Critical Times

CAPITALISM: Financial crisis,
failed policies, failed system

Anna Pha

Financial crisis, recession, poverty, wars, climate change, homelessness, health care and education cuts, privatisation, unemployment — these are just some of the outcomes of a system that is failing millions of people around the world. It is a system based on greed, on the growth and accumulation of wealth by a small minority at the expense of the majority.

It has failed to meet the social and economic needs of millions of people, while thieving their natural resources and the true value of their labour. Decades of growth in wealth and its distribution using scorched earth neo-liberal policies have taken their toll on millions of people, in particular, in third world countries.

Even in rich, industrialised Australia, 17 years of continuous growth has widened the inequalities between people. The term “working poor” is used to describe a large section of the working class who have seen their wages and working conditions held down or slashed and employment made more precarious through casualisation and the export of jobs to low wage countries.

In that time we have been told by governments and media alike that the economy is great. If the size of corporate profits is how an economy should be judged then they are right. Profits have never been bigger. And that is just how capitalists judge an economy. They look at profits, likely future profits, and investment opportunities to make even larger profits in the future.

Some capitalist economists even go as far as to say that they have successfully eliminated the boom-bust economic cycle that Karl Marx analysed in the 19th century. But they are so wrong. All out recession has been staved off in Australia as far as corporate profits and commodity sales are concerned, although there have been some lower points in the economy as a whole over those 17 years.

The prime reason for this is not the Reserve Bank’s focus — inflation and interest rates. In fact its present stance appears to be hastening the next recession.

The relatively extended “boom” period in Australia has more to do with burgeoning debts, a pumped up stock market, demand by China, Vietnam and India for resources and immigration.

Lower wages (especially under WorkChoices) and casualisation have resulted in a reduction in household income for a large section of the workforce. The use of credit card debt has held back what might have been a considerable fall in demand and a crisis of “overproduction”. The full impact is still to be felt by retailers as people are beginning to draw a line in their debt and attempt to reduce it before prices and interest rates rise yet again.

Debt bubble

Financial institutions, sometimes a subsidiary of a bank that has refused a loan on grounds of inability to meet repayments, throw money at potential homebuyers at interest rates well above those of a bank. The lender knows that with the next rise in interest rates, that families will have difficulties making repayments.

In February this year, $14 billion was spent by credit card; some will be repaid quickly but much of it will attract daily interest at rates around 20 percent or more. The total balance outstanding that month was almost $40 billion — for a population of a little over 20 million.

This has been rising by more than 12 percent per annum. Add to that housing mortgages of more than $700 billion, Australia is awash with debt. No wonder the big banks are reporting multi-billion dollar profits. No wonder rising interest rates are causing such distress and driving sections of the economy into recession.

Below the façade of a strong economy are the makings of the collapse of a financial sector in crisis. The US Federal Reserve and other central banks in Europe and Australia have stepped in to prevent the collapse of some of the major financial institutions. The Federal Reserve is pumping around US$50 billion into the US economy a month.

As the fallout spreads and more financial corporations face difficulties more and more is being exposed about the workings of the financial sector. The high fees and interest charges on loans are not the most worrying aspects of the industry.

These institutional investors are gambling billions of dollars of other people’s money, including workers’ retirement savings from superannuation and other managed funds.

For many Australians recession conditions have arrived or are approaching fast. If they are lucky enough to have the right skills and qualifications or experience then well paid work is not a problem. Less skilled workers are doing it tough already.

Underemployment and hidden unemployment has been growing massively, in particular during the years of the Howard government. The Rudd government has set out on the same path.