Extreme Capitalism – Corporations Merging with the State
Extreme Capitalism – Corporations Merging with the State
Neo-Liberalism, as a capitalist strategy, died in 2008, a victim of the financial Meltdown.
This approach to international finance was based in the International Monetary Fund and the World Bank. The essence of neo-liberalism was for governments to stay out of the way and let market financial policies push debt on nations around the world in order to profit the biggest banks and corporations. All the malign tricks the financiers learned with Neo-Liberalism are, of course, being grafted onto the new system that now runs the show. This time around, however, government is not passive; it has become an active organizer to guarantee financial profits.
The Bailout plan from 2008 allowed the US Treasury Department to buy up mortgage-related assets. They could have bailed out homeowners by buying their debts, but the didn’t. They bought the debt of the Wall Street banks and hedge funds dollar-for-dollar – a rate unheard of in financial history – where debts have traditionally been written down to what the market will buy. The Bailout ultimately permitted the transfer of over $16 trillion in public money to the financial industry. It states:
“The Secretary (of the Treasury – ed) is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation.”
Then in section 3 it states:
“(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;” (1)
Whether Wall Street nationalized the government, or the government nationalized Wall Street is something that can be debated, however it is certain Wall Street banks became “the financial agents of the Government”. This is the now the Rule of Law. Wall Street gets the protection and agency of the US state; the state becomes an active player in all aspects of finance, domestic and foreign, national and international. That’s not Neo-liberalism.
The new era is one we are getting to know all too well – Extreme Capitalism. The predatory mortgage is its banner, rampant on the field of a burning glass of water, the result of fracking. This is not your Daddy’s capitalism. It is a new animal, capitalism transmogrified – a harsh, naked capitalism, lean and mean, hungry for profits, predatory in the extreme, aided and abetted by the government, deliberately sacrificing people and even cities to guarantee corporate profit. Extreme Capitalism is both unstable and dangerous.
Far more than a viable system with a few rough edges (a common pre-Meltdown belief) capitalism today is aggressively on the make. It uses Austerity to drain every form of public wealth into profits for the financial system by privatizing everything from roads to schools to police power. With corporations in the position of control, public functions are then financialized to make them fodder for financial speculation that transfers the wealth from the public to private corporations.
There’s an important principle here: Once everything is privatized, you can’t vote it out any more. This process is just getting started.
Bankrupting city governments –
Wall Street is savaging our cities. Thousands of city and local government bodies, from art museums to community college districts to water districts, are trapped into “Interest Rate Swaps” (IRS) all because of debt to Wall Street. The big banks and the finance industry aggressively marketed these toxic schemes supposedly as a way to borrow money at less cost.
City governments pay hundreds of millions of dollars each year to cover bad deals they were suckered into. As of March, 2012, city governments comprised most of the $183.7 trillion in interest rate contracts held by the big four Wall Street banks. (2) How big is this unimaginable amount of money? It is 14 times the entire US Gross Domestic Profit for a year, about $13 trillion! Politicians who blithely set up this debt are collaborating to turn cities into ATMs for Wall Street!
Bankrupting Universities -
Under the leadership of administrators, many of whom transferred from the big banks, the University of California (12 campuses plus massive research facilities) has “more than doubled the university’s debt burden from $6.9 billion in March 2007 to $14.3 billion at the end of 2011” (3)
The University is likewise trapped in Interest Rate Swaps deals: “Interest rate swaps are financial derivatives intended to hedge against a sudden spike in interest payments” (4) It’s a form of insurance against the vagaries of the financial market.
The deal was you borrow money to float bonds for expansion. The bank and your university agree that if the interest rate goes to high, they will pay you. If it goes too low, you will pay them.
Since 2008, the Fed has kept the interest rate at ZERO “to encourage investment”. Like the cities, the university must pay millions. Here the Fed is openly complicit by tanking interest rates as a policy. Once again we see that In the United States, as in the rest of the capitalist world, the laws that cover debt are written to favor the lender, not the debtor.
Devouring Students –
Student loans reached the trillion dollar mark last Spring. The law says that students cannot discharge their loans by going bankrupt. Students join convicted felons as debt slaves. Both must pay them off their loans for life. The corporations that offer these loans do so happily because the US government guarantees the debts, so they are automatically paid off, even as you are getting hit with more financial charges from other corporations that are now hounding you to pay off.
This condition prevails because the US government bases student aid by granting loans to individuals to create debt, rather than simply financing a program without charges. It turns out that this policy would provide higher education for free at the current level of spending. (5)
Bankrupting Teacher Pensions –
Same game, same players, different victim.
“The pattern is the same across the board – it is the predatory mortgage concept applied to public institutions to benefit the huge financial speculators, the same giant banks and corporations that offer the loans that put you into debt.” (6)
Here’s the scam: the pension fund is suckered into making risky bets on non-traditional “weapons of financial destruction” (similar those that brought the economy down in 2008) to make a profit, instead of reducing their risk. As a result, the California State Teachers Retirement System (CALSTRS) has a $64 billion dollar deficit, money owed to big banks and hedge funds.
Bankrupting Water –
Jefferson County in Alabama went bankrupt to cover its interest rate swaps. North Carolina paid $59 million to drop these deals. The California Water Resources Board paid $305 million to get out of its interest swaps. (7) Water districts across the country are similarly in debt.
Meanwhile Common Dreams reports that speculators in water are now saying that the time is ripe for privatization, “ (The) survey from water industry insiders shows hedge funds, private equity positioning to benefit from increasingly scarce resource.” (8) Water is currently the world’s 4th largest industry, even though governments still provide the bulk to the public without profit.
California is chronically short of water. As a consequence, the state opened a speculative financial water market for the new gold rush in 1994:
“In a secret meeting, government representatives and the corporate water oligarchy created the legal framework to create “paper water”. These water futures are traded, bought and sold, transferred and used a collateral on loans without any connection to actual water delivery. “ (9)
Meanwhile the same water industry is blocking with Governor Brown to force through a giant tunnel to send water from the northern Sacramento River to Southern California, supposedly to grow food and sustain cities. But California’s Central Valley is just beginning to permit fracking for natural gas and oil. Fracking can use 2 million gallons of water and more over the life of a well. A mere thousand wells destroys 2 billion gallons of water! Can there possibly be a connection here?
Predatory Across the Board
Predatory loans lead to debt. This leads to financialization – turning real-world assets into financial quantities – which sets up financial speculation. Financialized debts are tossed onto the speculative market for the big boys (only 1% of the 1), to make financial bets on, bets that they make on credit. Like all forms of debt, these are guaranteed by assets – collateral that the bank can take, like your house. For cities and universities, this means that the assets can become forfeit in bankruptcy and then become privatized. Debt, financialization and privatization are financial weapons of mass destruction.
Financialization and privatization are completely aided and abetted by active government policies. These are passed into law by the same politicians – proud recipients of lobbying money, elected and put into place by corporate people - who refuse to raise taxes on corporate property, but who blithely slash government programs that sustain real people.
The economics of financialization were made clear to the world after the 2008 Meltdown. Toxic mortgages are bundled into toxic assets for speculators to bet on. If their monetary price increases over the next period of time, speculators make a profit. If the price declines, speculators usually bought insurance to cover their losses. Far from being banned by law, these tools are being ever more refined, elaborated and applied to the economy.
The bundling process is the basis for hedge funds – funds that derive their value from other funds – and can be applied to any bubble: water prices, life insurance, municipal bonds, charter school profitability, a corporation’s ability to attract more credit, in short anything that can be financialized. The huge jump in food prices in 2008, after the Meltdown, was because speculators quickly transferred their money from housing to betting on the rise in the cost of food.
Funny thing, the $16 trillion the government gave the banks in 2008 is greater than all the public and personal debt in the country, including student loans, mortgages and credit cards. We gave it to them for free. Doesn’t this pay off all the rest of the debts? Apparently not – we are now paying twice!
Extreme Capitalism flows from the application of electronics to production. In industry after industry, this means the advent and expansion of production with decreasing labor, up to and including production without human labor at all. However the inherent value of a commodity under capitalism is based on the amount of human labor time that is put into it. This scientific understanding, the labor theory of value, was first articulated by Adam Smith, long before Karl Marx.
Zero human labor time means zero value. This is why a song, a patent, a formula for a medicine, or an algorithm is infinitely copiable, once it has been produced. Lots of human labor may have gone into the original product, but if 100 copies are produced, the original value is amortized across the copies, each one having 1/100 the value. Electronic production thus drives the value of commodities towards zero. This reality has devastating effects on an economic system that ties corporate profit to the exploitation of human labor.
When a corporation sells all its commodities, it has accumulated their value in a money form. In order to turn this money into more money, the labor process must begin again, producing more commodities to sell to turn once again, thereby making more profit. There is however another way to get more money. This requires legally grabbing the wealth that someone has, wealth that originally came from labor. Using money to make money in this way is speculation, and while it doesn’t create more wealth, it does centralize other wealth into fewer hands. Electronic production means the financial industry and speculators begin to drive the economy for their own profit.
Debt and financializing assets primarily converts your wealth into someone else’s wealth, rather than creating new wealth for society. Bankers, financiers and speculators understand that the rich get rich because the poor get poorer. This is what drives their wild efforts to privatize everything that the public has built in its name. Private property is the devine right of thugs. Speculators surf the financial crisis by offering debt as a means to seize the assets of everyone.
The formulation of Extreme Capitalism is often attributed to Benito Mussolini: “Fascism is the merger of corporations and the state.” In Germany and Italy in the 1930s, capitalism’s power was rooted in its industrial base based on mechanical assembly lines. Hence fascism’s crude mechanical slaughter and industrial slavery.
Today, in the Post-Industrial Era, the industrial base is electronic, not mechanical, so fascism takes a different form. It becomes an open class war of financial institutions against society, with financial weapons of slaughter and debt slavery.
“… fascism arises to ensure the continuity of private property as the forces of production evolve. The laws of private property are not the same as the productive relations of capitalism. Production without value is antagonistic to capitalist production relations (*), but there are no new production relations yet in place. Yet even as the production relations are broken down, the state has to guard the sanctity of private property. Such a contradictory situation cannot be managed except by the subjective, that is, by the force of the state. Fascism is emerging out of the attempts to solve problems posed by economic and social revolution.” (10)
(*The productive relations of capitalism requires the distribution of the social product through buying and selling. Those who do not own the technology must work for those who do in order to get money as wages. - ed)
State of the Union
While Obama made noises about cutting the financial sector, he articulated a far more bolder privatization plan than any president ever has.
“Now at schools like P-TECH in Brooklyn, a collaboration between New York public schools and City University of New York and IBM, students will graduate with a high school diploma and an associate’s degree in computers or engineering. We need to give every American student opportunities like this,” he said.
“Tonight, I’m announcing a new challenge, to redesign America’s high schools so they better equip graduates for the demands of a high-tech economy. And we’ll reward schools that develop new partnerships with colleges and employers, and create classes that focus on science, technology, engineering and math, the skills today’s employers are looking for to fill the jobs that are there right now and will be there in the future.”
And… “So, tonight, I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country. And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children,” (11)
The vast infrastructure of America, built at public expense, is about to be handed over to Wall Street. As Laura Gottesdiener noted in AlterNet, “Public private partnerships are essentially a stepping stone to full privatization of our roads, bridges, railways, power grids and–yes–even our public schools. The implications of this proposal are so scary that they even startled a Fox News reporter who commented, “It’s unnerving to hear the suggestion that the best way to guard against corporate excess is by crafting ever-closer public/private partnerships.” (12)
The profits of privatization in England, a smallish country, are vast. Zoe Williams writes in the Guardian: “the government is outsourcing public services – at a huge rate. The value of such contracts has risen from £9.6bn in 2008 to £20.4bn in 2012. Seymour Pierce estimates that public sector outsourcing could hit (deep breath) £101bn by 2014-15”. (13)
A pound is around $1.60. At this rate, the 2012 total above comes to around $32.6 billion. A couple of caveats here: 1) this market is open to corporations from any country that can secure a contract, and 2) the government of England was far more elaborated and ramified than the government of the US, with proportionally far more people providing services.
How big is the US privatization market? This process has been lead by the Homeland Security Agency since 2001. Strange, wasn’t it, that immediately after 9-11, Bush could propose a fully developed plan for the HSA, running into hundreds of pages of legal language.
US spending on HSA since 2001 has been $635.9 billion, plus about $7 trillion more for the military. (14) This spending takes the form of contracts to outsource various public government functions to private corporations. This is what “a public-private partnership” really means.
The distinction between the government and the state is important here. The “government” means the public bodies that administer government policy. The “state” however refers to the special set of bodies that are empowered to use force to enforce the law. This includes the police, the courts, the army, the prisons, etc. Homeland Security mostly focuses on privatizing the state bodies of organized violence.
Naomi Klein wrote The Shock Doctrine five years ago in 2007, before the Meltdown and before Obama’s election. We can only imagine how this has continued since then:
“The emergence of this parallel privatized infrastructure reaches far beyond policing. When the contracting infrastructure built up during the Bush years is looked at as a whole, what is seen is a fully articulated state-within-a-state that is as muscular and capable as the actual state is frail and feeble. This corporate shadow state has been built almost exclusively with public resources…. Including the training of its staff (overwhelmingly former civil servants, politicians and soldiers). Yet the vast infrastructure is all privately owned and controlled. The citizens who have funded it have absolutely no claim to this parallel economy or its resources.” (15)
Klein’s explanation of the context is almost prescient:
“A more accurate term for a system that erases the boundaries between Big Government and Big Business is not liberal, conservative or capitalist but corporatist. Its main characteristics are huge transfers of public wealth to private hands, often accompanied by exploding debt, an ever-widening chasm between the dazzling rich and the disposable poor and an aggressive nationalism that justifies bottomless spending on security. For those inside the bubble of extreme wealth created by such an arrangement, there can be no more profitable way to organize a society. But because of the obvious drawbacks for the vast majority of population left outside the bubble, other features of the corporatist state tend to include aggressive surveillance (once again with government and large corporations trading favors and contracts), mass incarceration, shrinking civil liberties and often, though not always, torture.” (16)
Since Klein wrote these words, torture has become legal, extraordinary rendition of US citizens on US soil is authorized In the Military Defense Appropriations Act, the police have been militarized and often privatized, the border with Mexico has become militarized, Citizens United has allowed corporations to all but privatize the elections, private prisons are a growth industry and domestic drones are the next big market. The rise of the corporate shadow national security state exists to enforce the wonders of Austerity, not protect people against them. It is not going away. Neither is it reformable.
At the same time, the government has refused to follow its own laws to prosecute the banksters for preying on the public. Government in fact facilitates it, just doing its role in Extreme Capitalism. No discussion whether government should be seeking damages from the financial industry for its malign plans. It never even filed criminal charges against British Petroleum for the 2010 Gulf Oil Spill. It engages in drone warfare – a crime against humanity by international law. It abrogates its responsibility to the people in a thousand ways.
A New Political Reality
The merger of government and the corporations is fueling an aggressive set of government policies and private corporate plans to use debt to privatize everything owned by the public and people as individuals. Terminating Social Security is just the beginning. This is a class war of corporations against the public. It is only starting to unfold. Ultimately the public as a legal category will disappear under this onslaught… if we let it.
Another Meltdown is inevitable. After Wall Street destroyed the economy with exotic financial instruments of debt, financiers and speculators realized such weapons could be developed to centralize the wealth of society into their hands. Far from being banned, they are only now just beginning to be fully employed. The process of dispossessing the public is still in the early stages. The privatization market is vast. The situation is highly unstable. Once again the US will reach the juncture when we are told that the banks are too big to fail. Then what?
The capitalist system is not disintegrating like a piece of bread in water. Contradictorily, it is becoming ever stronger, ever more purely capitalist, and by doing so, it sows the seeds of its own destruction. People who cannot work cannot buy. Production without human labor demands distribution without money. People viscerally grasp that that corporate private property is not sacrosanct and more important than the need of people to thrive.
Systems on the way out usually know they are on the way out… and react accordingly. Hence we see the steady militarization of US society, where strengthening the powers of the police is the answer to every question.
Today there can be no doubt that there is a malign and concerted campaign against the people. There are no good intentions. It is a telling sign when a Democratic president begins the privatization of Social Security when it is completely unnecessary to do so.
The American people will rise up and defeat this challenge. We, the People, does not have to mean “We, the victims”. But we will have to abandon the timid and defensive politics of incrementalism from the past period, just as the capitalism dropped the old laisez faire economics. Neither the economics nor the politics of Extreme Capitalism are sustainable, but they will have to be terminated. This demands new forms of struggle. These can only come from a consciousness of class.
The rising politics of a new generation that has never seen America improve has already demonstrated real vitality, from the 2006 immigrant marches to Wisconsin to Occupy. They do not believe that corporations are sacred. They are ready for a new politics of class, where the 99% recognizes that our ties to each other are more significant that our ties to Bill Gates.
Let history not show that our generation was confused and divided while society was privatized. The destruction of society at corporate hands has an Achilles heel. Government must still be complicit, at this early phase, and organize this take-over. Although it is abandoning accountability as rapidly as possible, government and politicians at all levels can be challenged.
Politicians tell us to elect them so that they can represent our interests. Fine! Let’s take them at their word. We must hold their feet to the fire and make them pay in a thousand ways for their treachery if they abet corporate privatization. We can take the offensive with a new politics of our class. We can re-organize the resources of society for the benefit of the people and healing the planet if we eliminate corporate property and the debt they trade in.
Steven Miller Oakland, Ca firstname.lastname@example.org
1) Text of Draft Proposal for Bailout Plan. New York Times, September 20, 2008. www.nytimes.com/2008/09/21/business/21draftcnd.html
2) Pam Martens explains it in “How Wall Street Gutted Our Schools and Cities”.readersupportednews.org/…/12546-how-wall-street-gutted-our-schoo…
3) Eaton, Habinek, Kumar, Stover, Roehrkasse. “Swapping Our Future – How Students and Taxpayers are Funding Risky UC Borrowing and Wall Street Profits”. p 1
4) op sit, p 4
5) Bob Samuels. “Making All Public Higher Education Free”. January 14, 2013.ucaft.org/…/making-all-public-higher-education-free-bob-samuels
6) Danny Weil. Financial Capitalism and the US teachers’ pension fund fraud
February 11, 2013. http://www.dailycensored.com/financial-capitalism-and-the-us-teachers-pension-fund-fraud/
7) Eaton et al, p 7
8) Common Dreams. “Water Industry Outlook: ‘The Time is Ripe’ for Water Privatization”. November 19, 2012.https://www.commondreams.org/headline/2012/11/19-3
9) Steven Miller, Danny Alexander. Water Wars – Coming Soon to Your Town!www.facebook.com/directory/pages/W-555001-555120
10) Rally Comrades, January 2009, p 1, www.rallycomrades.net
12) Laura Gottesdiener. “Privatizing Roads, Bridges, Schools and Energy Grids? Corporatism Pervades SOTU”.www.alternet.org/…/privatizing-roads-bridges-schools-and-energy-gr..
13) Zoe Williams. The Guardian, Wednesday 6 February 2013. “This obsession with outsourcing public services has created a shadow state”.www.guardian.co.uk/…/feb/…/public-sector-outsourcing-shadow-stat…
14) National Priorities Project, “Bringing the Federal Budget Home”. http: //nationalpriorities.org/analysis/2011/us-security-spending-since-911/S. Security Spending Since 9/11
15) Naomi Klein, The Shock Doctrine. 2007, p 14
16) op sit, p 15