Amid predictions that the economy is heading for recession, are you wondering why you didn’t see signs of prosperity during the supposed expansion of the last four years? If so, you’re not alone. In 2006, the real buying power of wage and salary income reached its lowest point in 80 years. If these are good times, who needs bad?
Recession or boom, the real news is that despite its glitzy surface, the profit system is in permanent decline. It is exactly the things that impact working and poor people the most that prove it. Recurring slumps get ever worse, corporate globalization lowers the standard of living for workers everywhere, perpetual war sends young people and parents to kill and die for big business, society is designed around environmentally unsustainable practices — all these symptoms, and many more, highlight capitalism’s fatal flaws.
Three current crises provide good examples of the profit system’s dead-end, destructive nature. They are the crash of the housing market, the dependence of the economy on military spending, and the new push to replace oil with ethanol. But first up is the threat of a deep recession.
More hard times ahead. Not only are downward cycles built into capitalism, they intensify over time. Every business owner maximizes his profits by introducing more machinery and cutting labor costs. This leads to a rise in productivity, and a fall in wages and benefits. It also leads to what Marxists call a crisis of overproduction.
There are simply more goods than there are people who have money to purchase them. Make no mistake, there are lots of people who need — but can’t afford — to buy. That is not the system’s concern. The proof of this capitalist-induced dilemma is that income inequality is as great now as it was in 1929, when the Great Depression hit.
In 2000, the bottom 90 percent of the U.S. population made 52 percent of total national income, while the top 1 percent hogged 22 percent! Globally, the wealth gap is even more outrageous, with half the world’s people living on less than $2 per day.
This wealth chasm spells trouble for workers and the system. Workers already spend more than they earn, and since the superrich can only consume so much, they invest much of their wealth. The shrinking pocketbooks of working consumers lead to the sluggish sale of goods, and the bust begins.
Unsold merchandise not only cuts into profits, it turns a business owner’s outlay for labor and raw materials, and sometimes even factories, into a loss. Naturally, this means some businesses, usually smaller ones, fail. The successful businesses grow at their expense. But the more big-sized businesses there are, the more they mechanize production, force wages down, and put competitors out of business. This just makes matters more unstable.
With increased automation also comes an overall fall in profits. Quiet as the news is kept, profit only comes from one place — the difference between what workers are paid, which is roughly equal to their cost of living, and the much higher value of the products they make. So, as fewer workers are needed in production, the profit made from each item shrinks as well.
This decline in the rate of profit drives globalization. So-called free trade is really protectionism for the corporations of the imperialist countries, combined with the freedom to open up poorer nations’ markets, resources and labor for maximum exploitation.
Businesses move their operations to countries with the lowest wages, and in the process push global wages down for imperialist and poor nations alike. In the U.S., one out of every six factory jobs has disappeared since 2000, and new jobs generally pay far less. Though this trend is not new, it is greatly accelerated with the advent of free-trade agreements. These pacts help the capitalists for a while, but over the long haul, impoverished workers are unable to purchase goods, and the crisis of overproduction intensifies.
Speculation replaces production. Another response to the recurring problem of overproduction and falling profit rates is an impulse to invest in the stock market, an infinite variety of commodity futures and hedge funds, buying and selling of currencies, real estate, etc.
With finance capital so dominant, most investment goes not into productive areas of the economy, where new goods are created, but into speculation. But all real profit still comes from production. Financial gambling forms bubbles that periodically burst.
The larger the portion of the economy engaged in unproductive speculation, the bigger the bubbles and the bigger the bang when they pop. One example is the current bursting of the housing bubble, a long-term artificial rise in the price of real estate in the U.S.
During the 2001 recession, the Federal Reserve encouraged investment by lowering interest rates. Since loans were easier to get, many low-income workers, especially people of color, jumped at the chance to finally own a home, even if it meant having to borrow money at higher “sub-prime” interest rates. These predatory loans caused a spree of speculative investment in the housing market, and sent prices soaring.
Then the economy expanded and the Fed raised interest rates 17 consecutive times. Loan defaults rose precipitously — including among 14 percent of sub-prime borrowers. Now many lenders have gone bankrupt from bad loans, housing construction is down 25 percent, and the number of unoccupied dwellings is at a record high.
In human terms, this means people are losing their homes, and with them, their life savings. The financiers move on to greener pastures, to create more human tragedies. One place they move is out of the country.
The age of permanent war. Imperialism is the monopoly stage of capitalism, where finance capital prevails. The largest corporations run the governments of the rich countries, which help them make super-profits from weaker countries through economic domination and outright armed theft. Competition between imperialist countries becomes cutthroat.
The U.S. enforces its top position in this hellish world order by keeping the largest military. In 2005, the $507 billion spent by the U.S. on its military represented 48 percent of the world total!
But the money dumped into bombs, tanks, helicopters and other war gadgetry does more than just enforce U.S. dominance. It also keeps the flagging economy afloat. It answers the crisis of overproduction by creating an artificial market for military hardware. The added “bonus” of this war production is that goods are destroyed on a regular basis, keeping demand high.
And the U.S. capitalists gain in more ways. During wartime, now apparently unending, the bombing of foreign factories takes them out of competition. Destroyed factories and infrastructure also offer profitable opportunities for new U.S. investment in rebuilding. And the benefit of winning greater control of resources like oil is self-evident. Finally, and demonically, “surplus” workers on both sides of a conflict are eliminated.
The problem with war from the bosses’ perspective, apart from the dangerous opposition it inspires, is that it is funded through deficit spending. Thus the already overextended government goes even deeper into debt, making the whole house of cards more shaky.
Ethanol and hunger. Imperialism’s answer du jour to the oil crisis (or perhaps just the profit needs of agribusiness) is production of ethanol as a gasoline additive. The plan is not to use plant waste as Cuba does, but to divert corn, a crop that serves as an important source of nutrition for both people and livestock. No consideration is given to the impact this will all have on food prices, which are rising fast in the U.S.
South of the USA, the impact is even more devastating. In January, 75,000 people marched in Mexico City to protest the skyrocketing price of tortillas, whose cost doubled in one year. Corn is a dietary staple for poor Mexicans. It is estimated that workers earning the minimum wage of $4 per day could be forced to spend one-third of their earnings on tortillas.
Cuban President Fidel Castro recently did the math. The global surplus of cereal grains is less than 80 million tons, while the stated desire of the rich countries for ethanol would take up 500 million tons. He asked, “Where are the poor nations of the Third World going to find the minimal resources for survival?”
Prosperity requires revolution. The very inhumanity of such measures as predatory lending, waging ceaseless war for the sake of profit, and diverting food for fuel shows how desperate the owning class has become.
As economic crests become ever shallower and the ebbs longer and deeper, the decaying state of capitalism is exposed. As long as this system prevails there can be no peace or prosperity for the world’s majority, only a descent into barbarism.
The solution to this crisis has to go to the root. It is time to bring on socialism, the next social era. Capitalism has served its historical purpose. It has developed technology to the point where everyone on earth could live in comfort. But for this potential to be realized, society’s productive capacity must be liberated from the constraints of private property.
Then technology could be used for the benefit of all humanity. Production could be geared to use, waste greatly reduced, and the fruits of workers’ labor distributed fairly.
On the job, it’s always evident that workers, who know production intimately, could run the business better than the boss. The same is true for the system as a whole! The economic and political democracy of socialism is the essential tool to start solving humanity’s problems instead of creating them.