TPP promises health care for profits, not patients

Health care will take a large step toward becoming a privilege for those who can afford it rather than a human right under the Trans-Pacific Partnership. Government programs to hold down the cost of medications are targeted for elimination in the TPP, which, if adopted, would grant pharmaceutical companies new powers over health care.

This has implications around the globe, as such rules could become precedents for the Transatlantic Trade and Investment Partnership and Trade In Services Agreement, two other deals being negotiated in secret.

The U.S. Congress’ difficulties in passing “fast-track” authority has thrown a roadblock in the path of the Trans-Pacific Partnership, but by no means has this most audacious corporate power grab been defeated. The latest leak of TPP text, the annex on pharmaceutical products and medical devices published by WikiLeaks earlier this month, makes clear that the U.S. pharmaceutical industry is taking aim at health care systems that put accessibility above corporate profiteering.

Craters of the Moon Geothermal Area, New Zealand (photo by Pseudopanax)

Craters of the Moon Geothermal Area, New Zealand (photo by Pseudopanax)

People in other countries should be extremely wary of any attempt to make their health care systems more like that of the United States. The U.S. health care system is designed to produce profits for pharmaceutical, insurance and other health care industry corporations, not to provide health care. Because of this, health care in the U.S. is by far the world’s most expensive while delivering mediocre results. How expensive? During the decade of 2001 to 2010, U.S. health care spending was $1.15 trillion higher per year than it would have been otherwise.

As always with the TPP, bland-sounding text written in stilted, bureaucratic language contains more danger than initially meets the eye. New Zealand’s Pharmaceutical Management Agency, which makes thousands of medicines, medical devices and related products available at subsidized costs, is a particular target of TPP and the U.S. pharmaceutical lobby because it is an example that drug companies do not wish to be emulated elsewhere. Agencies of other governments will also be under threat.

U.S. government targets New Zealand subsidies

A “Special 301 Report” issued in April 2015 by the U.S. government under the name of U.S. Trade Representative Michael Froman specifically names no less than 17 countries in which it seeks to undo health-system protections. Taking direct aim at New Zealand, the report said:

“With respect to New Zealand, U.S. industry has expressed serious concerns about the policies and operation of New Zealand’s Pharmaceutical Management Agency (PhARMAC), including, among other things, the lack of transparency, fairness, and predictability of the PhARMAC pricing and reimbursement regime, as well as the negative aspects of the overall climate for innovative medicines in New Zealand.” [page 25]

Note that the wishes of “U.S. industry” are presented as the only possible point of view. This is consistent with the fact that 605 corporate lobbyists have access to the TPP text as “advisers,” while the public is shut out. The real issue is that the New Zealand agency holds down the price of medicines, cutting down the industry’s exorbitant profit-gouging. A 2011 submission to the U.S. government by corporate lobby group Pharmaceutical Research and Manufacturers of America, called the New Zealand agency an “egregious example” because of its “focus on driving down costs.”

Professor Jane Kelsey of New Zealand’s University of Auckland, who has closely followed TPP issues for years, leaves little doubt that New Zealanders will pay more for medications if TPP comes into force. In an analysis of the leaked health care annex text, she writes:

“This leaked text shows the [TPP] will severely erode Pharmac’s ability to continue to deliver affordable medicines and medical devices as it has for the past two decades. That will mean fewer medicines are subsidised, or people will pay more as co-payments, or more of the health budget will go to pay for medicines instead of other activities, or the health budget will have to expand beyond the cap. Whatever the outcome, the big global pharmaceutical companies will win, and the poorest and most vulnerable New Zealanders will lose.” [page 2]

But other countries are in the cross hairs

The Pharmaceutical Management Agency estimates it has created savings of more than NZ$5 billion since 2000. The language of the TPP health care annex specifically targets “national health care programs” that make pricing decisions and not direct government procurement of medicines and medical devices. Professor Kelsey sees a nationalist agenda behind this specific wording, writing:

“ ‘National’ is presumably chosen to preclude such programmes that are run by states and provinces, which are politically sensitive in the US and Canada. In effect, the US has excluded almost all its own programmes, while targeting New Zealand, as it did with the [Australia-U.S. Free Trade Agreement].” [page 3]

But U.S. Medicare and Canadian provincial programs will certainly be targets as well. Medicare is prohibited under U.S. law from from negotiating prescription prices with drug makers, and the same language that would undermine New Zealand’s program would block any attempt to allow Medicare, or any other agency, from instituting a similar pricing program. Per-capita spending on drugs is far higher in the U.S. than elsewhere, in part thanks to this prohibition, which would become irreversible under the TPP.

The advocacy group National Committee to Preserve Social Security and Medicare notes:

“The fact that Medicare is forbidden in the law that created Medicare Part D to negotiate lower prices is no accident. The drug lobby worked hard to ensure Medicare wouldn’t be allowed to cut into the profits which would flow to big Pharma thanks to millions of new customers delivered to them by Part D.”

“Part D” is a program that shifted millions of people from Medicaid, which pays much less for drugs, to Medicare, a boon to pharmaceutical companies.

The TPP health care annex also contains language that the annex’s provisions are exempted from the “investor-state dispute mechanism,” the secret tribunals in which corporate lawyers sit as judges when corporations sue governments under so-called “free trade” agreements. The annex’s text is misleading, however. Language elsewhere in the TPP that requires “fair and equitable treatment” of foreign “investors” would still enable challenges to New Zealand’s program or any other. Thus, governments could be sued using provisions other than the annex, Professor Kelsey writes:

“The biggest risk is the obligation to provide ‘fair and equitable treatment’, which investors may claim includes a legitimate expectation that governments will comply with their obligations in making regulatory and administrative decisions. They could launch a claim for many millions of dollars compensation, including expected future profits, if they believed New Zealand’s process in general, or in specific cases, violated their expectations under the Transparency Annex and adversely affected the value or profitability of their investment.” [page 6]

Who gets to “consult”?

Deborah Gleeson, a lecturer at La Trobe University in Australia, points out another danger. A “consultation” mechanism that requires governments to consider corporate objections in pricing decisions could be used to apply pressure to make changes to benefit pharmaceutical and medical-device corporations. She writes:

“The inclusion of the Healthcare Transparency Annex in the TPP serves no useful public interest purpose. It sets a terrible precedent for using regional trade deals to tamper with other countries’ health systems and could circumscribe the options available to developing countries seeking to introduce pharmaceutical coverage programs in future.” [page 2]

As elsewhere in the TPP, the U.S. government is taking the most hard-line approach, and has been opposing efforts to exempt the poorest countries from attacks on health care subsidies. Judit Rius Sanjuan of Médecins Sans Frontières/Doctors Without Borders said:

“If the US proposal is accepted, the poorest countries would be forced to limit access to affordable medicines long before their public health needs are under control. The fact remains that no country, rich or poor, should accept limitations on its sovereign ability to ensure medicine is accessible and affordable for all those who need it.”

It’s not as if pharmaceutical companies are not already hugely profitable. They like to whine that they have high research and development costs, and while that is true, the prices they charge are well beyond reasonable expenses. They enjoy one of the highest, if not the highest, profit margin of any industry — nearly 20 percent for 2013. The world’s 10 largest pharmaceutical corporations racked up a composite US$90 billion in profits for 2013, according to a BBC analysis. As to their expenses, these 10 firms spent far more on sales and marketing than they did on research and development.

“Free trade” agreements have very little to do with trade. The Trans-Pacific Partnership, and the similar Transatlantic Trade and Investment Partnership and the Trade In Services Agreement, are nothing more than initiatives to cement corporate control over all aspects of society, in which governments lock themselves into binding agreements that elevate corporate profits above all other human considerations. Don’t get sick.

The destruction of Jamaica’s economy through austerity

A small country immiserates itself under orders of international lenders; unemployment and poverty rise, the debt burden increases and investment is starved in favor of paying interest on loans. If this sounds familiar, it is, but the country here is Jamaica.

So disastrous has austerity been for Jamaica that its per capita gross domestic product is lower than it was 20 years ago, the worst performance of any country in the Western Hemisphere. In just three years, from the end of 2011 to the end of 2014, real wages have fallen 17 percent and are expected to fall further in 2015, according to the country’s central bank, the Bank of Jamaica.

Such is the magic of austerity, or “structural adjustment programs,” to use the official euphemism of the International Monetary Fund and World Bank.

A new paper from the Center for Economic and Policy Research, “Partners in Austerity: Jamaica, the United States and the International Monetary Fund,” reports that the amount of money Jamaica will use to pay interest (not even the principal) on its debt will be more than four times what it will spend on capital expenditures in 2015 and 2016. And despite a new loan, the country actually paid more to the IMF than it received in disbursements from the IMF during 2014!

Holywell National Park in Jamaica (photo by Wolmadrian)

Holywell National Park in Jamaica (photo by Wolmadrian)

As a further sign of the times, the current pro-austerity government of Jamaica is led by the National People’s Party, the party of former democratic socialist Prime Minister Michael Manley. Prime Minister Manley took office in 1972 on promises to combat social inequality and injustice, and he is credited with enacting legislation intended to establish a national minimum wage, pay equality for women, maternity leave with pay, the right of workers to join trade unions, free education to the university level, and education reforms that enabled students and teachers to be represented on school boards.

He also became an international figure advocating for progressive programs to be implemented elsewhere. Naturally, this did not sit well with the United States government. When Prime Minister Manley stood with Angola against the invasion by the apartheid South African régime and supported Cuban assistance to Angola, he defied a warning from U.S. Secretary of State Henry Kissinger. The CIA presence in the Jamaican capital, Kingston, was doubled.

A Jamaica Observer commentary noted parallels between the overthrow of Salvador Allende in Chile and unrest in Jamaica later in the 1970s:

“The imperialists applied the same ‘successful’ Chile model of destabilisation in Jamaica. They applied the same strategy of ‘making the economy scream,’ creating artificial shortages of basic items, promoting violence, including the savage murder of 150 people in a home for the elderly. Violence erupted in Jamaica as was never seen before in the ‘shock and awe’ tactics mastered by the imperialists whenever they want to create fundamental change in someone else’s country. Manley and Jamaica yielded under the pressure and eventually took the IMF route.”

Replacing human development with austerity

The conservative who took office in 1980 reversed Prime Minister Manley’s programs. By the time that Prime Minister Manley returned to office in 1989, he had moved well to the right under the impact of changing world geopolitical circumstances and the dominance of neoliberal ideology. As an obituary in The Economist dryly put it, “He did as the IMF told him, liberalised foreign exchange and speeded up the privatisation of state enterprises.”

The one-size-fits-all program, a condition of IMF and World Bank loans, includes currency devaluation (making imports more expensive), mass privatization of state assets (usually done at fire-sale prices), cuts to wages and the prioritization of the profits of foreign capital over a country’s own welfare. The 2001 film Life and Debt, produced and directed by Stephanie Black, depicted a country on its knees thanks to “structural adjustment.” The film’s Web site sets up the picture then this way:

“The port of Kingston is lined with high-security factories, made available to foreign garment companies at low rent. These factories are offered with the additional incentive of the foreign companies being allowed to bring in shiploads of material there tax-free, to have them sewn and assembled and then immediately transported out to foreign markets. Over 10,000 women currently work for foreign companies under sub-standard work conditions. The Jamaican government, in order to ensure the employment offered, has agreed to the stipulation that no unionization is permitted in the Free Trade Zones. Previously, when the women have spoken out and attempted to organize to improve their wages and working conditions, they have been fired and their names included on a blacklist ensuring that they never work again.”

The film shows the destruction of Jamaica’s banana industry and the decimation of its milk-production capacity because the country is forced to open itself to unrestricted penetration by multi-national capital, while those corporations continue to receive subsidies provided them by their home governments. The Life and Debt Web site reports:

“In 1992, liberalization policies demanded that the import taxes placed on imported milk solids from Western countries be eliminated and subsidies to the local industry removed. In 1993, one year after liberalization, millions of dollars of unpasteurized local milk had to be dumped, 700 cows were slaughtered pre-maturely and several dairy farmers closed down operations. At present, the industry has sized down nearly 60% and continues to decline. It is unlikely the dairy industry will ever revitalise its growth.”

Poverty and unemployment continue to rise

Austerity continues its course today. The Center for Economic and Policy Research’s “Partners in Austerity” paper, written by Jake Johnston, notes that conditions in Jamaica are worsening — unemployment, at 14.3 percent as 2014 drew to a close, is higher than it was when the global economic crisis broke out in 2008 and the 2012 poverty rate (latest for which statistics are available) of 20 percent is double that of 2007.

Jamaica currently has a debt-to-GDP ratio of 140 percent, an unsustainable level that has risen. Yet it is required as a condition of its latest IMF loan to maintain an unprecedented budget surplus of 7.5 percent. Thus the paper declares the country is undergoing the world’s most severe austerity because this surplus, the highest dictated to any country, must be extracted from working people on top of what is extracted for interest payments.

Jamaica has re-financed its debt twice in the past three years, and its latest IMF loan, agreed to in 2013, comes two years after previous loans were cut off because the government said it would pay promised wage increases to public-sector employees. The debt exchanges lowered the interest rates and extended the payment period, a combination that does not necessarily mean less interest will ultimately be paid out. Without debt relief, there is no exit from this vicious circle. The “Partners in Austerity” paper says:

“Crippled with devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing. But it is also the case that, after billions of dollars of previous World Bank, [Inter-American Development Bank] and IMF loans, much of its debt is actually owed to the very same institutions that are now offering new loans.” [page 2]

Financing schemes, whatever negative consequences it might ultimately have for the debtor country, are lucrative for investment banks. For example, banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt. Yet the foreign debt continued to grow. In one example during this period, a brief pause in Argentina’s payment schedule was granted in exchange for higher interest payments — Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring, Credit Suisse First Boston, racked up a fee of US$100 million.

Less for public needs

As a result of the new austerity measures, Jamaican government spending on infrastructure has fallen to 2.6 percent of gross domestic product, as opposed to 4.2 percent as recently as 2009. Moreover, the government is required to siphon $4.4 billion over four years from its National Housing Trust to replenish government coffers drained to pay off the loans. The trust, a legacy of Prime Minister Manley, is mandated to provide affordable housing, and yet it is the same National People’s Party that is raiding it under IMF orders.

The country’s economic difficulties would be still more severe if it were not for aid from Venezuela and investments from China, according to “Partners in Austerity.” The paper reports:

“Venezuelan funding comes through the Petrocaribe agreement, where Jamaica receives oil from Venezuela, paying a portion up front and keeping the rest as a long-term loan. Jamaica pays a lower interest on the Petrocaribe funds than it does to its multilateral partners. According to the IMF, net disbursements through Petrocaribe totaled over $1 billion over the last three years, averaging 2.5 percent of GDP per year. … A significant portion of the Petrocaribe funds are being used to refinance domestic debt, in support of the IMF program. Additionally, a portion of funds takes the form of grants and is used for social development, bolstering support to the neediest who have been most impacted by continued austerity. … Without the Venezuelan and Chinese investments staving off recession, it’s likely the IMF program would fail due to serious public opposition.” [page 13]

It is possible to provide aid that actually assists development rather than as a cover for exploitation, as Venezuela demonstrates.

Why do disastrous “structural adjustment” programs continue to be foisted on countries around the world despite the results? Undoubtedly many who prescribe “structural adjustment” continue to believe in neoliberalism in the face of all evidence. But this ideology doesn’t fall out of the sky; it is an ideology in service of the biggest industrialists and financiers, presenting the inequality and excess of capitalism as natural as the tides. But anything made by humans can be unmade by humans.

The straitjacket of austerity tightens on Syriza

The contradiction of putting an end to austerity and remaining within the eurozone has manifested itself in full force for Greece. At this early stage, it is alarmist to argue that Syriza has “sold out” nor is it realistic to proclaim that Syriza has achieved “victory” in its negotiations.

How Syriza uses the four months until the extended bailout program expires in June, and what Greece’s governing party will do once this period ends, will begin to reveal to what extent Greece can put an end to austerity and Syriza can make good on implementing the program that carried it to victory in January’s elections. That is surely the minimum amount of time necessary to begin to make any judgment on Syriza as it is tightly boxed in by circumstances not of its making.

Athens (photo by A. Savin)

Athens (photo by A. Savin)

It is difficult to avoid the belief that New Democracy intended to hand Syriza a poisoned chalice. Although corporate-media commentary at the time almost uniformly suggested that New Democracy, Greece’s main Right-wing party, was taking a reasonable gamble that it could successfully get its candidate elected as president by parliament, attempting this seemed more an act of suicide. The party had moved up the presidential election, and its failure to seat its candidate automatically triggered early parliamentary elections. There was no reasonable chance of its presidential candidate winning, and little chance of it retaining its parliamentary majority once fresh general elections were triggered.

Parties ordinarily don’t intentionally bring down their own government. But with a series of large debt repayments due in 2015 from February to July, the difficulty of making those payments and the rising anger of the Greek people at their immiseration, going into opposition and ducking responsibility for their own policies must have seemed tempting.

Tightening the financial screws

Syriza has no easy task, nor have Europe’s dominant institutions made it any easier. A week after Syriza took power, the European Central Bank said it would cease accepting Greek government bonds or government-guaranteed debts as collateral for loans to Greek banks. This effectively cut off the main source of financing for Greek banks. The ECB, in its supervisory capacity, also prohibited Greek banks from further loaning money to the Greek government, cutting off another source of funding.

This sudden action of the European Central Bank constitutes a “noose around Greece’s neck,” writes Ellen Brown in her Web of Debt blog:

“The ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need, until the new Syriza government accepts the very stringent austerity program imposed by the troika (the [European] Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system. …

Not just Greek banks but all banks are reliant on central bank liquidity, because they are all technically insolvent. They all lend money they don’t have. They rely on being able to borrow from other banks, the money market, or the central bank as needed to balance their books. The central bank (which has the power to print money) is the ultimate backstop in this sleight of hand. If that source of liquidity dries up, the banks go down.”

The result of this power play was a cash-flow problem for the government and Greek banks. It also triggered an exodus of capital out of the country, Mark Weisbrot writes:

“This move was clearly made in bad faith, since there was no bureaucratic or other reason to do this; it was more than three weeks before the deadline for the decision. Predictably, the cut off spurred a huge outflow of capital from the Greek banking system, destabilizing the economy and sending financial markets plummeting. … The European authorities appeared to be hoping that a ‘shock and awe’ assault on the Greek economy would force the new government to immediately capitulate.”

With an estimated €20 billion of bank deposits believed to have been taken out of the country from December through late February, and the impossibility of paying off debt while continuing to have enough money to run the government, Syriza’s room for maneuver rapidly shrank.

Bailouts for banks, not people

What is crucial is to understand that the “troika” bailed out large multi-national banks, in particular German and French banks, and are now asking Greek working people to pay for it.

Through 2009, Greek debt was mostly held by European banks; French and German banks alone held more than 40 percent of Greek debt. The €227 billion of loans from the European Union and International Monetary Fund that have since gone to Greece were used to pay large financial institutions elsewhere. By one estimate, only €15 billion has gone to state operations; none after 2012. The Greek government has been a pass-through, taking the loans given it and promptly sending it to financiers.

There are more payments coming soon. Greece is due to pay €450 million to the IMF on April 9 and €7 billion to the IMF and European Central Bank in July, among other deadlines. Because Syriza remains committed to retaining the euro as Greece’s currency, reflecting majority Greek opinion, it remains committed to paying off its debt, which can only be accomplished through cutting government services and spending. This is the pitiless logic of austerity.

Unlike the previous New Democracy and Pasok governments, Syriza has not completely surrendered. Last month, two bills were passed in parliament that subsidize electricity, food and housing. Prime Minister Alexis Tsipras has called the extended-bailout measures an “interim agreement” and that the government will not ask for a third bailout when the program ends in June. He also vows that making Greece’s wealthy pay taxes will be a centerpiece of reform.

Nonetheless, Syriza has made major concessions, agreeing in February to continued supervision by the troika and that it would refrain from any “unilateral action.” It also failed to get any reduction in its debt, and must pass an inspection by the troika in late April before it receives any of the money agreed in February, when the bailout extension was signed. Syriza was required to submit a list of reforms that must be approved. It did so on March 27; negotiations are continuing but the list was met with initial disapproval for not giving the troika everything it wants.

Among those reforms are a series of tax measures estimated to raise an additional €3.7 billion in revenue for the government, including cracking down on tax avoidance by the wealthy and on smuggling. But there is also another major concession, allowing the privatization of Greece’s most important port, at Piraeus, to go ahead despite promises to halt all privatizations. That is estimated to raise another €1.5 billion. A Chinese state-run shipping company seeks to buy a two-thirds stake.

Still insisting red lines will not be crossed

Syriza continues to declare that it will prioritize working people over debt repayment. The international economic affairs minister, Euclid Tsakalotos, told The Guardian:

“Our top priority remains payment of salaries and pensions. If they demand a 30% cut in pensions, for example, they do not want a compromise.”

The austerity that has been imposed has resulted in a contraction in gross domestic product of 25 percent, unemployment above 25 percent, a fall in real wages of 30 percent and a reduction in industrial output of 35 percent. And the size of the foreign debt has risen!

There is no way out of this without renouncing at least some of the debt, and doing so means leaving the eurozone and re-adopting its old national currency, the drachma. There should be no illusions that doing so will be free of pain. Left to the tender mercies of speculators, the drachma could conceivably lose 75 to 80 percent of its value in a short period of time. Assuming that a re-instituted drachma is initially valued at one euro, this would mean that imported goods will cost the equivalent of three or four euros instead of one, a drastic inflation.

Such a drastic currency devaluation would presumably spur a big increase in local production, because Greeks would need to produce internally to make up for being able to buy far less products from outside the country. It would also give a boost to exports, because Greek goods would now be cheap. This is the “Argentina option,” so called because Argentina followed this path in the early 2000s, almost immediately improving its economy. But the Argentine government did nothing that touched capitalist relations, and of late the country has suffered from mounting difficulties.

Is leaving the eurozone necessarily the question?

Thus there are Left, even Marxist, economists who do not believe Greece should leave the eurozone but rather go ahead with nationalizations and other measures anyway. So the debate over euro versus drachma does not fall along clear-cut lines. For example, a prominent economist elected to parliament on the Syriza ticket, Costas Lapavitsas, argues that Keynesian measures are what are possible in the immediate moment but that Greece must drop the euro. Another prominent economist, Michael Roberts, argues for an immediate Marxist-inspired program but that Greece should retain the euro.

Professor Lapavitsas argues that, although getting rid of capitalism is what is needed in the long term, for now getting rid of austerity is what is necessary and that is impossible within the framework of the eurozone. He believes that a negotiated exit from the euro would be the best solution. This would include a 50 percent debt write-off and that the devaluation of the drachma be limited to 20 percent through an agreement with the E.U. to tie its value to the euro; that is, the drachma would not be traded freely as currencies customarily do.

Capital controls and immediate nationalization of banks would be necessary as part of this proposed program. Rationing would be inevitable for a time, but Professor Lapavitsas argues that rationing already exists “through the wallet” as millions of Greeks can not afford even basic necessities. Crucially, he says that all this would be carried out with workers’ control (a factor missing in Argentina); bank employee unions should have a role in running the nationalized banks. Unused productive capacity would soon kick-start the economy, he said:

“What you’ve got to appreciate, though, is this: devaluation would not work simply, or mostly, through exports. It would work through the domestic market, more than exports. At the moment, there are vast unused resources in Greece. … There are vast unused resources across the country! Small and medium enterprises will come to life immediately if there was a devaluation. There is enough small-scale capital to do that. The revival of the economy, the return of demand and production, will be very rapid, and it will take place primarily through that. … I have — and econometric studies I’ve seen confirm it — little doubt that small and medium enterprises will allow a return of Greece to a reasonable productive state within a very short period of time, a couple of years.”

Professor Roberts, on the other hand, argues that it is “extremely unlikely” that the drachma would depreciate by only 20 percent, and that a larger devaluation and rising prices would offset any gains from cheaper exports. He wrote:

“Greek capitalism is no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the Greek economy dropping (further) into an abyss and taking its people with it. [A Greek exit] also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.”

Bank nationalization and a public takeover of strategic industries should be at the center of any Greek plan to raise investment and growth, Professor Roberts argues. Although in favor of Keynesian prescriptions such as progressive taxation and labor rights, these measures should be geared toward a larger project of replacing capitalism, not to try to make capitalism work, in or out of the eurozone. But he acknowledged that should his program be adopted, Greece might be expelled from the euro anyway.

There are no guarantees. Professor Lapavitsas’ belief that a drachma devaluation can be held to 20 percent seems overly optimistic and Professor Roberts’ belief that Greek must leave the European Union (and thus have trade cut off) were it to drop the euro seems overly pessimistic. Whatever direction Greece takes, however, it can’t travel as far as it needs to on its own. An economy drastically remodeled on a democratic basis is the only solution in the long term, but such a country would face severe pressure from capitalist governments seeking to destroy it.

Greece must create links with countries attempting to move past capitalism, such as those in Latin America, and must be joined by other European countries traveling the same path. Greece can’t be a socialist island in a global sea of capitalism. There are only international solutions, not Greek solutions, to Greece’s problems. The capitalist alternative is to continue to be immiserated for the sake of private profit, the same fate as the overwhelming majority of humanity.

Real unemployment is double the ‘official’ unemployment rate

How many people are really out of work? The answer is surprisingly difficult to ascertain. For reasons that are likely ideological at least in part, official unemployment figures greatly under-report the true number of people lacking necessary full-time work.

That the “reserve army of labor” is quite large goes a long way toward explaining the persistence of stagnant wages in an era of increasing productivity.

How large? Across North America, Europe and Australia, the real unemployment rate is approximately double the “official” unemployment rate.

The “official” unemployment rate in the United States, for example, was 5.5 percent for February 2015. That is the figure that is widely reported. But the U.S. Bureau of Labor Statistics keeps track of various other unemployment rates, the most pertinent being its “U-6” figure. The U-6 unemployment rate includes all who are counted as unemployed in the “official” rate, plus discouraged workers, the total of those employed part time but not able to secure full-time work and all persons marginally attached to the labor force (those who wish to work but have given up). The actual U.S. unemployment rate for February 2015, therefore, is 11 percent.

Share of wages, 1950-2014Canada makes it much more difficult to know its real unemployment rate. The official Canadian unemployment rate for February was 6.8 percent, a slight increase from January that Statistics Canada attributes to “more people search[ing] for work.” The official measurement in Canada, as in the U.S., European Union and Australia, mirrors the official standard for measuring employment defined by the International Labour Organization — those not working at all and who are “actively looking for work.” (The ILO is an agency of the United Nations.)

Statistics Canada’s closest measure toward counting full unemployment is its R8 statistic, but the R8 counts people in part-time work, including those wanting full-time work, as “full-time equivalents,” thus underestimating the number of under-employed by hundreds of thousands, according to an analysis by The Globe and Mail. There are further hundreds of thousands not counted because they do not meet the criteria for “looking for work.” Thus The Globe and Mail analysis estimates Canada’s real unemployment rate for 2012 was 14.2 percent rather than the official 7.2 percent. Thus Canada’s true current unemployment rate today is likely about 14 percent.

Everywhere you look, more are out of work

The gap is nearly as large in Europe as in North America. The official European Union unemployment rate was 9.8 percent in January 2015. The European Union’s Eurostat service requires some digging to find out the actual unemployment rate, requiring adding up different parameters. Under-employed workers and discouraged workers comprise four percent of the E.U. workforce each, and if we add the one percent of those seeking work but not immediately available, that pushes the actual unemployment rate to about 19 percent.

The same pattern holds for Australia. The Australia Bureau of Statistics revealed that its measure of “extended labour force under-utilisation” — this includes “discouraged” jobseekers, the “underemployed” and those who want to start work within a month, but cannot begin immediately — was 13.1 percent in August 2012 (the latest for which I can find), in contrast to the “official,” and far more widely reported, unemployment rate of five percent at the time.

Concomitant with these sobering statistics is the length of time people are out of work. In the European Union, for example, the long-term unemployment rate — defined as the number of people out of work for at least 12 months — doubled from 2008 to 2013. The number of U.S. workers unemployed for six months or longer more than tripled from 2007 to 2013.

Thanks to the specter of chronic high unemployment, and capitalists’ ability to transfer jobs overseas as “free trade” rules become more draconian, it comes as little surprise that the share of gross domestic income going to wages has declined steadily. In the U.S., the share has declined from 51.5 percent in 1970 to about 42 percent. But even that decline likely understates the amount of compensation going to working people because almost all gains in recent decades has gone to the top one percent.

Around the world, worker productivity has risen over the past four decades while wages have been nearly flat. Simply put, we’d all be making much more money if wages had merely kept pace with increased productivity.

Insecure work is the global norm

The increased ability of capital to move at will around the world has done much to exacerbate these trends. The desire of capitalists to depress wages to buoy profitability is a driving force behind their push for governments to adopt “free trade” deals that accelerate the movement of production to low-wage, regulation-free countries. On a global basis, those with steady employment are actually a minority of the world’s workers.

Using International Labour Organization figures as a starting point, professors John Bellamy Foster and Robert McChesney calculate that the “global reserve army of labor” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion — far less! Writing in their book The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, they write:

“It is the existence of a reserve army that in its maximum extent is more than 70 percent larger than the active labor army that serves to restrain wages globally, and particularly in poorer countries. Indeed, most of this reserve army is located in the underdeveloped countries of the world, though its growth can be seen today in the rich countries as well.” [page 145]

The earliest countries that adopted capitalism could “export” their “excess” population though mass emigration. From 1820 to 1915, Professors Foster and McChesney write, more than 50 million people left Europe for the “new world.” But there are no longer such places for developing countries to send the people for whom capitalism at home can not supply employment. Not even a seven percent growth rate for 50 years across the entire global South could absorb more than a third of the peasantry leaving the countryside for cities, they write. Such a sustained growth rate is extremely unlikely.

As with the growing environmental crisis, these mounting economic problems are functions of the need for ceaseless growth. Once again, infinite growth is not possible on a finite planet, especially one that is approaching its limits. Worse, to keep the system functioning at all, the planned obsolescence of consumer products necessary to continually stimulate household spending accelerates the exploitation of natural resources at unsustainable rates and all this unnecessary consumption produces pollution increasingly stressing the environment.

Humanity is currently consuming the equivalent of one and a half earths, according to the non-profit group Global Footprint Network. A separate report by WWF–World Wide Fund For Nature in collaboration with the Zoological Society of London and Global Footprint Network, calculates that the Middle East/Central Asia, Asia-Pacific, North America and European Union regions are each consuming about double their regional biocapacity.

We have only one Earth. And that one Earth is in the grips of a system that takes at a pace that, unless reversed, will leave it a wrecked hulk while throwing ever more people into poverty and immiseration. That this can go on indefinitely is the biggest fantasy.

We have no money so central banks give more money to banks

It’s unanimous! The European Central Bank confirms that the only possible solution to falling wages and depressed spending is to throw more money at the banks and inflate another stock-market bubble.

The ECB thus joins the world’s other most important central banks in the hope that “quantitative easing” — a form of “trickle-down” economics — will somehow work despite having never achieved anything other than the inflation of asset bubbles, a benefit primarily to the one percent. Then again, perhaps that might explain it.

Mario Draghi, the president of the ECB, last week committed €1.1 trillion to buying eurozone government bonds and, to a lesser degree, asset-backed securities and pools of mortgage loans known as “covered bonds.” Starting in March, the ECB will buy €60 billion of assets a month, with a commitment to continue this program until September 2016. The ECB’s stated goal is to boost inflation and prevent deflation, while also driving down the value of the euro.

The European Central Bank joins the Federal Reserve, the Bank of England and the Bank of Japan in flooding the financial system with money, and joins all those central banks and the Swiss National Bank in attempting to drive down the value of its currency. One problem is that all currencies can’t decline against one another, any more than all countries can simultaneously produce trade surpluses. At the moment, it is the euro that is declining in value, which theoretically will give a boost to exports from eurozone countries, but as eurozone countries conduct most of their trade with one another, the boost from a weakened euro will not necessary be significant.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

But with declining wages, fewer people have enough to spend, and the super-wealthy already have more money than they can possibly use for productive investment. Nonetheless, the “market” has decreed that more austerity for working people and more speculation by the one percent is the magic elixir that will finally fix the economy.

Fix it for whom? Let’s start to answer that question by noting the supposed purpose of quantitative-easing programs: to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interests rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

Trillions for asset buying sprees

We are not talking about small change here. In three rounds of quantitative easing, the Federal Reserve spent about $4.1 trillion. The Bank of England has spent £375 billion. The Bank of Japan, after boosting its QE program last October, will now spend ¥80 trillion (about US$680 billion) per year. This after 18 months of quantitative easing failed to revive the economy, as with an earlier QE program that ran from 2001 to 2006. In just the past 18 months, the Bank of Japan’s QE spending was ¥75 trillion ($640 billion).

Imagine what could have been done with these enormous sums of money had they been used for directly creating jobs, or simply by giving it directly to working people, who would have gone out and spent it. Or by putting the money to productive use, such as rebuilding crumbling infrastructure.

Instead, what is planned is more austerity — that is, more punishment. The other component of the European Central Bank’s January 22 announcement is that favorite term, “structural adjustment.” A euphemism used by the World Bank and International Monetary Fund when ordering an end to job security and social safety nets as a condition for granting loans to developing countries, this is now being applied to the global North. Near the end of his remarks announcing the quantitative easing, ECB President Draghi said:

“[I]n order to increase investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms needs to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery.”

Labor “reforms” are necessary to “improve the business environment.” In plain language, that means more austerity in an effort to boost corporate profits. In the question-and-answer session after the announcement, President Draghi gave revealing answers to two different questions: “For investment you need confidence, and for confidence you need structural reforms” and “it would be a big mistake if countries were to consider that the presence of this programme might be an incentive to fiscal expansion. … This programme should increase the lending capacity of the banks.”

Firing workers and pushing wages lower will make capitalists feel better? Perhaps, but if there isn’t demand for their products, they still aren’t going to invest.

If consumers have no money, they aren’t buying

The ECB wishes to believe that further reducing job security and social safety nets will provide capitalists with the magic “confidence” that will prompt them to invest. But there is already plenty of industrial capacity sitting idle — E.U. manufacturing capacity utilization is only 80 percent while the E.U.-wide unemployment rate is 10 percent. The youth unemployment rate is 21.9 percent. More austerity isn’t going to reverse these effects of austerity.

The Bank of Japan boosted its quantitative easing program in October 2014 because it had not pulled the Japanese economy out of stagnation. Gross domestic product contracted in the second and third quarters of 2014. (zgourth-quarter statistics have yet to be reported.) Japanese wages have declined in the past year while profits have increased. Household spending in Japan had fallen for six consecutive months at the time of the Bank of Japan’s announcement, in part due to an increase in sales tax pushed through by Prime Minister Shinzo Abe.

The Federal Reserve’s quantitative easing has served to prop up a stock market that continues to rise despite ongoing stagnation. The standard measure of stock market valuation, the price/earnings ratio, remains high by historical standards. (This ratio is a company’s market value per share divided by earnings per share, or to put it another way, how many dollars a buyer pays for one dollar of profit.) The composite P/E ratio for the broadest measure of U.S. stocks, the S&P 500 Index, is 19.7. The rare times in history that ratio has risen above 20 has been followed by a crash.

Japan’s stock market has also risen during its quantitative easing; its benchmark Nikkei 225 Index has doubled since November 2012.

Trillions of dollars has been poured into programs that do little more than produce stock-market bubbles; more trillions have been poured directly into banks and other financial institutions for bailouts. The European Central Bank says more of the same, and European workers will continue to pay for it. The markets demand this, it is said. Capitalist markets, however, are nothing more than the aggregate interests of the largest industrialists and financiers — when we let “markets” make social decisions, that really means a dictatorship of big business and big banks. And supporting those banks is very expensive.

Will a Syriza victory be the first blow against austerity?

Is the first step toward the unraveling of European austerity about to begin, courtesy of Greek voters? The future direction of the European Union certainly won’t turn merely on the results of Greece’s January 25 parliamentary election, nor will the world slip off its axis if the expected Syriza victory materializes.

Nonetheless, the first blow has to be struck some time, by somebody. If Syriza does take office and if it can hold firm against the withering pressure that it will immediately be subjected to, an alternative to financial industry diktats could provide an example elsewhere in the E.U., particularly within the eurozone. That example can not be taken up too soon, given the many economic weapons likely to be deployed against a Syriza-led Greece. (Perhaps in Spain, where Podemos, the party organized a year ago by the Indignados movement, already is a near three-way dead heat with Spain’s biggest parties, Popular and Socialist, according to recent polling.) There is no Greek solution to Greece’s economic collapse, only a European solution.

View of Vikos Gorge, Greece (photo by Skamnelis)

View of Vikos Gorge, Greece (photo by Skamnelis)

As the Greek parliament was in the process of failing to elect a new president last month, thereby triggering automatic parliamentary elections, Syriza issued this statement about the New Democracy/Pasok coalition government that had continued to impose punishing austerity:

“The only option left to them is the policy of fear and terrorization of the society, the creation of false dilemmas and fake polarization. This option is triggered by the fact that the government as well as the dominant economic and media system and forces inside and outside the country are very well aware that they have a lot to lose.”

Such fear-mongering won’t only come from the Greek establishment. European governments have alternated between ordering Greek voters to vote for pro-austerity parties and to insisting that both a Greek exit from the eurozone and any changes to Greece’s debt obligations are unthinkable. These have not only come from German Finance Minister Wolfgang Schäuble, as would be expected, but from French President François Hollande, continuing his journey to becoming Paris’ Monsieur 1%.

Certainly the financiers who hold decisive power over the undemocratic institutions of the European Union, nor their representatives such as Finance Minister Schäuble, can be expected to welcome the basic self-description of Syriza’s intentions:

“Syriza insists strongly on its position that it will abolish the memoranda signed with the Troika of lenders when it assumes office and will re-negotiate the loans. At the same time it will promote a programme of social and economical reconstruction, aiming at development that promotes human needs and well-being and respects nature. … Syriza is fighting for the re-foundation of Europe away from artificial divisions and cold-war alliances such as NATO. As for the E.U., Syriza denounces the dominant extreme neoliberal and euro-atlantic policies and believes that they must and can be transformed radically in the direction of a democratic, social, peaceful, ecological and feminist Europe, open to a socialist and democratic future.”

Putting forth a program of reforms

Syriza — the Coalition of the Radical Left — re-constituted itself as a single party at its first congress in July 2013. Nearly 500 organizations were represented at the congress, which elected Alexis Tsipras as party president and a 201-member central committee. Close to 20 groups comprised Syriza prior to this congress (when it was formally a coalition), most of which remain as part of the party while a few became “allied groups.” The party includes Trotskyist, Maoist, Eurocommunist and other non-orthodox communist Leftist groups, but that does not mean it intends to implement a revolutionary program.

The “Thessaloniki Program,” announced last September by Mr. Tsipras in the Greek city of that name, promises that Syriza will:

  • Re-negotiate the national debt and a “haircut” on the foreign debt.
  • Impose higher taxation on the rich.
  • Raise salaries for some low-paid employees.
  • Abolish a recently enacted property tax.
  • Provide more money for the municipalities and the local authorities.
  • Create 300,000 new jobs.
  • Re-open public radio and television, which were summarily shut by the outgoing government.
  • Establish a new national development bank.
  • Restore Greece’s previous monthly minimum wage of €751.

Ilias Milonas, a member of the Left Platform grouping within Syriza writing on The Socialist Network web site, in pointing out that the Thessaloniki Program consists of reforms that fall short of effecting a necessary structural change, said:

“In the Syriza leadership’s programme also absent is the most crucial matter of the nationalisation of the banks, a policy that was decided on at the last congress of Syriza – almost all the banks in Greece have been privatised in recent years. We believe that there is not one programme that can be implemented without the nationalisation of the banking system along with and the rest of the economic system. In contrast, the leadership’s proposal for the establishment of a New Development Bank with a budget of one billion Euros is like planting a tree in the Sahara in the hope of greening the desert. Indeed, all they propose for the banks is a vague form of “social control.”

Even within Germany, the Left Party advocates a nationalization of banks, so Syriza doing so would not be outlandish (especially as public control of banking and the elimination of speculation are prerequisites for a democratic economy). And a restoration of the previous Greek minimum wage of €751 a month is not living in luxury — at current exchange rates, that’s US$893 or £589. Nobody is living well on that.

The program, Mr. Tsipras said, is to cost about €13.5 billion. The Greek newspaper To Vima reports that, of that total, about €2 billion would go toward addressing the humanitarian crisis, €6.5 billion would be used in measures to help restore the economy (with an estimated €3 billion toward benefits), and €5 billion would be invested in restoring employment. This cost is six percent of the total of the loans by the troika (the European Commission, European Central Bank and International Monetary Fund).

Debt relief for Germany

These reforms — which would do nothing to challenge the prevailing power relations and amount to a program of Keynesian initiatives — are nonetheless presented as the crazy schemes of dreamers. “Every new government needs to fulfil the contractual agreements of its predecessors. … But if Greece goes in another direction then that’s going to be a difficult situation,” Finance Minister Schäuble said, as reported by Reuters. Well, no need for any more elections, then.

Most of all, it would be some sort of moral outrage, scream European leaders and echoed by the corporate media on both sides of the Atlantic. Conveniently overlooked is the huge debt forgiveness given to Germany after World War II, which surely helped the Federal Republic recover. Germany’s pre-war debt amounted to 22.6 billion marks, including interest, and its postwar debt was estimated at 16.2 billion marks, according to the Committee for the Abolition of Third World Debt. Yet the U.S., the U.K. and France agreed in 1953 to forgive nearly two-thirds of that total, and allowed Germany to negotiate payment schedules in cases of financial difficulty. On top of that, the allies voluntarily reduced the amount of goods they would export into the Federal Republic so that it could reduce its trade deficit and give a boost to its internal manufacturers.

Syriza argues, not unreasonably, that what was done for Germany in 1953 should be done for Greece today. And, although debt writedowns and aid programs such as the Marshall Plan went toward raising living standards of Germans, the €227 billion of loans that have gone to Greece benefits large financial institutions elsewhere, none more so than German and French banks. By one estimate, only €15 billion has gone to state operations; none after 2012. The Greek government has been a pass-through, taking the loans given it and promptly sending it the financiers who own the debt. At the end of 2008, more than 50 percent of the debt was owed to banks in Germany, France and Italy alone.

The troika has not been propping up the Greek government, it has been propping up Europe’s banks and financial houses.

That derives from the neoliberal concept is that people exist to serve markets rather than markets existing to serve people. Entire countries have been harnessed to the dictates of “markets.” This has long been the pattern imposed by the global North on the South through institutions like the IMF; now the stronger countries of the North are imposing it on their weaker neighbors. Taxpayers in those stronger countries are on the hook, also, as some of their taxes go toward the bailout funds, for which bailed-out countries are merely a conduit to pass the money to financiers, often from their own country.

If it looks like a depression, talks like a depression …

What has Greece received from the troika’s loans? Greek gross domestic product has contracted by 25 percent, unemployment is above 25 percent, real wages have fallen by 30 percent and industrial output has declined by 35 percent. The country’s foreign debt has actually risen, to 175 percent of GDP from approximately 130 percent in 2009. This is what the International Monetary Fund hailed as “progress” two years ago!

Just as “the market” dictates a race to the bottom for labor, the harshest terms that can be imposed are mandated for debtors, always wrapped in a hypocritical, sanctimonious “morality.” German Chancellor Angela Merkel is not stubborn nor obsessed with Weimar-era inflation, as she is sometimes portrayed; she is simply reminding other national political leaders that economic harmonization will conform to the tightest policy among them and Germany so happens to have that tightest policy. This is the will of the “market” to which they chained themselves.

None of the eurozone’s national leaders are reducible to “puppets,” but their perceived national interests are distorted by whatever consensus their industrialist and financiers arrive at. 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. Their aggregate interests constitute the “market.”

Greece can not be a socialist island in a capitalist Europe, nor can any other country; that understanding is reflected in Syriza’s program. What might a different Europe look like? Various non-orthodox economists have proposed programs, some envisioning Greece remaining in the eurozone and some envisioning Greece dropping the euro and returning to the drachma. What these programs have in common is a vision of a European-wide economic restructuring.

To summarize some of these ideas: The E.U. should be leveraged to internationalize the resistance of working people; full employment demanded as an explicit goal; banks should become publicly owned and democratically controlled so that capital is directed toward socially useful investment instead of speculation; a highly progressive taxation system should be coordinated at the E.U. level; wages raised to account for improved productivity that has, for three decades, gone to capitalists; governments should default at least some of their debts to banks; bank deposits should be guaranteed; and there should be more investment in education to enhance future productivity.

Impossible? In a capitalist Europe, yes. But in a better world, these kinds of ideas would simply be common sense. Why shouldn’t they be?

When water is a commodity instead of a human right

The shutoff of water to thousands of Detroit residents, the proposed privatization of the water system and the diversion of the system’s revenue to banks are possible because the most basic human requirement, water, is becoming nothing more than a commodity.

The potential sale of the Detroit Water and Sewerage Department is one more development of the idea that water, as with any commodity, exists to produce private profit rather than to be a public necessity. And if corporate plunder is to be the guiding principal, then those seen as most easy to push around will be expected to shoulder the burden.

Thus, 17,000 Detroit residents have had their water shut off — regardless of ability to pay — while large corporate users have faced no such turnoff. The Detroit Water and Sewerage Department began its shutoff policy in March with a goal of shutting off the water to 3,000 accounts per week. Residents can be shut off for owing as little as $150. That is only two months of an average bill.

Water is a human right, the people of Detroit say. (Photo by Moratorium NOW! Coalition to Stop Foreclosures, Evictions, amd Utility Shutoffs)

Water is a human right, the people of Detroit say. (Photo by Moratorium NOW! Coalition to Stop Foreclosures, Evictions, and Utility Shutoffs)

Detroit water rates have more than doubled during the past decade, according to Left Labor Reporter, and in June another 8.7 percent raise was implemented. Yet only in July, months after residential water shutoffs began, did the water department announce it would send warning notices to delinquent businesses. There is no report, however, that any business has had its water turned off.

About half of the city’s overdue water payments are owed by commercial and industrial customers. Forty offenders, according to the department, have past-due accounts ranging from around $35,000 to more than $430,000. One golf course operator is said to owe hundreds of thousands of dollars.

The same week that the residential water shutoffs began, Detroit Emergency Manager Kevyn Orr put the water department up for sale. The department takes in about $1 billion in revenue per year, The Wall Street Journal reports, and collects more revenue than it spends. The system would potentially be a valuable asset for one of the multi-national corporations that have taken over privatized water systems around the world, mostly to the regret of the local governments and ratepayers.

Reversing the privatization of water

If Emergency Manager Orr succeeds in selling off Detroit’s water system, he will be bucking a trend. Dozens of cities in France and Germany have reversed earlier privatizations and are taking back their water systems after finding that higher prices and reduced services had been the norm post-privatization. French private water prices are on average 31 percent higher than in public water services. Five Pennsylvania towns that privatized their water saw their rates more than triple on average.

That rate differential shouldn’t come as a surprise — a government doesn’t need to generate a profit like a corporation. A water company, like any other capitalist enterprise, is expected to generate large profits for its investors and giant payouts to its executives, and thus must extract more money out of its property.

If the water system is privatized, Detroit’s city budget will receive a one-time boost, but forgo future revenues and lose control of a public good built with public money. Nor is there any guarantee that it would be sold at market value. A utility undervalued would produce quicker profits for any water company that got its hands on it, and every incentive is for it to be bought at as low a price as possible.

Banks, however, have already extracted huge profits from Detroit’s infrastructure. The water department is believed to have paid banks penalties of $537 million to escape its disastrous interest-rate default swaps. Instead of simply selling plain-vanilla bonds — paying bond holders a set amount on a set schedule — Detroit (like many municipal governments) became entangled in various complicated financial derivatives layered on top of its bonds.

Investment banks sold local governments interest-rate swaps as a form of insurance as a hedge against rising interest rates. But if interest rates went down — which they did — then the governments would be on the hook for large sums of money. (That rates would fall was predictable; central banks cut interest rates as a matter of routine during recessions.) Thanks to financial engineering falsely sold as “insurance,” the Financial Times reports it will cost Detroit $2.7 billion to pay back $1.4 billion in borrowing — this total includes $502 million in interest payments and $770 million as the cost of the derivatives.

The $537 million the Detroit water department handed to banks to escape continued extra payments to cover the swaps is more than four times the entire past-due water bill, residential and commercial, at the start of the water shutoffs in March.

Not so quick to challenge the banks

Yet there appears to be no effort to recoup any of that penalty money or to investigate if there was any illegality in the deals. Curt Guyette, writing for a Detroit alternative publication, Metro Times, said:

“Given the fact that former Mayor Kwame Kilpatrick, who is now is serving a decades-long sentence in federal prison for running the city as if it were a criminal enterprise when these deals went down, [was then in office] it doesn’t seem unreasonable to at least suspect that something shady might have been going on.

Nonetheless, Orr and the legal team from [corporate law firm] Jones Day — where Orr was a former partner, and which has as clients both Bank of America and a division of UBS — have, as the complaint [filed in federal court by community activists] points out, ‘failed to investigate the misconduct or take measures to recoup any portion of the $537 million in suspect termination fees paid to the banks.’ ”

Both Bank of America and UBS profited enormously from the interest-rate swaps. Emergency Manager Orr does not seem terribly bothered by democratic processes, however. He is going ahead with a separate plan to privatize Detroit’s parking department despite the fact that the City Council voted, 6-2, against it. The Detroit Free Press reports that the parking system generates $23 million in revenue with only $11 million in expenses. This would be another revenue stream leaving public hands, and the same needs of a private owner to generate profits would be expected to lead to the same results that privatizations of water systems and other public services have led.

The people of Detroit are fighting back, through demonstrations, lawsuits, appeals to the United Nations and in physically blocking crews assigned to turn off the water. Water is also being turned back on without asking for permission from authorities. Activists demand the immediate resumption of water service for everyone and to make water affordable. Detroit Debt Moratorium, for example, is calling for water bills to be capped at two percent of household income.

These efforts have borne some fruit as Emergency Manager Orr issued an order handing Mayor Mike Duggan managerial control over the water department in late July. The department subsequently declared a moratorium on water shutoffs until August 25.

A commodity is privately owned for the purpose of profit, regardless of human need; that the commodity is something as necessary as water does not alter that a commodity goes to those who can pay the most. The market determines who gets what, or if you get it at all — and the market is simply the aggregate interests of the most powerful industrialists and financiers. The agony of Detroit is the logical conclusion of reducing social and economic decisions to market forces. Detroit just happens to the be the locality that got there first.