Analyzing the failures of Syriza

So many put their puts hopes into Syriza; so many were bitterly disappointed. Greece’s Coalition of the Radical Left proved wholly unable to resist the enormous pressures put on it and it is Greek working people who are paying the price, not excepting those who voted for Syriza.

How should we analyze the depressing spectacle of what had been a genuinely Left party, indeed a coalition of leftist forces from a variety of socialist perspectives, self-destructing so rapidly? The simplistic response would be to wash our hands and condemn Syriza as “opportunists,” but we’ll learn exactly nothing with such an attitude. If we are serious about analyzing Syriza’s spectacular failure — including those who expected this outcome in advance — digging through the rubble is unavoidable.

There were many currents coursing through Syriza, in addition to other Left tendencies outside. Nor were there shortages of people who feared what the fate of Syriza might become, including leaders inside it, before it took power, reminds Helena Sheehan in her new book The Syriza Wave: Surging and Crashing with the Greek Left.* Written in exhilaration and sorrow, Professor Sheehan, a veteran of solidarity work with the Greek Left, rides those tides as she recounts the anticipation and optimism before, and the depression and shock afterward, inside Greece and among Syriza’s allies across Europe.

The prologue to this failure is well known, but Professor Sheehan takes us through it in a “you are there” style reflecting what was happening then and her own optimism. That we know how this story will end does not detract from this writing style; rather it heightens the emotions as we re-live what at the time appeared to be the imminent first serious blow against global austerity and the ever tightening grip of finance capital. This was not a pollyannaish optimism, for no one serious had doubts about the immense task facing Syriza should it be elected. Certainly Greece could not be a small socialist island in an immense sea of capitalism — Greece’s problems then and now can have only European and international solutions.

Still, someone has to go first. The international Left saw hope in Syriza, and Syriza economists worked on solutions. There was much political seriousness as Syriza was seen as the last hope; that fascism might well be next given the growing menace of Golden Dawn focused minds.

Professor Sheehan sets this stage, opening her book in 2012, a year in which a second memorandum is signed, forcing more harsh austerity on Greeks, and in which Syriza rose from a minor parliamentary presence to finishing a close second to Greece’s main party of the Right, New Democracy. Providing the analyses, hopes and fears of a variety of Greek activists gathered on repeated visits, she recounts Syriza’s strong efforts to engage social-movement groups (in contrast to the Greek Communist Party’s sectarianism) and for Syriza to be inter-generational in its leadership.

Tip-toeing to the election by backtracking?

Nonetheless, there was Left criticism that Syriza was “watering down its wine” or wanting only to manage capitalism instead of creating socialism. Syriza officials vigorously denied this, saying they would reverse austerity cuts, restore wages and pensions, and re-distribute wealth and power. This would not yet be socialism, but “was intended to open a new path to socialism for the twenty-first century.” One danger sign, however, was that the party was split on whether to remain within the eurozone, even if the euro and the European Union as a whole were seen as a site of struggle. Some within Syriza, such as Costas Lapavitsas, argued that Syriza should be prepared for a break with the European Union. Despite these warnings, no systematic preparatory work on any “Plan B” was formulated.

Austerity might have been coming down harder on Greeks than elsewhere in Europe, but this was no aberration specific to one small country EU officials saw as easy to bully. This was not a local battle, Professor Sheehan writes:

“These cuts to pay, pensions, and public services, this privatization of public property, this redistribution of wealth from below to above: these were not temporary contingent measures. These were integral to a systemic restructuring of capitalism. … Where there were once experiments in socialism in the east, there were now oligarchies. Next on the agenda: advances achieved by the labor movement in the west were to be stripped.” [page 58]

Yet no success in a single European country will be sustainable unless it is followed by similar successes in other countries.

“Yiannis Tolios, an economist, also elected to the [Syriza] central committee, articulated the problem starkly, but with a different stress: ‘If having socialism in a single country is considered hard, having socialism in all countries at the same time is nearly impossible.’ Greece needed to forge ahead, whether the rest were ready or not, but it was perilous path.” [page 59]

Syriza would reconstitute itself as a unified party, with its previous constituent groups, including its largest, Synaspismos, dissolving themselves (although some remained outside). One-quarter of the central committee were members of Left Platform, an organized faction advocating reversing austerity by any means necessary, with the central committee majority heterogeneous but pro-Alexis Tsipras. Internal critics complained that too much power was being concentrated in the hands of the party leader and his inner circle, nor was concern that Syriza was moving too far toward the right confined to the Left Platform.

Most active members of Syriza believed capitalism was the problem and socialism the solution, the author writes, but had “stopped dreaming of storming winter palaces.” She writes:

“They were not holding out for an all-encompassing insurrection, which would destroy capitalism one day and inaugurate socialism the next day. They were planning for a protracted process, which would include winning multiparty elections, entering into difficult negotiations, agreeing to unattractive alliances, undoing damage done, building the new inside the shell of the old.” [page 85]

Winning an election, but not necessarily power

Anticipation grew as Syriza prepared to take office, but the party’s 2014 Thessaloniki Program was seen by many as a significant retreat. Was Syriza watering down its wine even before the next election? Whatever the strength of the wine, Syriza won the election of January 2015. The “troika” of EU institutions and the International Monetary Fund that had been dictating austerity to the previous Greek governments wasted no time in tightening the screws on the new government in what was seen as an outright attempt to humiliate Syriza. Negotiations dragged on, and amidst much international solidarity, Prime Minister Tsipras called a referendum that summer to supposedly buttress his negotiating position.

Greeks responded by heavily voting “no” to further austerity. The Syriza government then did a remarkable about-face. Eight days later, Prime Minister Tsipras signed an agreement even more unfavorable that what had been demanded by the troika. More than half of Syriza’s central committee signed an opposition letter and most Syriza members were furious. This was ignored.

View of Vikos Gorge, Greece (photo by Skamnelis)

Some Syriza officials offered public justifications for this turn of events, arguing that the party was in a marathon and not a finished race, and that the party retained scope for maneuver and to continue to be a Left party through links with solidarity networks. Others, however, argued that the new agreement was a disastrous capitulation. One alternative path to austerity was to exit the eurozone. The counter-argument was that the analysis supporting a eurozone withdrawal was correct but nonetheless such a road should not be taken due to the balance of forces tilted heavily against the Greek economy.

There were arguments both for remaining in and for leaving the eurozone, but anti-austerity advocates on both sides recommended strong steps such as renouncing the debt, nationalizing the banks and imposing capital controls. These were not considered — Syriza never had a “Plan B.”

Staying in the eurozone was favored by a majority of Greeks, a factor undoubtedly an influence on the party. But by taking office without an alternative plan to negotiating with the troika, in particular EU officials completely cold to any Greek argument, Syriza had boxed in itself. Excuses by Syriza officials for why, rather than reversing austerity, they had agreed to its intensification were just that, excuses. Professor Sheehan challenges those excuses sharply:

“It was one thing to allude to a gun to the head and to admit to defeat, but another to turn around and to claim a great moral victory and to aim the attack on anyone who said otherwise. There was much violation of elementary logic, evasion of empirical evidence, and denial of ethical culpability. … The point about conceptualizing contradiction is not to affirm it and to wallow in it, but to struggle to resolve it, to transcend it, to create a new synthesis from it. As if intensified economic expropriation and political capitulation were not bad enough already, they added intellectual obfuscation and moral degradation to the dreadful reality unfolding. … You cannot build a left when you trash the very basis of our beliefs. It came from a mix of blatant opportunism, genuine confusion, psychological distress, and postmodernist sophistry.” [pages 133-134]

Syriza, despite all the bustle of the previous three years, had taken office unprepared. And, bizarrely, holding a belief that the troika could be reasoned with.

A suicide mission followed by a purge

Next was a “suicide mission for the Left” — Syriza introduced into parliament a 977-page bill to be voted on immediately with no time to be read. The Left Platform voted no as a unified faction and a separate Syriza parliamentary faction, the 53+ Group, complained about the stifling of party democracy, yet Syriza overall voted yes and the new agreement was approved with support from most other parties. “I do not believe that you can do bad to do good,” is the author’s succinct appraisal.

In the wake of shameful capitulation, rather than call a party congress, Prime Minister Tsipras decided to call a snap election, which he would use to purge Syriza of its left wing. He distinguished this campaign by attacking the Left and international supporters. The Left Platform members of parliament resigned to form a new party, Popular Unity, but with little time and no resources it failed to reach the 3 percent vote threshold. Syriza won again.

Defections from Syriza and attempts to build a new Left party have continued since as not only is no debt relief in sight despite one humiliating concession after another but Syriza lurches right in foreign policy and the prime minister falls to his knees in front of the church. It had taken Syriza only six months to travel the path that the former socialist party, Pasok, had traveled in 20 years but without the genuine reforms that Pasok had implemented early in its time in government. Implementing and expanding expropriation in order to end it is not dialectical; it is nonsense, Professor Sheehan points out.

So why had Syriza taken such a road? No one answer could suffice, but the author, in a wide-ranging survey, explores several opinions offered by various Greek activists. In short form these include:

  • That Syriza’s actions constitute a retreat, not a betrayal, as transformation is a painful marathon with many retreats.
  • Syriza had no coherent program but its left was too focused on a transformation of the state.
  • Syriza failed to contest the narrative of “there is no alternative” and should have renounced the debt, nationalized the banks and elaborated an anti-capitalist narrative.
  • Syriza’s failure is rooted in its class compromises and constant reassurances to the Right since 2012.
  • Popular Unity has a future despite “messing up” its first election.
  • It is impossible to control the economy inside the eurozone.
  • The power of money destroyed Syriza.

Helena Sheehan has written a most useful study of Syriza and in particular the range of platforms and outlooks, and the evolution of these, as the party prepared to take power and then found itself unable to manage, let alone solve, internal and external contradictions. That this is a “you are there” document from a personalized standpoint does not at all mean that The Syriza Wave is anything other than a serious political analysis. The work could have been strengthened in two ways: one, a deeper discussion of the economic issues, including the ramifications of staying in (or exiting) the eurozone, and, two, a discussion of how virtually every euro of the troika loans are going to creditors and banks rather than to the Greek people, a topic barely mentioned in passing only once. These are topics that would have added to the narrative.

Nonetheless, a reader wishing political analysis and to understand what activists and leaders in Syriza were thinking and doing, including ministers before and after taking up their posts, would do well to read this book. Professor Sheehan, despite the appropriately bitter denouncements of the party’s performance in office in contrast to her earlier support, ends on an optimistic note. We are, after all, supposed to learn from defeat so we can do it better in the future, yes?

* Helena Sheehan, The Syriza Wave: Surging and Crashing with the Greek Left [Monthly Review Press, New York 2016]

Austerity never ends: Economists say wages are too high

No, you can’t really make this stuff up: Orthodox economists continue to tell us that the reason for ongoing economic stagnation is that wages and unemployment benefits are too high. Yes, that’s right. You haven’t suffered enough.

Given that orthodox economics (or “neoclassical” or Chicago School, if you prefer alternate labels) exists as a propaganda tool to justify all manner of capitalist excesses and inequality, it’s not actually surprising that such snake oil continues to be peddled with a straight face. Never mind the years of stagnant wages, the decades of wages trailing productivity ever further, housing costs rising far more sharply than inflation, and the increased use of debt just to stay afloat.

(Photo by Gargolla)

If you would just work for less, all would be well. The basic reason for that belief is an admission that, in a capitalist economy, wages are a commodity. (That really means human beings are commodities, but we can only expect so much truth here.) This underlying belief is succinctly summarized by this commentary offered by the conservative Library of Economics and Liberty:

“Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages.”

But capitalism is supposed to be a perfect system, always moving toward equilibrium, according to capitalist dogma. So there should be no unemployment. There obviously is, so what’s the culprit? You’ve likely already guessed — it’s the government’s fault. The self-proclaimed capitalist tool, Forbes magazine, claims that wages aren’t increasing because “pent-up wage cuts didn’t happen” following the 2008 global economic meltdown and so poor downtrodden corporations have no choice but to keep wages from rising to make up for those cuts that should have been imposed. If only government policies wouldn’t interfere with the magic of the market, all would be well, Forbes asserts:

“To summarize, government regulation and policy are very much linked to the enduring presence of wage stickiness and slow wage growth since the Great Recession.”

There’s ideology, and then there’s the real world

You can even win a Nobel Prize for these beliefs. The Nobel Prize for economics isn’t actually a Nobel Prize (officially, it is an add-on called the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”), but, still, it’s widely considered one and it’s the highest honor an economist can receive. It almost invariably goes to a conservative economist who upholds orthodox ideology. One recent recipient is Thomas Sargent. Although he formally received his prize for other work, Dr. Sargent is known for writings in which he argues that unemployment benefits are too generous, and if such benefits were reduced, there would be “incentive” for people to go back to work.

Here in the real world, there are many more candidates than jobs that pay a living wage, and unemployment benefits are insufficient to live on. Depending on the state, unemployment benefits amount to 30 to 50 percent of lost wages in the United States — hardly enough to live comfortably on, and it’s cut off after 26 weeks. British benefits are capped at £73.10, and it can be less if you have savings you have yet to tap. Nobody is living large on that amount.

Continental European unemployment coverage is better, and, interestingly, some of the countries with the highest levels of benefits, such as Denmark, Norway and Finland, have among the lowest unemployment rates, although those benefits have eroded in recent years. Nonetheless, social safety nets in general lead to unemployment, Dr. Sargent believes. In an interview with Swedish Television, he said workers ought to be prepared for having low unemployment compensation in order to get the right incentives to search for jobs.

“Sargent, with Swedish economist Lars Ljungqvist, found that high, long-lasting unemployment benefits in Europe have caused many European workers who lost their jobs to stay unemployed for years and, thereby, erode their human capital. This makes them less employable in the long run. The fact that the U.S. government extended unemployment benefits in many U.S. states to 99 weeks, said Sargent in the 2010 interview … ‘fills me with dread.’ ”

Those extended terms of unemployment have since been rescinded, so he can hopefully now sleep at night. Related to supposedly overly generous social safety nets, is the idea that working people stubbornly refuse to accept wage cuts. This is not entirely true, as the effects of the North American Free Trade Agreement demonstrate. NAFTA has caused a persistent decline in wages for displaced workers and manufacturers routinely threaten to shut down and/or move their facilities in response to unionization drives since NAFTA came into force. But, remember, we’re dealing with ideology here, not practical reality. Two years ago, the San Francisco branch of the Federal Reserve issued a report that blamed ongoing economic weakness on wages not falling enough. The paper claimed:

“One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity.”

Cutting wages won’t be a panacea

Falling wages might provide a short-term boost to corporate profits, but the reduced purchasing power of working people would soon cause people to buy less. That is disastrous in advanced capitalist countries, where consumer spending generally accounts for anywhere from 60 to 70 percent of gross domestic product.

Lars Syll, a heterodox economist and self-described critic of market fundamentalism writing on the Real-World Economics Review Blog, put this plainly:

“The aggregate effects of wage cuts would, as shown by Keynes, be catastrophical. They would start a cumulative spiral of lower prices that would make the real debts of individuals and firms increase since the nominal debts wouldn’t be affected by the general price and wage decrease. In an economy that more and more has come to rest on increased debt and borrowing this would be the entrance-gate to a debt deflation crises with decreasing investments and higher unemployment. In short, it would make depression knock on the door.”

A food line in Toronto in 1931; falling wages didn’t work out during the Great Depression.

Falling wages were a reality during the Great Depression, but that didn’t help matters. By 1933 in the United States, manufacturing wages fell 34 percent and unemployment rose to about 25 percent. The Canadian economy contracted by more than 40 percent and unemployment reached 30 percent in 1933. Collapses in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression.

Moreover, already existing low wages come at a high cost. A 2015 study by the researchers at the University of California Berkeley Center for Labor Research and Education found that public benefits given to people who have jobs but can’t live on their meager wages cost the public more than $150 billion annually in the United States — more than half of total public-assistance spending by federal and state governments. Wal-Mart alone costs taxpayers an estimated $6 billion per year subsidizing the retailer’s low pay and paltry benefits at the same time it pays out similar amounts in dividends, half of which go to the Walton family.

Working harder for less

As all of you doing the jobs of two or three people at your place of employment have undoubtedly noticed, more work is not being rewarded with more pay. The average U.S. household earns about $18,000 less than it would had wages kept pace with productivity gains, and the average Canadian household is short at least $10,000 per year because of pay lagging productivity gains. Workers across Europe, including in Britain, Germany and Spain, have also seen pay lag productivity.

The upward flow of money not only causes more inequality but further concentrates power in the hands of plutocrats. As David Ruccio summarized in a separate Real-World Economics Review Blog post:

“If you put the two trends together—increased individual income inequality and increased corporate savings—what we’re witnessing then is increasing private control over the social surplus. Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want—or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares.

And proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control.”

And that is the context to keep in mind when one reads fairy tales such as this from the far right Mises Institute:

“Ending poverty and giving people additional income are praiseworthy goals, but there are no free lunches in this world. And trying to force prosperity through a minimum wage simply creates a whole host of negative and unintended consequences especially for those who are the most vulnerable.”

The value of the minimum wage in the U.S. is about two-thirds of what it was when it reached its inflation-adjusted peak in 1968. The Canadian minimum wage is worth about a dollar less than its peak in 1976. Australia’s minimum wage is well below what it was worth in 1985.

Even in these bare bottom-line terms, a higher minimum wage is hardly a “free lunch.” It is still less so when we realize that jobs don’t come from the great benevolence of bosses nor are profits conjured out of thin air by the genius of capitalists. Employers generate profits by paying employees much less than the value of what they produce. Increased exploitation through work speedups, increased workloads and benefits reductions mean that capitalists are taking a bigger share of the value of what you produce.

And here we come to the real meaning of “freedom” that capitalists and their publicists so love to extol. “Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists. The world’s central banks have printed and spent $8 trillion (€7.4 trillion) to buy bonds, mostly those issued by their own governments. Imagine what that spending could have done if that money had been given to people or used for productive social spending instead of a free lunch for financial speculators.

World Bank declares itself above the law

The World Bank has for decades left a trail of human misery. Destruction of the environment, massive human rights abuses and mass displacement have been ignored in the name of “development” that works to intensify neoliberal inequality. In response to legal attempts to hold it to account, the World Bank has declared itself above the law.

At least one U.S. trial court has already agreed that the bank can’t be touched, and thus the latest lawsuit filed against it, attempting to obtain some measure of justice for displaced Honduran farmers, faces a steep challenge. Regardless of the ultimate outcome of legal proceedings, however, millions of people around the world have paid horrific prices for the relentless pursuit of profit.

A trail of evictions, displacements, gross human rights violations (including rape, murder and torture), widespread destruction of forests, financing of greenhouse-gas-belching fossil-fuel projects, and destruction of water and food sources has followed the World Bank.

Honduras (photo by Zack Clark)

The latest attempt at accountability is a lawsuit filed in the U.S. federal court in Washington by EarthRights International, a human rights and environmental non-governmental organization, charging that the World Bank has turned a blind eye to systematic abuses associated with palm-oil plantations in Honduras that it has financed. The lawsuit, Juana Doe v. International Finance Corporation, alleges that

“Since the mid-1990s, the International Finance Corporation [a division of the World Bank] has invested millions of dollars in Honduran palm-oil companies owned by the late Miguel Facussé. Those companies — which exist today as Dinant — have been at the center of a decades-long and bloody land-grabbing campaign in the Bajo Aguán region of Honduras.

For nearly two decades, farmer cooperatives have challenged Dinant’s claims to sixteen palm-oil plantations … that it has held in the Bajo Aguán region. On information and belief, Dinant’s former owner, Miguel Facussé, took that land from the farmer cooperatives through fraud, coercion, and actual or threatened violence. The farmer cooperatives have engaged in lawsuits, political advocacy, and peaceful protests to challenge Dinant’s control and use of the land. And Dinant has responded to such efforts with violence and aggression.”

Bank’s own staff cites failures

EarthRights International alleges that the World Bank has “repeatedly and consistently provided critical funding to Dinant, knowing that Dinant was waging a campaign of violence, terror, and dispossession against farmers, and that their money would be used to aid the commission of gross human rights abuses.” The lawsuit filing cites “U.S. government sources” to allege that more than 100 farmers have been killed since 2009.

The suit also says that the International Finance Corporation’s own ombudsman said the World Bank division “failed to spot or deliberately ignored the serious social, political and human rights context.” These failures arose “from staff incentives ‘to overlook, fail to articulate, or even conceal potential environmental, social and conflict risk’ and ‘to get money out the door.’ ” Despite this internal report, the suit says, the World Bank continued to provide financing and that the ombudsman has “no authority to remedy abuses.”

(World Bank representatives did not respond to a request for comment. Although not directly a party to the lawsuit, Dinant describes the allegations as “absurd.” In a statement on its web site, the company said “All allegations that Dinant is — or ever has been — engaged in systematic violence against members of the community are without foundation.”)

Three Gorges Dam, a project funded by the World Bank that displaced 1.3 million people (photo by Christoph Filnkössl)

EarthRights International’s lawsuit faces an uphill challenge due to an earlier suit filed by it on behalf of Indian farmers and fisherpeople being thrown out by the same court when it ruled that the World Bank is immune from legal challenge. The bank provided $450 million for a power plant that the plaintiffs said degraded the environment and destroyed livelihoods. The court agreed with the World Bank’s contention that it has immunity under the International Organizations Immunities Act. (The dismissal has been appealed.)

The International Organizations Immunities Act provides that “International organizations, their property and their assets, wherever located, and by whomsoever held, shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments.” The World Bank has been declared the equivalent of a sovereign state, and in this context is placed above any law as if it possesses diplomatic immunity.

This law is applied selectively; lawsuits against Cuba are not only allowed but consistently won by plaintiffs. These are not necessarily the strongest of cases, such as participants in the Bay of Pigs invasion winning judgments and a woman who was married to a Cuban who went back to Cuba winning $27 million because the court found that her marriage made her a “victim of terrorism”!

More than 3 million people displaced

Despite its immunity, a passport may not be needed to enter a World Bank office, but can it be argued that the lending organization uses its immense power wisely? That would be a very difficult case to make.

A 2015 report by the International Consortium of Investigative Journalists found that 3.4 million people were physically or economically displaced by projects funded by the World Bank. Land was taken, people were forced from their homes and their livelihoods damaged. Some of the other findings of the report, on which more than 50 journalists from 21 countries worked:

  • From 2009 to 2013, the World Bank pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts — more than twice as much as the previous five-year span.
  • The bank regularly fails to live up to its own policies that purport to protect people harmed by projects it finances.
  • The World Bank and its International Finance Corporation lending arm have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases, they continued to bankroll these borrowers after evidence of abuses emerged.
  • Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.

One of the articles that is a part of this investigative report said the bank routinely ignores its own rules that require detailed resettlement plans and that employees face strong pressure to approve big infrastructure projects. The report says:

“The World Bank often neglects to properly review projects ahead of time to make sure communities are protected, and frequently has no idea what happens to people after they are removed. In many cases, it has continued to do business with governments that have abused their citizens, sending a signal that borrowers have little to fear if they violate the bank’s rules, according to current and former bank employees.

‘There was often no intent on the part of the governments to comply — and there was often no intent on the part of the bank’s management to enforce,’ said Navin Rai, a former World Bank official who oversaw the bank’s protections for indigenous peoples from 2000 to 2012. ‘That was how the game was played.’ …

Current and former bank employees say the work of enforcing these standards has often been undercut by internal pressures to win approval for big, splashy projects. Many bank managers, insiders say, define success by the number of deals they fund. They often push back against requirements that add complications and costs.”

Funding that facilitates global warming

Incredibly, one of the outcomes of the Paris Climate Summit was for leaders of the G7 countries to issue a communiqué that they would seek to raise funds “from private investors, development finance institutions and multilateral development banks.” These leaders propose the World Bank be used to fight global warming despite it being a major contributor to projects that increase greenhouse-gas emissions, including providing billions of dollars to finance new coal plants around the world. The bank even had the monumental hypocrisy to issue a report in 2012 that called for slowing global warming while ignoring its own role.

It is hoped you, dear reader, won’t fall off your chair in shock, but the World Bank’s role in facilitating global warming has since only increased.

What happens to rain forests when the market is allowed to decide. (Photo of Montane Rainforest in Ecuador by Gunnar Brehm)

Financing projects that facilitate global warming had already been on the rise. A study prepared by the Institute for Policy Studies and four other organizations found that World Bank lending for coal, oil and gas reached $3 billion in 2008 — a sixfold increase from 2004. In the same year, only $476 million went toward renewable energy sources. Oil Change International (citing somewhat lower dollar figures) estimates that World Bank funding for fossil fuels doubled from 2011 to 2015.

Destructive logging projects across the Global South funded by the World Bank accelerated in the 1990s. Despite a January 2000 internal report finding that its lending practices had not curbed deforestation or reduced poverty, Southeast Asia saw a continuation of illegal logging and land concessions, and untimely deaths of local people blowing the whistle, as has Africa.

Similar to its report on curbing global warming that ignores its own role, the World Bank shamelessly issued a 2012 report calling for international law enforcement measures against illegal logging. Perhaps what is illegal are only those operations not funded by the bank?

Loans to pay debt create more debt, repeat

Ideology plays a critical role here. International lending organizations, such as the World Bank and International Monetary Fund, consistently impose austerity. The IMF’s loans, earmarked for loans to governments to pay debts or stabilize currencies, always come with the same requirements to privatize public assets (which can be sold far below market value to multi-national corporations waiting to pounce); cut social safety nets; drastically reduce the scope of government services; eliminate regulations; and open economies wide to multi-national capital, even if that means the destruction of local industry and agriculture. This results in more debt, which then gives multi-national corporations and the IMF, which enforces those corporate interests, still more leverage to impose more control, including heightened ability to weaken environmental and labor laws.

The World Bank compliments this by funding massive infrastructure projects that tend to enormously profit deep-pocketed international investors but ignore the effects on local people and the environment.

The World Bank employs a large contingent of scientists and technicians, which give it a veneer of authority as it pursues a policy of relentless corporate plunder. Noting that the bank possesses “an enormous research and knowledge generation capacity,” The environmental and social-justice organization ASEED Europe reports:

“The World Bank is the institution with one of the largest research budgets globally and has no rival in the field of development economics. … A number of researchers and scholars have questioned the reliability of the World Bank-commissioned research. Alice Amsdem, a top scholar on East Asian economies, argues that since the World Bank continually fails to scientifically prove its conclusions, its policy justifications are ‘quintessentially political and ideological.’ Regarding the World Development Report (WDR) series, for example, Nicholas Stern, an Oxford professor in economics and former World Bank chief economist says that many of the numbers used by the Bank come from highly dubious sources, or have been constructed in ways which leaves one sceptical as to whether they can be helpfully applied.” (citations omitted)

Capitalist ideology rests on the concept of “markets” being so efficient that they should be allowed to work without human intervention. But what is a market? Under capitalism, it is nothing more than the aggregate interests of the most powerful and largest financiers and industrialists. No wonder that “markets” “decide” that neoliberal austerity must be ruthlessly imposed — it is those at the top of vast corporate institutions who benefit from the decisions that the World Bank, and similar institutions, consistently make.

Markets do not sit in the clouds, beyond human control, as some perfect mechanism. They impose the will of those with the most who can not ever have enough. Markets are not ordained by some higher power — everything of human creation can be undone by human hands. Our current world system is no exception.

The bait and switch of public-private partnerships

This being the age of public relations, the genteel term “public-private partnership” is used instead of corporate plunder. A “partnership” such deals may be, but it isn’t the public who gets the benefits.

We’ll be hearing more about so-called “public-private partnerships” in coming weeks because the new U.S. president, Donald Trump, is promoting these as the basis for a promised $1 trillion in new infrastructure investments. But the new administration has also promised cuts to public spending. How to square this circle? It’s not difficult to discern when we recall the main policy of the Trump administration is to hand out massive tax cuts to big business and the wealthy, and provide them with subsidies.

Public-private partnerships are one of the surest ways of shoveling money into the gaping maws of corporate wallets, used, with varying names, by neoliberal governments around the world, particularly in Europe and North America. The result has been disastrous — public services and infrastructure maintenance is consistently more expensive after privatization. Cuts to wages for workers who remain on the job and increased use of low-wage subcontractors are additional features of these privatizations.

Chicago at night (photo by Lol19)

Chicago at night (photo by Lol19)

The rationale for these partnerships is, similar to other neoliberal prescriptions, ideological — the private sector is supposedly always more efficient than government. A private company’s profit incentive will supposedly see to it that costs are kept under control, thereby saving money for taxpayers and transferring risk to the contractor. In the real world, however, this works much differently. A government signs a long-term contract with a private enterprise to build and/or maintain infrastructure, under which the costs are borne by the contractor but the revenue goes to the contractor as well.

The contractor, of course, expects a profit from the arrangement. The government doesn’t — and thus corporate expectation of profits requires that revenues be increased and expenses must be cut. Less services and fewer employees means more profit for the contractor, and because the contractor is a private enterprise there’s no longer public accountability.

Public-private partnerships are nothing more than a variation on straightforward schemes to sell off public assets below cost, with working people having to pay more for reduced quality of service. A survey of these partnerships across Europe and North America will demonstrate this clearly, but first a quick look at the Trump administration’s plans.

Corporate subsidies, not $1 trillion in new spending

The use of the word “plans” is rather loose here. No more than the barest outline of a plan has been articulated. The only direct mention of his intentions to jump-start investment in infrastructure is found in President Trump’s campaign web site. In full, it states the plan “Leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over ten years. It is revenue neutral.” The administration’s official White House web site’s sole mention of infrastructure is an announcement approving the Keystone XL and Dakota Access pipelines without environmental reviews, and an intention to expedite environmental reviews for “high priority infrastructure projects.”

Wilbur Ross, an investment banker who buys companies and then takes away pensions and medical benefits so he can flip his companies for a big short-term profit, and who is President Trump’s pick for commerce secretary, along with a conservative economics professor, Peter Navarro, have recommended the Trump administration allocate $137 billion in tax credits for private investors who underwrite infrastructure projects. The two estimate that over 10 years the credits could spur $1 trillion in investment. So the new administration won’t actually spend $1 trillion to fix the country’s badly decaying infrastructure; it hopes to encourage private capital to do so through tax cuts.

The Sea-to-Sky Highway in British Columbia (photo by D. Vincent Alongi)

The Sea-to-Sky Highway in British Columbia (photo by D. Vincent Alongi)

There is a catch here — private capital is only going to invest if a steady profit can be extracted. Writing in the New Republic, David Dayen put this plainly:

“Private operators will only undertake projects if they promise a revenue stream. You may end up with another bridge in New York City or another road in Los Angeles, which can be monetized. But someplace that actually needs infrastructure investment is more dicey without user fees. So the only way to entice private-sector actors into rebuilding Flint, Michigan’s water system, for example, is to give them a cut of the profits in perpetuity. That’s what Chicago did when it sold off 36,000 parking meters to a Wall Street-led investor group. Users now pay exorbitant fees to park in Chicago, and city government is helpless to alter the rates.”

The Trump plan appears to go beyond even the ordinary terms of public-private partnerships because it would transfer money to developers with no guarantee at all that net new investments are made, according to an Economic Policy Institute analysis. The EPI report asks several questions:

“[I]t appears to be a plan to give tax credits to private financiers and developers, period. The lack of details here are daunting and incredibly important. For starters, we don’t know if the tax credit would be restricted to new investment, or if investors in already existing [public-private partnerships] are eligible for the credit. If private investors in already existing PPP arrangements are eligible, how do we ensure these tax credits actually induce net new investments rather than just transferring taxpayer largesse on operators of already-existing projects? Who decides which projects need to be built? How will the Trump administration provide needed infrastructure investments that are unlikely to be profitable for private providers (such as building lead-free water pipes in Flint, MI)? If we assume tax credits will be restricted (on paper, anyhow) to just new investment, how do we know the money is not just providing a windfall to already planned projects rather than inducing a net increase in how much infrastructure investment occurs?”

Critiques of this scheme can readily be found on the Right as well. For example, Douglas Holtz-Eakin, a former head of the Congressional Budget Office and economic adviser to John McCain’s 2008 presidential campaign, told The Associated Press, “I don’t think that is a model that is going be viewed as successful or that you can use it for all of the infrastructure needs that the U.S. has.”

Corporations plunder, people pay in Britain

Britain’s version of public-private partnerships are called “private finance initiatives.” A scheme concocted by the Conservative Party and enthusiastically adopted by the New Labour of Tony Blair and Gordon Brown, the results are disastrous. A 2015 report in The Independent reveals that the British government owes more than £222 billion to banks and businesses as a result of private finance initiatives. Jonathan Owen reports:

“The startling figure – described by experts as a ‘financial disaster’ – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office. The headline debt is based on ‘unitary charges’ which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies.

Responding to the findings, [British Trades Union Congress] General Secretary Frances O’Grady said: ‘Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.’ ”

Under private finance initiatives, a consortium of private-sector banks and construction firms finance, own, operate and lease the formerly public property back to the U.K. taxpayer over a period of 30 to 35 years. By no means do taxpayers receive value for these deals — and the total cost will likely rise far above the initial £222 billion cost. According to The Independent:

“The system has yielded assets valued at £56.5bn. But Britain will pay more than five times that amount under the terms of the PFIs used to create them, and in some cases be left with nothing to show for it, because the PFI agreed to is effectively a leasing agreement. Some £88bn has already been spent, and even if the projected cost between now and 2049/50 does not change, the total PFI bill will be in excess of £310bn. This is more than four times the budget deficit used to justify austerity cuts to government budgets and local services.”

The private firms can even flip their contracts for a faster payday. Four companies given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals for a composite profit of £300 million. Clearly, these contracts were given at well below reasonable cost.

City of London expanding (Photo by Will Fox)

City of London expanding (Photo by Will Fox)

One of the most prominent privatization disasters was a £30 billion deal for Metronet to upgrade and maintain London’s subway system. The company failed, leaving taxpayers with a £2 billion bill because Transport for London, the government entity responsible for overseeing the subway, guaranteed 95 percent of the debt the private companies had taken out. Then there is the example of England’s water systems, directly sold off. The largest, Thames Water, was acquired by a consortium led by the Australian bank Macquarie Group. This has been disastrous for rate payers but most profitable to the bank. An Open University study found that, in four of the five years studied, the consortium took out more money from the company than it made in post-tax profits, while fees increased and service declined.

As for the original sale itself, the water companies were sold on the cheap. Although details of the business can be discussed by “stakeholders,” the authors conclude, the privatization itself remains outside political debate, placing a “ring-fence” around the issues surrounding the privatization, such as the “politics of packaging and selling households as a captive revenue stream.” The public has no choice when the water provider is a monopoly and thus no say in rates.

Incredibly, Prime Minister Theresa May and the Tories intend to sell off more public services to Macquarie-led consortiums.

Corporations plunder, people pay across Europe

Privatization of water systems has not gone better in continental Europe. Cities in Germany and France, including Paris, have taken back their water after selling systems to corporations. The city of Paris’ contracts with Veolia Environment and Suez Environment, 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. 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. Higher prices and reduced services have been the norm for privatized systems across France, according to Professor Hall’s study.

German cities have also “re-municipalized” basic utilities. 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.

The Grand Palais in Paris (photo by Thesupermat)

The Grand Palais in Paris (photo by Thesupermat)

Water is big business. Suez and Veolia both reported profits of more than €400 million for 2015. Not unrelated to this is the increasing prominence of bottled water. Bottled water is dominated by three of the world’s biggest companies: Coca-Cola (Dasani), PepsiCo (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). So it’s perhaps not surprising that Nestlé Chairman Peter Brabeck-Letmathe infamously issued a video in which he declared the idea that water is a human right “extreme” and that water should instead have a “market value.”

One privatization that has not been reversed, however, is Goldman Sachs’ takeover of Denmark’s state-owned energy company Dong Energy. Despite strong popular opposition, the Danish government sold an 18 percent share in Dong Energy to Goldman Sachs in 2014 while giving the investment bank a veto over strategic decisions, essentially handing it control. The bank was also given the right to sell back its shares for a guaranteed profit. Goldman Sachs has turned a huge profit already — two years after buying its share, Dong began selling shares on the stock market, and initial trading established a value for the company twice as high as it was valued for purposes of selling the shares to Goldman. In other words, Goldman’s shares doubled in value in just two years — a $1.7 billion gain.

Danes have paid for this partial privatization in other ways as well. Taking advantage of the control granted it, Goldman demanded lower payments to Danish subcontractors and replaced some subcontractors who refused to use lower-paid workers.

Corporations plunder, people pay in Canada

Canada’s version of public-private partnerships has followed the same script. A report by the Canadian Centre for Policy Alternatives flatly declared that

“In every single project approved so far as a P3 in Ontario, the costs would have been lower through traditional procurement if they had not inflated by these calculations of the value of ‘risk.’ The calculations of risk could just as well have been pulled out of thin air — and they are not small amounts.”

Not that Ontario is alone here. Among the examples the Centre provides are a hospital, Brampton Civic, that cost the public $200 million more than if it had been publicly financed and built directly by Ontario; the Sea-to-Sky Highway in British Columbia that will cost taxpayers $220 million more than if it had been financed and operated publicly; bailouts of the companies operating the city of Ottawa’s recreational arenas; and a Université de Québec à Montréal project that doubled the cost to $400 million.

A separate study by University of Toronto researchers of 28 Ontario public-private partnerships found they cost an average of 16 percent more than conventional contracts.

Corporations plunder, people pay in the United States

In the United States, a long-time goal of the Republican Party has been to privatize the Postal Service. To facilitate this, a congressional bill signed into law in 2006 required the Postal Service to pre-fund its pension costs for the next 75 years in only 10 years. This is unheard of; certainly no private business would or could do such a thing. This preposterous requirement saddled the Postal Service with a $16 billion deficit. The goal here is to weaken the post office in order to manufacture a case that the government is incapable of running it.

The city of Chicago has found that there are many bad consequences of public-private partnerships beyond the monetary. In 2008, Chicago gave a 75-year lease on its parking meters to Morgan Stanley for $1 billion. Shortly afterward, the city’s inspector general concluded the value of the meter lease was $2 billion. Parking rates skyrocketed, and the terms of the lease protecting Morgan Stanley’s investment created new annual costs for the city, according to a Next City report.

Haze from forest fires in St. Mary Valley, Glacier National Park. Republicans are targeting national parks for sale, too. (photo by Pete Dolack)

Haze from forest fires in St. Mary Valley, Glacier National Park. Republicans are targeting national parks for sale, too. (photo by Pete Dolack)

That report noted that plans for express bus lanes, protected bike lanes and street changes to enhance pedestrian safety are complicated by the fact that each of these projects requires removing metered parking spaces. Removing meters requires the city to make penalty payments to Morgan Stanley. Even removals for street repairs requires compensation; the Next City report notes that the city lost a $61 million lawsuit filed by the investment bank because of street closures.

Nor have water systems been exempt from privatization schemes. A study by Food & Water Watch found that:

  • Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
  • After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
  • Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Pure ideology drives these privatization schemes. The Federal Reserve poured $4.1 trillion into buying bonds, which did little more than inflate a stock-market bubble, while the investment needs to rebuild U.S. water systems, schools and dams, plus cleaning up Superfund sites and eliminating student debt, are less at a combined $3.4 trillion. What if that Federal Reserve money had gone to those instead?

“Public investment to create private profit”

Given its billionaire leadership, the Trump administration’s plans for public-private partnerships will not lead to better results, and may well be even worse. Michael Hudson recently summarized what is likely coming in this way:

“Mr. Trump wants to turn the U.S. economy into the kind of real estate development that has made him so rich in New York. It will make his fellow developers rich, and it will make the banks that finance this infrastructure rich, but the people are going to have to pay for it in a much higher cost for transportation, much higher cost for all the infrastructure that he’s proposing. So I think you could call Trump’s plan ‘public investment to create private profit.’ That’s really his plan in a summary, it looks to me.”

This makes no sense as public policy. But it is consistent with the desire of capitalists to continually extract higher profits from any and all human activity. Similar to governments handing over their sovereignty to multi-national corporations in so-called “free trade” deals that facilitate the movement of production to locales with ever lower wages and weaker laws, public-private partnerships represent a plundering of the public sector for private profit, and government surrender of public goods. All this is a reflection of the imbalance of power in capitalist countries.

This is “the market” in action — and the market is nothing more than the aggregate interests of the most powerful industrialists and financiers. It also reflects that as capitalist markets mature and capital runs out of places into which to expand, ongoing competitive pressures will drive corporate leaderships to reduce expenses (particularly wages) and move into new lines of business. Taking over what had been the public sector is one way of achieving this, especially if public goods can be bought below fair market value and guarantees of profits extracted.

The ruthless logic of capitalism is that a commodity goes to those who can pay the most, regardless of whether it is something essential to human life.

Has the IMF renounced neoliberalism? Well, not really.

Sound the alarms! Could the International Monetary Fund be reconsidering neoliberalism? Sadly, no, once we actually read the short document “Neoliberalism: Oversold?

The title certainly does grab our attention, and on the very first page, there is this highlighted passage: “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.”

Ah, but disappointment quickly sets in while reading the first paragraph, which purports to hold up Pinochet-era Chile as model “widely emulated across the globe,” including a mention of Chicago School godfather Milton Friedman proclaiming Chile an “economic miracle” in 1982. The actual record is not mentioned, nor is the little matter of military dictator Augusto Pinochet’s wave of terror that killed, imprisoned, tortured and imprisoned tens of thousands mentioned. Details in the eyes of the IMF, we presume.

The institution of neoliberalism in Chile, 1973: La Moneda, the presidential palace, is bombed (photo by Biblioteca del Congreso Nacional de Chile)

The institution of neoliberalism in Chile, 1973: La Moneda, the presidential palace, is bombed (photo by Biblioteca del Congreso Nacional de Chile)

In reality, Chile’s poverty rate skyrocketed to 40 percent under Pinochet, while real wages had declined by a third and one-third of Chileans were unemployed during the last years of the dictatorship. Unemployment figures do not include the many urban Chileans who worked as “car minders” earning small tips from waving orange rags at motorists pulling into parking spaces and taking the motorists’ coins to insert into parking meters, which Pinochet’s planning minister, a Friedman disciple, declared to be “a good living.” Lavish subsidies were given to large corporations, public spending was slashed and the social security system was privatized. The privatized social security system was so bad for Chilean working people that someone retiring in 2005 received less than half of what he or she would have received had they been in the old government system.

Let us not forget the humanity of those whose lives were crushed by Pinochet and Friedman.

Pinochet's soldiers show what they think of literature (photo from CIA Freedom of Information Act via Wikimedia Commons)

Pinochet’s soldiers show what they think of literature (photo from CIA Freedom of Information Act via Wikimedia Commons)

Back to the IMF paper, which defines neoliberalism blandly as “deregulation” and “a smaller role for the state.” A far better definition of neoliberalism is provided by Henry Giroux:

“As an ideology, it construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

The authors of the IMF paper gingerly work themselves up to some mild critiques, lamenting that “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries” and that “The costs in terms of increased inequality are prominent.” Furthermore, the odds of an economic crash are raised, among other problems:

“Austerity policies not only generate substantial welfare costs due to supply-side channels, they also hurt demand—and thus worsen employment and unemployment. … [I]n practice, episodes of fiscal consolidation have been followed, on average, by drops rather than by expansions in output. On average, a consolidation of 1 percent of [gross domestic product] increases the long-term unemployment rate by 0.6 percentage point and raises by 1.5 percent within five years the Gini measure of income inequality.”

Decades of stagnant wages, hollowing out of manufacturing bases and steadily increasing inequality, augmented by unsustainable stock-market bubbles and capped by eight years and counting of economic downturn and stagnation, and that is the best the IMF can do? The paper concludes with this passage: “Policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked.”

The belief in neoliberalism and austerity, or supply-side economics, or Reaganism, or Thatcherism (whatever we want to call it) has always been based on faith, at least on the part of some of those who promote it. For many other financiers and industrialists, it surely is the case is they knew just what was going to happen and cheered it all the way because they were going to benefit handsomely. Economics may be the dismal science, but dismal though classical economics is, it is far more art than science, as in the art of fleecing.

Millions for the boss, cuts for you

More is never enough. By now we really don’t need yet another statement of inequality, but here goes anyway: The average ratio of chief executive pay to employee pay has reached 335-to-1 in the United States.

And some of the highest paid CEOs were at the companies that stash the most money in overseas tax havens. Among the giant corporations that comprise the Standard & Poor’s 500, the 25 at the companies with the most unrepatriated profits hauled in 79 percent more than other S&P 500 chief executive officers, reports the AFL-CIO union federation’s Paywatch 2016 report. Just 10 corporations — Apple, Pfizer, Microsoft, General Electric, IBM, Merck, Cisco Systems, Johnson & Johnson, Exxon Mobil, and Hewlett-Packard successor HP Inc.  — are believed to be holding about $948 billion in accounts outside the reach of tax authorities.

Being at the top of the corporate pyramid certainly pays — the average S&P 500 chief executive officer hauled in $12.4 million in 2015, while the average non-supervisory worker earned $36,875. That average worker would have to work 335 hours to earn what the CEO makes in one hour. For a worker earning the federal minimum wage, the pay ratio is 819-to-1.

CEO-to-worker ratioThe Paywatch 2016 report illustrated this stark inequality with the example of Mondelez International Inc., where Chief Executive Officer Irene Rosenfeld earned close to $20 million last year, or 534 times the average worker’s pay. At the same time, Mondelez asked workers at a Nabisco cookie and cracker plant in Chicago to take a permanent 60 percent cut in wages and benefits, or their jobs would be moved to Mexico. As nobody could agree to such conditions, hundreds of people were laid off. Ms. Rosenfeld, incidentally, received a $7 million raise for her troubles, likely comparable to the combined pay of the laid-off workers.

Lest we fret that Mondelez may be undergoing tough times, please don’t lose any sleep — the company reported net income of $7.3 billion in 2015 and $15 billion for the past five years. Nor should sleep be lost worrying about Mondelez’s tax “burden” as it paid all of $49 million in U.S. taxes in 2015. That’s a tax rate of less than one percent.

That company is not unique, of course. Workers at Verizon Communications Inc. have been on strike since April 13 as Verizon seeks to move call-center jobs overseas, outsource instillation work to low-wage, non-unionized contractors, and reduce benefits. Verizon wants to stick it to its workers despite racking up $45 billion in net income over the past five years, at the same time paid no taxes and has stashed $1.3 billion in offshore accounts.

Avoiding taxes has become an art form for U.S. corporations, especially those who operate as multi-nationals. Dodging taxes is simply another “capitalist innovation,” and so common that a single small building in the Cayman Islands (where the corporate tax rate is zero percent) is the registered address for almost 19,000 corporations. Tax dodging also means higher pay for top executives — yet another corporate subsidy.

tax burden chartThis goes beyond simple unfairness, although corporate tax collection in the U.S. has declined drastically, falling from about one-third of U.S. government tax receipts in the 1950s to 10 percent in 2015; it was as low as 6.6 percent in 2009. Nor is it simply that less taxes collected reduces the ability of governments to effectively provide an adequate social safety net. Higher taxes actually lead to more jobs. Countries that provide more subsidies toward services that are complementary to work — such as child care, elder care and transportation — have higher workforce participation rates. Yes, contrary to orthodox economics, higher rates of taxation lead to more employment.

Let’s not reduce all this to simply greed. The relentless competition endemic to capitalism mandates that corporations engage in an endless race to the bottom. “Grow or die” is an inescapable mandate — if you don’t grow, your competitor will and put you out of business.

That’s a war that working people can never win. Class warfare rages hotter than ever, but there is only one class that is waging it.

New right-wing government cedes Argentina’s sovereignty to Wall Street

Argentina’s new right-wing president, Mauricio Macri, pledged to put an end to the country’s sovereignty, and on that he has been true to his word. The capitalist principal that windfall profits for speculators is the raison d’état for the world’s governments has been upheld.

Or, to put it in a different way, the government of Argentina will again be allowed to borrow on international financial markets — so that it can borrow money for the sole purpose of paying billions of dollars to speculators.

Argentina had been one of the few countries that refused to bleed its population to pay off odious debt under the 12-year husband and wife rule of Néstor Kirchner and Cristina Fernández. Their left-wing populism has been overstated — they left capitalist relations untouched and at best merely tolerated the movement of recovered factories — but they did consistently put the interests of Argentine working people ahead of international financiers. The election of the right-wing President Macri has put an end to that, along with his introducing the repression that austerity requires.

Entre Rios province, Argentina (photo by Felipe Gonzalez)

Entre Rios province, Argentina (photo by Felipe Gonzalez)

Argentina’s difficulties have a long history. The fascistic military dictatorship of 1976 to 1983 laid waste to the Argentine economy while unleashing horrific human rights abuses, and subsequent civilian governments sold off state enterprises at fire-sale prices while imposing austerity until the economy crashed at the end of 2001. Upon assuming office, President Kirchner suspended debt payments that would have impoverished the country. He offered to negotiate with bond holders, 93 percent of whom ultimately agreed to accept 30 percent of their bonds’ face value.

There were holdouts, most notably two hedge funds that waged a 15-year battle to extract the full value of the bonds, even though they bought them from the original holders for a fraction of the price. These two funds leading the holdouts were NML Capital, a subsidiary of Paul Singer’s Elliot Capital Management, and another hedge fund, Aurelius Capital Management. Mr. Singer, the type of character for which the term “vulture capitalist” was coined, is notorious for his scorched-earth tactics. At different points, he had an Argentine naval training ship seized in Ghana and attempted to seize Argentina’s presidential plane. His dedication to extracting every possible dollar regardless of cost to others was nicely summarized in 2011 by investigative journalist Greg Palast:

“Singer’s modus operandi is to find some forgotten tiny debt owed by a very poor nation (Peru and Congo were on his menu). He waits for the United States and European taxpayers to forgive the poor nations’ debts, then waits a bit longer for offers of food aid, medicine and investment loans. Then Singer pounces, legally grabbing at every resource and all the money going to the desperate country. Trade stops, funds freeze and an entire economy is effectively held hostage.

Singer then demands aid-giving nations pay monstrous ransoms to let trade resume. … Singer demanded $400 million from the Congo for a debt he picked up for less than $10 million. If he doesn’t get his 4,000 percent profit, he can effectively starve the nation. I don’t mean that figuratively — I mean starve as in no food. In Congo-Brazzaville last year, one-fourth of all deaths of children under five were caused by malnutrition.”

Buy low, demand very high

He’ll make a windfall profit off Argentina as well. The “special master” who presided over negotiations between the holdouts and the Argentine government — a veteran corporate lawyer who specializes in representing financiers and banks opposed to regulation — announced that NML Capital, Aurelius Capital and two other big hedge funds will receive 75 percent of the full principal and interest demanded by the holdouts. How big of a profit will this be? Only the funds themselves know for certain, but the lowest public estimate is a profit of nearly 400 percent.

Even that lowest estimate likely understates the profit. Bloomberg News reports that Mr. Singer will be paid $2.3 billion, or close to four times the $617 million in principal his firm holds. But as he likely paid only a small fraction of that principal, his profit is likely far greater. A Columbia University researcher estimates that NML Capital will receive $620 million for a portion of bonds for which it paid $48 million in 2008. That’s nearly a 13-fold profit in six years! As former President Fernández remarked when refusing to pay anything more than the 30 percent to which the other bondholders agreed, “I don’t even think that in organized crime there is a return rate of 1,608 per cent in such a short time,” adding that Argentina would not “submit to such extortion.”

President Fernández was referring to the profit Mr. Singer would have reaped had she given in to his full demands. She was speaking in a national address following two U.S. Supreme Court decisions in 2014 that upheld U.S. District Judge Thomas Griesa’s ruling that Argentina is not allowed to continue to pay the bondholders who agreed to accept 30 percent (or “haircuts” in financial parlance) until it reached an agreement with the holdouts. The Supreme Court also ruled that federal courts in the U.S. can order sovereign countries to hand over information on their assets to speculators. In other words, U.S. law, wielded to generate windfall profits for the most greedy, was decreed to apply to other countries, as if they are not sovereign.

The Kirchner-Fernández governments refused to yield their country’s sovereignty, but President Macri took office promising to pay off the vulture capitalists. Not only was Argentina’s ability to determine its own policy at risk, but the very concept of debt relief has been put in danger. The bondholders who agreed to take 30 percent made the calculation that something is better than nothing, and it enabled Argentina to recover from a severe economic crisis. The Kirchner-Fernández governments consistently offered the same deal to the holdouts. But now that the holdouts extracted so much more, will those who accepted the earlier deal now demand the same 75 percent given to the holdout funds? If they do, will they seek to enforce that after-the-fact better deal in the courtroom of Judge Griesa, who consistently showed himself biased in favor of the vulture capitalists?

Consider the assessment of two United Nations officials, Juan Pablo Bohoslavsky, the U.N. independent expert on the effects of foreign debt on human rights, and Alfred de Zayas, the the independent expert on the promotion of a democratic and equitable international order:

“A settlement would validate the type of predatory litigation that has been on the increase during the last decade. Such deals will make it more difficult to solve debt crises in a fair, timely and efficient manner by emboldening and rewarding the behavior of those who refuse to participate in debt restructuring efforts. These are no good news for attempts to solve debt crises in a timely and human rights sensitive manner.”

Paying debt through taking on more debt

The Macri government has now committed itself to paying $6.4 billion to the holdouts. How will it pay for that? By borrowing. Argentina had been blocked from borrowing in international credit markets, and as part of the deal will be allowed to borrow in those markets again. Judge Griesa’s injunction against resuming payments to the 93 percent of bondholders is also to be lifted. (That was enforceable because Argentina paid its debts to those bondholders through the Bank of New York, which was prohibited by the judge to pass through those payments under pain of legal penalties. Alternative routes through non-U.S. banks are difficult to use because of U.S. control over the global financial system.)

The deal also requires that the Argentine parliament reverse a law that blocks the country from offering any deal to holdouts better than terms agreed to by others. President Macri’s Let’s Change bloc does not hold a majority in the Chamber of Deputies, but picked up votes from the Peronist opposition to effect the necessary legal reversal this week. The Senate must still vote, but the expectation has been that the bill would have an easier time there.

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

Why is President Macri ceding his country’s sovereignty? Right-wing ideology of course plays a significant role here, but it is also self-interest. While the military dictatorship was conducting a reign of terror against Argentines that ultimately led to hundreds of thousands murdered, “disappeared,” tortured, kidnapped, arrested or forced to flee into exile, Mauricio Macri and his family were adding to their wealth. (Remember that this régime had the approval of Henry Kissinger and was blessed by David Rockefeller, whose loans financed it, with his infamous statement that “I have the impression that Argentina has a regime which understands the private enterprise system.”)

The Macri Society, or Socma, the family business, had close ties to the dictatorship. TeleSUR English reports that Socma “directly benefited” from the dictatorship:

“In 1973, prior to the 1976 military coup that ousted the civilian Peronist government of President Maria Estela de Peron and installed a dictatorship, Socma owned seven companies. When the dictatorship ended 10 years later, in 1983, the Socma corporate empire had expanded to 46 companies. Among Socma’s dozens of companies were various businesses that benefited the Macri family economically by providing services to the dictatorship regime.”

The new president, a director of the family conglomerate from a young age, is opposed to an Argentine parliamentary decision to launch an investigation of people and businesses that participated in the military dictatorship’s crimes, TeleSUR reports. La Nacion, a conservative Buenos Aires newspaper that backed President Macri, the day after the election published an editorial calling for an end of efforts to seek justice for the dictatorship’s victims, denouncing the quest for justice as a “culture of revenge.” Perhaps to emphasize this, the president has appointed as the new secretary for religious affairs Santiago Manuel de Estrada, who served as secretary for social security during the military dictatorship, which presided over severe reductions in wages and living conditions to go along with its death squads and torture facilities.

A monopoly for press backers, repression for opponents

Argentina’s biggest media conglomerate, Clarín, also backs President Macri, and no wonder: He has already moved to eliminate Argentina’s anti-monopoly law, which restricts the number of TV, cable and radio licenses a company can hold at one time, so that a handful of corporations can completely control the mass media. Such laws have precedent; for example, U.S. communications law long restricted anyone from owning more than 14 radio stations and seven television stations until overturned during the Reagan era. The Macri government is moving swiftly to silence opposition — it has forced a popular radio broadcaster, Victor Morales, off the air. According to the Buenos Aires Herald:

“ ‘I’m being kicked out because this company needs government advertising … No radio in Argentina can survive without government ads. They can’t mess with Macri,’ said the journalist.”

Demonstrations against these developments have already taken place, as have a public-sector strike against massive layoffs, demonstrations against the new government’s anti-protest law and protests against the imprisonment of Indigenous leader Milagro Sala. A total of 25,000 public workers have been dismissed as part of the Macri government’s austerity policies, and a new “security protocol” enables indiscriminate arrests and restricts the press’ ability to cover such events, opponents say. A coalition organizing against these new repressive policies states:

“The new protocol implies that every protest is now a criminal offense, and empowers the Security Forces — the same forces that played an active role in Argentina’s last military dictatorship — to allow or forbid any protests. The criminalization of protests violates several judicial decisions that state the right to demonstrate supersedes any occasional traffic problems that may be caused.

This year, on the 40th anniversary of the military coup in Argentina, the Mauricio Macri government has begun a campaign to eliminate an essential human right — the fundamental right to protest and demonstrate. With this new protocol, the government will try to prevent workers from protesting against redundancies or demanding salary increases, or mobilize against power outages and mining projects. This protocol openly defies the constitutional rights of the Argentine people as well as international treaties on human rights.”

Ms. Sala, imprisoned for the past two months, was arrested after protesting the policies of a provincial governor aligned with the president. She was acting in support of an organization she heads that provides social services. Parliamentarians, civil organizations and human rights campaigners across South America have denounced her arrest as political, and the United Nations has called for an explanation of her continued detention. The Buenos Aires Provincial Commission for Memory has issued this statement:

“Organizing collective action does not mean ‘inciting crimes,’ a massive demonstration is not ‘public disturbance’ and to oppose a government decision is not ‘an act of sedition.’ They are all democratic freedoms.”

They should be. But not when a right-wing government is determined to impose the rule of capital, or, in the case of the Macri government, to be a willing subaltern of international capital. The logic of the rule of financiers can only lead to not only intensified austerity, but increased repression.