The logic of public services chips away at ideology of privatization

One should beware vampire squids bearing gifts. It would also be best to cover your ears when the siren songs of privatization are offered.

Even were Goldman Sachs not the buyer, the Danish government’s decision to sell a portion of the state-owned energy company Dong Energy A/S goes against the pattern of recent years of governments taking back control of utilities after having dropped them into the sweaty palms of investors. Shareholders expect maximum profits from investments, and utilities that provide basics like electricity and water are not excepted.

Pont Neuf in Paris

Pont Neuf in Paris

Many a local government has learned the hard way that even water is a commodity from which to squeeze a profit once privatized, with human need an afterthought. Decades of ideology have attempted to instill the idea that the private sector is always superior to government; that government can only mismanage what is in its hands.

Although attempting to flip this discredited, self-serving phantasmagoria by arguing the complete opposite would not stand up to scrutiny, either, the realm of facts and data firmly contradict the standard corporate ideology. Government after government has found that privatization was a mistake in what has become a wave of “re-municipalization” — the return of public services to public management.

Paris takes back its water

France had been a leader in privatizing water, leading to the rise of two of the world’s biggest water companies, Suez and Veolia. As recently as 2006, the private sector provided drinking water services to four-fifths of the French population. In parallel, starting in early 1990s, the European Union began issuing directives mandating that national governments implement legislation deregulating the electricity market. E.U. bureaucrats sought to separate (“unbundle”) generation, transmission and distribution of energy, supposedly to ensure price competition.

In France, according to a paper published in the March 2012 issue of Water International:

“This model was favoured by several factors, including strong fiscal centralization, the rigid character of public accounting, the creation of private water companies, and the establishment of a legal framework that protected the interests of the concessionaires.” [page 3]

The paper, “The remunicipalization of Parisian water services: new challenges for local authorities and policy implications,” written by Joyce Valdovinos, reports that a series of investigations found that there was no way to verify work that should have been long completed, a lack of transparency of technical and financial data, discrepancies between declared profits and actual profits, and the generation of extra profits by manipulating maintenance costs. When a Left coalition won the 2001 city election, it believed returning water services to public management would lead to better functioning, more transparency, greater public control, and the ability to stabilize prices.

Paris’ contracts with Suez and Veolia expired in 2010; during the preceding 25 years water prices there had doubled, after accounting for inflation, according to a paper prepared by David Hall, a University of Greenwich researcher. Professor Hall reports that the two companies had secret clauses in their contacts allowing automatic price increases. Despite the costs of taking back the water system, the city saved €35 million in the first year and was able to reduce water charges by eight percent.

About 40 other French cities intend to “re-municipalize” their water services. Higher prices and reduced services have been the norm for privatized systems, Professor Hall’s paper says:

“A report by the Cour des comptes in 1996 identified many problems with private water services in France, including lack of competition, corruption, and lack of transparency, but also price increases which it firmly concluded were linked to privatisation of water services. … The association of municipalities publishes each year price comparisons, which in 2009 showed that private water prices were on average 31% higher than in public water services.” [page 19]

Sellers’ remorse in Germany

A strong trend toward public provision of services is also under way in Germany, for many of the same reasons. A paper written by Hellmut Wollmann of Humboldt Universität zu Berlin found a similar dynamic east of the Rhine:

“Since the late 1990s, it has become more and more evident that the (high flying) neoliberal promises that (material or functional) privatization would usher in better quality of services at lower prices has not materialized. On the contrary, private service providers have often made use of the next possible opportunity to raise prices and tariffs while at the same time deteriorating the working conditions of their employees.” [page 15]

In response to that, 44 new local public utilities have been set up and more than 100 concessions for energy distribution networks and service delivery have returned to public hands in Germany since 2007, according to Professor Hall’s paper. Further, German goals of phasing out nuclear energy, increasing the use of renewable energy and cutting overall energy usage is impossible without a strong public role, he wrote:

“There is little economic incentive for the private companies to make these investments, and indeed the growing use of renewable electricity undermines the profitability of existing gas-fired power stations. As a result, municipalities and regions have to play a leading role, not only to meet the targets for renewable energy but also to secure sufficient capacity to protect against the effects of markets and the phasing-out of nuclear energy.” [page 12]

One example is the German city of Bergkamen (population about 50,000), which reversed its privatization of energy, water and other services. As a result of returning those to the public sector, the city now earns €3 million a year from the municipal companies set up to provide services, while reducing costs by as much as 30 percent.

Private versus public in the United States

Municipal-owned utilities aren’t magic wands because they can be subject to the hostility of local business leaders. Cleveland’s city-owned power company, then known as MUNY, became the object of a political tug-of-war in the 1970s in which “market forces” were unleashed to detrimental effect. Successful lobbying by the private energy corporation, CEI, that competed with MUNY caused the city government to neglect maintenance and investment in MUNY, leading to it having to buy power from CEI, which in turn provided inadequate connections that often led to outages.

Davita Silfen Glasberg, in her book The Power of Collective Purse Strings: The Effects of Bank Hegemony on Corporations and the State, argued that Cleveland’s default was the result of “control of the city’s critical capital flows by an organized banking community.” Legal maneuvering by CEI caused a city cash flow shortage because of what MUNY was forced to pay to CEI. In turn, Cleveland’s bond ratings were downgraded, rendering the city unable to sell bonds and intensifying its dependence on bank loans. As a result, Professor Glasberg wrote:

“The banking community, which had significant interests in CEI (including stock ownership, pension fund holdings, CEI deposits, voting rights on CEI stocks, loans, and interlocking directorates) refused to renew or renegotiate the city’s loans unless [Mayor Dennis] Kucinich agreed to sell MUNY to CEI. Such a sale … would have solidified the private utility’s control of the city’s electricity business. … For political reasons the financial community had cut Cleveland off. Indeed, the coffers opened once again when the business and banking communities unseated Kucinich, and [George] Voinovich took office.” [pages 139-140]

As part of the deal, MUNY’s rates rose (dampening competition with CEI), the city laid off hundreds of workers and wages of remaining city employees were cut — working people paid the price for corporate profit. Cleveland did withstand the pressure to sell its public utility. The utility, now known as Cleveland Public Power, provides low-cost electricity that saved the city an estimated $195 million between 1985 and 1995.

Absent such blatant interference, U.S. cities have often found that public utilities outperform privatized ones. In Atlanta, for example, the city signed a contract with Suez, which promised to reduce water and sewer costs. Instead, the web site Water Remunicipalisation Tracker reported, repairs were neglected, 400 jobs were lost and sewer rates increased 12 percent a year. After four years, the contract was canceled and the services returned to the public sector.

Denmark’s embrace of Goldman Sachs

The decision by Denmark’s social democratic government to sell a portion of the state-owned energy company flies in the face of considerable recent history, even without the added question of Goldman Sachs’ predatory behavior. The investment bank, which stands out even among its rapacious peers for its ability to extract money from an extraordinary assortment of human activity, is buying an 18 percent share, yet will be given a veto over strategic decisions, essentially handing it control.

In addition, according to the Financial Times, Goldman Sachs not only has the right to sell its share back to the government if the deal doesn’t go its way, but 60 percent of its share is required to be sold back at a guaranteed profit — the purchase price plus 2.25 percent annual interest. And that’s not all — Goldman is using affiliates in tax havens to own its share, leading to much speculation that it intends, like many companies, to avoid paying taxes.

Danes are heavily opposed to this deal. But rather than consider popular anger, the chief executive officer of Dong Energy is instead worried that “Denmark’s reputation as a destination for offshore investors” may be “damaged.” The move is the latest in a series of austerity measures by Denmark’s social democratic government that have included restricting eligibility for child care benefits and study grants, and increasing the retirement age.

The sale to Goldman has also caused one of the three parties in the coalition government to leave in protest, resulting in a minority government that will require support from other parties in crucial future parliamentary votes. It has also reportedly caused a rise in the polls for the conservative opposition. Replicating a pattern seen across Europe and elsewhere, social democratic governments impose austerity, and in the absence of a vigorous organized Left alternative, voters continue to alternate between the major parties or blocs.

The trend toward public provision of services is an as yet rare example of common-sense resistance to dominant capitalist ideology. Enterprises owned by the public or by a collective workforce don’t need to extract huge profits to pay swollen executive salaries or payoffs to speculators — an example that can be followed in many more businesses. With enough organization, it will.

Spying? Who cares? Profits are at stake!

Actions do speak louder than words, and thus the start of European Union-United States trade talks as previously scheduled would seem to hold more weight than European political leaders’ displays of public anger at the extent of the spying against them.

Resignation to their subordinate status, the extent of their own spying networks and the knowledge that considerable dirty work is necessary to remain a leading capitalist country are among the contradictory factors at work here. So, too, is a willingness by European leaders to rely on the U.S. to perform much of the dirty work, while European big business needs to sell to U.S. consumers. Business is business at the end of the day. Or at the (hoped) end of the scandal.

With the stream of new revelations showing no signs of stopping, the end of the scandal does not appear anywhere in sight. Nor does the spectacle of contradictory behavior by European countries, most dramatically exemplified by France.

Navy communicationsOn the one hand, the French government declared revelations that the U.S. has spied on E.U. offices and computer networks “completely unacceptable” and demanded a delay in the start of the E.U.-U.S. trade talks, intended to form a “Transatlantic Trade and Investment Partnership.” Yet France not only meekly agreed to the trade talks beginning on time but acceded to U.S. arm-twisting that it close its air space to the plane carrying Bolivian President Evo Morales on the mere suspicion that whistleblower Edward Snowden was aboard.

How much of the complaints from France, Germany and elsewhere in Europe are posturing and how much is genuine anger is an open question, but perhaps ultimately irrelevant. Le Monde has revealed that the France intelligence agency DGSE spies on the French public’s phone calls, e-mails and Internet activity in a manner similar to that of the U.S. National Security Agency (NSA). And Mr. Snowden has revealed that German spy agencies are “in bed together” with U.S. spy agencies.

The chief of Germany’s foreign intelligence agency has confirmed that his agency works closely with the NSA, Der Spiegel reports, with the U.S. agency using several German locations to engage in data collection. The arrangement is justified by the “fight against terrorism,” the favorite all-purpose excuse to trample constitutional norms and privacy concerns, both of which tend to be taken more seriously among Europeans than United Statesians. In its report, Der Spiegel asked:

“Is it really conceivable that the German government knows nothing of what the NSA is doing on its own doorstep? Last month Interior Minister [Hans-Peter] Friedrich said in a parliamentary debate on the NSA snooping: ‘Germany has fortunately been spared big attacks in recent years. We owe that in part to the information provided by our American friends.’ Sentences like that reveal a pragmatic view of the US surveillance apparatus: What the NSA gets up to in detail is secondary — what counts is what its snooping reveals. And that information, intelligence officials admit, is indispensable.”

The German government sees itself as dependent on the U.S., and that counts for more than public displays of anger that culminated in a German minister condemning revelations of U.S. spying on Germany as “methods used by enemies during the Cold War.” Whatever momentary anger her government may have felt, Chancellor Angela Merkel has not wavered in her support for the Transatlantic Trade and Investment Partnership (TTIP) talks. Germany’s economy, after all, is dependent on exports — increasingly so during the past decade as German workers have absorbed a decade of wage cuts — and German manufacturers are likely salivating at the thought of increased exports to North America.

You can be angry, but you’re still subordinate

After all the displays of anger and assertions of sovereignty, European government showed themselves not only subordinate to the U.S. but to their own industrialists and financiers. The U.S. government is similarly a captive of its own big business interests — that is what right-wing calls to “starve” government are about. It was all smiles on July 8 as the TTIP talks began, on schedule, with embarrassing discussions of spying relegated to a “parallel” track, separate from what really counts, the main negotiations to dismantle regulations.

Both newly seated U.S. Trade Representative Michael Froman and European Trade Commissioner Karel De Gucht made the ritualistic grand claims of the benefits that will fall from the sky if the TTIP is implemented, and business groups competed with themselves to issue the highest “estimates” of the increase in wealth. The Centre for Economic Policy Research in London, for example, claimed the TTIP would stuff pockets with more than US$100 billion a year from added growth.

Similar pie in the sky promises were made for the North American Free Trade Agreement and many other trade deals, so, dear reader, all is forgiven if you are skeptical about such claims. “Free trade” agreements elevate corporations and investors to equal status with governments on paper, and above governments in reality because disputes between businesses and governments are sent to unaccountable tribunals controlled by organizations like the World Bank and in which the judges are frequently lawyers who specialize in representing corporations in disputes with governments.

Ambassador Froman, the new U.S. trade representative installed by the Obama administration, will not represent any change in direction. The American Enterprise Institute, a leading lobbyist for multi-national corporations, gave its seal of approval:

“No white smoke floated up from the White House when the president announced that he had chosen deputy security adviser Michael Froman as the new US Trade Representative; but there was a huge, collective sigh of relief from all elements of the US business and trade policy communities. … Michael Froman is an excellent choice. He is close to the president, was deeply involved in passage of the Bush [free-trade agreements] with [South] Korea, Colombia, and Panama.”

Ambassador Froman’s neoliberal credentials are assuredly in order. He worked as chief of staff to former Treasury Secretary Robert Rubin, who played a leading role in the Clinton administration’s deregulation of the financial industry, and before that was a managing partner at Citigroup. He seems to have done well at Citigroup, receiving more than $7.4 million from the company from January 2008 to when he joined the White House early in 2009, including a year-end bonus of $2.25 million.

Full speed ahead! The U.S. Chamber of Commerce — a hard-line organization that has never seen a regulation it likes or a tax that is justified — had already called for a speedy agreement before any pesky elections get in the way. Eurochambres had declared that it sought “the highest possible standards of protection for investors” — thinly disguised code for an elimination of rules and regulations. As Systemic Disorder has previously noted, the Trans-Pacific Partnership, intended to go beyond NAFTA and formally codify the maximization of corporate profits as the central principle of governments, is the model for the TTIP, and it is unlikely that it is a coincidence that the two giant trade pacts are being negotiated simultaneously.

Some country has to be the top dog

The growth of spying operations and the shrinking of democratic spaces that accompanies bilateral and multilateral trade agreements progress hand-in-hand. The capitalist system has always required a center to hold it together. Capitalism has had a succession of dominant centers; each successive center has been bigger to be able to cope with increasingly complex tasks.

When London succeeded Amsterdam as the financial center, the financial center became located within a country with a powerful military, not only a large merchant fleet as Amsterdam’s United Provinces possessed. When New York succeeded London, the country at the center became continental in size, possessing a military that can be projected around the world, further intensifying the links between financial and military power that had solidified during Britain’s rise to dominance.

The projection of, and willingness to apply, force is crucial to the maintenance and expansion of the capitalist system. That force nowadays may be more often financial and commercial rather than military, but the military and intelligence services are in reserve. From the dozens of coups in Latin America to the forcible installation of regimes willing to do U.S. bidding in Iran and Iraq decades apart to propping up dictatorships around the world, the common thread has been using power to gain advantage for U.S. multi-national corporations. “Free trade” agreements are another methodology to the same goal.

All of the world’s advanced capitalist countries are a part of this system. They acquiesce in it however much they sometimes chafe at their subordinate status (in relation to the U.S.); their willingness to enter into trade pacts binds them to the dominant power. No single country is large enough or possesses a big enough military to challenge U.S. domination; today, only a unified Europe could challenge U.S. hegemony. European capitalists desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent.

The E.U., in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone complete with suppression of social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency.

Thus the proposed TTIP is in the interest of industrialists and financiers on both sides of the Atlantic Ocean at the same time that its approval would spell disaster for working people — more concentration of power in the biggest corporations; less ability for citizens to influence government policy; and weaker labor, safety and environmental regulations. Concentration of power and shriveling of democracy can’t be accomplished without a stifling of dissent, which in turn requires, inter alia, more spying and less accountability by spying agencies.

There are common interests at the same time that spying is also deployed to gain competitive advantages for favored corporations; the latter is exemplified by U.S. bugging of E.U. offices. Those shared interests in maintaining the system, however much the advanced capitalist countries may compete, tend toward cooperative relations. Thus although countries like France and Spain demonstrate their subordinate status in humiliating fashion by closing their air spaces under U.S. orders, the blocking of President Morales’ plane is not reducible to only that subordination; European governments have shared interests in maintaining the system. That force is what maintains it speaks for itself.

A path toward bringing banks under democratic control

The struggle to create a democratic economy based on human need requires finding a path to a drastically smaller financial industry. Banking should be a utility, under public control and existing to serve the productive economy, in contrast to its current incarnation as an uncontrollable behemoth that exists to extract wealth from all other human activities.

storm over banksGiven the stranglehold of financiers over the world’s economies, democratizing banks will be no easy task. But it can done. Countries such as Norway and Sweden have nationalized their banks, only to promptly hand them back to private owners.

As always, a word of caution is in order: Although the financial industry acts as both whip and parasite in relation to the productive economy (providers of tangible goods and services) — the whip spurring ever harsher working conditions and intensifying the movement of production to low-wage havens and the parasite extracting money from every possible human activity — there is no neat separation of finance from the productive economy in capitalism. Many manufacturers have financial subsidiaries, for instance, and corporate executives grow wealthy from stock-market bubbles inflated by speculators and other financial manipulations.

The giant piles of money thrown into speculation are the products by industrialists’ profits created through exploitation of employees. There is a symbiotic relationship between financiers and industrialists; together they constitute a globalized class that maintains power through a web of institutions while scrambling to manage the ceaseless instability of capitalism. Although the financial industry is powerful, nonetheless there is not a small cabal of bankers who somehow control everything, an idea rooted in Right-wing conspiracy theories that easily shade off into anti-Semitism.

Caveats in place, the power of financiers must be broken to make any meaningful progress toward a democratic economy. What would a real socialization of banking look like? Specifics would naturally vary from country to country, but the Left Party of Germany has put forth a plan for the socialization of the German banking system that can serve as an excellent starting point for discussion. The Left Party’s model is based on specific aspects of existing local German banks, but contains concepts that are applicable to any country.

The report, How a Socialization of the German Banking System Might Look Like, written by Axel Troost and Philipp Hersel, envisions a banking system based on credit unions (some owned cooperatively by members and others owned by municipal governments) and democratized state-owned banks. Private banks would be either closed or drastically shrunk, depending on their solvency. All banks would be responsible to supervisory boards comprised of representatives of community organizations such as trade unions, environmental groups and consumer associations, and citizens directly elected in community votes.

Requiring banks to provide only basic services

All remaining banks would concentrate on what the report terms the core “PSL” functions — payments, loans, savings. Socialized banks would ensure a “low-cost system of payments including a corresponding supply of cash”; finance public- and private-sector investment that is socially and economically useful; and be secure and sustainable places for savings to be held. In the Left Party conceptualization:

“[S]ocialisation should be regarded as the subordination of the financial sector to steering and control by society and the anchoring of the sector in society.” [page 6]

The report stresses that a reduction in the size of the banking system is unavoidable, both to curtail its influence and to eliminate speculation:

“The false principles which have become established in recent decades were primarily propagated by the financial markets: shareholder value, lean government, competition to attract investment and tax competition. This process needs to be reversed, and the financial sector needs to be reduced to the role of a service provider for the overall economy. …

The aim has to be to substantially reduce the size of the financial sector and to diminish its economic and political power. As a service provider for the real economy and society, the financial sector must not be understood any longer as a place where value is added on its own account, but must be regarded as infrastructure needed for the economy as a whole.” [page 5]

Toward that end, private banks would largely disappear, as far as possible through insolvency. Private banks that remain solvent after all liabilities are placed on the balance sheet and who are so interwoven into the larger economy that their immediate shuttering would unravel other banks and enterprises would not be eliminated, but brought under public control and drastically shrunk in size in a manner that would not cause a cascade of collapses in connected banks and enterprises.

All banks would have to put all liabilities on their balance sheet for inspection, including non-performing loans and bad assets; they would no longer be able to hide them. Those without enough assets to cover the losses would be shut down. European law insures all deposits up to €100,000, and that would remain in force. Shareholders would be wiped out, however, and creditors would absorb losses, not taxpayers.

Only if an institution could not be shut down without causing a cascade of losses in other banks and enterprises would any government money be injected, but in these (hopefully rare) cases, shareholders and creditors would be wiped out and the government would assume ownership. The government would then restructure the bank so it would only perform the core “PSL” functions described above.

Credit unions as the foundation for banking

The current German banking system consists of three “pillars”:

  • Public-law banks (municipality-owned local credit unions and state banks).
  • Cooperative banks (credit unions cooperatively owned by their members).
  • Private banks (which operate across the country and include dominant institutions such as Deutsche Bank and Commerzbank).

The municipal- and cooperatively-owned credit unions have have continued to function well since the economic crisis struck. These continue to provide loans to small and medium-sized enterprises and basic services to depositors, and do not engage in speculation. The state banks (banks owned by the state governments within Germany) were supposed to act like the municipal credit unions (on a larger scale) but instead mimicked private banks by engaging in risky businesses outside their original mandates, saddling taxpayers with covering losses. Private banks concentrated on speculation and have done the worst of the pillars; moreover, despite receiving bailouts, private banks provide the least amount of credit.

Putting all banks on the model of the municipal- and cooperatively-owned credit unions, prohibiting speculation and limiting them to the core “PSL” functions would be the outcome of a socialized banking sector. Simply making banks public is insufficient, the Left Party report says:

“It would appear that banks in public and co-operative ownership can at least partially evade the dictates of the desire for profit. However, public ownership alone is no guarantee that an institution will take this opportunity. But private commercial banks have no alternative to an unconditional orientation to profits, because the financial markets systematically enforce the dictate of the profit motive. In view of this, a socialisation of private commercial banks can probably only succeed if they have first been liberated from the dictate of the profit motive by being transferred to public or co-operative ownership.” [page 8]

A key to the success of the municipal- and cooperatively-owned credit unions is that they operate on a small scale and are anchored in their immediate city or region.

“[Germany’s municipal- and cooperatively-owned credit unions] tend to be small-scale and very much anchored in their region. This includes on the one hand the municipal or regional ownership or patronage, and on the other hand the networking with stakeholders like local chambers of industry, commerce and crafts, sports and charity associations, as well as leading local authorities from religious communities, trade unions and intellectuals. To put it another way: [the credit unions] are integrated into their local environment; they can be said to be territorially socialised. This fits in with the fact that these two pillars of the banking system adhere to a strict territorial principle.” [page 8]

Be socially useful, or be shut down

Surviving state-owned and private banks would be required to adhere to the same core “PSL” functions; those that do not go out of business because those functions would be largely covered already by the credit unions would provide loans for large-capital projects beyond the ability of any credit union on its own. But there would be strict limits on the size of any bank and no bank would be allowed to be a national business. Socialized state and regional banks would coordinate on the large projects. Those larger banks are foreseen as being owned by the credit unions to provide another check on their behaviors.

Limits on territory and legal orientation toward social usefulness are see as as keys toward the goal of converting banking into a utility serving society:

“The [municipal and cooperative credit unions] show that a bank can be very successful if its statutes stipulate that its purpose is not abstract orientation to profit, but the exercise of a certain business model in a certain region. … A socialised bank must be characterised by the fact that the core functions of payments, savings and loans (PSL) are stipulated in its statutes as the area of its operations and its business model, and that these activities are only carried out in a certain geographical area. The region covered by the business operations determines which geographical section of a society is responsible for the societal control.” [page 11]

Nonetheless, a federal system of strict regulations would be implemented, including much higher capital requirements, caps on executive salaries and a ban on bonuses and stock options, an extra tax on the highest earners in banking, a tax on all financial transactions, and a requirement that half of the supervisory boards of banks would be allocated to employees and their trade unions and half must be filled by women.

Although the Left Party model is based on existing conditions in Germany, the basic principles are easily adaptable to other countries. Credit unions, for instance, are common in many countries. At least 7,000 exist in the United States (ordinarily owned by members) and more than 300 exist in Canada, although in those two countries they are buffeted by capitalist market forces and face hostility for being an alternative to large private banks. Similar to Canada, the number of credit unions in Britain is declining as smaller ones in particular face difficulties.

Socialization of the banks includes community control, strict restrictions on financial activities, an end to speculation and an environment in which market forces no longer prescribe behavior. The point of a market is to serve humanity — a strong contrast to the current world capitalist system, in which human beings exist to serve markets. And markets are nothing but the aggregate interests of the most powerful industrialists and financiers.

The Left Party model for bank socialization isn’t a ready-made formula, nor does it purport to be one, but is does provide a valuable starting point. Socializing banks is one only component of the broader task of creating a better world. Viable plans such as the Left Party’s nonetheless explode the idea that the current economic system is the only way to organize society — which is just as much an elite-propagated myth as the idea that a monarch is chosen by God to rule over everyone.

Producing more but earning less around the world

We are working more and earning less. Productivity is up, but paychecks don’t keep pace. Average wages have been stagnant for four decades as the one percent has enjoyed spectacular gains in wealth.

The disproportion between increases in worker productivity and wages is perhaps most pronounced in the United States and Germany, but is common among the world’s advanced capitalist countries. This upward flow of income has long-term implications because the mass of wealth concentrated into few hands has led to an increase in destabilizing financial speculation — there are not enough opportunities for productive investment and consumer spending erodes because working people have less to spend.

In turn, reduced spending means there is little or no incentive for capitalists to invest, leading them to plow more money into speculation and to move production to newer low-wage havens because their profit margins are squeezed. Round and round the world has gone as the global economic crisis has persisted for half a decade with no end in sight.

The U.S. economy is still the world’s largest and is the model that its powerful capitalists work to export around the world; moreover, the massive U.S. trade deficit means the U.S. is to some extent propping up the world economy. Yet unemployment remains stubbornly high in the U.S. (even if lower than in the European Union). The U.S. economy simply isn’t creating jobs fast enough — that is the conclusion of a February 1 report issued by the Economic Policy Institute. The report, written by Heidi Shierholz, says:

“The U.S. labor market started 2013 with fewer jobs than it had 7 years ago in January 2006, even though the potential workforce has since grown by more than 8 million. The jobs deficit is so large that at January’s growth rate, it would take until 2021 to return to the pre-recession unemployment rate.”

Apologists for austerity as the “solution” to economic downturn often claim that the problem is a mismatch between the skills of job seekers and the skills needed by businesses. It is true that unemployment is lower among more educated people and higher among lesser educated people, but the rate of the increase in unemployment since the economic crisis began has been similar among all groups; in fact it is slightly higher among those with some college or a college degree than those with high school or less.

Among workers age 25 or older who are not high school graduates unemployment has risen 1.7 times since 2007, the Economic Policy Institute reports, while for college graduates it has risen 1.9 times. Among all workers, the rate of long-term unemployed has more than doubled during the past six years. The report says:

“The fact that we still have large numbers of long-term unemployed is unsurprising given that the ratio of unemployed workers to job openings has been 3-to-1 or greater since September 2008.”

Job growth lags behind GDP growth

The economies of the advanced capitalist countries simply aren’t growing fast enough to generate jobs. Because of competitive pressures that lead to layoffs, plant shutterings and moves to locations with much lower wages, and the increasing sophistication of computers and machinery, capitalist economies only increase employment during periods of robust growth, when demand requires more production. Unemployment ordinarily decreases only when an economy grows at least three percent annually.

Fred Magdoff and John Bellamy Foster, authors of the book What Every Environmentalist Needs to Know About Capitalism, summarized this conundrum:

“Capitalism is a system that constantly generates a reserve of unemployed workers. Full employment is a rarity that occurs only at very high rates of growth, which are correspondingly dangerous to ecological sustainability. As Christina Romer, former chair of President Obama’s Council of Economic Advisers, tells us, ‘We need 2.5 percent growth just to keep the unemployment rate where it is. … If you want to get it down quickly, you need substantially stronger growth than that.’ … [I]t is clear that if the GDP growth rate isn’t substantially greater than the increase in the working population, people lose jobs.” [pages 56-58]

As competition for jobs steadily becomes more acute, the dynamics of capitalism dictate that wages will be buffeted by strong downward pressures. Over the long term, not only the past few years, that has happened. A study published in the Spring 2012 edition of the International Productivity Monitor demonstrates the extraordinary mismatch between productivity gains and wages. The authors, Lawrence Mishel and Kar-Fai Gee, write:

“During the 1973 to 2011 period, the real median hourly wage in the United States increased 4.0 percent, yet labour productivity rose 80.4 percent. If the real median hourly wage had grown at the same rate as labour productivity, it would have been $27.87 in 2011 (2011 dollars), considerably more than the actual $16.07 (2011 dollars).” [page 31]

Almost every penny of the income generated by that extra work went into the pockets of high-level executives and financiers, not to the workers whose sweat produced it.

Around the world, workers see little of the gains

Workers in other advanced capitalist countries did not fare quite as badly, but the general pattern is there.

In Canada, for instance, labor productivity increased 37.4 percent for the period 1980 to 2005, while the median wage of full-time workers rose a total of 1.3 percent in inflation-adjusted dollars, according to a Fall 2008 report in the International Productivity Monitor. The authors of this report, Andrew Sharpe, Jean-François Arsenault and Peter Harrison, provided caveats as to the direct comparability of productivity and wage statistics, but find the mismatch to be real as labor’s share of Canadian gross domestic product has shrunk. The authors note that, in Canada, almost all income gains have gone to the top one percent. They write:

“If median real earnings had grown at the same rate as labour productivity, the median Canadian full-time full-year worker would have earned $56,826 in 2005, considerably more than the actual $41,401 (2005 dollars).” [page 16]

Wage erosion is also at work in Europe. Making a few calculations from International Labour Organization statistics on labor productivity and wages, provided for individual countries, I found that average real wages in Germany declined 0.5 percent per year for the period of 2000 to 2008 while German labor productivity increased 1.3 percent per year. (This was the only period for which I could find statistics for both categories.)

The prosperity of German manufacturers is built on the backs of German workers, who have absorbed a decade of pay cuts. Because the International Labour Organization uses average, rather than median, figures, the disparities are likely made to appear smaller than they might be because the wealthiest are increasing their share of income faster than anybody else, distorting the average. (“Average” is the halfway point between highest and lowest; an average will rise if the highest has risen while all others are stagnant. “Median” is the number representing someone at the 50th percentile, or the middle number if everybody was arranged in order, and thus is more representative.)

Using the ILO statistics, French workers’ average wages kept pace with productivity growth for the period 2000 to 2008 while Spanish workers lagged, earning 0.5 percent more in wages per year while productivity increased 0.9 percent per year. Income inequality has increased in France since the mid-1990s, an indication that growth in pay for the highest earners likely masks declines for most workers and therefore could account for the statistical stability in the French wage/productivity ratio.

By contrast, in Britain, a Resolution Foundation paper found a differential between productivity and wage gains, although smaller than that of the United States, but also that British workers did not lose as much ground as did French, German, Italian and Japanese workers. That conclusion is based on a finding that the share of gross domestic product going to wages in those countries has steeply declined since the mid-1970s.

What we have is a structural problem, not a problem confined to a particular country, caused by a government nor solvable by adopting a specific monetary policy. Nor is personal greed the underlying cause, regardless of the personal qualities of individual capitalists.

Intensified competition over private profits, and that “markets” should determine social outcomes, inexorably leads to a consolidation in which industries are dominated by a handful of giant corporations, and those corporations gain decisive power over governments and relentlessly reduce overhead (especially wages and benefits) in a scramble for survival. More inequality means less pay for employees, reducing demand and weakening economies, which leads to more unemployment and less leverage for employees in wage negotiations as corporations use any means necessary to maintain their profit margins.

That a new boom or bubble might occur in the future does not alter the overall picture; such a development would only be a temporary blip. If it is the structure that is the problem, then only a different structure can be the solution.

The high cost of private profit in health care

By Pete Dolack

The United States spends huge amounts of money on health care. But it is only in comparison to other countries that the magnitude of health care spending becomes clear. Because the U.S. health care system is designed for private profit rather than public health, the U.S. spends an extra $1.15 trillion per year beyond what it would otherwise.

If that total astounds you, you are not alone. When I first began making calculations to determine excess spending in health care, the figures were so large that I had difficultly believing them and performed the calculations over again. The result was the same.

The excess spending on health care is not only growing, it is growing much faster than the rate of inflation, in concert with overall health care spending. For instance, the annual average of excess spending for the period of 1990 to 2000 was $685 billion. For the period of 2001 to 2010, the annual average ballooned to $1.15 trillion.

And despite all that extra spending, U.S. residents have poor health results in many key indicators, in comparison to the world’s other advanced capitalist countries. Still more amazing, 51 million people in the U.S. are without health insurance, while all other peer countries have universal care. This is the system that millions of U.S. citizens believe is the best in the world thanks to the world’s most developed public relations and misinformation industries.

The rest of the world is quite in disagreement, to the point that even the harsh austerity-minded Conservative prime minister of the United Kingdom, David Cameron, has repeatedly had to deny (whether or not sincerely I will leave to others) any intention to emulate the U.S. system as he attempts to impose changes on the country’s National Health Service.

U.S. health care is by far the world’s highest

Let’s do a bit of digging under the surface of numbers. First off, an explanation of where the $1.15 trillion in annual excess spending comes from. I calculated the number by first obtaining total health care spending per capita* of the three largest economies within the European Union (France, Germany and the United Kingdom) and of Canada, the neighbor of the United States. I then averaged the numbers for the years 2001 to 2010 (the latest for which full statistics are available) as compiled by the Organisation for Economic Co-operation and Development (OECD), the club of the world’s advanced capitalist countries and the largest developing countries.

The composite average of Canada, France, Germany and the U.K. for 2001 to 2010 is US$3,479 per capita per year. That number is less than half of the U.S., which had by far the world’s highest health care spending at $7,325 per capita per year. The differential was then multiplied by 300 million, the approximate U.S. population during the past decade. If you prefer a different measure, the U.S. spent 17.4 percent of its 2009 gross domestic product on health care expenditures, again the world’s largest by a wide margin. The average of the 34 countries of the OECD is 9.6 percent.

And if that is not enough, here is one more astounding comparison: Not only are out-of-pocket expenses by U.S. health care consumers higher than in any of the four comparison countries (no surprise there) but per capita government spending in the U.S. is higher than in any of the four comparison countries. Those four have varying versions of what U.S. right-wing ideologues venomously denounce as “socialized medicine” — health care systems either run or closely regulated and supervised by a federal government paid for through taxation — and yet each government nonetheless spends less than does the U.S. government on a per capita basis.

Despite the massive transfer of money to private insurance companies by employers and employees, on a per-capita basis government health care spending by itself in the U.S. is higher than total health care spending in Canada.**

The authors of the paper “Why is health spending in the United States so high?” (a supplement to an OECD statistical report) attempted to draw conclusions from a mass of data on health care expenditures:

“It does not have many physicians relative to its population; it does not have a lot of doctor consultations; it does not have a lot of hospital beds, or hospitals stays, when compared with other countries, and when people go to hospital, they do not stay for long. All these data on health care activities suggest that U.S. health spending should be low compared with other countries.”

The reason that spending is anything but low is because of the high prices extracted throughout the system. The costs of a range of medical procedures or surgeries are much higher in the U.S. than elsewhere, as are pharmaceutical prices. The authors write:

“Overall, the evidence suggests that prices for health services and goods are substantially higher in the United States than elsewhere. This is an important cause of higher health spending in the United States.”

The OECD is an organization that is representative of the world’s most powerful capitalist countries, so the report does not inquire into underlying causes or in any way challenge the economic system that leads to such results; it merely reports facts and figures. Those facts and figures, however, give us a useful starting point. The wasteful spending on health care are subsidies for pharmaceutical manufacturers, hospital-chain operators, insurance companies, managed-care companies and medical-products manufacturers. Money flows to those corporate entities directly from your pocket and indirectly from you via government spending.

Each U.S. citizen’s annual share of wasteful, excess spending on health care — excess spending that goes into the coffers of some of the country’s largest corporations among the many industry profiteers — amounts to $3,846. Business leaders, their lavishly funded think tanks and pressure groups, and the public-office officials who represent them continually assert that private enterprise is always more efficient. It would seem that the efficiency lies in extracting money and wealth.

Government more efficient because goal isn’t private profit

Noting that “high administrative costs and lower quality have also characterized for-profit HMOs” (health maintenance organizations funded by insurance premiums that supervise health care), a Journal of the Canadian Medical Association article provides the following figures for the percentage of revenue that is diverted to overhead:**

  • For-profit HMOs: 19 percent
  • Non-profit plans: 13 percent
  • U.S. Medicare program: 3 percent
  • Canadian Medicare: 1 percent

In contrast to the rhetoric so often employed, government is far more efficient at delivering health care than the private sector. (This is also true in retirement plans, where the U.S. Social Security program’s overhead is much lower than mutual-fund managers or other financial-industry enterprises.) An important reason is that the government does not skim off massive amounts of money for bloated executive pay nor does it need to generate large profits to enrich financiers.

Such large expenditures also flow from a lack of competition. Few people in the U.S. have a choice of insurance provider, which is dictated by their employer, and insurance companies and HMOs frequently limit choice of doctors, and often deny coverage so as to maximize profits. A company that has stock traded on exchanges is legally required to maximize profits above any other consideration; it is no different because health care happens to be the product.

A few summers ago, I found myself in a debate with a Canadian woman who was critical of her country’s health care system. I acknowledged that Canadian health care is not perfect, but then gave the example of a friend who had recently died in his 50s of a heart attack because his insurer decreed that he did not require medication for his weak heart and he could not afford it on his own. Does that happen in Canada?, I asked. She replied with silence.

As in any other mature industry, most market share has consolidated into a few hands, a condition that is known as an “oligarchy.” Although competition in younger or more fractured industries does result in price reductions, when an industry is reduced to a small number of dominant corporations, price competition is usually a casualty.

Health care constitutes several industries — insurance, pharmaceuticals, hospitals and medical equipment, among others — and each adds to the cost. Giant pots of government money are involved, always a lucrative source of private enrichment. And insurers have people over a barrel because health insurance comes through their employer, who make deals with a single insurer, take it or leave it.

Health care provision also has unique attributes that further inflate costs. In “The high costs of for-profit care,” by Steffie Woolhandler and David U. Himmelstein (the Journal of the Canadian Medical Association article quoted above), the authors write:

“Why do for-profit firms that offer inferior products at inflated prices survive in the market? Several prerequisites for the competitive free market described in textbooks are absent in health care. First, it is absurd to think that frail elderly and seriously ill patients, who consume most health care, can act as informed consumers (i.e., comparison-shop, reduce demand when suppliers raise prices or accurately appraise quality). …

“Second, the “product” of health care is notoriously difficult to evaluate, even for sophisticated buyers like government. … By labeling minor chest discomfort “angina” rather than “chest pain,” a U.S. hospital can garner both higher Medicare payments and a factitiously improved track record for angina treatment. It is easier and more profitable to exploit such loopholes than to improve efficiency or quality.

“Even for honest firms, the careful selection of lucrative patients and services is the key to success, whereas meeting community needs often threatens profitability. … [For-profit] hospitals duplicate services available at nearby not-for-profit general hospitals, but the newcomers avoid money-losing programs such as geriatric care and emergency departments (a common entry point for uninsured patients). The profits accrue to the investors, the losses to the not-for-profit hospitals, and the total costs to society rise through the unnecessary duplication of expensive facilities.”

U.S. fares very poorly in a comparison of national systems

In the spirit of comparison-shopping, here is a brief examination of the five countries under discussion, the United States and the four comparison countries.

  • German health care system: Everybody is covered. Workers pay eight percent of their gross income into a “sickness fund,” a nonprofit insurance company; employers pay the same amount. These contributions account for almost all money in the system. Workers choose among 240 sickness funds. There are no deductibles. Everything, including drugs, is free for children younger than eighteen. The government regulates all insurance companies closely.
  • French health care system: Everybody is covered. Workers pay 21 percent of their income into a combined retirement and national health care system; employers pay about half that amount. Payroll and income taxes largely fund health care. There are no waiting lists for elective surgery or to see a specialist. Doctors’ fees are negotiated with medical unions, while hospital fees are regulated. Patients with one of 30 long-term and expensive illnesses pay nothing for care.
  • British health care system: Everybody is covered. The National Health Service is funded by income taxes, employs physicians and nurses, and owns most of the hospitals and clinics. The service also pays directly for all health care expenses, with prescriptions and dentistry being the two exceptions. There are sometimes long waiting lists, which are commonly attributed to there being no restrictions on services, particularly hospitalization.
  • Canadian health care system: Everybody is covered. The federal government sets standards; provincial and territorial governments administer the system. Medically necessary hospital, physician and diagnostic services are free, although most dental care and prescription drugs are not covered. Services are primarily through private providers. Long waiting times for specialists are a problem, with reduced government payments cited as an underlying cause.
  • U.S. health care system: 51 million are not covered. Coverage is through an employer (of which the employee pays a portion), or through own purchase of private insurance, but most can’t afford to do so. Insurance companies frequently dictate what, or if, services will be provided. Coverage generally requires out-of-pocket expenses and includes a “deductible” before payments begin. Patient bankruptcies due to inability to pay bills are common.

Another weakness of the U.S. health care system is that is based on the concept of a “family wage” instead of a “social wage.” That is both cause and effect — unlike other countries where health care is a right, in the U.S. health care is a privilege, and the large disparities in the ability to obtain it reflects the canyon-like inequality there and also aggravates social inequities. Not only because health care is tied to an employer, giving a boss more power over employees, but because a family’s health care coverage is tied to the person who has the job that provides it — usually the man in a traditional family. But it could be any one person in a non-traditional family or within a gay or lesbian household.

Universal health care systems are gains of movements

Feminist pioneer and theorist Kathie Sarachild of the influential group Redstockings, in a July 4 interview on the Joy of Resistance: Multi-cultural Feminist Radio program, summarized this concept. She said:

“The family wage is another way of saying this old idea that men should support the family. [U.S.] society is built on the idea that men should get higher pay than women because men would support the family and women would stay home and take care of the children. … Even though there were always women who worked, they received less pay than men did because of this family-wage concept. …

“A lot of [the European social wage] came out of socialist and communist theory. … The labor movement and the feminist movement in [Europe] have been able to win a social-wage system, which pays to raise the next generation [through universal health care and paid leave when a child is born instead of being dependent on an employer to pay a ‘family wage’ to the man].”

Nationalized health care becomes part of a basket of social benefits, including more vacation time, life-long education and elder care that liberates working people from dependence on an employer. A shorter work week would also bring benefits, Ms. Sarachild said:

“If the work week were shorter … there would be more jobs. There’d be less unemployment because the work week is shorter so there are more paid jobs. There would be more time at home for the father and mother to be with the child. …. [With the introduction of a] social wage, the unfair family wage would not be necessary. … [Women] are not as dependent on the man, and both of you are not so dependent on the employer.”

The lower wages of women in the “family wage” system boost corporate profits on the backs of women, Joy of Resistance host Fran Luck points out, and many women are forced to stay in bad relationships because they would lose their health care.

For men and women, the price of private profit is enormously high: 22,000 people die and 700,000 go bankrupt per year as a result of inadequate, or no, health insurance in the United States.*** The U.S. ranks among the bottom five of the 34 OECD countries in per capita doctor consultations, hospital beds and average length of stay in hospitals,**** and is well below average in life expectancy and infant mortality.

The country’s people pay more than $1.15 trillion per year on top of what they should pay to swell corporate profits and executive and Wall Street wallets — in return, we receive worse coverage. That is the price of capitalism.

* OCED figures. Spending per capita in U.S. dollars adjusted to create purchasing power parity.
** Steffie Woolhandler and David U. Himmelstein, “The high costs of for-profit care,” Journal of the Canadian Medical Association, June 8, 2004, pages 1814, 1815.
*** T.R. Reid, “No Country For Sick Men,” Newsweek, Sept. 21, 2009, pages 43-44.
**** “Why is health spending in the United States so high?,” OECD report, page 5.

NAFTA and European Union: Different sides of the Atlantic but same function

By Pete Dolack

The logic of the multi-national euro currency is tighter economic integration and loss of popular sovereignty. Unless the eurozone breaks up and its users return to their own national currencies, pressure will be built by the “markets” for further centralization and harmonization of rules. In plain language, tightened control by big capitalists.

The eurozone, functionally, is much the same as the North American Free Trade Agreement across the Atlantic. NAFTA makes corporate profiteering paramount by eroding the ability of the governments within it to enforce regulations; places decision-making in the hands of unaccountable and undemocratic arbitration boards convened by either the commercial arm of the United Nations or the World Bank; and elevates the interests of large corporations and financiers above all other human considerations.

(There are the occasional conspiracy-mongers who claim that NAFTA is a precursor to the dismantling of the United States in favor of some “North American republic” and that the dollar will be eliminated in favor of a regional currency, but besides the fact that these feverish Right-wing conspiracies are laughable on their face they completely ignore the fact that U.S. capitalism needs U.S. military might, that the world capitalist system needs a center with the requisite financial and military clout to act as the enforcer, that the U.S. relies on the dominance of its national currency to be able to run budget and trade deficits, and that the nationalistic U.S. public would rise up, in arms if necessary, against any such idea.)

The key NAFTA provision is Chapter 11, which codifies “equal treatment” in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or act that might prevent the corporation from earning the maximum possible profit. Thus we have had the spectacle of a corporate parcel-delivery service suing Canada in attempt to have the Canadian postal system dismantled and chemical companies suing because a chemical they produce has been banned because it is poisoning water supplies.

The idea that safe drinking water is considered a trifle next to the maximization of profits, sadly, is not a mordant joke. Any company that has its shares traded on stock exchanges is legally required to maximize its profits for shareholders, to the exclusion of all else — under capitalism, safe drinking water is unimportant. (Except, of course, for the bottled-water companies that drain aquifers to supply their products.)

Although Canada, which has the most stringent regulations of the three NAFTA countries, has won five decisions before the arbitration boards, three of them were on technicalities in which the merits of the cases were not ruled upon. Only twice has the Canadian government won a clean victory in the dozens of cases brought against it. Just this week, The Globe and Mail newspaper of Toronto reported that Exxon Mobil Corp. won a Chapter 11 arbitration case against the province of Newfoundland and Labrador because Exxon and a partner company were required to conduct research before commencing projects.

A U.S. watchdog group, Public Citizen, summed up the rules of NAFTA and other trade treaties in this succinct fashion:

“This ‘investor-state’ enforcement mechanism elevates private firms and investors to the same status as sovereign governments, effectively privatizing the right to enforce public treaties’ expansive new investor rights. There is no such private enforcement for labor rights or environmental standards. … The [free-trade] pacts provide firms a way to attack other countries’ domestic public interest laws and skirt their court systems.”

If readers in Canada, the United States or Mexico have no recollection of voting on any of this, there is good reason.

Similarly, the financiers who dominate European Union policy are not subject to any democratic accounting, either. And under the rubric of not allowing a perfectly good crisis to go to waste, the ongoing eurozone crisis is being used as leverage to install an ever harsher régime. Doing so is completely logical within the imperial construct of the European Union, which is a supra-national institution to impose corporate domination on a reluctant population. National governments are not insulated from popular opinion, but a supra-national structure can impose dictates on those governments, which can then tell citizens that is has “no choice” but to adhere to them so that the country can remain “part of Europe.”

Concomitantly, European capitalists desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent. This wish underlies the anti-democratic push to steadily tighten the E.U., including mandatory national budget benchmarks that require cutting social safety nets and policies that are designed to break down solidarity among wage earners across borders by imposing harsher competition through imposed austerity.

The E.U., in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone complete with suppression of social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency.

A difficulty for E.U. business elites is that nationalism tends to act as a disorganizing force within the E.U., whereas nationalism is a potent unifying force in China and the United States. But nationalism, as always, has its uses: Instead of uniting on their common interests across borders, all too many Europeans are attacking one another on a national basis. Nationalism, ordinarily an easily manipulated ethos used to provide a unifying glue within countries that are otherwise consciously atomized by capitalist pressures and individualist propaganda, becomes a divide-and-conquer tool par excellence in a supra-national context. And so we have the dispiriting spectacle of venomous attacks on “lazy Greeks,” “arrogant Germans” and the rest of the assortment of tired clichés.

Nationalism is fine for working people, but an impediment for business elites who are increasingly bold in calling for economic policy to be directed by Brussels. In the past week, an assortment of E.U. officials, joined by national leaders elected and unelected, said the E.U. must be bound together more tightly. Arrogant and hypocritical as they may be, these officials are simply enunciating the logic of E.U. capitalism. The most prominent tangible form of these calls are for the issuance of “euro bonds” — government bonds to finance debt issued by the European Central Bank in place of bonds issued by individual national governments.

The new French government has endorsed the issuance of “euro bonds,” adding to the momentum. The proximate cause of pleas for the creating of “euro bonds” is that too many eurozone governments can’t afford to borrow at the high interests rates demanded by financiers and the rich who buy bonds (in lieu of paying taxes, which would end the need for selling bonds in such large amounts). The price of pooling together the risk of all E.U. governments by issuing such bonds is much closer economic integration. And what that means is financiers controlling policy to an even greater degree than they already do.

Financiers, that is, as an international interest group; not German bankers or Germany as a country. The corporate news media continues to cover the ongoing crisis and its slow-motion developments as a contest of wills between Germans (or Chancellor Angela Merkel) and the Southern rim of the E.U. with France as a buffer in between. But, as I have previously written, it is German industrialists, not German working people, who are the beneficiaries of German government policy.

Germany has become reliant on exports as German workers have absorbed a decade of wage cuts, leaving domestic demand inadequate to soak up German production or to pick up the slack when export markets soften. German exports have become more competitive on the backs of German employees, making it more difficult for other eurozone countries to remain competitive because, by not having their own currency that they can devalue, they can’t use that route to give their exports a boost. Thus, German industrialists have prospered through the widespread adoption of the euro, which has “locked in” their competitive advantages.

German, French and other bankers earned fat bonuses because the euro also made it easier for them to make loans to the Southern rim, which also enabled those countries to buy more German products. In turn, deficits mount and production is shuttered in countries such as Greece (where the shipping industry, the rich and even many private-sector middle class people don’t pay taxes), and the price for more loans is more harsh austerity.

But the money doesn’t go to the Greek budget, it goes right back to the banks. The 130 billion euro bailout of Greece is used almost exclusively to service the interest on Greece’s debt — not even to pay down the principal! The so-called “troika” — the European Central Bank, the International Monetary Fund and the European Commission — wire Greece the money, which is almost immediately sent right back. Most of the small amount that is retained by the Greek government is used to bail out Greek banks. The price for this? An unemployment rate of 22 percent and rising, pay cuts of 40 percent for those still employed and large numbers of small businesses closing.

The troika went so far as to demand that the Greek government change its constitution to ensure that banks are paid back before there is any spending on social programs. That is a taste of what will be experienced across Europe if more power is concentrated in the hands of unelected and unaccountable officials at the European level. A de facto financier dictatorship, although one to benefit big industrialists as well as financiers, because financiers are dependent on big industrialists to generate the profits that are poured into speculation (nor is there a neat separation between the two). For working people across Europe, the program can be summed up in two words: permanent austerity.

And not even German workers, who have acquiesced to their unions agreeing to a decade of wage cuts in exchange for job security, will be immune. German workers’ living standards are slowly eroding, and when German exports slow or decline because buyers in other advanced capitalist countries buy fewer of their their products because of austerity and buyers in developing countries like China buy less because they can no longer sustain the pace of investment in infrastructure and industrial capacity, austerity will hit Germans. The route to German industrialists maintaining their profits under these future conditions will be either deeper cuts to wages, an end to job security, export of production to places with much lower wages or a combination of these.

The alternative to harmonizing economy policy among the eurozone countries (harmonizing with the tightest policy among them) is for the eurozone to break up, and countries to resume using their own currencies and setting their own policies, which would at least be subject to elections, and provide space for policies other than neoliberal austerity.

It is no surprise, then, that centralizing economic policy is the preferred route for European business elites. The arguments among them are over details — Chancellor Merkel is not a stubborn holdout nor obsessed with Weimar-era inflation; she is simply reminding other national political leaders that the harmonization will conform to the tightest policy among them and Germany so happens to have that tightest policy. None of the eurozone’s national leaders are in any sense reducible to “puppets,” but their perceived national interests are distorted by whatever consensus their capitalists arrive at, which in turn are determined by larger market forces. Big industrialists and financiers dominate their societies through control of the mass media and a range of other institutions to the point that their preferred policies become, through repetition, the dominant ideas across society and the ideas adopted by the political leaders who become dependent on them.

Similarly, “markets” seek regulatory harmonization within NAFTA countries at the level of the weakest regulations. Governments must respond because capitalists can move production at will, leaving everyone else at their mercy.

Such is the logic of “markets,” which are not the disembodied forces of nature so often portrayed but are simply the interests of the most powerful capitalist elites. It is futile to expect anything different from their system.

European monetary fables tell a story, but for whom?

By Pete Dolack

Fables have long been used to tell stories and impart “moral” lessons. Not limited to bedtime stories, fables are a common device to propagate “lessons” that powerful interests wish to suffuse through a society. A favorite fable nowadays is that of the virtuous Germans and the lazy Greeks. Punishment – excuse me, “structural adjustment” — is the natural denouement of this oft-told fable.

In reality, this mythology has about as much to do with reality as the big bad wolf blowing down grandmother’s house.

Greek workers actually work many more hours than do Germans, and earn less. The “secret” to Germany’s economic dominance within the European Union is cuts to German wages. Germany has undercut other countries that use the euro as their currency by suppressing wages, a process that took form under a Social Democratic government.

According to the Organisation for Economic Co-operation and Development (an intergovernmental club of the world’s advanced capitalist countries), Greeks worked, on average, 42.3 hours per week on their main job and 2,109 hours for the year 2010. Germans worked, on average, 35.7 hours per week on their main job and 1,419 hours for the year 2010.

To put those figures in further perspective, Greeks worked more hours than any other people in the European Union; only South Koreans worked more among the world’s advanced capitalist countries.

So much for “lazy” Greeks. Moreover, the average annual wage of a Greek worker is 73 percent that of the German average, despite the cliché of the pampered, overpaid Greek trotted out at every opportunity.

Nonetheless, it was written above that it was suppression of German wages that is a major underlying cause of European economic imbalance, although the already low and falling-further wages in Greece are leading to a collapse of domestic demand there. European Central Bank policy is to target inflation at two percent per year. But, according to the International Labour Office, German wage increases since 2001 have averaged half of one percent per year, consistently below the German inflation rate. To put it another way, the ILO has calculated that German productivity has remained virtually unchanged in relation to the productivity of all countries that use the euro, while German wages have declined by more than ten percent relative to the composite wages of all other euro-zone countries.

In other words, the prosperity of German manufacturers has come at the price of a decade of wage cuts (adjusted for inflation) suffered by German workers. Sound familiar? Reduced income leads to reduced consumption, so exports account for a steadily rising portion of German gross domestic product. In relative terms, it becomes more difficult for other European Union countries to compete with German products, particularly in other countries using the euro, because German manufacturers increasingly can undercut them. Manufacturing capacity elsewhere is shuttered, reinforcing German dominance and increasing unemployment in the countries on the receiving end of the exports.

A British economist, Engelbert Stockhammer, in a paper published last year, described this phenomenon bluntly:

“Germany has pursued a policy of aggressive wage restraint resulting in large current account surpluses. German gains in competitiveness (since the introduction of the Euro) have not been founded on superior technological performance, but on more effective wage suppression. … Simply put, German wage suppression rather than fiscal profligacy is at root of the crisis of the Euro system. … Europe needs a set of economic institutions and policy rules that addresses such imbalances and their underlying mechanisms.”

The imbalances within the European Union, the economic crisis caused by financial bubbles and reckless financial speculation, the ever increasing ability of capitalist elites to impose their preferred policies on governments, the increasing ability of financial speculators to maintain a stranglehold on capitalist economies and the pervasive ideology of neoliberalism to the near total exclusion of alternatives has led to the precipice. The punishing austerity being imposed on Greece had previously been reserved for countries in the developing world or outside the capitalist core; now these immense social forces are attempting to crush an advanced capitalist country.

The particular constellation of forces that have led Greece to its present position originate in Brussels as well as in Berlin. At the European level, there is a conscious project at work. The European Union is, at bottom, an attempt by European capitalists to remold their societies to be more like the United States, with its extreme disparities in wealth and privilege. An impediment to such a goal is that people across Europe have the habit of asserting themselves, not only to defend their social gains but sometimes to push forward. There was a general strike in Denmark in 1998, as an example, in which one of the key demands was for a sixth week of paid vacation. (We in the United States ought to let that one sink in.)

European capitalists also desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent. This wish underlies the anti-democratic push to steadily tighten the European Union, including mandatory national budget benchmarks that require cutting social safety nets and policies that are designed to break down solidarity among wage earners and different regions by imposing harsher competition through imposed austerity. These rules are designed by central bankers to benefit European big business. Europe’s capitalists and central bankers are no less shy about adopting neoliberal ideology than their counterparts elsewhere, but are reliant on a supranational project to override national governments that must contend with popular resistance.

Thus, economic downturns and stagnation are always portrayed as the fault of working people refusing to be more “flexible” or earning too much money or “selfishly” expecting to retain hard-won benefits.

The European Union, in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone without social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency. The weakness of the supranational form is that it collides head-on with nationalism, which acts as a disorganizing force within the E.U., whereas in countries like the U.S. and China nationalism is a potent unifying force.

An irony here is that it is precisely nationalism that German capitalists and their corporate media outlets wield to maintain the policies that have worked out so well for them. The German newspaper Bild — the equivalent of a Murdoch tabloid — is fond of screaming headlines such as “Now they want more!” in response to further loans to Greece. Never mind that the Greek government is merely a pass-through; the loans are going straight to the banks, bond traders and hedge funds that hold Greek debt, and it is Greek workers, not German workers, who will be paying the price. A terrible price it is: During 2011, Greek public- and private-sector salaries were cut by one-third and pensions reduced, while many employees and pensioners have ceased being paid at all. This month (February 2012), the Greek parliament, literally on the orders of the European Central Bank and International Monetary Fund, voted to cut the minimum wage a further 20 percent, unilaterally end job security and begin to lay off 150,000 government workers.

Recall late last year, when former Prime Minister Georgios Papandreou dared to suggest a popular referendum on the then latest round of austerity. The Guardian reported that French President Nicolas Sarkozy and German Chancellor Angela Merkel “summoned” the Greek prime minster to a meeting to inform him there would no referendum. A remarkable word. “Summoned” is what a government does when it calls in an ambassador to issue a complaint. Heads of sovereign states are not “summoned.” One imagines that French and German bankers and bond traders were proud that day.

By no means, however, are German capitalists dependent on Merkel’s Christian Democrats remaining in power. It was none other than the Social Democratic Party — a party that righteously proclaims itself the party of working people — that codified austerity on those same working people. Back in 2003, Gerhard Schröder, then the Social Democratic chancellor, pushed through his “Agenda 2010” legislation. Schröder said, “We must not get trapped in defending our past achievements, but instead must work to our future.” Since those “past achievements” included old-fashioned concepts such as good wages and pensions, Schröder said, “The core challenges before us are accepting the reality of globalization, the ‘digitalization’ of our economy and an aging society.” Classic Right-wing code words. “Accepting” this “reality,” Agenda 2010 cut business taxes while reducing unemployment pay and pensions.

German unions represent workers across industries, and contracts are negotiated industrywide so that one company can’t play off its employees against those working for a competitor. Despite this advantage, unions allowed wages to decline in exchange for job security as German industry became stronger. Unemployment has been dropping — at least Germans received the promised job security — but their purchasing power is slowly declining, reinforcing the trend toward Germany becoming overly dependent on exports. More than half of Germany’s exports go to European Union countries.

Meanwhile, in Greece, the main Right-wing party, New Democracy, went on an arms buying spree when last in power a few years ago, unneeded military hardware paid for with loans. And the rich in Greece don’t pay taxes, in a country with one of Europe’s biggest economic disparities. Government workers are being demonized as the biggest problem in Greece, but it is precisely government workers who can’t evade paying taxes — their employer makes sure of that.

How does Greece get out of its vicious circle? Ultimately, there is no Greek solution, only a European or global solution. International solidarity and working people in all countries acting in concert to defend themselves and working toward a better world than the unsustainable scramble of all against all we currently live in are the routes out of economic crisis.

In terms of immediate steps, Greece is not without a defense against the downward spiral of austerity. Comparisons are being made with Argentina, which defaulted on its debt that was too big to pay and allowed the foreign-exchange market to drastically devalue its currency. There is much talk of Greece defaulting, but that is only one half of the “Argentina” option — Greece simultaneously would have to drop the euro and re-adopt its old currency, the drachma.

Argentine’s fascistic military dictatorship of 1976 to 1983 laid waste to the country’s economy, and a civilian president, Carlos Menem, imposed an austerity program in the early 1990s in conjunction with selling off state enterprises at below-market prices. As a result, Argentina’s foreign debt grew to unmanageable proportions. When neoliberalism had reached its logical conclusion there — economic collapse — working people set up barter clubs and in some cases took over factories that had been shut down, restarting production and converting them into cooperatives. A new president, Néstor Kirchner, suspended debt payments after taking office, eventually paying only 30 percent of the odious debt after negotiations.

One of the reasons why the Argentine economy collapsed was because the country’s rulers had insisted on maintaining the value of the Argentine peso even with the U.S. dollar, and wouldn’t allow its currency to decline in value. Greece uses the euro and therefore can’t devalue. Without a currency devaluation, internal cuts are the remaining option to meet market demands. When Argentina defaulted and allowed its peso to float freely, the peso’s value fell drastically. As a result, Argentina’s exports became attractively cheap and because imports became expensive, a stimulus to internal production was created. Within a year, Argentina’s unemployment rate fell by two-thirds and it had achieved budget and trade surpluses.

If Greece did return to the drachma, the currency’s value would be pummeled by foreign-exchange markets, making Greek products and tourism a value. Because imports would become very expensive, there would be no choice but to increase domestic production. There would also be uncertainty: Greece doesn’t have the same material resources as Argentina does nor does it have export industries as strong, so it is impossible to say that Greece would rebound as fast as Argentina did a decade ago. Taking the “Argentina option” would be a gamble and would have to be accompanied by capital controls and the nationalization of banks.

Dropping the euro would not be free of additional pain in the short term (especially because the cost of imports would rise) and a Greece with its own currency would not have the same measure of independence that Argentina possessed. Moreover, such moves would not touch the underlying instabilities of the global capitalist system nor would it in any way lessen the requirement of international solidarity to find a global solution to a global crisis. But could anything be as bad as the steady diet of austerity, punishment and humiliation Greeks are now enduring?