrialization of the U.S., already under way for several decades. Despite the massive shift of social product from labor to capital, capitalists in this country have steadily cut back on productive capacity. This country already ranks behind every industrial nation except France in the percentage of overall economic activity devoted to manufacturing—13.9 percent, according to the World Bank, down four percentage points in a decade. Since the official start of the recession in December 2007, some eight million jobs have been lost. Many if not most of those jobs are gone for good, especially in manufacturing.

Those industrial workers who succeed in finding new employment are often forced into low-paying, temporary jobs that provide no health insurance, retirement benefits or even sick days. A cover story titled “The Disposable Worker” in Bloomberg BusinessWeek (18 January) reflected the bosses’ triumphalism:

“Some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That’s because this recession’s unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions’ influence, new management techniques, and regulatory changes—that already had been eroding workers’ economic standing....

“When employment in the U.S. eventually recovers, it’s likely to be because American workers swallow hard and accept lower pay.”

Standing in sharp contradiction to its declining economic base is U.S. imperialism’s overwhelming global military hegemony. The destruction of the Soviet degenerated workers state in 1991-92 removed what had been the only significant counterweight to U.S. imperialism, which sees itself free to ride roughshod in Iraq and Afghanistan and to threaten any other regime that gets in its way. Defense of the interests of workers, blacks and immigrants in the U.S. is integrally linked to opposition to U.S. imperialism’s interventions abroad.

Capitalism’s Labor Lieutenants

What had already been an enormous increase in the rate of exploitation of workers, due to decades of giveback union contracts, two-tier wage systems and similar devices acceded to by the trade-union bureaucracy, has been further jacked up as a result of the economic crisis. Accepting the logic imposed by the capitalist system, the trade-union tops are reduced to negotiating the terms of surrender, from the union-busting auto bailout to attacks on teachers’ tenure and seniority.

Basing themselves on the mass organizations of the working class, the labor bureaucrats are at times pushed to engage in strike action. Yet their primary function is to ensure the subordination of the workers to the interests of the class enemy, especially through their fealty to the Democratic Party, of which they are a constituent part. No less than the Republicans, the Democratic Party is a party of and for the capitalist class—with the difference that the Democrats cynically pose as “friends of labor” and shed crocodile tears over the consequences of the anti-working-class measures that they themselves seek to impose.

Earlier this year, in support of Obama’s push for a “financial reform” law, the AFL-CIO tops launched a campaign, featuring an April 29 march by thousands of workers on Wall Street, demanding “Make Wall Street Pay.” A couple of weeks later, AFL-CIO president Richard Trumka told a meeting of union officials in Washington: “We can pay for the jobs we need by making Wall Street pay back those bailouts, by taxing those huge Wall Street bonuses, by closing the tax loopholes that benefit hedge fund and private equity managers...and imposing a fee on financial speculation.”

However fatuous, such schemes are premised on the notion that the Democratic administration is at bottom the friend of working people and just needs some pressure to rein in the fat cats. Though occasionally engaging in a bit of tough talk about financial regulation, the Obama administration has done—and will do—little to displease its Wall Street cronies. Avoiding serious restrictions on bankers’ pay or their ability to speculate on financial markets makes it more attractive for them to do business on Wall Street rather than in the City of London, the world’s other major financial center.

In response to mass layoffs, the pro-capitalist labor officialdom has renewed its chauvinist protectionist appeals. They pushed for and got the “buy American” clause in Obama’s “rescue” package for industry last year. Such flag-waving serves only to subordinate workers to their red-white-and-blue exploiters while driving a wedge between native and foreign-born workers. In the current economic crisis, capitalist governments in the U.S. and elsewhere have ratcheted up attacks on immigrants which, if not fought, will only further divide the working class. It is crucial for the labor movement to organize immigrant workers. We demand: No deportations! Full citizenship rights for all immigrants!

Along with liberal Democrats like New York Senator Charles Schumer, the union misleaders have been in the forefront of protectionism directed against China. In this vein, Trumka & Co. clamor against the Stalinist Communist Party regime for not revaluing its currency, the yuan (also called renminbi), upwards, claiming that its current value against the dollar undermines American exports and hence costs jobs at home.

Anti-China protectionism is directed against the bureaucratically deformed workers state that issued out of the 1949 Chinese Revolution. That revolution was a historic achievement for China’s workers and peasants and for the workers of the world, smashing capitalist/landlord rule and ripping the world’s most populous country out of the hands of the imperialist powers. Despite the rule of a privileged, nationalist bureaucracy, China’s collectivized economy has brought enormous gains to generations of workers, peasants and women. While capitalist property has made huge inroads over the last three decades of “market reforms,” nationalized property remains the core of the economy. The U.S. and other imperialist powers seek nothing less than the restoration of capitalist rule in China. The treacherous AFL-CIO misleaders aid the imperialists by their promotion of “dissidents” like Han Dongfang, who seeks to channel Chinese workers’ struggles in the direction of support to capitalist counterrevolution.

It is vital for the international proletariat to stand for the unconditional military defense of China and the other remaining deformed workers states—Cuba, North Korea and Vietnam—against imperialist and domestic counterrevolution. It is the task of the proletariat of those countries to carry out a political revolution to sweep out their nationalist Stalinist misrulers, who preach accommodation with the world capitalist order, and establish regimes based on workers democracy and revolutionary internationalism.

There has recently been an explosion of strikes by Chinese workers in foreign-owned plants like Honda and Toyota (see article, page 16). While the U.S. labor tops have been prostrate before the bosses’ attacks, the workers in the capitalist plants in China are winning gains the tried-and-true way—through class struggle! These strikes underline the need for international labor solidarity in opposition to the U.S. trade-union tops’ poisonous protectionist schemes, which divide workers along national lines.

Tea Party Reactionaries

The labor bureaucracy dutifully threw an enormous amount of union resources
—money and time—into getting Obama placed in office as U.S. capitalism’s CEO. Liberal-minded workers and intellectuals expected major reforms, from universal health insurance coverage to tighter financial regulation. These expectations were reinforced by the severity of the economic crisis and the upsurge of popular hostility toward Wall Street. The reformist left—the International Socialist Organization, Workers World Party et al.—hailed Obama’s election as evidence that their program of pressuring the Democratic Party could fundamentally improve conditions for workers, blacks and immigrants. Combating such illusions, we described Obama as a “Wall Street Democrat” and wrote right after the elections: “Obama seeks to socialize the bourgeoisie’s losses on the backs of working people, while helping the exploiters appropriate the profits for themselves” (WV No. 925, 21 November 2008).

And this is precisely what has happened. With the labor movement largely prostrate, organized opposition to the Obama administration’s policies has come primarily from the far-right wing. Racist yahoos, bible-thumpers, militiamen, John Birch Society types and “birthers” (who challenge the fact that Obama was born in the U.S.)—along with a fringe of fascist white-supremacists—were mobilized by the Republican right and their media shock jocks into a loose “Tea Party” movement in opposition initially to the economic stimulus package and then the health care “reform.” But at bottom it was not about particular policy issues. This movement displays the anti-black racism, anti-immigrant nativism and sexual bigotry that have long been wielded by the American bourgeoisie to divide the working class and buttress social reaction.

On March 20, shortly before the Congressional vote on Obama’s health care bill, Tea Party protesters outside the U.S. Capitol yelled the “N” word at civil rights veteran John Lewis and other black Congressmen and spat on another; they confronted openly gay Congressman Barney Frank with homophobic slurs. And no sooner had Tea Party candidate Rand Paul won Kentucky’s May 18 Republican Party Senate primary than he declared that he would have opposed forcing private businesses to desegregate under the 1964 Civil Rights Act.

While partly a response to the current economic downturn, today’s Tea Party movement has roots going back to the white racist backlash against the limited gains for blacks and women, crucially including abortion rights, that resulted from the civil rights movement and other social upheavals of the 1960s. That backlash eventually took the form of opposition to “big government”—identified with court-ordered racial integration in the public schools, giving jobs to blacks and women under affirmative action programs and handing out welfare money to poor black women and their children (a demagogic lie since relatively few government funds went to the poor, black or white). This boiled over into the “tax revolt” of the late 1970s—the so-called revenge of the suburbs—which propelled Ronald Reagan into the White House and began the ascendancy of the Republican right in national politics.

It’s the Capitalist System, Not Personal Greed

At the AFL-CIO’s April 29 Wall Street demonstration, Trumka sought to appeal to workers’ justifiable outrage by denouncing the bankers’ “spirit of greed.” In fact, blaming the global economic downturn on the unbridled greed of a small number of financiers serves to divert attention from the destructive irrationality of the profit-driven capitalist system as a whole.

As Karl Marx explained, what drives the capitalist system up and down is the rate of profit: the amount of surplus value extracted from the exploitation of labor per unit of capital invested. The policies and actions of corporate management—whether of banks, industrial enterprises or retail chains—aim to maximize the return on equity—the ratio of profits to the market value of the firm’s stock.

The role of management is that of agents of the big capitalist shareholders in their corporations. If the return on equity of a given corporation declines or is substantially less than that of its main competitors, the price of its stock will fall. And woe unto management when that happens. The Sellout (2009), a book on the financial meltdown by financial journalist and TV commentator Charles Gasparino, is subtitled: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System. Gasparino peddles the notion that excessive greed helped cause the current crisis by leading investment bankers to take unsound risks. But Gasparino himself recounts that some CEOs of major investment banks, such as E. Stanley O’Neal at Merrill Lynch and John Mack at Morgan Stanley, were known for shying away from excessive risk before they took over the top job. They then became obsessed with increasing the bank’s return on equity. The only way they could do that given the economic environment at the time was to invest ever greater sums in mortgage-backed securities, including arcane derivatives, while amassing ever greater amounts of debt relative to the bank’s capital.

Some Wall Street executives recognized to some extent that they were in the midst of a speculative bubble but felt compelled to participate in it lest they lose out to the competition. As then- Citigroup CEO Charles Prince put it in mid 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” And when the music did stop, the government bailed out Prince and his Wall Street cohorts.

“Socialism for the Rich”: Wall Street Bailout Revisited

A case study of how the government serves as the executive committee of the capitalist ruling class is offered by the massive bailout of the big banks and other major financial players. The story of that bailout was detailed in two books that came out last year, both written by well-informed financial journalists: David Wessel’s In Fed We Trust: Ben Bernanke’s War on the Great Panic and Andrew Ross Sorkin’s Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves. Wessel is the economics editor of the Wall Street Journal and Sorkin is a mainstay of the business section of the New York Times.

Both books recount that the Bush administration collaborated closely with top Democratic as well as Republican officials of the Federal Reserve and Democratic Congressional leaders. Whatever right/left ideological divide exists between the two parties had, in this instance, no import whatsoever. Given the Republicans’ vocal opposition these days to Obama’s tepid proposals for additional regulation of the financial system, one might think that the visceral hostility between Republicans and Democrats would have prevented a bipartisan policy in response to the financial crisis. Quite the contrary. When the vital interests of American finance capital were at stake, the two parties acted in unison.

The three men primarily responsible for the $700 billion bailout fund called TARP (Troubled Asset Relief Program) and related measures were Treasury secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and the president of the key New York branch of the Federal Reserve, Tim Geithner (now Obama’s Treasury secretary). Paulson was CEO of Goldman Sachs when in 2006 the Bush gang recruited him as their main economic point man. Paulson’s predecessor at both Goldman and the U.S. Treasury was Robert Rubin, a centrist Democrat who served as economic consigliere in the Clinton administration in the 1990s. Bernanke, known as a moderate Republican, was chosen in 2005 to replace right-wing ideologue Alan Greenspan as Fed chairman by a presidential committee headed by Dick Cheney, the Darth Vader of the Bush administration. Geithner, a centrist Democrat, was a protégé of Robert Rubin in Clinton’s Treasury. Paulson, Bernanke and Geithner worked closely together on behalf of their Wall Street masters without substantive political differences.

Bush and Cheney, for all their strident championing of “free market” capitalism, did not hesitate to invoke massive government intervention in the face of the financial collapse. To do so, they simply turned over policymaking during the crisis to Paulson and Bernanke. Likewise, Democratic Congressional leaders gave the two a green light to do what they wanted. In July 2008, Paulson told Barney Frank, a liberal Massachusetts Democrat who heads the House Financial Services Committee, that he and Bernanke were considering taking expansive and unprecedented measures in an effort to calm the increasingly troubled financial markets. Frank advised him “to ask for what you need” and promised to support him.

Defending the bailout today, Geithner and others point to the fact that almost all of the TARP money has been repaid. But the financial institutions were able to do so only because the Fed subsequently lent them some $2 trillion, taking as collateral their more “toxic” assets. The government also guaranteed some $5.4 trillion of the banks’ loans and those of other financial institutions (so-called “counterparties”) with which they do business.

Wessel, in particular, underscores that the Wall Street bailout violated the professed ideological principles not just of the Bush administration but of the American capitalist class in general. Indeed, American capitalists will support extensive government intervention in the economy when it serves their interests and is on terms they can dictate—for example, the nationalization of the American Insurance Group (then the largest insurance company in the world) and the bailouts of General Motors and Chrysler.

In this regard, Wessel quotes Gao Xiqing, the head of China’s sovereign wealth fund, who quipped: “Now our people are joking that we look at the U.S. and see ‘socialism with American characteristics’.” This is a play on “socialism with Chinese characteristics,” the term long used by the Beijing Stalinist regime to describe its own economic system, one that remains primarily based on state-owned enterprises and banks but has a large capitalist sector.

For Class Struggle to Fight Capitalist Austerity!

As happens in all economic downturns, workers’ apprehension over possible job losses has taken a toll on the already low level of labor struggle in the U.S. Last year saw the lowest level of strike activity of any year since World War II, by far. But as the experience of past economic crises also shows, that state of affairs will not last indefinitely.

It is necessary to forge a new leadership of the unions based on the understanding that there are two decisive classes in capitalist society, the proletariat and the bourgeoisie, whose interests are irreconcilably opposed. Such a leadership, fighting for the unity of the multiracial proletariat in hard class struggle, would link those struggles to defense of the social interests of black people, Latinos and other oppressed minorities.

Today the question of revolutionary leadership is sharply posed in Europe, where there has been a wave of one-day general strikes against attempts by the capitalist governments to slash the wages of public-sector workers, gut pensions and jack up sales and other taxes. Greece has had a total of six one-day general strikes so far this year. On June 24, some two million demonstrated across France as the country was rocked for the second time in a month by strikes against a government plan to raise the retirement age. In Spain, hundreds of thousands of public-sector workers struck on June 8, while in Italy the six-million-strong CGIL union federation carried out a nationwide stoppage on June 25. However, the workers’ evident combativity runs up against the political program of the labor bureaucracies, all of which have a bankrupt strategy of seeking to reform the capitalist system of exploitation. What is needed is the forging of revolutionary parties that can lead the proletariat, at the head of all the oppressed, in sweeping away the capitalist order.

This road was outlined in the 1938 Transitional Program written by Leon Trotsky, co-leader with V.I. Lenin of the October Revolution in 1917. Titled The Death Agony of Capitalism and the Tasks of the Fourth International, the document, written in the midst of the Great Depression, put forward a series of demands that provide a bridge from workers’ current consciousness and daily struggles to the need for socialist revolution. Declaring “uncompromising war on the politics of the capitalists which, to a considerable degree, like the politics of their agents, the reformists, aims to place the whole burden of militarism, the crises, the disorganization of the monetary system and all other scourges stemming from capitalism’s death agony upon the backs of the toilers,” the document stated:

“Against unemployment, ‘structural’ as well as ‘conjunctural,’ the time is ripe to advance, along with the slogan of public works, the slogan of a sliding scale of working hours. Trade unions and other mass organizations should bind the workers and the unemployed together in the solidarity of mutual responsibility. On this basis all the work on hand would then be divided among all existing workers in accordance with how the extent of the working week is defined. The average wage of every worker remains the same as it was under the old working week.”

As Trotsky laid out, the fight for employment and decent living conditions for all must point to one final conclusion: the seizure of power by the proletariat and the expropriation of the capitalist class.

The struggle for a shorter workweek under capitalism also points to a fundamental goal of communism: a radical reduction in the labor time necessary to produce the means of consumption. The setting up of an internationally planned, socialist economy will lay the basis for a qualitative development of the world’s productive forces for the benefit of all. In a future communist society, everyone (not just a privileged elite) will have the free time and material and cultural resources to fully develop their creative capacities. In his work the Grundrisse (also known as the Economic Manuscripts of 1857-58), a precursor to Capital, Marx noted how such a development of the individual will, in turn, provide for a still greater development of human productivity:

“The saving of labour time is equivalent to the increase of free time, i.e. time for the full development of the individual, which itself, as the greatest productive force, in turn reacts upon the productive power of labour....

“Free time—which is both leisure and time for higher activity—has naturally transformed its possessor into another subject; and it is then as this other subject that he enters into the immediate production process.”

[TO BE CONTINUED]