Tuesday 16 September 2008
by: Jacques Cossart, Jean-Marie Harribey and Dominique Plihon, Le Monde
The authors posit that financial bubbles are inevitable as long as "the promise of perpetual enrichment for the owners of financial holdings [is] ultimately based on the deterioration in wage-earners' condition[s]."
Ever since the subprime real-estate crisis exploded in the United States over a year ago, hurting its principal banks and other investment funds, many have wondered how to contain it. Today, the new failures of Lehman Brothers and Merrill Lynch demonstrate - if that were necessary - that this question is doubly outdated.
In fact, two seawalls have been breached. First, by virtue of the globalization of capital, not only have American financial institutions been affected, but a good share of the entire world's, so great was the circulation of mortgage-backed securities. Then, refuting the prognoses of numerous experts who tried to be reassuring, the banking and financial crisis has broken through the barrier of the real economy, since the American and European economies are at the brink of recession (-0.3 percent for French GDP in the second quarter, -0.5 percent in Germany and -0.2 percent for the Euro zone) and since, on a global level, the slowdown in growth is now certain.
The rarefaction of credit consequent to the destabilization of numerous banks has led central banks, notably the Federal Reserve and the European Central Bank (ECB), to inject hundreds of billions of dollars and Euros as well as to the former reducing its Federal funds rate, but these measures were sufficient neither to save certain financial institutions' bets, nor, most particularly, to avoid the gangrenization of the productive economy.
Two questions should be asked. Why did the crisis become globalized to the point that - according to the most official of voices - we are in the presence of the biggest crisis since the end of the Second World War, i.e., since 1929? And how can we prevent the recurrence of crises, rather than containing a crisis that has already spread its detrimental effects?
The generalized spread of the financial crisis, its repercussions on the speculative practices of funds, which have reoriented their investments towards new safe-haven commodities such as raw material and grains - causing an explosion in grain prices and the destabilization of the productive system - are attributable to neo-liberal capitalism which has imposed its implacable principles and norms on all spheres of society.
The free circulation of capital, securitization techniques, the development of futures markets for derivatives, the deregulation policies governments have conducted in their national territories as well as within community frameworks as in Europe, and the credit facilities granted to the financial system for participating in gigantic restructurings of the global productive apparatus - notably through the leveraged buy out (LBO) technique - have augmented financial tremors. The Mexican (1995), Asian (1997), Russian (1998), dotcom (2000), Argentine (2001) and subprime (2007) crises have followed one another in succession, one bubble chasing the next.
How could it have been otherwise, given that the promise of perpetual enrichment for the owners of financial holdings was ultimately based on the deterioration in wage earners' condition: unemployment, job insecurity, a disconnect between wages and productivity, increases in hours worked, shredding of health insurance and pensions doomed to be entrusted to the market?
The perpetuation of an unfair return on labor is undoubtedly not foreign either to financial frenzy or to neo-liberal capitalism's inability to build a stable trajectory for itself: according to Merrill Lynch, 100,000 people only own financial holdings equivalent to a quarter of global GDP, or close to $15 trillion (10.601 trillion Euros).
Chronic instability is reinforced by the sterilization of traditional instruments of regulation. Central banks feed financial bubbles during periods of overheating and then later run to the rescue of those institutions that took too many risks: Northern Rock in the United Kingdom, Bear Stearns, Fannie Mae and Freddie Mac in the United States. In Europe, the ECB has increased its key interest rate, thus contributing to the Euro's overvaluation with respect to the dollar and to the erratic variations in oil prices, contributing to the risk of inflation it purports to be fighting - and in spite of imminent recession. The World Trade Organization's "negotiations failure" is the culmination of that authority's inability to regulate relations between states on a cooperative basis while its sole criterion is heightened competition. The aggravation of geopolitical tensions (the Middle East, Balkans and Caucasus) and of security policies must be seen as consequences of the fact that t
he world has been handed over to death-dealing principles.
A new Bretton Woods - but not just any - is consequently indispensable. Let us not forget that the main proposition formulated in 1944 was rejected: the global currency and International Currency Union Keynes envisaged never saw the light of day, leaving the field open to the dollar and American hegemony. Taxation of financial transactions and incomes has become an imperative necessity, not only to reestablish control over capital movements, but also to finance global public goods.
Furthermore, a new international monetary and financial architecture would have no chance to improve the situation if, at the same time, "structural reforms" of the labor market were continued. On the contrary, they would result in strengthening the financialization of the French and European economies, since they would mean a resumption of the deterioration in wages' share of value-added, today reduced to a very low level, as the EU and International Monetary Fund (IMF) have only very belatedly acknowledged.
Capitalism is decidedly incorrigible. The closer it comes to its theoretical "purity" as analyzed by Marx (the surplus value for the shareholder and only for the shareholder), the more it increases the risk of societies' falling apart and the further it pushes away any prospect of regulating the planet. We have never been so close to transgressing limits beyond which the leap in the dark could be catastrophic. It's too late to contain the financial crisis. And it's past time to reverse its source: the stranglehold of finance.
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Jacques Cossart, Jean-Marie Harribey and Dominique Plihon are economists and members of Attac's scientific council.
Translation: Truthout French Language Editor Leslie Thatcher.
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