Friday, March 23, 2018

The Fed, trade wars and recession

 by Michael Roberts

World stock markets took another tumble on the news that the US Federal Reserve under its new chair, Jerome Powell, had raised its policy interest rate and that President Trump had upped the stakes on an international trade war by adding to the already announced tariffs on imported steel and aluminium, a new range of tariffs on imported Chinese goods.  With China likely to retaliate, the risks are rising of a new recession triggered by rising borrowing costs on debt and falling exports globally.
The Trump administration announced plans on Thursday to impose tariffs on up to $60bn in annual imports from China, raising fears of a trade war between the world’s two largest economies and sending US stocks sharply lower.

The Fed’s ‘policy’ interest rate sets the floor for all borrowing costs in the US and even internationally in many countries.  It is now at 1.75%, a level not seen since 2005.  And the Fed’s policy committee (FOMC) signalled that it intended to raise its rate at least twice more this year and even more in 2019 and 2020, to double the rate to 3.5%.  Powell commented that “the economy was healthier than it had been in ten years” (i.e. at the beginning of the Great Recession in 2008).

The long depression, characterised by weak economic growth (the slowest recovery from a slump in the post-war period), low investment rates and profitability in the capitalist sector, appeared to be over.  And this justified further interest rate hikes to “normalise” the economy.  In addition, the recent corporate tax cuts and other measures by President Trump would lead to a sharp boost to consumer and investment demand “for at least, say, the next three years”.  The US economy was now primed to grow at 3% a year at minimum, suggested Powell.

In previous posts, I have argued that if the cost of borrowing rose while profits and profitability in the corporate sector turned down, then the Fed could provoke a new recession, as happened in 1937 during the Great Depression of the 1930s, when the US monetary authority thought the depression was over.  But profitability then had not made a recovery and increased borrowing costs only squeezed earnings for investment and so pushed the economy back again.  The risk is that this could happen again now.

The Fed does not look at profitability as an indicator of the health of the US capital; instead its mandate is employment and inflation.  On these indicators, employment continues to rise, with the official unemployment rate right down to pre-crisis levels; and inflation remains relatively subdued.  So all appears well.  And if the Fed did look at profitability, it might still argue that things are ok there too.  But that is not entirely correct.  As I argued in previous posts, the overall trend in US corporate profits has been down for over two years. And this is particularly the case for non-financial profits, the key sector for driving productive investment.

Indeed, although the first three months of 2018 are not yet over, various economic indicators forecast that US economic growth, far from accelerating towards 3% a year, has slowed to under 2% from 2.5% at the end of 2017.

Sure, that could just be a first quarter downward slip, as has happened in previous years.  After all, the Fed has raised its forecast for the whole of 2018 to 2.7% and 2.4% for 2019 – not 3%, but a bit better than previous years since 2008.

Actually, despite Trump’s boasts and Powell’s expectations, the US economy is stubbornly stuck in the 2% range of economic expansion.  And the Fed economists have been notoriously wrong in their forecasts of economic growth, inflation and employment.  The real pick-up since trough in the Kitchin short-term growth cycle of 2015-6 has been outside the US; in Europe and to some extent Japan and Asia.  Real GDP growth in Europe is currently higher than in the US.

Most significant has been a profit recovery. JP Morgan economists recently looked at global corporate profits, which in past posts I have measured as making a mild recovery.  Measuring profits as earnings from the top quoted companies in various stock exchanges (by no means a perfect measure as JPM admits), the JPM economists recorded a significant jump in profits across most areas of the capitalist world after a recession-like contraction through mid-2016”.

And where does this jump in profits come from? Mainly the energy sector, as oil prices recovered from the deep lows of the 2015-6; and from the financial sector, as stock and bond markets boomed.  In contrast, healthcare, IT and telecoms profits slowed.  And it came regionally in the advanced economies, while the emerging economies made only modest moves up. Within the advanced capitalist economies, it was profits in Europe and Japan that shot up – areas where the corporate sector had been in the doldrums or worse until recently.

None of this may last.  ‘High frequency’ indicators of economic activity, called the purchasing managers indexes (PMIs), have been at very high levels.  Anything over 50 implies that an economy is expanding and anything over 60 means very strong growth of up to 4% a year rate.  The US ‘composite’ PMI stands at 54 – not bad, but hardly exciting.  The Eurozone’s is higher at 55 but coming down.  Japan is around 52 and China is 53.

Indeed, figures for retail sales (consumer spending), employment and GDP growth suggest a ‘topping out’ of the recent acceleration since 2016.  And now the major capitalist economies face a double whammy of rising borrowing costs and the prospect of an international trade war – just as trade was picking up from the doldrums of the long depression.

A key measure of US borrowing costs, the spread between the US three-month Libor rate and the Overnight Index Swap rate, has reached its highest level since 2009.  And we already know that corporate debt in the US, Japan and Europe, is at record highs relative to GDP.

The hoped-for end to the long depression may be wishful thinking.

Thursday, March 22, 2018

Contrast Marx to the Gloomy Desperation of Bourgeois Intellectuals.

Guardian: Capitalism Cannot Solve This
Richard Mellor
Afscme Local 444, retired

We read every day on social networks or the mainstream media about the sorry state of the world. I just read a couple of articles in the Guardian, a media outlet whose political view is that capitalism can be reformed, can be made human and environmentally friendly, and what is now a global system can solve the numerous and potentially catastrophic crises that we face. Pollution, climate change etc. can all disappear if we elect the right people.

One was an article about the floating mass of debris and plastic swirling around in the Pacific Ocean. The author points out that scientists underestimated its size and it is now 16 times larger than they thought, twice the size of France. It’s depressing to read this stuff which is why people avoid it. It’s not that they don’t care; they don’t see any solution to it.  An international effort is needed one expert says, not simply to clean it up which would be fairly easy but to change the way we produce things that end up in places like this, plastics in particular which would also be easy but-------not within the framework of capitalism. A non-profit is tackling it which is why it’s not getting done. A coordinating international effort doesn’t happen either. That’s why it’s depressing to read it.

Marx explained why an international effort is difficult. The modern nation state is capitalism’s creation. The world is divided in to competing geographical nations. Their relationships are inherently hostile and the stronger devour the weaker as the struggle for control of the world’s resources and natural wealth as well as human capital, continues. There is no real cooperation between capitalist nation states that can advance the interests of the working class or prevent impending environmental catastrophe.

The other article I read was about  another gloomy prediction by Paul Ehrlich that a collapse of civilization is“near certainty”. Ehrich  wrote the book, The Population Bomb. Well he’s right about the end of civilization as we know it although capitalism as an economic system of production is not very civilized at all. But like the example,  this is another thoroughly depressing and defeatist rant; it doesn’t inspire people to act or encourage it in any way, just the opposite, people will feel bad and avoid it next time. For Ehrlich it’s overpopulation and overconsumption that is the problem. This argument is always made by people who refuse to face the reality that how society is organized has to be changed and they have to participate in that. In other words, they are simply whining about what is, and refuse to accept that class struggle and indeed class war and the building of a democratic collectively owned and rationally planned socialist economy and world federation of states is the answer. For Ehrlich there is no alternative to the present system and the rule of the capitalist class over humanity and he does not see the working class as the force that can change this situation and rescue humanity from extinction.  For him, the working class doesn't exist at all it seems. He has a thoroughly defeatist and therefore depressing worldview that can only demoralize as his answer is to ask the foxes to clean up the henhouse. 
"it is not the consciousness of men that determines their existence but their social existence that determines their consciousness"

As socialists we engage in a struggle for the consciousness of the working class. The working class itself does not see that it is the force that can rid us of a wasteful and destructive inhuman system. The propaganda of capitalism and its agents including the heads of workers' organizations is very strong. But in the last analysis, ideas and consciousness have a material base. Workers are forced by conditions to fight. But this fight for the consciousness of the working class is crucial as capitalism has the ability to and will, end life as we know it if it is not ended.

Reading these pieces its almost like philosophy is dead. Marx himself said in his Thesis on Feuerbach that,  philosophers have only interpreted the world in various ways; the point is to change it. These two examples above are exactly what Marx is referring to. They in no way help us understand the world or world history and why things happen.  This doesn’t mean Marx was perfect, he made mistakes too, he did not predict nor did any Russian Marxist at the time believe, outside of Trotsky, that capitalism could first be overthrown in a backward country like Russia. This in turn led to the rise of the Stalinist monstrosity, but there's a materialist explanation for all things and nothing in this world is guaranteed including life itself. Marxism is not a dogma like religion that goes so far to claim that there are such places as heaven and hell.

The quote below is from the Preface to Marx’s A Contribution to the Critique of Political Economy.  When I first read this I was excited by it; I’d never read anything like it. It resonated with me as a serious and objective analysis of society, of how societies change, how human consciousness arises and in particular social consciousness. It is uplifting and it inspired me. It encouraged me to find out more. No wonder he is so hated by the ruling class and the religious clergy that gives them divine credibility with all their rituals and fancy dress. Their wealth, opulence and social positions are all threatened by it. It is a revelation, a scientific one unlike the Book of Revelations that, like a phantasmagorical Grimm’s fairy tale, talks of demons and angels, chariots and other monsters.

Eliminating this is about production. Capitalism produces it.
I hope those workers that read our blog will take the time to read it. I know some workers, particularly those that have been terrified, or brainwashed (as I was) by bourgeois and religious propaganda that deters them from reading the Communist Manifesto as they have as yet been unable to overcome the fear of doing so. What might it do to the way they see the world? What will their friends family and others think? But it’s one of the few things Marx wrote about socialism (a phase of transition toward a communist society) and communism (a classless economy and society. Collective humanity working in harmony with nature).

But read this and if you are new to this subject it is natural that terms and ideas written about over 150 years ago will take some time getting used to. But it is a history lesson, an economic and philosophical lesson but not a philosophy of interpretation. It is an exciting explanation as to how the world works that is clearly a major step to how we can change it. It a basis for action not whining. It is a theoretical basis for understanding the world from the point of view of the worker, practical, concrete.

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.

In studying such transformations it is always necessary to distinguish between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, artistic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out. Just as one does not judge an individual by what he thinks about himself, so one cannot judge such a period of transformation by its consciousness, but, on the contrary, this consciousness must be explained from the contradictions of material life, from the conflict existing between the social forces of production and the relations of production. No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society.

For those followers of Facts For Working People new to these ideas, we have weekly conference calls where we discuss all aspects of our work and political events and if you are interested in discussing the subject matter in the above paragraphs for example, we do that. Think of that horrible swirling waste in the ocean, or the poverty in Dhaka, Bombay or here in the US, the richest country in the world. Or the threat of nuclear war and whole swathes of the planet being uninhabitable. None of us can escape the consequences of this, but we can act to prevent it if we understand the causes, and a war between Satan and God is not one of them. If you are interested in that contact us at and we can talk about that. Or contact us through our blog’s Facebook page @

Tuesday, March 20, 2018

Sanders Stumping for the Democratic Party Again.

Richard Mellor
Afscme Local 444, retired

“The issue of oligarchy and wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time and it is the great political issue of our time, yet it gets very little coverage from the corporate media.”
Bernie Sanders

So says Democratic Party ideologue Bernie Sanders. He is hosting a Town Hall meeting on inequality in order to help people understand that we are not in good shape.

If you read his column in last Friday’s Guardian Sanders uses the term “understand” numerous times. Until “we” understand the minimum wage is too low, that drug prices are too high, that corporations write tax polices etc. The “we” he’s referring to is US workers of course. It’s nauseating reading it.  Does Sanders think the average worker doesn’t “understand” these things, isn’t aware of them? Does he think workers have no idea that there is a clique of rich elite people that run society? He must not have read the polls after the 2007 crash. But Bernie is out stumping for the Democratic Party with Elizabeth Warren and Michael Moore as mid-terms are coming up. 

The Title of Sanders’ column is “The corporate media ignores the rise of oligarchy. The rest of us shouldn't.”

 The issue of oligarchy is, “ the great moral issue of our time,” and we’d better not ignore it.  What is oligarchy?  This is my dictionary’s definition: a form of government in which all power is vested in a few persons or in a dominant class or clique; government by the few.

So Sanders opposes a small minority having too much political and economic power I guess, that’s what his oligarchy is.  Hard to oppose that. This is a common term used by radical liberals and radical petit bourgeois thinkers these days, people like Chris Hedges, Elizabeth Warren and their ilk.

Another common term used by the radical liberals and we see more often, is plutocracy. Here is my dictionary’s definition of plutocracy: “The rule or power of wealth or of the wealthy.”  So it’s pretty similar to oligarchy.

So what Sanders focuses on is not the system of production in which we live and labor, but the ruling class of that system.  In a slave system the oligarchy would be the slaveowners, in a feudal system, the feudal aristocracy and their wealth would be in land of course.
Sanders and Warren. For A kinder, Gentler Oligarchy

Terms you will not find in this column from the great socialist of our time is socialism or capitalism, or for that matter, working class. What the fraud Sanders is actually talking about is sharing the wealth more fairly and introducing laws that will assist in that regard. His vehicle for this is the Democratic Party. The working class and mass direct action, the social force and tactics that have brought us the gains we have left is a non starter for Sanders.

What Sanders actually is, is a reformer. He believes capitalism can be made human friendly despite overwhelming evidence to the contrary.  Reform is one thing when it is used in order to expose capitalism for the bankrupt system that it is and as part of building a movement to overthrow it and replace it with  democratic socialist society. But that’s not what Sanders is about. He is aware that today, a huge section of the population want not only a new political party but are favorable to socialism, more favorable than he is.  The corporate media doesn't "ignore" the oligarchy, it is their media, or more accurately, the media of the class to which they belong and it represents their class interests. Workers may not be clear as to what can be done about the the rise of the oligarchy as they feel it every minute in every day in the form of cuts in living standards, poverty, lack of social services and the other consequences of their governance, police abuse, racism, sexism, environmental destruction etc. so they certainly can't and don't ignore it.

Besides the examples given, there is another term the capitalist mass media uses to describe the most blatant and brutal aspects of capitalist society and that is “crony capitalism”, but it’s used more to describe competing capitalist regimes as opposed to US capitalism.

Sanders, Warren and these defenders of the capitalist mode of production avoid raising the issue of systems as it is best to ignore the fact that we actually live in one. Capitalism has to be seen as permanent, almost a divine creation and there is no alternative-------bad things happen because there are just greedy people.

The capitalist mass media was not so shy when Stalinism (which certainly was not socialism or communism) collapsed. Communism has been tried they argue, and it failed. They accept there is a system then.

A friend and I were talking about this the other day. About how the mass media and politicians like Sanders and radical liberal writers like Hedges and a few others can be so depressing because they tap in to the anger people have about the world around them and write about the struggles they face but offer no alternative at all. Sanders' column is damn insulting, certainly condescending, lecturing workers about how we must understand this and that. He’s a nasty character. He knows he’s saying what people already understand and is underhandedly sheepdogging folks in to the Democratic Party. The millions of people that don’t vote are not uncaring or apathetic. They realize both parties are against them and both parties serve Sanders’ oligarchs. And it’s unlikely Sanders trickery will convince them otherwise and for their disdain they will be attacked for not following the false prophet. The austerity and cuts US workers and the middle class have faced over past decades have been imposed on us by Democratic and Republican parties alike. Democrats have such political power in California that we have been described as a one party state but are we to assume there's no poverty here? There's certainly lots of prisons.

The reason these terms that have to do with individuals or a class or group of people are used by the US capitalist media as opposed to what system they govern or what their class role is within that system, is that it places them in a bind. I will share here some edited comments about this from another author on this blog (Sean) who I was discussing this with yesterday:

Whenever I hear the various US capitalist media mouthpieces yammer on about Putin assassinating people, some other assassinations come to mind like Malcolm X, Martin Luther King, Fred Hampton, and their own when it suited them, John F Kennedy the Minnesota Senator Wellstone.  There is also the hundreds of thousands abroad that US imperialism has massacred to keep its power. And the youth it massacres in the streets on a daily basis and that fill US jails. US imperialism and all its mouthpieces all refer to Putin and his buddies as Oligarchs or Plutocrats. Why this phraseology? When Stalinism collapsed US imperialism helped by the Roman Catholic hierarchy organized to have capitalism replace it. That is what now exists in Russia and the countries of the former Soviet Union. In other words US imperialism got what it wanted. The restoration of capitalism. Of course, such a reactionary step backward was accompanied by the most vicious capitalist class, former KGB thugs like Putin and his fellow capitalists. Gorbachev ushered in an era that took the collective wealth of the Soviet workers and gave it to the Stalinist clique that governed.

US capitalism rose to power through genocide of the Native People, slavery and civil war. Putin's capitalists are mild compared to the US capitalists. But to refer to them as capitalists would be to admit that they are the same. Putin and his class colleagues represent Russian capitalism-----Russian imperialism. Trump, the Bushes and the Clintons and the rest represent US capitalism.

We must reject Sanders, the radical liberals and the US mass media terminology for capitalists and refuse to call Putin and his bunch oligarchs or plutocrats. Call them what they are-----capitalists. They are capitalist just as the US ruling class is capitalist and the squabbles between them is just fighting over who can get the greatest share of the spoils.

$799 million a Year. And Striking Teachers Are Greedy?

*"In 2015, Mr. Schwarzman was paid $799"  million. Source
Richard Mellor
Afscme Local 444, retired.

Most working class people don’t follow the goings on in private equity firms like Blackstone or the parasite that runs it Steven Schwarzman-----but we should.

These firms are basically money managers, they manage the money of large institutional investors and charge a hefty fee for doing so.  Their lives are basically milling around in the cesspool of financial management and moneylending that is much like the swimming pool in the movie The Magic Christian. There has been an ongoing war between these private equity capitalists and other bourgeois over taxes as the compensation an investment manager received is taxed as capital gains as opposed to income which is taxed at twice the rate.

These characters have accumulated massive amounts of money.  Schwarzman is currently worth almost $13 billion dollars and is sought after by heads of state from around the world. He made $786 million in 2017 and John Gray, the man recently promoted to Chief Operating Officer and expected to replace him eventually made, $274 million. When the Obama administration under pressure from competing capitalists appeared to be favorable to increasing taxes on carried interest, Schwarzman described it as “A war………like when Hitler invaded Poland in 1939.” Newsweek

After the 2007 crash when this wasteful and inefficient capitalist system was dragged from the edge of the abyss by public funds, Blackstone and Gray in particular were ecstatic. That same year, the money dealers bought another firm of vultures, Equity Office Properties (EOP) for $39 billion and the Hilton hotel chain for $26 billion. EOP, the property of another parasite Sam Zell, worth some $5 billion who apparently spends 1200 hours a year on private jets, held a collection of 580 commercial buildings and by the time the dust had settled, Blackstone made $20 billion in profit.

Schwarzman and Blackstone, like all scavengers, are loathe to look a gift horse in the mouth.  Some five million people had their homes taken from them (foreclosures they call it) during the crash and the banks were laden with bad loans.  Of course, Schwarzman and those like him don’t physically liberate people from their shelter and throw them out on the street; good gracious, he went to Yale, he’s a cultured educated man, they have the state’s security forces, sheriffs or police do it.

Regulators responded to this situation by pushing the banks to tighten lending requirements. Schwarzman, being the egalitarian that he is wanted to help, “…we said, ‘Oh my goodness, this could be huge. Nobody is going to be able to borrow, they’re going to need housing,’ ” Schwarzman told the Wall Street Journal,  “So we went out and started to buy houses to rent to people.”  So Blackstone became quite the landlord scooping up some $10 billion worth of homes the moneylenders and their police had taken from those that lived in them. Huge landlords like this traditionally like their victims under one roof like a tower block as single family homes can be scattered and miles apart making servicing them time consuming and expensive, but a good crisis shouldn’t go to waste. A vulture doesn’t pass up a free meal. The firm also lent money to other landlords.

Schwarzman counts among his friends Colin Powell, Michael Bloomberg worth some $30 billion, and is very fond of Trump not to mention the Saudi’s. He’s no tight wad when it comes to spending the money he never actually earned. In February 2017 his birthday party in Florida was reported to have cost $7 million.  One of his guests at his birthday party ten years earlier was Cardinal Egan of New York. The Catholic patriarchy knows whose ass to kiss.

When I think of people that support the degenerate racist Trump (Not types like Schwarzman but workers) it makes me so angry. To blame undocumented workers, the poor, welfare recipients or other working class people for the ongoing decline in living standards and quality of life when people like Schwarzman live on this earth, is not simply stupidity, it is plain cowardice. It is like blaming the rape victim rather than the rapist because a victim is seen as powerless and that’s safer than attacking the power or a representative of that power. In that sense it is not these parasitic billionaires as individuals that are the problem, it is the system that produces them and that they defend and propagate. 

Like the hogs and poultry in industrial farming that become psychotic and unrelated to their relatives on a family farm or in the field or back yard, humans lose our humanity in the quagmire of capitalist society.  Insecurity, fear and alienation drive us mad and separate us from our collective historic past. Like flowers in bad soil we begin to wilt and die. Despite their obscene wealth, wealth accumulated off the backs of workers throughout the world, the Schwarzman’s of this world are the most damaged of all living as they doo off the profit of capital. The vicious, competitive environment that is their world destroys them.  Man is born to labor and the bird to fly, the prophet Job is quoted as saying in Judeo/Christian mythology. The US ruling class of which Schwarzman is a dominant figure do no productive labor. They have no real friends as association with other human beings for them is all part of business, bribing, handwringing, building connections everywhere that can ensure the money train stops at their station.

It always fascinates me when workers think that a person that has accumulated $12 billion, or $20 billion like the celebrity Oprah, will actually serve our interests. To accumulate such amounts, and particularly to keep it, one has to be the most ruthless of human beings. In its buying binges, Blackrock has owned many different types of businesses from the Weather Channel to Sea World. What is produced matters not to the capitalist, whether they invest in so-called leisure for the masses or food we need to eat, profit is the determinant, what is produced is incidental.

 "I want war, not a series of skirmishes... I always think about what will kill off the other bidder." Schwarzman said of his business activity. When financial war halts, physical one ensues. Schwarzman, a Jew, is in deals with the Saudis. They don’t let religion or nationality become and obstacle to money making. People die, business must go on.

One business Schwarzman and Blackstone acquired was Sea World. If the reader hasn’t seen it I recommend the movie Blackfish which delves in to this business and also the eventual death of Sea World trainer Dawn Brancheau who was killed by an Orca she worked with in 2010. The film also gives some insight in to Orca’s and their family relationships and habits as well as the brutal treatment the Orca’s received at Sea World.

Obviously concerned with the negative impact Brancheu’s death would have on profits Schwarzman blamed her for violating safety rules (somehow I don’t think the billionaire was on the job every day.) Sea World "had one safety lapse -- interestingly, with a situation where the person involved violated all the safety rules that we had," Schwarzman told the media. The company has since made some half assed excuse for his statement but that’s how they think. Profits over life itself.

Schwarzman’s comments were no accident.  A comment like that alone is enough to destroy any fantasized idea a worker might have about people in his world being decent human beings. It never hurt him anyway. His wealth doubled, and in 2016 he hit a lucky streak making $250 million in five days.  Ain’t life grand?

* I don't think they were talking about safe drinking water for our cities or electricity for Puerto Rico

Monday, March 19, 2018

Trump’s trade tantrums – free trade or protectionism?

by Michael Roberts

Today, the finance ministers of the top 20 economies (G20) meet in Buenos Aires, Argentina, and the big topic for discussion is trade protectionism and the possibility of an outright trade war between the US and other major economics areas, particularly China.

There is a real concern that all the blustering by President Trump is finally turning into reality and ‘The Donald’ is now going to honour his promise to ‘make America great again’ by introducing a range of tariffs, quotas and bans on various imports from Europe and Asia into the US.  Trade protectionism is coming back after decades of ‘free trade’ and globalisation.

Up to now, Trump has only imposed tariffs (taxes or enforced price rises) on steel and aluminium imports.  But he has also pulled the US out of the Trans-Pacific Partnership (TPP) and demanded a re-negotiation of the terms of North Atlantic Free Trade Area (NAFTA). But there is talk of more measures, including action to stop the free exchange of intellectual property rights by US companies and other countries.

The steel and aluminium tariffs (facilitated by an old GATT loophole, allowing countries to enact barriers for reasons of ‘national security’ (US defence spending consumes 3% of US steel output) are really small beer on their own.  In 2002 when the US last imposed steel tariffs, the US produced almost as much steel as today. But now it produces it with a small fraction of the 2002 workforce. Technology has boosted productivity and created products that use less steel.  So direct job gains for US workers are likely to be small, if any.

Back in 2002, President Bush signed into law tariffs for certain steel products following a spate of mill closures and surging imports. The net effect on employment in the steel production industry was minimal. But, according to a Trade Partnership Worldwide study, businesses that consumed steel products shed approximately 200,000 jobs, compared to the 180,000 employed in steel production.

The pain was born principally by smaller manufacturing firms (smaller than 500 employees), which had limited room to negotiate on prices and similarly restricted space to pass costs on due to price competition. The Bush barriers were only in place for a little over a year, but the impact was immediate as price distortions squeezed end users.

If the impact on the employment figures of effectively raising the cost of steel was uppermost in Trump’s mind, he should have considered the potential net loss of jobs in the car industry, the aviation industry and the countless other manufacturers that depend on cheap steel as a raw material. These companies are expected to pass on the extra cost to their customers and suffer the usual consequences – lower demand and a profit squeeze.

Moreover, since 2002, US steel mills have moved south and west, where unions are weak and labour is cheaper.  But now the industry has fewer workers because it is increasingly automated. The Trump tariffs will not bring any new jobs and certainly not in the old steel ‘smokestack’ regions that looked to him for help. The real hit will be on many emerging economies.  Canada and Mexico are exempt from the tariffs because they are part of NAFTA.  But Brazil is a big exporter to the US.  Canada and Brazil account for around one-third of US steel imports, while China accounts for no more than 3%.  With Canada exempt and China unimportant, Trump’s ‘steel’ protectionist move is both weak and misdirected.

Anyway, Trump’s claimed objective to ‘make America great again’ by boosting steel production and other traditional industries means rolling back the advance of technology to recreate smokestack industries.  It can’t and won’t happen.  Trump’s claim that American workers have been losing jobs in traditional ‘smokestack’ industries because of unfair trade by other countries is bogus.  The loss of US manufacturing jobs has been replicated in other advanced capitalist economies over the last 30 years.  This decline is not due to nasty foreigners fixing trade deals.  It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.

The rising inequality in incomes is a product of ‘capital-bias’ in capitalist accumulation and ‘globalisation’ aimed at counteracting falling profitability in the advanced capitalist economies. But it is also the result of “neo-liberal’ policies designed to hold down wages and boost profit share.  Trump cannot and won’t reverse that – on the contrary – with all his bluster because to do so would threaten the profitability of America capital.

Nevertheless, it seems that Trump and his new ‘protectionist’ advisers are going to launch a series of measures against the imports of other countries – particularly against China.  But in the last 20 years, China has moved up the value-added ladder from basic industries into higher and higher tech products.  Indeed, much of the global flow of technological innovation is now coming from China, not the US.

Efforts to punish China with tariffs could quicken this trend. Typically, such businesses are highly adaptable in the face of restrictions, shifting investment and capacity overseas. And China is already moving in this direction with a huge rise in outward FDI. China now ranks second only below the US in terms of outward investment. Its stock of direct investment assets has been growing 25% annually hitting a value of $1.3trn (see graph below). Two thirds of this outflow is directed towards Asia (blue line). China is also pushing aggressively into ‘the belt’ countries of its ‘one road’ project. That’s reflected in its exports, with sales to these states double those to the US. So any restrictive measures taken by the Trump administration against China can only accelerate this reallocation process.

Also, while Trump and his new ‘protectionist’ advisers want to take action against China and other ‘unfair’ trading nations, European and Asian economies, along with the international agencies, want to hold the line for ‘globalisation’ and ‘free trade’.  The rest of the world is still trying to lower barriers. The EU completed free trade agreements with both Canada and Japan at the end of last year. Meanwhile Japan, Canada, Australia, New Zealand, Mexico, Malaysia, Vietnam, Peru, Chile, Brunei and Singapore ratified a revised TPP without the US.

And what Trump forgets is that now in world capitalism, it is not so much trade, or even services trade rather than goods trade, that matters; it is capital flows.  And any full trade war would seriously threaten US foreign investment just at a time when China is expanding its overseas flows.
Foreign trade now contributes relatively little to US corporate profits. Back in the 1940s, foreign subsidiaries of US-based corporations accounted for only 7% of all US profits – the same proportion as exports. Globalisation of US corporate operations and capital investment has changed that in the last 35 years. In 2016, the share of domestic profits has shrunk to 48% of total profits, while the shares of foreign operations and exports have grown to 40% and 12%, respectively.

Stimulated by Trump’s protectionist talk, the debate in mainstream economics over whether free trade is better for every country and the people living in them has also revived.  The longstanding neoclassical view is based on David Ricardo’s law of comparative advantage.  In his book On the Principles of Political Economy and Taxation (1817), now over 200 years old, Ricardo argued that, although Portugal could produce both cloth and wine with less amount of labour than England, both countries would benefit from trade with each other. Because the comparative advantage for Portugal with England is greater in the production of wine than in cloth, it would still make sense for Portugal to produce excess wine and trade that for English cloth. England in turn would benefit from this trade, because while it still costs the same to produce cloth, the price for wine would fall considerably.  So free trade is a win-win situation.

And yet the historical evidence for this ‘law’ is the opposite.  Over the last 30 years or so, the world capitalist economies have moved closer to ‘free trade’ with sharp reductions in tariffs, quotas and other restrictions – and many international trade deals.  But economic growth since the 1980s has been slower than in the 1960s.

Another conclusion of the mainstream theory is that free trade will eventually lead to harmonisation and equilibrium in trade balances through the adjustments in international exchange rates and production costs.  And yet there has been little such harmonisation.  The US has continually run a goods and services trade deficit over the last 30 years; and so have many supposedly ‘comparatively advantaged’ emerging economies.

And as for harmonisation of incomes and employment, inequality of incomes and wealth between countries and within them has worsened in the last three decades, while 1.5bn workers globally are still without a regular job or income.

Free trade has been no great capitalist success.  And now globalisation seems to have paused or even stopped. World trade ‘openness’ (the share of world trade in global GDP) has been declining since the end of the Great Recession.

This has led to various mainstream voices suggesting that maybe protectionist policies by individual countries might better for them.  Dani Rodrik has been pushing this line; reminding us that the US itself protected its domestic industry in the 1870s onwards to get it going; and Germany did similarly in the 1890s, while Japan and other Asians followed suit in the post-war period.

Rodrik, Stiglitz and other ‘leftist’ mainstream economists who now denounce the failure of globalisation really do so from the point of view that free markets are fine as long as they are really free.  But they are not and so governments must intervene to reduce monopoly and other distortions and to control and regulate financial speculation.  And internationally, you need proper and ‘fair’ agreements on trade to protect the weaker national economies.  Apart from this being a utopian aim, this ‘alternative’ to unbridled ‘free trade’ is really an admission that Ricardo’s win-win theory is faulty and disproved, even if there were fully ‘free trade’.

Capitalism does not tend to equilibrium in the process of accumulation.  As Adam Smith put it, in contrast to Ricardo, “When a rich man and a poor man deal with one another, both of them will increase their riches, if they deal prudently, but the rich man’s stock will increase in a greater proportion than the poor man’s. In like manner, when a rich and a poor nation engage in trade the rich nation will have the greatest advantage, and therefore the prohibition of this commerce is most hurtful to it of the two”. Capitalism does not grow globally in a smooth and balanced way, but in what Marxists have called ‘uneven and combined development’.  Those firms and countries with better technological advances will gain at the expense of those who are behind the curve and there will be no equalisation.

Free trade works for national capitalist states when the profitability of capital is rising (as it was from the 1980s to 2000) and everybody can gain from a larger cake (if in differing proportions).  Then globalisation appears very attractive.  The strongest capitalist economy (technologically and thus competitively in price per unit terms) will be the strongest advocate of ‘free trade’, as Britain was from 1850-1870; and the US was from 1945-2000.  Then globalisation was the mantra of the US and its international agencies, the World Bank, the OECD and the IMF.

But if profitability starts to fall consistently, then ‘free trade’ loses its glamour, especially for the weaker capitalist economies as the profit cake stops getting larger.  ‘Populism’ and nationalism rears its head and mainstream economists opposed to ‘free trade’ become more prominent.  That was the situation in the 1870s and 1880s.  That was the situation in the 1930s Great Depression.  That is the situation since the early 2000s and especially since the end of the Great Recession.

US capitalism has lost ground relatively, not only to Europe and Japan, but even more worryingly to the rising economic juggernaut that is China, where foreign investment is strictly controlled and subservient to the state sector and to an autocratic Communist elite.  The US is now in the same position as the UK was in the 1880s, only worse.  Trump is the consequence of that.

Marx and Engels recognised that ‘free trade’ could drive capital accumulation globally and so expand economies, as has happened in the last 170 years.  But they also saw (as is the dual nature of capitalist accumulation) the other side: rising inequality, a permanently floating ‘reserve army’ of unemployed and increased exploitation of labour in the weaker economies.  And so they recognised that rising industrial capitalist nations could probably only succeed through protecting their industries with tariffs and controls and even state support (China is an extreme example of that).

But is free trade or protectionism better for labour and the working class?  It depends.  Perhaps the answer is best summed up by Robert Tressell in famous book, The Ragged Trousered Philanthropist, written in 1910 in the UK: “We’ve had Free Trade for the last fifty years and today most people are living in a condition of more or less abject poverty, and thousands are literally starving. When we had Protection things were worse still. Other countries have Protection and yet many of their people are glad to come here and work for starvation wages. The only difference between Free Trade and Protection is that under certain circumstances one might be a little worse that the other, but as remedies for poverty, neither of them are of  any real use whatever, for the simple reason that they do not deal with the real causes of poverty”.

American workers can expect nothing from Trump’s trade tantrums – indeed it can make things worse.

Sunday, March 18, 2018

Iranian Students Jailed for Democracy Protests

It was the leftist students at Tehran University who stood in solidarity with the nationwide protests and chanted “Reformist or principalist, this story has come to an end!”, a powerful slogan that challenged party-centric establishment politics and immediately became popular across the country.

by Sina Zekavat
Reprinted from the Alliance of Midde Eastern Socialists
March 16, 2018

After a wave of popular protests began in Iran in December and called for the overthrow of the Islamic Republic, the regime immediately arrested over one hundred leftist student activists in order to prevent the development of any organic relationship between the working-class protesters and the university students.  These students were mostly abducted from their homes at night, were charged with “endangering national security,” detained for up to several weeks, partially released and told to wait for their trials.

In early March, the first set of trials were held and issued the following verdicts:   A six-year prison sentence and an additional two-year travel ban for  Leila Hosseinzadeh, a Tehran University anthropology student and student council representative.    A one-year prison sentence and an additional two-year travel ban for Sina Rabi’i, a sociology student at Tehran University.  Other students such as Parisa Rafi’i, Marzieh Amiri, Zahra Ahmadi  are currently on trial or expect to be put on trial in April.

On March 11, a gathering by students at Tehran’s Polytechnic University to protest these verdicts,  was violently attacked by members of the government’s paramilitary Basij forces  who accused the students of being “Zionists” and severely beat them.  Other students at Allameh Tabataba’i University held a protest and carried the symbolic corpse of a student on their backs.

The long prison sentence given to Leila Hosseinzadeh seems to be related to the fact that she is an outspoken socialist feminist and student leader.

The latest revival of leftist demands and politics among university students across Iran started  a few years ago in reaction to the intensified imposition of fees on higher education and university services/amenities on the one hand, and an increasing use of security forces on university campuses on the other, by both political parties, i.e. reformists and principalists.

For a long time the reformists had held a rigid monopoly over campus politics and mobilization.  But it was during the December 2017 mass protests that this monopoly was profoundly challenged.  In fact it was the leftist students at Tehran University who stood in solidarity with the nationwide protests and chanted “Reformist or principalist, this story has come to an end!”, a powerful slogan that challenged party-centric establishment politics and immediately became popular across the country.

The student movement in Iran is regaining its independence and centrality in Iran’s domestic as well as foreign politics. It is of critical importance for other internationalist, progressive and anti-capitalist student movements across the globe to lend their support to this student movement and stand in solidarity with organizers such as Leila Hosseinzadeh and others.

Sina Zekavat
March 16, 2018

Saturday, March 17, 2018

An Irish Day. No St Patrick

James Connolly the Irish socialist leader. 

Note. We are republishing this from an earlier St Patrick's Day. We should recognize that the US VP Mike Pence was celebrating St. Patrick's Day in Savannah Georgia. If the revolutionary history of Ireland was being celebrated, the history of Connolly and Larkin and the heroic men and women that fought for centuries for Irish freedom----in other words Irish revolutionary history----Pence and people like him wouldn't be celebrating it, they'd be condemning it.
Green rivers, green clothes, alcohol, people dressed up as leprechauns, this is what they want. It's an insult to the Irish martyrs and to Irish revolutionary history and culture.

Sean O'Torain.

I do not call it St. Patricks Day as there are no such thing as Saints. I call it an Irish day. When christian ideas came to dominate in Ireland they crushed the more democratic society which was based on the Brehon laws. Women had more rights under these laws. Christianity imposed the male dictatorship of the Catholic church. It did so to grow fat and rich and also to try to impose its rule in England Scotland and Wales. The last few years have shown the disaster Catholicism has been for Ireland. Child abuse the economic collapse of the capitalist system, the Catholic church had its dirty fingers in these. If there ever was a Patrick he was a catastrophe for the Irish.

So what does somebody like myself do on this day, an atheist, a socialist, an Irish emigrant in Chicago, and somebody who misses my home land so much that there are times driving home after work that I howl in anguish. I cannot go to the Irish American societies with their nonsense of dying the river green and dressing as leprechauns and praying to priests. I cannot go for another reason. The Irish events are in the main parades and gatherings which spout right wing ideas. The Irish American organizations are dominated by right wing business people. They are trying to claw their way up in US capitalist society. To succeed in this they must abandon the best Irish traditions. That is the traditions of struggle, of Henry Joy and the United Irishmen, when was the last time you heard him mentioned on an Irish parade, of the Fenians, of James Connolly, of Jim Larkin, of Liam Mellowes. To mention these fighters and this tradition would damage their efforts to advance in US capitalist society. So not able to celebrate these they dye the river green wear green shirts and bow to the Catholic priests. This Irish day is not a good one for me.

Before my heath failed me I used to organize an alternative Irish day. The last one was with my friend and African American blues player Jimmie Lee Robinson. The theme was to thank the African American people for what they did to help Irish culture. The idea was that the black revolt in the US in the 1950's and 1960's inspired the civil rights movement in Ireland. In the initial period before nationalism took over, the movement there marched under the African American civil rights song "We shall overcome." The civil rights movement in Ireland inspired by the black revolt in the US in turn increased interest in Irish culture and revived it dramatically.

Jimmie Lee and I went to the theatre where the event was to take place. It was closed and the door locked. The people who had said they would get it for us and help us with the event did not turn up. I would later find out that they were close to the Daly machine and when they thought more about helping me and Jimmie Lee they thought it would not be good for their careers.

Not defeated we went on to an Irish pub where I knew there would be a session. Sure enough about a dozen people were sitting round playing and singing. I asked them could Jimmie Lee sit in. It was like I threw a grenade with the pin pulled in amongst them. They went into a frantic whispering huddle. Then they sent two of their number over and said that Jimmie Lee could not join because the rhythm of Irish music and African American music was different. I could see by their pathetic expressions and tone of voice that I was listening to lies. It was the different color of Jimmie's skin that was the problem.

I apologized profusely to Jimmie and turned to leave. As we went a man jumped up from the session and followed us. I know where you can play. At Mary's. Come on. Hesitantly as I did not want a repeat of the racist insult to Jimmie we followed our new acquaintance. Mary's was a tiny pub and was empty except for Mary who was behind the counter. Sure Sure set up in the corner there. Jimmie Lee with his guitar and spurs which he used for percussion and Neiley our new friend with his bodhran got going. With Jimmie leading and encouraging Neiley very soon the music was flowing. The blues with a whiff of the Irish now and then. It was beautiful.

Then the door opened and in came three bikers, leather, chains, big boots the lot. With my stereotype I thought ah no racism, trouble. I said to Neiley if they insult Jimmie Lee we will have to fight. I will not have him insulted twice in one night. Neiley momentarily went white and then recovered and said okay. I knew then I had made a genuine new friend.

The bikers came with their bottles in their hands and stood around the corner where Jimmie Lee and Neiley were playing. Watching. Listening. Then the most wonderful thing happened. After about ten minutes the bikers were singing and shouting and dancing to the music. Mary was clapping her hands behind the bar and laughing with glee. The music had done it.

I still miss Ireland very bad but every now and then I get a moment like this and the US is bearable. Just as long as I do not go to the parades with their Chicago cops pipe band, these cops with their tradition of killing workers and African Americans, marching with their bagpipes wearing Scottish tartans and pretending to be Irish. It is a tough life.

Wednesday, March 14, 2018

From Communism to Activism?

by Michael Roberts

Last week, to commemorate 170 years since Marx and Engels wrote The Communist Manifesto, the editors of the UK’s Financial Times commissioned two executives of a ‘corporate advisory’ firm to consider what was right and wrong in that seminal work about capitalism and communism.  The two FT writers started by declaring that “as a partner in a corporate advisory firm and a professor of law and finance, we are true believers in free-market capitalism”, but nevertheless, the 1848 manifesto still had some value, especially “in the wake of a calamitous financial crisis and in the midst of whirlwind social change, a popular distaste of financial capitalists, and widespread revolutionary activity”.

But the FT authors wanted to convert the Communist Manifesto into what they call a “Activist Manifesto”.  They threw out the outdated concepts of two classes: capitalists and workers; and replaced them with the ‘haves’ and the ‘have nots’.  You see, classes and crises are out of date as the main critique of capitalism now is rising inequality, which the FT authors claim the Communist Manifesto was really about.  “As in Marx’s and Engels’ time, economic inequality is rising, wages are stagnating, and the owners of productive capital are reaping the benefits of technological advances”.

But the solution to this, the FT authors are at pains to say, is not the confiscation of private property or communism – this only breeds “murderous tyrannies”.  And “we also think Marx and Engels would update their views about private property. While the abolition of private property was their first and most prominent demand, we think they would recognise that Have-Nots have benefited from property rights. Moreover, we argue that state-held property is problematic, leading to waste, inefficiency and the likelihood of being co-opted by the Haves in our societies today. As the role of the state has grown, inequality has also grown. And the Have-Nots have been the ones who have paid for it.”

Instead what we need is ‘shareholder activism’ in companies “shaking up complacent boards and advocating for changes in corporate strategy and capital structure.” This is the way forward, according to our FT authors 170 years after Marx and Engels’ manifesto.  And even the global elite recognise it: “many Haves too are activists already today… Think of the billionaires such as Bill Gates, Warren Buffett and Mark Zuckerberg, who already support philanthropic efforts to alleviate inequality”.  So that’s all right then.

Should the Communist Manifesto be rewritten as a plea for ‘activism’ led by billionaires to reduce inequalities, rather than the abolition of private property in the means of production and the replacement of capitalism with communism?  While the FT was publishing its view on the Communist Manifesto today, I was delivering a talk on social classes today at the Metropolitan University of Mexico in Mexico City (Universidad Autónoma Metropolitana – UAM) as part of my recent visit there.  I too started off with a reminder that it was 170 years since the Communist Manifesto was published.  But I emphasised that the basic division of capitalism between two classes: the owners of the means of production (corporations globally) and those who own nothing and only have their labour power to sell; remains pretty much unchanged from how it was in 1848.

Recent empirical work on the US class division of incomes has been done by Professor Simon Mohun
.  Mohun analysed US income tax returns and divided taxpayers into those who could live totally off income from capital (rent, interest and dividends) – the true capitalists, and those who had to work to make a living (wages).  He compared the picture in 1918 with now and found that only 3.8% of taxpayers could be considered capitalists, while 88% were workers in the Marxist definition.  In 2011, only 2% were capitalists and near 84% were workers.  The ‘managerial’ class, ie workers who also had some income from capital (a middle class ?) had grown a little from 8% to 14%, but still not decisive.  Capitalist incomes were 11 times higher on average than workers in 1918, but now they were 22 times larger.  The old slogan of the 1% and the 99% is almost accurate.

The class divide described in the Communist Manifesto is that between those who own and those who do not and Mohun’s ‘class’ stats confirm that.  For Marx and Engels, all previous history has been one of class struggle over the surplus created by labour.  In slave economies, the owners of capital literally owned humans as source of their surplus; in feudal society, they controlled the days of work and obligations of the serfs.

Under capitalism, the surplus was usurped in a hidden ‘invisible’ way.  Workers were paid a wage – a fair wage – but they produced more value in the commodities they made for sale and it was this surplus value realised in the sale of commodities (goods and services) that capitalists accumulated. 

The class struggle under capitalism thus took the form of a struggle between the share of value going to wages or profits.  As Marx put it in Capital: “In the class struggle as a finale in which is found the solution of the whole smear! From a struggle over wages, hours and working conditions or relief, it becomes, even as it fights for those things, a struggle for the overthrow of the capitalist system of production – a struggle for proletarian revolution.”

In my presentation to UAM in Mexico, I ambitiously argued that we can gauge the intensity of the class struggle from the balance of forces in the wage-profit battle.  I used statistics of strikes in the UK since 1890 against the profitability of UK capital (for more on this, see my paper, Mapping out the class struggle).  The first long depression of capitalism was at its deepest just as Marx died in 1883. It came to an end in the UK in the early 1890s: profitability recovered and the labour movement strengthened with the advent of new mass unions.  Labour disputes erupted for a while.  The fall back in profitability from 1907 then sparked a new battle over the surplus leading to intense levels of strikes just before the WWI broke out.

After the war, the class struggle resumed with some intensity, but in the UK that ended with the defeat of the general strike in 1926.  On the back of that defeat, UK capital recovered some profitability while the unions were weakened.  Strikes and class struggle were depressed by the Great Depression of the 1930s.

The second world war drove up profitability and the labour movement also made a recovery.  It was the golden age of growth, investment, employment and the ‘welfare state’.  So when the profitability crisis of the late 1960s and 1970s commenced, British workers fought hard to maintain their gains.  Strikes were at a high level and there was talk of revolution.  That struggle came to an end with the defeat of the miners in 1985.  What followed was rising profitability in the neo-liberal period, along with weakened trade unions.  This was a recipe for low levels of class struggle.  With the Great Recession and the subsequent Long Depression, that low intensity continued.

I concluded from this short analysis that the class struggle as described in the Communist Manifesto has not disappeared and neither have the two basic classes, contrary to the amendments advocated in the ‘Activist Manifesto’ of the FT authors.  But the intensity of that struggle depends on the objective conditions of the profitability of capital and the strength of labour.  Class struggle is not always at fever pitch, revolutionary moments are rare.

The most intense periods of struggle appear to be when the labour movement is reasonably strong in incomes and organisation but when the profitability of capital has started to fall, according to Marx’s law of profitability.  Then the battle over the share of the surplus and wages rises.  Historically, in the UK that was from 1910 just before and just after WW1; and in the 1970s.  Such objective conditions have so far not arisen again.  So the spectre of Communism haunting Europe – the phrase that Marx and Engels started with their manifesto in 1848 (in a similar intense period as those above) – is not yet with us again.