File spoon-archives/marxism-international.archive/marxism-international_1997/97-01-01.033, message 41


Date: Tue, 31 Dec 1996 10:33:37 -0500
From: dhenwood-AT-panix.com (Doug Henwood)
Subject: Re: M-I: Rate of Profit


At 5:37 AM 12/31/96, Patrick Bond wrote:

>No, it's not just the ag demand stimulation from credit, but the short-term
>distributional impact of opening up higher consumption standards to
>those in the working-class who can get access to credit. (This is
>important, especially since so many workers get suckered so badly.
>We're having lots of problems in South Africa, and indeed the region,
>with Ponzi schemes and various other financial games. This follows a
>period from 1986 to 1990 when 200,000 mortgages were granted to black
>township residents, once it became legal to live in urban areas and
>own property; the nominal interest rate was 12.5% (-6% real) when the
>loans were made but within an 18-month period soared to 20.75% (it's
>now +10%) real; last count was that 40,000 of those mortgages went
>into default or deep arrears; this is the stuff of heavy populist
>politics, like El Barzon in Mexico with their million debtors; so
>it's quite a distinctive arena in which to try to make some socialist
>arguments.)

Well, here's what I have to say in the long-awaited *Wall Street*:

<quote>
   Why do people borrow? Robert Pollin (1990) concluded from a study of the
SCF that the bottom 40% of the income distribution borrowed to compensate
for stagnant or falling incomes (what Pollin called "necessitous" or
"compensatory" borrowing), while the upper 20% borrowed mainly to invest
(or speculate, if you prefer). Pollin's findings find an echo in British
experience: a survey of that country's households concluded that "[C]redit
fulfils two different roles in household budget. Poorer families, on the
whole, use credit to ease financial difficulties; those who are better-off
take on credit commitments to finance a consumer life-style. Both would use
it to improve their lot: one to reduce their poverty; the other to increase
their prosperity" (Berthoud and Kempson 1992, p. 64).
   Economically, then, consumer credit can be thought of as a way to
sustain mass conumption in the face of stagnant or falling wages. But
there's an additional social and political bonus, from the point of view of
the creditor class: it reduces pressure for higher wages by allowing people
to buy goods they couldn't otherwise afford. It helps to nourish both the
appearance and reality of a middle class standard of living in a time of
polarization. And debt can be a great conservatizing force; with a large
monthly mortgage and/or MasterCard bill, strikes and other forms of
troublemaking look less appealing than they would otherwise.
<endquote>

Problem with making a socialist argument to the indebted is that it's often
the last thing they want to here. Many El Barzonistas and their like
elsewhere are slaves to that defunct political economist Proudhon (the
orthodox will flay me for this allusion to Keynes): their ambition is to
borrow their way into the middle class or bourgeoisie, and don't want to
hear about deeper meanings. Alas.

>Well how about S&L and institutional investor funding of LBOs, Doug?

That's not the financing of production, that's the financing of the
rearrangement of ownership as well as a recapitalization that increases the
rentier share of the corporate surplus. Most LBOs resulted in a reduction
in investment and R&D.

>That's what we've been asking you, comrade! And it sounds like you
>got a bit gun-shy in '87. Personally, I find it amusing to continue
>predicting a dozen of the last two financial meltdowns. Bubbles
>bursting is easy -- and maybe you've got something about the new
>character of TW debt (your bondholder story reminds me of the
>problems in collecting collateral experienced during the 1930s).
>
>But could it all unravel? And as I asked before, what difference would
>such a scenario make to political strategy?

Lots of lefties have been wishing for that unraveling, hoping that collapse
will make the anti-capitalist argument for us, and more persuasively than
we ever could. The hope seems to be that not only will the system fall of
its own internal contradictions, it will fall into our waiting arms. I
think we have to make strategy, insofar as we matter at all, on the
assumption that things will go on pretty much as they are, i.e. troubled,
but not terminally so.

>> I think the central bankers have
>> done a dazzling job of managing a pure paper money world...
>
>Doug you're a taxpayer right? You've been reamed by your
>neighbourhood bank, as it sought consumer fee income to make up for
>bad assets, eh? You've read Susan George on the boomerang effects --
>even for the Upper West Side -- of Third World debt? You call that a
>dazzling job of management? It's crisis displacement, man.

The U.S. S&L bailout was financed with hardly a peep of political protest.
Ditto, as far as I know, the even bigger bailouts in Scandinavia. If a
crisis can be displaced without serious political consequences, I'd say
that's a dazzling form of managment.

>And the Mexican panic -- which impressed Camdessus and Soros into
>Chicken Little chatter -- was a con? From my desk near Capitol Hill,
>I could smell the sweat from Rubin and Summers testifying to ornery
>Republicans and the occasional populist Dem. Could have lost it
>there, no?

Could have, and big time. Rubin, Greenspan, and Summers all made it clear
that it wasn't only the specific financial structures at risk, not to
mention the Mexican regime, but the whole neoliberal model in the Third
World (once again illustrating the close relations between debt &
politics). But it didn't happen. The bailout went through over Al D'Amato's
whine. Maybe someday a crisis will become too big or politically impossible
to manage, but so far, I'll stick with the adjective "dazzling."

>Comrade, come visit us in Africa and I'll show you average standards of
>living that take us back thirty years, and once-functioning
>industrial activity that has been totally wiped out. The crisis and the
>devaluation is happening; what they have been extremely good at, no
>doubt, is moving it around. SA just had the longest depression of its
>history, Zimbabwe (once an extremely well-articulated
>industrial economy) has seen 40% of manufacturing production wiped
>out since structural adjustment was introduced in '91, etc etc.

I've admittedly been speaking mostly about the First World. I quoted Penny
Ciancanelli's formula approvingly - the First World has gotten a Minsky
bailout, the Third, a Fisher deflation. But again, isn't it remarkable that
so much of the South has gone through absolute economic hell for 15 years
now with so little opposition? The PRI has lost more ground to the
right-wing PAN than the soft-left PRD; Menem got re-elected; Cardoso is
likely to get re-elected; Yeltsin got re-elected (and yes, the election was
corrupt and all, but there is simply no effective opposition to his
agenda); and in Africa, people seem to be taking out their rage on their
neighbors rather than their rulers. The ANC government is behaving
neoliberally - not without protest, for sure, but do you doubt they'll get
their way in the short- to medium-term?

>> Has the bourgeoisie
>> ever been more united and powerful on a global scale than now?
>
>Reverting to my passion for fights between hostile productive v financial K
>brothers, and from the vantagepoint of the semi-periphery, I'd say
>yes, probably during the 1950s they were more united under US
>hegemony.

But there was a USSR then, and the palpable threat of socialism around the
world. Now there is simply no significant obstacle to capital. None. And
the Bretton Woods institutions and the global networks among central
bankers and finance ministers are evolving into an executive committee of
the global bourg. Now this may be like 1912, and it could fall apart in a
couple of years; I'm not saying it's permanent. But this is the situation
on the ground and in the minds of people.

>Or are you now
>content, Doug, to rely upon some balance-of-forces analysis to
>evacuate the underlying contradictions?

There are always contradictions in human affairs. But I haven't evacuated
the present set; the ruling class has done most of the job, and its likely
opponents are in retreat and disarray.

Doug

--

Doug Henwood
Left Business Observer
250 W 85 St
New York NY 10024-3217
USA
+1-212-874-4020 voice
+1-212-874-3137 fax
email: <dhenwood-AT-panix.com>
web: <http://www.panix.com/~dhenwood/LBO_home.html>




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