Tuesday, September 2, 2014

Coca Cola abandons Indian bottling plant after protests.

Colossal Victory in India: Coca-Cola Forced to Abandon $25 Million New Bottling Plant
Press Release, India Resource Center, August 25, 2014

March to Coca-Cola plant in Mehdiganj, Varanasi, Uttar Pradesh, Photo by India Resource Center

"The Coca-Cola Company has been forced to abandon a $25 million newly built bottling plant in Mehdiganj, Varanasi, India as the result of a sustained campaign against the company's plans...

"The groundwater conditions in the Mehdiganj area have gone from 'safe' category, when Coca-Cola began operations in June 1999 to 'critical' in 2009...

" 'Coca-Cola is a shameless and unethical company that has consistently placed its pursuit of profits over the well-being of communities that live around its facilities. It is absolutely reprehensible for a globally recognized company like Coca-Cola to seek further groundwater allowances from an area that has become acutely water-stressed, and that too in large part due to Coca-Cola's mining of groundwater alone,' said Amit Srivastava of the India Resource Center which has led the campaign to challenge the new plan..."

Past campaigns forced Coca-Cola plants in Plachimada (Palakkad District), Kerala (2004) and Sinhachawar (Ballia District), Utter Pradesh (2008) to shut down.

Protests against Coca-Cola from large demonstrations to small vigils continue throughout India over Coke's practices that have turned "farmlands into wastelands" and "potable water into wastewater." The Company's toxic waste has polluted land and water, while its operations have drained out vast amounts of groundwater.

Also of great concern to health experts in India are Coke's efforts to greatly increase the consumption of their soft drinks in India attempting to reach the per capita consumption in Mexico, which is 745 (8 oz. servings) the world's highest, or that of the United States, which is 401 (8 oz. servings). India's per capita consumption rate is 14 (8 oz. servings). Mexico and the United States are among the countries suffering with the highest obesity and diabetes rates in the world, particularly among children.

In our last newsletter, we pointed out that:

Coca-Cola still faces legislation holding it liable for $47 million in damages as a result of its operations that were forced to shutdown in Plachimada. The company is also the target of a major community campaign in Kala Dera in Rajasthan where the community is seeking closure of the bottling plant due to rapidly depleting ground water. Coca-Cola's plans to build a new factory in Charba in Uttarakhand were defeated almost as soon as the proposal was made public in 2013, "testament to how quickly and efficiently communities can organize and network in India against problematic companies such as Coca-Cola..." Stay on top of the shutdown Coke India movement by visiting www.IndiaResource.org.

For additional information, check out the sections "Coca-Cola's Water Stewardship in India: A Travesty" and "Reducing Global Water Footprint: Coke's Deceptive Public Relations Gimmick" in "Buying Respectability: Coca-Cola and the Co-opting of the Corporate Social Responsibility Movement."

March to Coca-Cola Plant in Sinhachawar, Ballia District, Utter Pradesh, Photo by India Resource Center

Protest Against Coca-Cola Credit: Sarvesh/India Resource Center

For more information about Coca Cola's exploits around the world visit: http://killercoke.org/index.php 

Facts For Working People reprints this information for our readers' interests only and does not endorse nor is affiliated to Ray Rogers' organization, Corporate Campaign.

Monday, September 1, 2014

Gaza: Warren and Sanders, defend their class interests























By Richard Mellor
Afscme Local 444, retired

It is no mystery that the capitalist class, or the 1% as the ruling class has been referred to of late as suggestions that there are classes in the United States are not too popular, has two political parties.  The working class, another term avoided by the same 1%’s media, has no mass party at all.

While it cannot be denied that some Democratic Party politicians or sections of the party do differ with their Republican friends on some issues like the environment, same sex marriage, reproductive rights etc. there is no fundamental differences on the basics.  Both parties represent Wall Street and most importantly they defend the market and the economic system of production based on private ownership and that production therefore can only be set in to motion on the basis of personal gain or profit.

I always made the point at work or union events that these two parties are used to play the good cop bad cop role. One gives you a cigarette and the other beats you but they’re both after the same information.

I mentioned to a friend the other day that given the hawkish and rightward shift by one of the toughest nuts in the 1%’s political arsenal, Elizabeth Warren might emerge as a challenger to Hilary in the election.  The liberal wing of the Democratic Party might push her in that direction.

Warren’s recent defense of the Zionist’s bombing of hospitals and schools in Gaza leads me to think that she’s testing the waters, proving to the US ruling class and the Israeli lobby her credentials, that she can be trusted. 

Like those that blame the woman for wearing clothes that invite the rapist, Warren blames Gaza’s government, Hamas, for Israel’s bombing of schools and hospitals because, “….when Hamas puts its rocket launchers next to hospitals, next to schools, they're using their civilian population to protect their military assets. And I believe Israel has a right, at that point, to defend itself,"

I wonder if Ms Warren has visited Gaza or has compared Hamas’ “military assets” to the Zionists regime’s military assets? You have to gasp at the use of such a term.  Perhaps Ms Warren thinks the Gazan government should put their piddly little rockets next to their air force bases on the edge of the strip? Or at their navel bases along the coast?

Warren is simply repeating what she knows is Israeli propaganda and she enters in to even a more putrid morass claiming that Civilian casualties are the "last thing Israel wants.".

The entire international community except Israel, it’s backers US imperialism, and a few other hangers on, has determined Israel’s occupation of Palestinian land is illegal. Yet Ms Warren and her government use the veto power it has in the UN to prevent any action being taken against the Zionist regime. Israel puts neo fascist colonial settlers on to occupied Palestinian land, it steals land and bulldozes houses. Ensuring civilian casualties in one way or another is not the “last” thing on Israel’s to do list; it is the first.

"America has a very special relationship with Israel," says Warren, "Israel lives in a very dangerous part of the world, and a part of the world where there aren't many liberal democracies and democracies that are controlled by the rule of law. And we very much need an ally in that part of the world."

The important part of this statement is the last sentence. Israel is the only reliable ally US imperialism has in the area. It has a “special relationship” with other nasty regimes in the area too, the Saudi’s for instance, or the Bahraini royal family and the monarchical dictators that run Qatar. Warren’s political rival, Hilary Clinton, said of Hosni Mubarak, the US supported Egyptian dictator and torturer, that he was like a family member.

But the revolutionary potential of the Arab masses, their numbers and conditions, do not appeal to US imperialism. The possibility they can topple their regimes is too great. Most of the dictatorial regimes in the Arab world have been propped up, financed and supported by the US in one way or at one time or another.  US imperialism like the Zionists, welcome anti-Semitism, hatred of Israel, and a land with a small population surrounded by hostile forces, such a siege mentality makes for dependent proxies.  Israel has indeed become not England’s but the US’s “Loyal little Ulster in the Middle East.”

As the Huff Post article on this issue also pointed out, Bernie Sanders, another liberal in Congress who first ran as a socialist and who I contacted back then in an effort to have him come to the Bay Area for a union sponsored public meeting, has also come under attack for defending Israel.

Both Warren and Sanders, who considers himself a socialist, voted for the Senate resolution S 498 supporting Israeli war crimes. What sort of socialist does that?  The entire US Congress is war criminals. This is why the Zionist regime can introduce racist apartheid area laws, kill Palestinian children at will and bomb, what amounts to a heavily populated outdoor civilian prison; it has the power of the US behind it.

This is the treacherous role played by the liberals despite their often community friendly rhetoric and whining about inequality.  When it comes to a real struggle against the system and how society is run, they defend their class interests. This is why so many Americans have chosen not to vote.  We cannot look to the Democratic Party for a way out.  As my dad used to say, to do that is "A mug's game."

Only working class unity can solve the ongoing crises that intensify daily, both domestic and global.  We cannot resolve the war at home or end the wars abroad, wars in which only our children die and the children of foreign victims dies ten times over all to maintain the rule of the capitalist class and their system. We have to question the very nature of society itself. 

This doesn’t mean we don’t fight for reforms, fight to make life around us better, fairer, more humane because we learn lessons through struggle, we draw certain conclusions about the world around us.  But we also have to recognize by studying our own history, working class history as well as present events, that capitalism cannot be reformed, cannot be made nice. It is inherently a violent, racist, sexist and exploitative system.  The conditions for long-term reform have passed in the era of globalization.

We cannot limit our expectations to the possibility of higher wages or more benefits, the shift in the other direction has become the new normal. And we must not fall in to their propaganda that happiness means more consumption; the planet cannot and will not support that. We have to wage a war against the wages system, against wage slavery in all its forms.  We have to wage a struggle to control the labor process and all aspects of economic life. 

In order to wrest control of our economic and political life from the clutches of the bankers and owners of capital, we have to unite nationally and internationally as a class, as that class that earns its means of subsistence by selling our labor power in the marketplace of the world. Workers divided along race, sex and other lines cannot win.

Warren and Sanders’ support of Israel has nothing to do with a love of Jews. The ruling class in the US is composed of anti-Semites and always has been.  Their support for Israel is based solely on economic self-interest.

As workers, our non-support for Israel's actions, for Warren, Sanders and their party or political affiliation should be based on our economic self-interest. It is in US workers’ self interest to stand with the Palestinian people in their struggle against colonization and against occupation. We stand with Israeli workers who reject the Zionist racist philosophy and call for unity between all workers in the area against capital and its corrupt regimes.

We stand for a federation of democratic socialist states.

Ferguson:US Capitalism increasingly militarizes its state to take on its own working class.

by Sean O'Torrain

The authors of this blog have been continually pointing to the increased militarization of the US state. At the time of the Occupy movement the cities were occupied not only by youthful protesters but by cops in full body armor. We have asked our readers to think a bit more about this. Where did these full body armored cops come from? They did not appear out of thin air. A decision had to made to equip these cops in this way. This decision is rooted in the overall economic, political and military crisis in which US capitalism presently finds itself.

US capitalism, or to be more precise, US imperialism has military bases in close to 200 locations round the globe. It is increasingly challenged by rivals such as China. It is bogged down in wars and proxy wars in Central Asia and elsewhere. 
It needs to maintain and even increase its huge military arsenal to meet these challenges. This costs money.
But the problem is this. US capitalism is increasingly sinking into economic crisis and debt. It can no longer afford guns and butter. So it has made a decision. It is going to cut the butter. That is it is going to cut the living standards of its own working class at home in order to try and maintain its military power and reach abroad. Cheyney has stated this explicitly. He bluntly says that all spending such as on food stamps, social security, health care must be cut and the money saved shifted to the military. This is what is going on. This is the reason for the increased militarization of the US state.
As US capitalism moves to carry cut the butter it knows that at some stage its own working class will rise to its feet and fight. That is why the cops are being equipped with full body armor. But it is not only full body armor. Under a federal program called 1033, the government has authorized the distribution of $4.3 billion in surplus military materials to local police departments.  This equipment includes  pistols, automatic rifles, stun grenades, silencers, armored drones and armored vehicles used in Iraq and Afghanistan. These vehicles are known as MRAPs. (for Mine-Resistant Armored Protected) Police departments that want one of these only have to fill out a one-page form. 
According to a report from the ACLU it is not only a question of the physical arming of the state machine. This report explains:  “The militarization of American policing is evident in the training that police officers receive, which encourages them to adopt a ‘warrior’ mentality and think of the people they are supposed to serve as enemies…” It is not only body armor but it is also brain washing that is going on. This is what we see in the increased aggression of the cops and their increased killing and shooting of people especially young African American men.
Take a look at Ferguson. Between 2010 and 2013, St. Louis County law enforcement agencies received twelve 5.56 mm rifles and six .45 caliber pistols from the Department of Defense. Most recently, Ferguson received two military vehicles, a trailer and a generator under the program. Hardly a person in the country could have missed seeing the sniper on the top of the MRAP in Ferguson. And in recent years, the St. Louis County Police Department and the St. Louis Police Department — along with local, state and federal agencies — have received counterterrorism training by the Israeli National Police and Israeli Defense Force, which have years of experience occupying Palestinians in the West Bank and Gaza and suppressing their rights.   This is incredible. The forces that are slaughtering in Gaza are training the cops that murdered the young African American man in Ferguson.
The US working class must look at what is going on. It must break from this illusion that things will go on as before and it will be able to get by. US capitalism has been preparing for some time now to put its own working class on rations. At the moment the most vicious of the repression of the US state is aimed at the minority populations and especially the youth of these populations. But US capitalism cannot cut enough butter from these sections of society. Very soon the increased repression, the brutal aggression, the drones and the MRAPs will be headed for the suburbs.

Sunday, August 31, 2014

Ukraine: a grim winter ahead

by Michael Roberts

As the war along Ukraine’s borders takes a new turn, with Russian incursions on the south-east coast and NATO preparing a new ‘expeditionary force’, Ukraine’s economy heads fast down a black hole. New President Poroshenko, one of Ukraine’s feuding oligarchs (in his case, the confectionery king), has dissolved parliament and called elections for 26 October. The election will probably lead to the removal of all the old supporters of the ousted pro-Russian former president still in parliament. They have been blocking attempts by the current caretaker prime minister Arseniy Yatsenyuk to carry out the dictates of the IMF under the $17bn ‘reform’ programme agreed last April.

In return for IMF money to meet foreign debts and fund the state (for arms mostly), the Kiev government agreed to huge cuts in public spending, pensions and welfare and, above all, to privatise state agencies and raise energy charges for heating and fuel by over 40%, a total reduction of government spending of 6.75% of GDP. The government agreed to these draconian measures because there was no alternative. As Yatsenyuk said, while the IMF deal would mean hardship for the people and be unpopular, he was prepared to conduct ‘suicide politics’.

Yatsenyuk was so frustrated by parliament’s lethargy in agreeing the IMF measures that he threatened to resign, forcing a collapse of the government. The measures were finally passed, but not before the economy minister Pavlo Sheremeta also threatened to resign in anger at delays in implementing the IMF ‘reforms’. “We need to change this whole paradigm: the system, the people, the processes,” Sheremeta said.

The problem for the pro-IMF government and its foreign investor supporters is that the economy is on its knees and the targets set by the IMF will not be met. In addition, the war is destroying the country’s infrastructure. For example, an $80m food processing plant, opened in 2000 by Cargill, was one of the first big greenfield investments into independent Ukraine. It was abandoned by the US agriculture group’s employees after being stormed by pro-Russian gunmen. Now it has been destroyed by fire.

The latest data indicate that the Ukrainian economy has contracted almost 5% yoy so far this year, the IMF’s forecast for the whole year. The final contraction for 2014 is likely to be 8% in real terms, even if the war should subside.
Ukraine GDP.jpg
The loss of Crimea alone has cut Ukraine’s GDP by 3.7%. The rebel provinces of Donetsk and Lugansk account for about 16% of GDP and 25% of exports.

An energy crisis looms for the winter. Russia’s Gazprom, which provides more than half the country’s gas, stopped supplies in June. The government has been paying fuel subsidies equivalent to 7.5% of GDP. Its energy intensity – the ratio of energy used to economic output – is twice that of Russia and ten times the OECD average. Reducing this huge waste of energy is part of the IMF plan. Carl Bildt, Sweden’s foreign minister, reckons: “If Ukraine improved its energy efficiency to reasonably EU levels, I doubt it would need to import any energy at all.” The resources to do this through better management of heating, insulation and control of private energy companies are not there, of course.

The IMF wants to cut public spending so that government debts do not rise so much that foreign lenders, including the IMF itself, won’t get their money back. You can see how much Ukraine will owe to the IMF by 2018 in the graph below.  Public sector debt-to-GDP will double towards 87% by 2018, as taxation of the rich oligarchs is non-existent. Ukraine owes $3bn to Russia itself and Moscow can demand immediate repayment.
Ukraine FX debr
As I argued in my last post on Ukraine (http://thenextrecession.wordpress.com/2014/08/11/ukraine-a-rock-and-a-hard-place/), the falling value of the hryvnia only makes the debt on foreign currency terms worse. The IMF’s own risk assessment warns that if the hryvnia falls to 12.5/$, then the stresses on bank balance sheets would require a bailout of at least 5% of GDP. The currency is currently weaker than that, at 13/$.
Ukraine currency
The IMF issued a statement before the weekend congratulating the Kiev government on trying to meet its demands: “Overall, economic policies have generally been implemented as agreed in the program, as the Ukrainian authorities have persisted in taking difficult measures despite the volatile political situation.” But despite the imposition of severe austerity measures, the IMF is worried that it will still go pear-shaped: “However, the conflict in the eastern part of the country is taking its toll on the economy and society, and compensatory measures will be critical to achieve key program targets agreed for 2014 and beyond. The program remains highly challenging and continues to hinge crucially on the assumption that the conflict will subside in the coming months.”

As Christine Lagarde, the IMF’s managing director, said: “Downside risks to the program remain very high. The program success hinges on a timely resolution of the conflict in the East, as well as on the authorities’ strong policy performance and adherence to the planned reform.”

What is the IMF answer to the worsening economic situation? More austerity. Lagarde (now under investigation for corruption herself) called on the government to “(i) take steps to accumulate international reserves, (ii) tighten the fiscal stance in 2015–16 relative to the initial program targets, and (iii) step up efforts to put Naftogaz on a sound financial footing by improving bill collections and adjusting energy prices as needed.”

It is almost certain that the IMF will have to cough up more money to tide Ukraine over or Ukraine will default on its debts and obligations to foreign governments and investors. A “reprofiling” policy is being discussed by the IMF board. This would ‘stretch out’ any repayments but leave the overall debt untouched – still a default and restructuring but a ‘soft one’.

There is an alternative to the Kiev government policy of capitulating to the IMF. A socialist government would take over the interests of the oligarchs who stole Ukraine’s wealth in the first place. It would seize those funds to meet the needs of ordinary people on heating, education and public services. It would revoke the debts owed to Russian and Western banks and demand that the IMF write off its loans so that Ukraine could start without the heavy burden of debt. Ukraine remains a key agricultural exporter and also a low-cost steel producer. If the banks and major export sectors were in the government’s hands and not those of oligarchs (and foreign private equity companies in the future), then a national plan could be implemented.

Also, it would offer to discuss with genuine representatives of the Russian-speaking eastern areas a proper federation and autonomy, a guarantee of rights in education and language. The aim would be to reassure the Russian-speaking areas with economic and political support, rather than the alternative of war that Poroshenko and Putin promote. Instead, Ukraine’s people, both in the west and east, face a grim and increasingly deadly winter.

Friday, August 29, 2014

ILWU tops and grain bosses make deal. But no one's talking.


Back at work
By Richard Mellor
Afscme Local 444, retired

ILWU members working at Northwest Ports have ratified an agreement with multinational grain bosses after an 18-month lockout.  The two sides have been in negotiations for almost two years and 84.4% of the members voted for the agreement. The actual count was1,475 for 193 against.

The ILWU leadership and the grain bosses are keeping the details under wraps which is not a good sign at all for the rank and file and all workers, but it's standard procedure as the labor hierarchy continues to compromise in order to keep the labor/management team together.

“Bargaining was difficult….” the couple of paragraphs announcing the deal on the ILWU’s website tells us, “….but in the end, both sides compromised significantly from their original positions, resulting in a workable collective bargaining agreement that preserves the work of the ILWU-represented workforce and fosters stability for the export grain industry.”

Jay Inslee, Washington State’s Democratic governor is equally pleased telling the Columbian the agreement is, “welcome news for the workers and the three grain facilities” and that it’s also “great news for Washington’s internationally acclaimed grain industry.”

“I am grateful that the lockout’s disruption to the marketplace was kept to a minimum and that for most of those 18 months state grain inspections continued.”, Inslee added.

Inslee is a liberal democrat but this does not change his views in labor disputes-----the market is god. By “disruption to the marketplace” Inslee is actually referring to profits. For workers, our strength lies in being able to not only disrupt the market activity or profit taking, but to halt this activity altogether.  The ideological marriage between the union hierarchy and the bosses is clear as the official statement from the ILWU expresses the leadership's satisfaction that the deal, "fosters stability for the export grain industry.” 

Could we imagine in the time of war, the generals being pleased that their actions had brought "stability" to the opposing armies? They'd be hung as traitors.

The market cannot feed, clothe or house billions of people so the market is not so precious when it comes to human needs and the protection of our environment.

The fact that both sides are silent on the details and are praising the contract shows that workers have yet again taken a step backwards.  While a mere 7% or so of US workers are in unions, organized labor still represents, or should represent, the interests of the working class as a whole. I had a decent job and have a decent retirement thanks to those that fought and sacrificed in the past. We owe what we have to the heroic struggles of US workers, not to the generosity of JP Morgan, Carnegie or the two parties of Wall Street.

From my understanding the dispute was not so much about wages but more about attacks on work rules, safety and the struggle between workers and bosses over control and power in the workplace. Reports in the media confirm this to be the case. The Columbian writes, “The conflict wasn’t about wages and benefits. Instead, it was about workplace rules and hiring policies. It was a battle over which side — grain terminal operators or union dockworkers — would get the upper hand over control of labor issues on the region’s waterfronts.” This is the crux of the matter in all labor disputes.

The US bosses are forced by global capitalism to drive conditions of US workers back 100 years; they have to place the US working class on rations.  The beefing up of domestic police agencies and the violence we saw in Ferguson is all part of this process. The militarization of the police is necessary as the 1% is well aware of the revolutionary history of the US working class and that this plan will not be passively accepted.  The deafening silence from the labor officialdom and absence of any serious commentary at all on the AFL-CIO website on this issue and the events in Ferguson is criminal.

Pat McCormick, a spokesperson for the multinationals involved in the grain struggle is happy a “fair” agreement was reached, one that will provide “…..well-paid employment to our Longshore workers and allowing terminal operators to remain competitive.”  And here is the problem----being competitive.  McCormick’s partner on the union side, Jennifer Sargent, makes her purposefully vague statement saying in an e mail to the Columbian that, “both sides compromised, and the agreement reflects that.”  The compromises will ensure that profits are not hurt and that the rights of the bosses to make them not impeded. It is union power that will be compromised. As long as the diues money keeps coming in, the labor officialdom will be satisfied.

Let’s not forget that the workers involved in this dispute were dealing with four multinational corporations and the power this presents to us.  They were fighting global capitalism as we all are in the present epoch..  The entire weight of organized labor and working class communities should have been brought to bear on these bosses long ago and strengthening links internationally has to be part of this offensive.  They’re internationalists, so should we be. They weren’t talking about baseball at Jacksone Hole last week.

The ILWU is also in contract negotiations here in the Bay Area.  It is pointless belonging to national organizations if these organizations don’t build a national offensive, and most workers have drawn that conclusion.  Why pay union dues that in most cases support obscene salaries for paid officials and when dues go up and wages and benefits head south?  Hundreds of millions of union members hard earned dues money finds its way in to Democratic Party coffers; workers are not stupid, we know a bad bet when we see one.

I have written many times on what I believe is the cause of the betrayals on the part of the trade union leadership and why we are facing a capitalist offensive aimed at taking back all the gains we have won over more than a century. We are not taught to think in terms of systems.  We live is a capitalist system, a capitalist mode of production based on private ownership of the productive forces. Production is set in to motion not on the basis of human need but on the basis of profit.  Capitalists produce for profit not social need and they compete with each other for market share, the ideal situation being one in which they are the sole producer. The social system drives them to attack workers and to wage wars against their competitors with workers as cannon fodder all under the guise of national unity.

In their rapacious quest for profits, they seek the cheapest workers (labor power) that can work under conditions that favor their activity.  US manufacturing has lost a lot of ground as this process has meant US bosses shifting production overseas; we are too expensive, although over the last 30 years or more the US as far as manufacturing is concerned has become a low waged haven.

Workers built unions to protect us from the market and profit-taking not to facilitate it. The leaders of our organizations, unions here in the US, or political parties that arise from a workers’ movement, accept that rules of this game.  We will all fall prey to the same pitfalls, will betray our ideals and our class if we accept that the market, competition, private ownership of the dominant sectors of economic life, and the capitalist mode of production is the only form social organization.

How can workers fight global corporations without global working class unity and global working class organizations both economic and political?

The ILWU leadership has compromised away workers power we can be sure of that.  It’s inevitable if the idea is that workers in each country and from each country have to compete with each other. The Wall Street Journal reported that the demand for commercial trucks increased 36% in the first half of 2014 but much of this demand has been provided by US manufacturers in Mexico which produced almost 300,000 trucks last year, 68% higher than four years ago. We only have to take note of the words from the horse’s mouth as Jack Allen, the COO of Navistar tells the WSJ that the move to Mexico was not simply cheaper workers, but “..great cooperation from the union there, as well as the government.”

The ILWU leadership and the entire leadership of organized labor follow the same practices, cooperation with the bosses.

There will be an explosion in this country much like the 1930’s.  The fact that the presence of left, socialist, communist and other radical movements with deep roots among the working class is pretty much  non-existent today will mean that in the movements that arise all sorts of compromisers, reformers and opportunists will fill the leadership gap, we see this in Ferguson, we saw it in the immigration May Day walk off in 2006and the Occupy Movement.

But the militant and socialist traditions of the US working class while weakened have not been eradicated and these traditions will re-emerge as the crisis of capitalism intensifies.

Tuesday, August 26, 2014

Getting out of a Jackson Hole

by Michael Roberts

Every August, the great and august among central bankers and strategists of the world economy meet as guests of the Kansas City Federal Reserve for an economic symposium at Jackson Hole, Wyoming, a ski resort under the Teton mountains. After the planes, helicopters and limos have transported them all to the luxurious lodge, the participants make and hear presentations and speeches on the economic issues of the day.

This year, the theme was ‘labour market dynamics’, in other words, the strategists of capital (mainly US capital) were considering whether labour markets in the major economies were sufficiently ‘flexible’ to reduce the high levels of unemployment engendered by the Great Recession and to look for the causes and solutions to the very slow recovery of employment. (http://www.kc.frb.org/publications/research/escp/escp-2014.cfm).

In one paper, mainstream economists, Steven Davis and John Haltiwanger, of the University of Chicago and University of Maryland, reckoned that “the US economy became less dynamic and responsive in recent decades.” And the reason was too much government regulation. They calculated that the fraction of workers required to hold a government-issued licence to do their jobs rose from less than 5% in the 1950s to 29% in 2008. Adding workers who require government certification, or who are in the process of becoming licensed or certified, brings the share of workers in jobs that require a government-issued licence or certification to 38% as of 2008, they say. So the slow recovery from high unemployment is the fault of government regulation and not the market economy.

In contrast, Giuseppe Bertola, economics professor at EDHEC Business School, reckoned that it was more government action, not less, that was needed to get unemployment down. Bertola argued that some job protection and unemployment assistance may offer a positive ‘trade-off’ not only for the individuals receiving them but also for the economy as a whole. What was needed was not more ‘flexibility’, but more ‘rigidity’! “Rigidities can be beneficial in imperfect economies, where the flexibility that employers like is the other face of the precariousness that workers fear,” he wrote. Bertola cited the German model of work-sharing through reduced hours, made possible by strong cooperation between labour unions and large corporations, as having allowed unemployment to remain lower in Germany than in the United States during the crisis–and to come down consistently since.

Bertola’s line is not welcomed by the mainstream in analysing the causes of high unemployment. Indeed, in another paper for Jackson Hole, Jae Song, an economist at the Social Security Administration and Till von Wachter, a professor at the University of California, Los Angeles argue that the problem of long-term unemployment does not really exist. “In contrast to the behavior of long-term unemployment, long-term non-employment behaved similar in the Great Recession” to previous recessions, they say. So the level of permanent unemployment is no worse than before and there is no need to wait to tighten monetary policy. The economy is not permanently damaged and indeed is ready to go.

To sum up, the mainstream economists at Jackson Hole generally found that the US unemployment situation was not too bad and any unemployment left was due to too much government regulation and lack of flexibility. So there would be no problem if the Federal Reserve ended its quantitative easing measures and started hiking interest rates. The US economy would cope and ‘return to normal’ without any serious repercussions.

Janet Yellen is not so sure. Both Janet Yellen, the first woman head of the Federal Reserve and Mario Draghi, the first Italian head of the European Central bank, made speeches on the state of the economy, the pace of ‘recovery’ (or otherwise) and what they as central bankers would do about it with monetary measures. The US Federal Reserve board members are split on whether the US labour market has recovered sufficiently for the Fed to start raising interest rates and ‘return to normal’. For the hawks (still in a minority), the rapid decline in the unemployment rate shows that ‘slack’ in the economy is disappearing so the Fed should ‘tighten’ monetary policy soon. For the doves (led by Yellen), the low rate of wage growth suggests there’s plenty of slack and tightening should wait.

In her Jackson Hole speech, however, Yellen seemed to less sure about the slow pace of ‘recovery’ (http://www.federalreserve.gov/newsevents/speech/yellen20140822a.pdf). She dithered. As one commentator noted, she used “1 coulds, 20 buts, 11 woulds, 7 mights and a magnificent 56 ifs.” The doves argue that the huge drop in the labour participation rate, which measures how many of those of working age actually have a job, showed that there many people who wanted a job, but had just given up looking and so were not counted among the unemployed but should be. And many of those working are in part-time or temporary jobs (see my posts on this, http://thenextrecession.wordpress.com/2014/01/13/americas-lost-generation-and-pikettys-rise-in-capitals-share/). In other words, the labour market was still slack.
Labour participation
But Yellen presented a new argument for the hawks. She cited a paper by the San Francisco Fed that argued during the Great Recession wages were not cut by most firms, but now that recovery is under way, employers are holding back on pay rises. This was a form of “pent-up wage deflation.” At some point, as the labour market ‘tightens’, this will end and wages would then rise quite rapidly. So maybe the Fed should pre-empt the impact on inflation by raising interest rates sooner than originally planned.

But this assumes that rising wages from the end of ‘pent-up wage deflation’ would cause higher inflation. It depends on how the value of the national product is shared between the owners of capital in profit and labour in wages. Way back in 1865, Marx dealt with this issue in a debate inside the International Workingmen’s Association eventually published in a pamphlet entitled, Value, Price and Profit. Marx argued that wages can rise without any effect on prices if profits fall. Indeed, that would be the usual result. (http://www.marxists.org/archive/marx/works/1865/value-price-profit/ch01.htm#c0)

In mainstream economic terms, we can pose it this way. There has been a huge divergence between productivity growth and wage growth since the 1980s in the US and elsewhere. Profit shares as part of value added have rocketed to record highs. Indeed, it is estimated that wages in real terms could rise 10% to restore the gap with current productivity growth, a measure of the non-inflationary leg room from a rise in wages now.
Productivity and wages

Of course, such a wage rise would hit profits and that is the real problem for capitalism, not inflation. If companies cannot raise prices to compensate because of weak demand for their goods and services and strong competition nationally and internationally (prices are rising just 1% a year in international traded goods), then profit share will fall and the mass of profits will also probably fall, triggering a new slump in investment. After all, despite the massive rise in profit share, US corporate profits are now starting to drop. A 10% wage rise would be a last straw.
corporate profits
In the Great Depression of the 1930s, wages recovered sharply but inflation of prices did not. What the rise in wages did do was contribute to a fall in profitability (as Marx posed in Value, Price and Profit), engendering a new slump in 1937. And the Fed helped to tip the economy into a slump by hiking interest rates to stem ‘inflation’. See my post http://thenextrecession.wordpress.com/2014/08/01/the-risk-of-another-1937/.
Wages and inflation in 1930s
Even the Federal Reserve finds little connection between wage rises and inflation (see a new paper by some Chicago Fed economists (http://www.clevelandfed.org/research/commentary/2014/2014-14.cfm): “We do find that wages are sensitive to economic activity and the level of slack in the economy, but our forecasting results suggest that the ability of wages to help predict future inflation is limited. Thus, wages appear to be useful in assessing the current state of labor markets, but not necessarily sufficient for thinking about where the economy and inflation are going.”

Yellen is not sure what would happen. If the Fed were to tighten too soon, it could abort the recovery and send the economy back into a new slump. On the other hand, if inflation starts rising then interest rates will have to be hiked even if the price is a new recession. But Yellen does not know which.
The problem for the ECB appears to be different. The Eurozone economy shows no sign of ‘recovery’ whatsoever and the risk is more that it will slip into an outright deflationary depression, something that the southern Eurozone states of Greece, Portugal, Italy and Spain are already experiencing. The average inflation rate for the whole area is already near zero and the Eurozone is beginning to look like Japan in its stagnation of the 1990s that Abenomics is trying to end (see my post, http://thenextrecession.wordpress.com/2014/07/30/abenomics-raises-profitability-and-misery/).
In his speech, Mario Draghi talked about taking action to provide more credit for the banks and companies and keep interest rates near zero for much longer – the opposite of Yellen’s musings (http://www.ecb.europa.eu/press/key/date/2014/html/sp140822.en.html).

He hinted at new measures similar to that of the Fed, namely quantitative easing, i.e. buying up government bonds through the printing of more euros. “The risks of doing too little outweigh the risks of doing too much,” he said.

So the prospect for 2015 (the seventh year since the Great Recession began) is of the Fed tightening credit and raising interest rates and of the ECB doing the opposite. The risks are aborting the relative US economic recovery and/or the collapse of the Eurozone into outright depression (see my post, http://thenextrecession.wordpress.com/2014/08/14/the-myth-of-the-return-to-normal/).

Monday, August 25, 2014

Hamas is not the only government that executes informants. Don't they all?


By Richard Mellor
Afscme Local 444, retired

I am not a supporter of Hamas but the bias in the US media’s coverage of the conflict in Gaza is incredible.  I should remind the reader though that Hamas came to govern Gaza through an election that was considered to be very democratic by many world figures including former US president, Jimmy Carter and not all nations consider Hamas terrorists. Bolivia's Morales for instance has just declared Israel a terrorist state.

I get the Wall Street Journal every morning and it is rare that you see any pictures or any front/center page feature that would include Hamas or show the devastation caused by the Israeli’s superior weaponry.  But this weekend the WSJ has a front page picture of Hamas military figures, heads covered to protect their identity from being targeted by Israeli fire or future assassination and they are standing over hooded figures on their knees about to be executed for being informers.

The caption beneath the image points out that these Hamas “militants”, they are never given a title that indicates they are military personal because the US and its allies apply the “terrorist” label to the Gaza government.  The caption explains that Hamas executed 18 suspected informants Friday in public, in “crowded streets” the captions reads.  I assume these are the same “crowded streets” that the Israeli’s fire their guided missiles into and drive their tanks through.

It’s a horrible thing to have to think about over morning coffee but there is a war going on. albeit it a very one sided war, just do a body count---the US and Israel against occupants of a camp.  But which military is it that doesn’t execute what they would call ”traitors” in wartime?  All militaries do it.  But we are not supposed to think of Hamas as having an army as they are simply a bunch of terrorists.  Americans would have no idea of the extent to  which Hamas has provided social services and other important functions in the Zionists' largest outdoor prison or that they were elected in part as a rejection of the Palestinian Authority known to be a corrupt organization far too willing to make deals with the US and Zionism.

It reminds me of the coverage given to the necklacing of snitches by the freedom fighters under the South African Apartheid regime.  This involved putting a tire soaked in gasoline around the collaborators neck and then setting fire to it.  There is violence from all sides during this type of conflict but there are generally differences between the sides. One the oppressor and aggressor, the other the victim of this aggression in all its forms.

So we can’t look at violence without looking at who is committing it and why; all are not equal. All military's execute traitors in time of conflict.

In the movie, The Wind That Shakes the Barley, about the Irish civil war, those resisting British occupation were forced to execute a young guy that worked for a British landlord and was an informer. It was someone they all knew and some they had grown up with, but the consequences of informants actions in times like these are dire. I can’t imagine doing it but I have never been in the position to have to consider it.

I just watched the movie Omar. It is about life in the Occupied Territories, not Gaza, but it gives a real look into how informants are cultivated; what the Zionist regime does to find informants. They arrest hundreds upon hundreds of Palestinian men and young boys in the Occupied Territories. They have loved ones and girlfriends and it is through the occupiers’ ability to harm your children and those you love that they can turn you in to an informant. I strongly recommend this film.

So we should not be fooled by the Wall Street Journal and the US mass media trying to portray Hamas as any more brutal than any other military organization and government in times of conflict and Gazans and all Palestinians are the victims we need to remember.

Another little nugget of information in this weekend’s Journal informs us that the US is considering air strikes in Syria against ISIS, the most recent organization that Americans have to fear. Communists have gone, Somali warlords are nowhere to be found, the nebulous al Qaeda has lost favor, the Iranian Mullahs are on the back burner as they are on the same side as the US re, the Sunni religious fanatics, the Taliban, whose officials were all on the payroll of the US government until 1999 and the murderous African Bees that were about to invade us have all been relieved of their duty and so ISIS is now the greatest threat to the American way of life.

Ben Rhodes, who is Barack Obama’s deputy national security adviser explains why we need to spend a few hundred billion dollars rooting out ISIS in Syria:  “If we see plotting against Americans, we see a threat to the US emanating from anywhere, we stand ready to take action against that threat.”  And this will be done even if national sovereignty is breached. US imperialism has no respect for borders and national sovereignty.  I am just grateful our government eliminated the threat from Grenada some years ago and Panama, and the Congo and Chile and Somalia and Afghanistan and……..

So a journalist has been beheaded, an unpleasant thing for sure.  And religious fanatics are gaining ground in Iraq and have done so in Syria.  Of course, the Baath Party to which Assad and Hussein belonged, was a primarily a secular party.  When I was in Iraq in 1971, the Iraqi's were kind to me. I saw women without facemasks and women were even in government. Hussein, with the CIA’s help, maintained power through violence, much less violence I might add than the US invasion has brought to the nation, and he rid the country of communists, leftists, those fighting for democratic rights etc. with help from the Pentagon. Some time later. the imbecile Bush calls for the Islamists to “bring ‘em on” and bring em on they did.  Tough talk from a draft dodger.

So ISIS in Syria is a threat to America as is the beheading of a journalist.  We know this is the case because Obama’s spokesperson says so.  With the beheading in mind Rhodes adds that, “We’ve made very clear time and time again that if you come after Americans were going to come wherever you are, and that’s what’s going to guide our planning in the days to come.”  Any Muslim kills an American, we’ll bomb the place no matter what your national origin or whose country you might be in at the time.

This is not quite true of course as the number of people on the planes that downed the World Trade Center buildings were Saudi’s. I don’t think there was one Iraqi among them. No matter, a half million Iraqi’s must die, their country bombed in to the stone-age and, most importantly, their oil industry privatized.  The Saudis, the regime that has religious police, beheads people, flogs women in public for going outside unaccompanied?  Good guys those Saudi’s.

But wait a damn minute here.  Isn’t the shooting of unarmed black men and youth almost on a daily basis a “threat to America”? It's certainly a serious threat to the millions of young black American men. Isn’t 2.4 million incarcerated in prisons a threat to America?  And what about the thousands that die each year simply through lack of access to health care? Isn’t that a threat to the social fabric of our society?   The murder of youth by the police, the slums, the crumbling infrastructure. Is this not a threat to America?

Chase Madar commented on the militarization of the police in his article on Tom Dispatch last December, “…..campus cops at Ohio State University now possess an MRAP; that is, a $500,000, 18-ton, mine-resistant, ambush-protected armored vehicle of a sort used in the Afghan War and, as Hunter Stuart of the Huffington Post reported, built to withstand ‘ballistic arms fire, mine fields, IEDs, and nuclear, biological, and chemical environments.’”   Madar, The Criminalization of Everyday Life 12-8-13

Just what we need, more armored vehicles in our neighborhoods.

Obama portrayed himself as the anti-war president.  After all, these predatory wars are not popular with the American people. The brunt of these wars in terms of personal loss is born by a small section of US society.  But now the Wall Street Journal tells us, “Support for expanding US military strikes against the militants in Syria is growing outside the administration.”  Apparently Zalmay Khalilzad former US ambassador to Iraq and Afghanistan (plum jobs eh.) under Bush, Retired Marine Corps general John Allen and Ryan Crocker (wonder if he’s related to the banking family) US ambassador to Iraq and Afghanistan under Obama are all “urging attacks”.

So “outside the administration” doesn’t mean American workers and the middle class that have been under assault for some time. This rather populous group of Americans has not been so supportive of these corporate wars the US government wages. The threat from ISIS is not that they will harm us on our way to work, it is that if these religious fanatics come to power in one or more of the Middle East countries or even re-shapes the geographical map as the British and League of Nations did, western capitalism will lose its lucrative position with regards to oil as well as important political allies.  Losing a journalist is of little consequence to the likes of Dick Cheney or the US ruling class.  Safeguarding profits, access to raw materials and political power is what matters and the struggle for global dominance in this realm will only intensify especially with regards to Russia and China.

The US ruling class, while the fanatics in ISIS are a bit over the top, has no problem dealing with such extremists.  The Saudi’s are notorious killers.  The ruling class of Bahrain, a feudal absolute monarchy really just staved off a movement for more democracy and an end to religious discrimination in the presence of 30,000 US troops.  I don’t have to remind readers of all the murderous killers Washington has financed and armed. The Zionist assault on Gaza and the theft and destruction of Palestinian land, homes and farms is made possible through US taxpayer support.

It’s up to us though.  The 1% is arming the police for an intensified war at home as they drive our living standards further downward. The struggle of US imperialism to preserve its global dominance will have to be paid for by US workers and the middle class, the poor cannot sink much further in to poverty so prison is always waiting for them.  We can bet that all urban centers have these huge, beefed up armories around them.  If the cops in some tiny town in New Hampshire have military style equipment we know the NYPD does.

These comments in the WSJ show very clearly what spokespersons like Obama mean when they talk of a shift in position from forces “outside of the administration”. They mean sections of their class, of the 1%. If it was down to the vast majority of Americans, we’d support a decent transportation system, an education system free to all that works, health care, jobs and housing as opposed to another military venture. We'd support real peace between workers of different nations, but only capitalists of different nations negotiate with each other, workers have no state and no independent global organizations; we have no voice.

US foreign policy is a disaster and a threat to world peace. US capitalism’s claim that ISIS is a threat to the American way of life is phony. The 1% are concerned these religious fanatics will threaten corporate profits and their plunder of the region.  If ISIS, like the Saudi ruling class is willing to share the loot, Washington will find a way to make friends.

Sunday, August 24, 2014

California: Water water everywhere, not a drop to drink.


Source: Bloomberg BusinessWeek
 by Richard Mellor
Afscme Local 444, retired

“It’s clearly a sellers market” is a phrase we are all familiar with.  But what does that mean?  It’s not hard to figure out.  It means that the demand for a product or commodity is greater than the supply. The owners of the commodity in short supply have the upper hand as competition in the buyers’ camp will be rampant and they will fight among each other for who can purchase the most.  The sellers will be at peace, competition between them very limited or nonexistent as they are careful to maintain unity and keep prices high although each seller would really like to drive their competitor from the marketplace entirely and be the “last man standing”. 

As Marx pointed out so very long ago; “In the same proportion in which this competition (between sellers) decreases, the competition among the buyers increases. It is well known that the opposite case, with the opposite result, happens more frequently. Great excess of supply over demand; desperate competition among the sellers, and a lack of buyers; forced sales of commodities at ridiculously low prices.” *

There are many different causes that would change the relationship between supply and demand. A157 years after Marx wrote on this subject, capitalism has traversed the globe, natural resources have been depleted through overconsumption or pollution etc. and this can be one cause of scarcity. Capitalists throughout the system’s history have tried to corner the market or have horded commodities or taken other measures to ensure the seller has the upper hand. During the 1990’s tech boom as profits reached a 40-year high the labor market was tight.  The price of labor power rose and many traditionally low waged employers were forced to pay above the minimum wage to attract and keep employees. Strikes, work stoppages, wars between nations as capitalists compete for global market share can interfere with production and change this relationship.

Here in California we are going through a severe drought. According to reports, 58% of the state is experiencing severe drought conditions.  If we don’t get a decent winter’s rain this year it is going to reach real crisis levels.

There are I’m sure many factors behind California’s drought, global climate conditions being one of them. California’s Central Valley is one of the most productive agricultural areas in the world although it is not naturally so. Water is gold, we have heard many times about the precious stuff that is diverted to maintain the agricultural industry and for urban centers. And let’s be honest6, there should not be a Las Vegas in the middle of a desert.  Las Vegas must consume more energy and water than entire countries.
The water wars never end here. In a democratic socialist society, where our use of natural resources, and production itself would be a rationally planned activity decided upon collectively, it would be entirely different, but where the market rules, chaos ensues.

There are numerous water rights holders in California, the most powerful of them huge landowners, agricultural concerns and other wealthy people that have made money in all sorts of parasitic ways and have chosen to invest it in agriculture or the production of food. There’s billionaires Stewart and Lynda Resnick for example,.  I wrote back in 2010, “These two ‘are the biggest pomegranate, almond, and pistachio growers in the US’ according to Business Week.** They also own their own processing plant so they also buy produce from other growers. The Paramount processing plant ‘cleans, roasts and packages 60% of the domestic pistachio crop, or about 30% of the pistachios in the world’ . It’s staggering when you think about it that a couple of billionaires control 30% of a global food source.”

Resnick’s farm at 188 square miles is one of California’s largest and he stores water on it. The severe drought has pitted the holders of what are referred to as “Senior Water Rights” against those farmers who have none and are forced to purchase water. Many of the senior holders rights date from the Gold Rush era Business Week magazine says, heirs of miners and ranchers like TV’s Cartwright’s who staked claims that still determine who gets California water and who doesn’t. The land that belonged to no one, was common land, became private property.

Obama’s friend and political ally Rahm Emanuel is famous for his statement that a good crisis shouldn’t be wasted and that market thinking applies to the effects of droughts as well. The drought has driven the price of California’s water up 800%, from around $250 an acre foot to as high as $2200. “It’s an outrage” says one farmer but it’s a boon for the big guys.  It’s a sellers market.

Business Week points out that prior to 1914, landowners, corporations like P G and E as well as municipalities gained water rights based on a first come first served basis titled, “First in time first in right.”  When California’s first statewide water commission was formed in 1914, these rights were made permanent. Along with folks like Resnick, the Hearst Corporation owns water rights.

California’s central Valley is one of the world’s most productive agricultural regions not simply due to advanced farming techniques, the use of pesticides, fertilizers etc. but because water has been brought in to it. The state’s agricultural industry is a $44.7 billion business, and that’s probably not including one of its largest crops, Marijuana.

So water scarcity is filling the coffers of California’s elite as the California Department of Water Resources that manages the water in our rivers is delivering only “5% of the 4 million acre feet requested this year by public water agencies.”  Meanwhile, the holders of senior water rights will get 65% to 75% of the water they are asking for.

Resnick himself describes exactly what the land means to him. When he flies over his land enjoying the view, he reminisces, “I first bought some land in the late 1970’s as a hedge against inflation,” he says, It could have been a suburban office park for all he cared. It is the private ownership of these resources and of the production of social main needs that causes poverty and the mass starvation and misery we see throughout the world. No society that claims the mantle of civilization, meaning in some way advanced, can do so when this situation dominates. We are not talking about the local barber shop, plumber or grocery store here.

Working class people need to think about the madness of this, that a natural resource like water, its use and distribution, is in private hands, is controlled by a few billionaires and subject to the whims of the market.  Even when the rights to such a human necessity is owned by a "public" utility, we must remember that the these public entities in a capitalist system are governed and regulated by politicians and legislators that represent the 1% and the maintenance of the capitalist mode of production.

In times of natural scarcity, the use of a natural resource has to be regulated and its distribution carefully planned; that should not be a for-profit decision.

There should be no “sellers market” for water

 * Wage Labor and Capital. Commodities and Prices       

Friday, August 22, 2014

Capitalism: stagnation or hypochondria?

by Michael Roberts

Are the major capitalist economies now stuck in a state of long-term stagnation? The idea that capitalism has been in a ‘secular stagnation’ since the end of the Great Recession was first raised by Larry Summers, the former Treasury secretary under President Clinton, ex Goldman Sachs economist, then Harvard University scholar and general all-round super star mainstream economics expert. And Summers’ idea has been enthusiastically adopted by Paul Krugman, doyen of Keynesian economics.

The term ‘secular stagnation’ was first coined by the Keynesian economist, Alvin Hansen, in 1938, when he predicted that after the war, modern economies would stagnate because of a crisis of underinvestment and deficient aggregate demand. Investment opportunities had significantly diminished in the face of the closing of the frontier for new waves of immigration and declining population growth. So, according to Hansen, the US was faced with a lower natural rate of growth to which the rate of growth of the capital stock would adjust through a permanently lower rate of investment.

This turned out to be wrong, as in the post-war period, the major capitalist economies experienced a ‘golden age’ of relatively fast real GDP growth, rising employment and incomes as the teeming population of emerging economies were sucked into the capitalist mode of production, the unemployed of Europe were put to work and American capital was used to finance investment globally. And all this was possible because of the record level of profitability for capital in the US during the war.

I criticised this idea of secular stagnation in a post last year (http://thenextrecession.wordpress.com/2013/11/30/secular-stagnation-or-permanent-bubbles/.) Hansen was wrong and his idea of secular stagnation has recently been described by leading neoliberal Chicago economist Steve Williamson as “the delusions of a hypochondriac rather than the insightful diagnosis of a celebrated economist.” Nevertheless, the idea has been revived by Summers and now various strands of argument around this theme have been published in an e-book called, Secular stagnation: facts, causes and cures (http://www.voxeu.org/article/secular-stagnation-facts-causes-and-cures-new-vox-ebook) with all the leading proponents of the idea contributing.

The reason that Hansen’s idea of ‘secular stagnation’ and its revival by Summers has gained new traction is because it is obvious to all observers that, since the end of the Great Recession, the world capitalist economy is struggling at below trend growth and employment and, above all, with very low investment levels, keeping ‘effective demand’ inadequate just as Hansen predicted would happen in the post-war period.

So maybe Hansen’s idea is right now? As the editors of the e-book put it: “Six years after the Global Crisis exploded and the recovery is still not going well. Pre-Crisis GDP levels have been surpassed, but few advanced economies have returned to pre-Crisis growth rates despite years of near-zero interest rates. Worryingly, the recent growth is fragranced with hints of new financial bubbles.”

There are two basic arguments for secular stagnation in the e-book. There is the argument that what drives economic growth are the factor inputs for production i.e. more and higher quality labour, more and better technology and that unfathomable extra factor of innovation and human ingenuity. Back in the 1960s, Robert Solow developed a factor model of economic growth that concluded that the main driver of growth was this last factor, called total factor productivity (TFP), which was measured as the residue in the contribution to growth after taking into account the impact of capital and labour inputs. Solow reckoned that 80% of growth was accounted for by ‘human ingenuity’ or TFP. A modern study by Hsieh and Klenow found that we can account for 10-30% in income differences across countries by differences in human capital, about 20% by differences in physical capital, and 50-70% by differences in TFP.

Now, according to Robert Gordon (in the e-book), TFP growth has been in long term decline since the 1970s in the major capitalist economies – they are just getting more unproductive and unable to take the productive forces forward at the same pace in the past. “US real GDP has grown at a turtle-like pace of only 2.1% per year in the last four years, despite a rapid decline in the unemployment rate from 10% to 6%.”

I have discussed Gordon’s thesis before (http://thenextrecession.wordpress.com/2014/03/06/is-capitalism-past-its-use-by-date/and http://thenextrecession.wordpress.com/2012/09/12/crisis-or-breakdown/) and it remains a worrying one for the future of the capitalist mode of production. Gordon is at pains to say that he is not expecting future TFP growth to drop away post the Great Recession, but simply return to the slow rate of TFP growth experienced after the end of golden age between 1950-70. That’s enough to keep economic growth low, along with other factors. “US economic growth will continue to be slow for the next 25 to 40 years – not because of a slowdown in technological growth, but rather because of four ‘headwinds’: demographics, education, inequality, and government debt.” The population is stagnant, life expectancy is increasing rapidly. The mass education revolution is complete, no further increase in the average US education level is to be expected. The rising share of the top 10% of the income distribution has deprived the middle class of income growth since 1980 and the gloomy outlook for public debt makes current public services unsustainable.

Gordon’s pessimism about capitalism is attacked in the e-book by Joel Mokyr who reckons that Gordon underestimates human ingenuity and the impact of technology. After all, modern capitalism since the ‘industrial revolution’ has dramatically expanded the productivity of labour, as Marx recognised as early as 1848 in the Communist Manifesto. Indeed, capitalism is growth driven by technological progress. Right now, says Mokyr, there is much important scientific advance happening right under our noses and much of the effects of current and future innovations on economic welfare may not be measured well. For example, information has become much more accessible in myriad ways that make us better off, but not all of that is captured in GDP. The contribution of IT to our wellbeing is not evident from the productivity statistics because the way “we measure GDP and productivity growth is well designed for the wheat-and-steel economy. It works when pure quantities matter; it does not for measuring the fruits of the IT revolution.” The key is that the development of high value-added services by Google, Microsoft, Amazon, Facebook and the like require relatively little investment. Summers makes a similar point in noting that WhatsApp has a greater market value than Sony but required next to no capital investment to achieve it.

This is the optimistic view that capitalism will come through with a new burst of innovation that will boost TFP growth as it has done in the past, at least in the post-war golden age. Gordon retorts sarcastically that “techno-optimists” like Mokyr “are whistling in the dark, ignoring the rise and fall of TFP growth over the past 120 years. The techno-optimists ignore the headwinds, seeming ostrich-like in their refusal to face reality. ”  They claim that GDP is fundamentally flawed because it does not include the fact that information is now free due to the growth in internet sources such as Google and Wikipedia. But says, Gordon, TFP growth sagged decades before the popularisation of smart phones and the internet.  And GDP has always been understated. Henry Ford reduced the price of his Model T from $900 in 1910 to $265 in 1923 while improving its quality. Yet autos were not included in the CPI until 1935.  Indeed, the most important omission from real GDP was the conquest of infant mortality, which by one estimate added more unmeasured value to GDP in the 20th century, particularly in its first half, than all measured consumption.

No says, Gordon, “Future generations of Americans who by then will have become accustomed to turtle-like growth may marvel in retrospect that there was so much growth in the 200 years before 2007, especially in the core half century between 1920 and 1970 when the US created the modern age.”  For Gordon, the golden age of American imperialism in the mid-20th century is over and will not return.

This particular debate about long-term economic growth has little to with the original theory behind ‘secular stagnation’ proposed by Hansen and taken up again by Summers and Krugman. The issue for them is a permanent lack of ‘effective demand’, not the failure of capitalism to innovate. Capitalism can grow faster if only investment and consumption rise faster. But capitalism is stuck below its true potential because, despite interest rates being reduced to near zero, the real rate necessary to boost demand is still too high. As Krugman puts it: “Secular stagnation is the proposition that periods like the last five-plus years, when even zero policy interest rates aren’t enough to restore full employment, are going to be much more common in the future…And Summers adds: “We may well need, in the years ahead, to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential.”

So what’s the answer? Increase government spending and print money. This may create credit ‘bubbles’. But “bubbles are an alternative way for society to deal with excess saving when fiscal policy does not take up the challenge. Buying bubbly assets with the intention of selling them at a later date is an alternative route of saving for future consumption. When nobody wants to invest because r is below g, and hence buys bubbly assets, the price of these assets goes up, yielding windfall profits to their sellers who are therefore able to increase their consumption. This additional consumption restores the balance between supply and demand for loanable funds on the capital market”.

So we need to print money, give it to speculators in financial assets and when they make profits from speculation, they will spend. In other words, give the already rich even more money to spend! Summers recognises that this could produce a new contradiction. If we deliberately create bubbles “this might involve substantial financial instability.” But the choice is between the risk of financial instability or having permanently high unemployment. Great!

Summers’ argument came under deflected criticism from the current governor of the Reserve Bank of India and former IMF chief economist, Raghuram Rajan. He criticised the idea of more quantitative easing or ‘unconventional’ monetary boost as endangering the capitalist economy: “We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,” Rajan told the Central Banking Journal. “Investors are counting on “easy money” being available for the foreseeable future and thinking they can sell before everyone else does; They put the trades on even though they know what will happen as everyone attempts to exit positions at the same time,” he said. “There will be major market volatility if that occurs.”

Now Rajan has ‘form’. This week, the annual Jackson Hole economic symposium in the US is taking place with all the world’s leading central bankers and other top economic strategists meeting to discuss how to handle the faults of capitalism. Back at the 2005 symposium, two years before the global financial crash began, Rajan presented a paper warning of the coming crisis. (http://chronicle.com/article/Larry-Summersthe/124790/).

Rajan argued that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people’s money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a “full-blown financial crisis” and a “catastrophic meltdown.” When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a “Luddite,” dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)
It seems that the debate has not moved on between those Keynesians who prefer the risk of another financial crash in trying to avoid high unemployment and those mainstream economists who want ‘financial stability’ over more jobs. That’s Rajan’s position (see my post http://thenextrecession.wordpress.com/2012/05/23/sensible-and-popular-keynesians-the-sophistry-of-raghuram-rajan/).

Neoliberal economist Steve Williamson dismisses the Summers’ thesis and solution as so much hot air. He reckons that, far from getting the government to print money indefinitely to raise inflation (Summers wants a 4% inflation rate target compared to the usual 2%) and so get the real rate interests down to achieve lower unemployment, all that will do is lead to financial ‘moral hazard’ and the same financial bust that the major economies have just come out of. For Williamson, it is would be better to restore interest rates to ‘normal’ levels and let the market economy do its good work. Secular stagnation is just hypochondria: capitalism is fine.

This sums up the essence of the division among mainstream economics about the future of capitalism. Most think that capitalism will eventually ‘return to normal’ (see my post,
http://thenextrecession.wordpress.com/2014/08/14/the-myth-of-the-return-to-normal/)
without ‘unconventional policies’ and new technology will drive things forward. Summer and Krugman reckon that cannot be done without permanent government intervention to drive down real interest rates through more inflation and speculation. Gordon thinks the productive powers of capitalism are exhausted and only permanent government intervention to foster human ingenuity through education and research can help. Not a pretty picture on the whole.

The problem with the thesis of secular stagnation is that it does not address the heart of the issue. It either considers the problem for capitalism to be one of lower productivity growth (supply) or one of the wrong monetary policy and too high interest rates (demand). But the heart of the issue is the capitalist mode of production: production for profit by the private owners of the means of production. Profitability and its potential lies at the heart of whether capitalism will go into new crises or stay stagnating.

At a presentation to the Communist University summer school in London this week (http://www.cpgb.org.uk/home/action/communist-university-2014), I raised the issue of whether capitalism would eventually come out of the current Long Depression and so avoid ‘secular stagnation’. I argued that it could do so if profitability could be restored to levels not seen the late 1990s at the very least (see my paper, A world rate of profit (roberts_michael-a_world_rate_of_profit). That would require major deleveraging of private sector debt (still not completed) and probably another slump or two to liquidate and devalue costly unproductive assets. It’s not so much ‘stagnation’ that capitalism faces, but yet more violent economic upheavals that will destroy capital values and, of course, the lives and livelihoods of millions across the globe.