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"We do not live in capitalism"
by Wolfgang Belitz and Yves Wegelin
Sunday Apr 5th, 2020 3:23 PM
After the transition to Atlantic turbo-capitgalism, almost nothing can be recognized from the earlier times of the initiatives of the social market economy. In this situation, the counter-factual and fact-immune creed of all conservatives is enmeshed in a deep unconsciousness about the world. We live in a plutocracy where the richest 62 have as much wealth as the poorer half.

by Wolfgang Belitz

[This article published in Amos 2/2019 is translated abridged from the German on the Internet.]

When a young “activist” spoke of processes of capitalism in a discussion about the new EU copyright guidelines, the general secretary of the CDU (a centrist political party in Germany) replied: We do not live in capitalism, we live in the social market economy.

When K. Kuchnert spoke about reforms for abolishing capitalism and triggered a storm of indignation, Mrs. KK (party chairperson of the CDU) said literally:

“I never believed that our old election slogan `Freedom instead of socialism’ would be actual in an election (…). For many decades, we have had the best answer to capitalism and socialism in Germany. That is the social market economy that sets persons in the center, creates prosperity for everyone and where everyone can live according to his or her taste.”

Beware, the false cannot be expressed more beautifully. This is astounding. For nearly 20 years, the “neoliberal counter-revolution” swept through the world. Germany carried out the transition from Rhine capitalism to Atlantic turbo-capitalism where almost nothing can be recognized from the earlier times of the initiatives to the social market economy. In this situation, the counter-factual and fact-immune creed of all conservatives is enmeshed in a deep unconsciousness about the world in which we live.

I have critically accompanied the events up to today with my Amos columns since the beginning of the heyday of this development (1998). These include:

• the ceaseless barrage of cost-reductions, privatization-deregulation-globalization,

• the programmatic battle of market against the state,

• the dramatic tax relief for capital (corporate tax 15%),

• the half-hearted prosecution of tax flight, tax avoidance and tax fraud,

• the long stagnation of real wage development,

• the weakening of the unions,

• the destruction of normal working conditions,

• the introduction of poverty by law (Hartz IV),

• the acceptance of unemployment,

• the expansion of the low-wage sector,

• the expansion of part-time and subcontracted work,

• the necessary division of the poor in poverty-stricken, desperately poor, unemployed poor and working poor,

• the betrayal of the original principle of the social market economy, social distribution justice as a condition of the possibility of the freedom of all persons and not only of the propertied.

Half of the population own nearly all financial and real estate wealth and the other half have almost nothing. The richest one-percent of households own more than 60% of all financial assets.


By Wolfgang Belitz

[This article published in Amos 1/2016 is translated abridged from the German on the Internet.]

A news item excited attention through the media world for a moment and then disappeared without a trace. In January 2016, the non-governmental organization Oxfam published a report on the dramatic worsening of the worldwide inequality of wealth. The 62 richest persons on earth have as much wealth as the poorer half of the world’s population (3.7 billion people)…

50% of households have over 99% of all net financial wealth. The famous 99:1 relation is true. Half of the population possesses nearly all the wealth – distributed very unequally. The other half of the population is dispossessed/unpropertied or only has debts. This is an unparalleled worldwide and national scandal that has never interested a German government.

Since 1998, I have thematicized the wealth question in countless columns and presented a complete chronology of the history of tabooing wealth up to today. In 1997, the churches published their totally forgotten common social word where the wealth question was no longer taboo for the first time.

“Reliable data about wealth distribution and development in Germany is still inadequate. A regular wealth report is needed, not only a regular poverty report… Wealth must be a theme of political debates and not only poverty. Redistribution is often the redistribution of shortage because the surplus on the other side is repressed. The social obligation is restricted or even abolished when wealth is not properly included for financing public functions.”

Poverty in Germany has increased very fast…

All governments have published wealth reports (2001, 2005, 2008, 2013). This is a senseless project since reliable data on wealth was not available. All the wealth reports were really only poverty reports. Political reactions were absent.

Meanwhile, the inequality conditions have worsened so continuously that no institution or publication is not sounding the alarm. The World Bank says “this cannot continue!” Oxfam: “The extent of global inequality is simply shocking.” The OECD: “The striking wage- and wealth differences are a public danger.” “The battle against inequality must be at the center of political debates.” Important and urgent measures are proposed on all sides. The most far-reaching reform catalogues come from the capitalism-analyst and capitalism-critic Thomas Piketty:

1. A wealth tax that begins with assets of 200,000 euros at 1% annually and rises to 10% with billionaires.

2. An income tax rate up to 80% for top earners. For better understanding, he points out that the top tax rate was never below 70% in the first three decades after the Second World War. This was inequality-reducing.

There isn’t the least prospect for any measure affecting the rich in the foreseeable future. The German plutocratic elite works invisibly, quietly and very effectively. By means of a powerful network of lobbyists, banks and politicians, a system of rule and control operates over and alongside the parliamentary system. In other words, this parallel network crafts its laws itself (Peter Meisenberg).

World Economy
Welcome scapegoat

The coronavirus is not the only reason why states are currently trying to save the economy with trillions. More important is the global debt mountain that has accumulated in recent years. What is crucial now is that the bailout takes place under clear conditions.

By Yves Wegelin
[This article published on 3/26/2020 is translated from the German on the Internet, Weltwirtschaft: Willkommener Sündenbock.]

Prelude to crash: At the end of February, the Nikkei, Dow Jones and Nasdaq begin to fall.

It is clear who is to blame for the crashing stock markets and the emerging economic crisis, which according to forecasts could be the worst since the last world war: the coronavirus and the government measures to stop it. This is the message that business representatives are currently spreading in this country too. They can now call for the state without being accused that a decade after the great financial crisis, large corporations will once again be rescued with billions and millions of people worldwide will lose their jobs.

Yes, the virus is one of the reasons for the current situation: many companies can no longer produce because of the measures prescribed. In addition, their customers are staying away, resulting in a loss of revenue. But the virus is not the only reason: it is also the trigger of an economic crisis that has been looming for years and which would have hit the world at some point anyway.

This can be seen in the rise of the global debt mountain, which also reflects social inequality - the debt of one person is always the property of another. Since debt plunged the world into an economic crisis in 2008, it has continued to climb from 180 to 221 percent of global gross domestic product (GDP), according to the Bank for International Settlements (BIS). It is the debt of ordinary people, companies and governments. Debt has also been used to buy shares and fuel the stock markets. The price of global stocks, which the MSCI index tracks, has shot up from 750 to over 2400 points. It's insane. The International Monetary Fund (IMF) has been warning for years that the mountain of debt could collapse at some point, burying the entire global economy under it.
The manufacture of the crisis

How it came about is quickly summarized: In 2008, when people in the US or Spain could no longer pay the interest on their mortgage, the states took over the debt. Because the debt was simultaneously the assets of banks, pension funds and asset managers. In turn, the states took on debt themselves from the banks. When countries like Ireland were no longer able to pay their debts themselves, more solvent states took on debt in their stead. In short, governments backed up the debt in order to protect the corresponding assets.

They decided against writing off debt - which would have redistributed billions from top to bottom. Instead, under pressure from tax havens such as Switzerland, corporate taxes were further reduced worldwide, social spending was cut and labor markets were deregulated. This would bring dynamism to the economy, the bet said. With the aim of enabling people and states to shoulder their interest rates again and repay part of their debts.

A ten-year odyssey. The savings policy threatened to lead to a collapse in economic demand. And so for years the central banks have been pumping more and more money into the global economy, so that ordinary people and states can continue to borrow cheaply and thus keep the economy humming. But companies have also resorted to money, buying their own shares with it in order to drive up the share price. The amount of so-called leveraged loans has risen rapidly - risky loans to shaky companies. In 2018, the BIS found that in fourteen countries surveyed (including Switzerland), twelve percent of the companies are "zombies": unprofitable companies that can only pay their interest with ever new debts.

The austerity policy has also paved the way for populists such as US President Donald Trump, who try to stifle social discontent in economic wars and thus bring globalization to a halt. Months before the corona pandemic broke out, warnings of an impending recession were already ringing out everywhere.

Corona in times of guilt

This debt is one of the reasons why states are intervening so massively to save the economy from collapse once again. Responsible for this debt are those economic politicians who, with their austerity policy, have further increased the mountain of debt. Now trillions are being released to prevent its collapse. The virus serves them as a scapegoat. After the stock markets worldwide have slumped by a third, the financial world is now staring nervously at companies to see if they can stem their debts: If not, there will be another global financial crisis. Last autumn, the IMF warned that in an economic crisis, forty percent of corporate loans in the major economies could degenerate into junk paper. Accordingly, the interest rates that companies have to pay for loans have shot up worldwide in recent days.

Private households will also find it difficult to pay the interest on debt. Once again, real estate bubbles threaten to burst worldwide. The deregulation of the labor markets, which has encouraged on-call jobs, fixed-term contracts and bogus self-employment, is also to blame for this: instead of continuing to receive their wages, people are losing their livelihood overnight and thus the means to pay rent or mortgage.

While Credit Suisse has been heavily involved in leveraged loans, other Swiss banks such as Raiffeisen have granted international record amounts of mortgages. The National Bank has warned against both.

The trillions that governments are now making available will, together with the economic slump, also push up public debt further. The EU is already debating how, for example, it might be possible to take on debt instead of Italy if the country can no longer bear its interest rates.

The danger is that, as in 2008, governments will simply continue to support the debt and fuel inequality with their emergency measures. The money that the central banks are currently firing out of all their tubes is being used to keep interest rates low for people, companies and governments. The billions provided by the governments of the USA, Germany or Switzerland are intended to actually pay off the debt: If companies can no longer repay their loans to the bank, the taxpayers should take over the loss. In turn, the states will have to borrow from the banks.

In addition, the states will pay wages for the companies so that people can pay their rent to property owners and the mortgage to the banks. In short, a decade after the global financial crisis, states are once again bailing out banks and other creditors with billions.

Time to set the rules

There are already voices calling for the relaxation of capital requirements for banks and tax cuts. And if public debt continues to grow, it won't be long before calls for further cuts in social spending and labor market deregulation are heard.

Of course, the uncontrolled collapse of the debt mountain must be prevented at all costs. In addition, smaller businesses, the self-employed and those workers who are now sliding into the crisis through no fault of their own need help. But if the states now intervene with trillions, then they should only do so under clear conditions: firstly, this time the banks, asset managers, real estate investors and large corporations, which have distributed billions in profits in recent years, must bear their losses themselves - through an orderly write-off of debt or a drastic increase in global taxes for corporations and wealthy people.

Secondly, when CO2-smashers such as energy companies, car manufacturers or airlines like Swiss receive money, it is on condition that they reinvent themselves or disappear in the medium term. In addition, the money from economic stimulus packages must flow to companies that help reduce CO2 emissions.

The crisis opens up the possibility that new ideas will prevail, wrote the right-wing liberal economist Milton Friedman, whose ideas still dominate the world today. The crisis is now.
by Thomas Palley
Monday Apr 6th, 2020 5:03 PM
Galbraith on Globalization
The work of the late economist can still provide vital insights into today?s global economy.

by Thomas Palley

[This 2006 commemoration was published in Mother Jones Magazine,]

John Kenneth Galbraith died on April 29, 2006 at the age of 97, having led a life filled with honor and accomplishment. Unfortunately, his ideas are largely ignored by today’s economics profession. His recent death marks an occasion for spotlighting the continuing relevance of those ideas and the ideological narrowness of a profession that makes no space for them.

The period 1890–1940 includes the Progressive (1900–1916) and New Deal (1932–1940) eras. During this fifty-year period America came to grips with the problems that arose with its transformation into a mechanized, industrialized, urbanized society. Whereas the Progressive era highlighted the human excesses of raw capitalism and took the first tentative steps toward taming them, the New Deal era confronted the instability of capitalism and enacted reforms that saved the system from itself.

Today’s era of globalization is showing signs of problems similar to those seen earlier. In labor markets there has been a decline in workers’ bargaining power, while the global economic system has shown proclivities toward financial instability and deflation. These parallels suggest that there are lessons to be learned from reflecting upon the reforms of the Progressive and New Deal eras. Such reflection inevitably leads to John Kenneth Galbraith’s analysis of that period, published in 1952 under the title of American Capitalism: The Concept of Countervailing Power.

The core problems of the Progressive and New Deal eras were the callousness of the economic system and its inability to maintain sufficient purchasing power for full employment. Behind this lay the problems of monopoly and deflation. By charging high prices, monopoly erodes purchasing power. So too does deflation because it increases the value of debts. The New Deal tackled these problems through a combination of regulation and the creation of modern fiscal policy.

Regulation served the twin purposes of controlling monopoly and putting a floor under prices. Not only did it extend to key industrial sectors, it also included labor markets through legislation establishing the minimum wage, the forty-hour week, and the right to join unions. This established a wage floor that, in one swoop, tackled both the Progressive era problem of callousness and the Depression era problem of inadequate purchasing power. Side-by-side, modern fiscal policy was built upon an expanded government sector whose purchasing power was more stable, and which could also be mobilized in downturns to offset declines in private sector spending.

These policy interventions reinforced stabilizing features within the system. This is where Galbraith’s concept of countervailing power enters. The problem of monopoly arose with the emergence of large powerful corporations. However, the system partially addressed this problem itself through the development of large corporations on both sides of the market. Consequently, big buyers confronted big sellers, thereby generating countervailing power between buyers and sellers that helped keep prices down and stable.

In labor markets, it was the development of trade unions that created countervailing power. This ensured that workers were also represented by big sellers that could go head-to-head with big buyers. In this regard, New Deal labor legislation was critical since it promoted unions. Prior to the legislation, employer opposition had stalled union coverage at about fifteen percent of employment. Afterward, it rose to almost thirty-five percent.

A Galbraithian lens suggests that the countervailing power equilibrium that prevailed after World War II has been dislodged. In labor markets, the process started with the inability of unions to organize the expanding service sector. At the same time that the service economy was growing away from unions, manufacturing started going mobile through the development of multinational production methods.

Additionally, a retail revolution was taking place through big box discount stores exemplified by Wal-Mart. These discounters have adopted a global sourcing model that scours the world for the lowest price—the so-called “China price”—and then requires American manufacturers and workers to meet it or lose the business. This model now extends to every retail segment, and it creates a race to the bottom by putting the entire consumer goods manufacturing sector in global competition. To stay competitive, American manufacturers must either slash pay at home or move production offshore. Moreover, this global sourcing model is now being applied in capital goods manufacturing, with assemblers like Ford, General Motors and Boeing adopting it.

A Galbraithian analysis points to the need to rebuild countervailing power. That requires organizing workers in the service sector and in firms such as Wal-Mart. American businesses also have an interest in the re-building of countervailing power as global sourcing has undermined the position of sellers. Enabling domestic suppliers to compete in a globalized economy calls for new institutional arrangements limiting unfair international competition based on labor exploitation, environmental neglect, and under-valued exchange rates. The bottom line is that Galbraith’s economic analysis remains as trenchant and relevant as it was fifty years ago, and the logic of countervailing power provides vital insights into today’s problematic of globalization.
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