A longish piece,by yrs truly. There has been a bit of work & thought. Friends, wd request you to take the pain & provide some critical feedback. Thanks. George Soros, the fall of the Rupee & the complete hegemony of International Finance Capital India has witnessed, first hand, the ills of globalization the last few months. The Rupee has fallen, beaten down by fleeing FIIs & speculators. Production is down, demand is down, yet inflation shall be high. The RBI, though aware of the malaise for some time has been unable to intervene to stem the rot, stymied by a government, wedded to neo-liberal economics & the creators of the Washington Consensus. Was this sudden or is it a result of a long drawn period of pro-Capital, anti-people governments? The later would be true, considering that all signs were writ large on the economy. Galloping inflation, increasing unemployment, emasculation of the agriculture sector, removal of capital controls, large scale ‘primitive’ loot of natural resources, increasing consumerism has been the feature over the last two decades. This has been on top of massive twin deficits, both fiscal & trade, primarily fuelled to help the corporations & the rich. Was this phenomenon unprecedented or did history give us enough data to eschew the excesses of Capitalism & create the foundations of an equal & just society. Let us study a few of the earlier crises & see the role of Capital. Soros & Thailand- 1997 It was late 1996, when a Princeton-trained economist, Arminio Fraga, in the employ of Soros’ Quantum Emerging fund, run by his partner, Stan Druckenmiller, attended a talk by Stan Fischer, the number two at IMF. Fraga has just left his position as the Deputy Governor of Brazil’s central bank. Mexico’s currency had recovered from its crisis & the emerging markets were doing well. In an answer to a question as to who would be the next Mexico, Fischer pointed towards imbalances in Asia an added, ‘That might be interesting to look at’. Interesting? For whom? The countries in question? Or the vultures of finance capital? The IMF-Federal Reserve paper titled, ‘The Twin Crises’ laid out in terrifying detail how a currency collapse would interact with the collapse of a banking system. The predator of all predators, George Soros sent his man to reconnaissance Thailand. In a meeting with a high ranking official at its central bank, the official apparently said that while Thailand, so far, had accepted whatever interest rates proved necessary to maintain the exchange rate within its designated band. Given the troubles with the banking system, the priorities might have to shift. Getting interest rates down might matter more than defending the level of the currency. This statement, which otherwise would be considered ‘Insider Information’ was considered benign & went unaddressed by the regulators. Soros & his cohorts shorted the Thai Baht, ie., bet that it will depreciate against the dollar. The Baht was heavily linked to the US Dollar & was running a large trade deficit. The horde of currency speculators joined the party. When it ended, The Bank of Thailand had used around $30 Billion of its reserves trying to steady its currency, but, in just a period of 3 months, it had fallen by 32% against the Dollar. Its output collapsed by 17% from its peak, destroying businesses & jobs, plunging millions to poverty. Just Soros’ fund had made $750 million. This was repeated in Indonesia & South Korea, with an equal mix of insider information & IMF intrigue. As the crisis progressed, unemployment escalated, GDP plummeted, banks closed down. Unemployment was up fourfold in Korea, threefold in Thailand, tenfold in Indonesia. In 1998, GDP in Indonesia fell by 13.1 %, in Korea by 6.7%, Thailand by 10.8%. Three years after the crisis, Indonesia’s GDP was still lower by 7.5% of its pre-crisis levels, Thailand by 2.3%. Soros & the Pound - 1979 But, has marauding international finance capital just affected developing countries? This knight of International Finance Capital had earlier wrought havoc on United Kingdom’s currency, the mighty Pound. The Pound and other European currencies were pegged to the strong Deutsche mark. This was before the Euro, the system set up in 1979 to dampen currency fluctuations within Europe. The participating currencies were allowed to move against one another within narrow bands & would have to negotiate devaluation with its partners. Soros & gang estimated that the Bank of England could only spare 21 billion pounds worth of reserves or $41 billion to shore up its currency. Given Germany’s position then, which considered its own currency’s health paramount compared to other European currencies, they estimated that since England could not increase its interest rates as its industry was in serious trouble & would deepen recession, it would go for devaluation of the Pound. They pounced on the Pound with a $ 15 billion war chest. Germany remained intransigent on maintaining an inflation-proof currency, the key ask of finance capital & so kept its interest rates high. Money flowed into it from all over Europe. The Finnish Markka fell 15% in a day; there was a run on Sweden, forcing it to raise interest rates to 75%. The Italian Lira fell below the bottom of the prescribed band forcing it to formally devalue its currency. During the first half of September, the Bank of England spent $27 billion worth of reserves in its efforts to defend the sterling but to no avail. Britain had to exit the exchange rate mechanism & still remains out of the Euro. Experts put the onus on Soros. He & his partners had shorted a total of $ 10 billion & the profits of Soros Fund Management just on the sterling bet came to over $ 1 billion. The International Monetary Fund (IMF) – Its role in the 1997 crisis Now that we have the role played by the advance army of international finance capital, let us see what the other agents of Capital, the IMF & US had to do during the Asian crisis of 1997. They had pushed these countries to adopt rapid financial & capital market liberalization. They exhorted complete capital convertibility & the countries were made to allow all sorts of hot money to flow in to their economies, unregulated. They were made to open up their markets to western produce, including ones that such developing economies did not need, luxury products, consumer items, including toys. The exports of the countries were essentially low value add. The foreign banks, which grew with the boom in these economies, prior to the fall fuelled debt & consumerism, including short term external debt. In fact, in Thailand, the speculators used low interest Baht debt to hammer the Baht itself. Thailand was not allowed public investment to strengthen its infrastructure & weak primary & secondary education system, its health infrastructure while billions were squandered on commercial real estate. The bail out by IMF did not allow these countries to put in capital controls or create employment. It was forced to use the money to first bail out the foreign banks, primarily US & European. In fact, it is argued that IMF’s official declaration of a crisis actually exacerbated the bust. Rather than helping restore confidence that would lead to an inflow of capital into the country, IMF’s criticism accelerated the stampede of capital out. The pro-cyclical nature of international finance capital was actively denied before & during the crisis. Hot money was allowed to flow in, the ‘animal instincts’ of financial markets encouraged when it should have been regulated & money allowed to flow out when the country needed them the most. India – the crisis catches up All this rings a bell, closer back home. The present crisis of India has, unfortunately happened in spite of this body of evidence. The crisis began in 1991, when the finance minister, an ex-World Bank economist, opened up the Indian economy to the dictates of the Washington Consensus. The market was liberalized, capital convertibility allowed through the back door, regulation reduced in the financial markets, newer & newer instruments of speculation allowed inflow of unchecked waves of short term FII, as opposed to FDI, something which China garnered with its regulated economy & independent socialist economics decided by the Communist Party. India became a signatory of WTO benefiting the developed nations at the expense of its manufacturing sector & innovation capabilities of the Indian people. Laws continued to be relaxed towards round tripping of funds, enhanced artificial liquidity through promissory notes, near zero tax on capital gains, etc. Large corporations were allowed to use both debt & equity to play the financial markets, acting as quasi-Mutual Funds, the government trampling all caution suggested, even the ones by the RBI. The liquidity of the large corporations was further enhanced through subsidies in consecutive budgets, without any regulation to ensure investment in productive assets. The stock market & the job-less GDP growth, fuelled by services & not manufacturing was the indicators of the government’s performance. Public investment was continuously curtailed in the areas of education, health & job creation. No efforts were made for import substitution, even in the face of a quickly growing CAD (current account deficit). All bars on imports removed, including non-essentials, like luxury cars. Import duties were reduced to abysmally low levels, to satisfy the masters. Even low-tech fertilizer was imported, the Indian plants closed down. Speculation was introduced in agricultural produce, allowing squeezing of prices to the farmers & supernormal profits to the traders. The prices at the commodity exchanges were kept high by allowing exports when there was rising food prices in the country & stone walling all requests to release the excess stocks of food grains to the starving, including the suggestion by the Supreme Court itself. The Industry & Commerce minister, Anand Sharma was heard bragging about the Rs.2.7 lakh crs of agriculture exports to a TV channel. The Prime Minister & the Finance minister, on all occasions of the obvious melt down of the stock markets came out in an unprecedented public display of confidence on the markets including entreaties to unleash the ‘animal spirits’ of the market. While the left’s strident opposition to opening up the financial sector carried the day during the 2008 global meltdown, all policies of deregulating & liberalising the financial sector has been taken by the UPA-2 government, allowing the global crisis of 2008 to finally catch up with India. They have also been party to the massive corruption or ‘primitive accumulation’ by the private sector of India’s resources. The Prime Minister was also seen justifying this ‘primitive accumulation’ as beneficial to India’s economy. Curiously, an ex-IMF man takes over as the head of the Central bank. International Finance Capital – Total & Global hegemony International Finance Capital has played its usual role, as highlighted by the Marxist economists & even economists like Stiglitz & Krugman. What is dangerous is that it had willing ‘Barkises’ in the form of the topmost players of the Union Government. In the face of the Indian Rupee being beaten to death by speculators & fleeing capital, both FII & domestic, it issued statements like ‘ let the Rupee find its own level’ thereby allowing the speculators a open field to take up short positions & wait for its inevitable fall in the face of high interest rates & high inflation. This fall also exposes the weakness in the fundamentals of Indian industry. The objectives of International Finance Capital have been truly globalised, as far as India is concerned. It is not only the consumer markets that are the target now. They target the biggest market of all, agriculture & the entire ‘food value-chain’ in the world’s 2nd largest populated country, 121 cr mouths to be fed currently & rising. They aim to take control of the entire market, from Monsanto seeds to Walmart distribution outlets. They don’t stop at that. They also seek the huge savings & industrial surplus at their beck & call, the savings of the working people, the insurance funds, pension funds & complete unregulated integration of the financial markets to the global markets. They have almost achieved their victory. The US Fed is now able to control the rise & fall of the Indian economy, as was recently observed. It is important to understand that Capitalism Inc has comprehended the inherent problem of just depending on production capital. As Marx had postulated, the crises till the 1970s were increasingly happening due to over capacity. One would recall the spate of M&A activity (mergers & acquisitions) in the late 70s. Large corporations who had all been stagnant, both in revenue & profitability terms, in fact drastically falling profitability, chose to grow inorganically. A similar trend is shown by Lenin’s analysis in ‘Imperialism, the last stage of capitalism’, written almost a century back. Suspect instruments, the precursor to the huge web of the current derivatives sector came up, highly leveraged, high risk, notably Milken’s ‘Junk Bonds’. It was in the late 80s, that the derivative sector was created to provide opportunities of super-normal profit making in lieu of investment in production assets. That continues till date, in spite of the temples of Capitalism, the Fortune 500 companies growing in low single digits ( except for the Oil cos.) & a majority of the global population neither significant producers nor consumers. Finance industry, before the fall, clocked a turnover of $ 640 trillion, ten times that of global GDP at $64 trillion. Consistent & untrammeled concentration of wealth & income in fewer & fewer hands remains unabated, in fact, its rate rising over the years, furthering the crisis of capitalism, both in scale & frequency. The globalization of International Finance Capital has co-opted the national bourgeoisie of all countries, connected seamlessly with the most advanced of technology. In fact, for decades now, the Finance Sector has been the biggest buyer of the IT (Information Technology) industry, worldwide. There is nothing more efficient than the processes & transactions of finance, literally conducted at the speed of light. The best of institutions & minds of the world work round-the-clock to create the most obtuse of webs; making it impenetrable by any government. It allows trillions of dollars to flow across multiple borders in a matter of seconds. It has, over the decades ensured the sustenance of fundamental parameters that Capitalism needs to survive & grow. It has taken over from the earlier gothic imperialism of the colonizing capitalist countries. Lenin had postulated its role which is one of the drivers of the capitalist system when it reaches an advance stage, which is one of Imperialism. Everything still holds good, after almost a century. The Capitalist system, which reached an advanced stage in US & Europe in the early 20th century, has continued on its imperialist character. The monopolistic tendency of capitalism, as clearly detailed by Lenin, backed by comprehensive data on the cartelization of numerous industry sectors & the cartelization of banks behind this. It detailed the growth of monopolies in industry sectors & the simultaneous monopolization of the banking sector. He exposed the fall in innovation as monopolies grew leading to it becoming ‘moribund’ & expansionist to secure profits. Their states ensured primitive loot of resources & monopoly markets in the colonies. The exhaustion of this route led to the contradictions between the bourgeoisies of the advanced capitalist countries & turned the bonhomie into antagonism. It resulted in two of the world wars. Capitalism, post WW-2 has remained in that stage, with a few ground breaking shifts. It has, through its policy of democratically sanctioned ‘expropriation’, through agents such as the UN, World Bank, IMF, WTO ensured markets & a steady supply of a massive reserve labour, apart from its own. US & European monopolies have used Mexico, Korea, China, India, Thailand, Malaysia & east Europe, post the fall of the Soviet bloc & maintained their objective of supernormal profits. This is without increasing its direct capacity & keeping inflation low. Inflation has always been the bugbear of finance capital as it reduces the value of the amassed wealth of the bourgeoisie. It increases interest rates, thereby reducing the bubble. It would b interesting to note here that it is a ‘rational’ decision of an advanced capitalist country such as the US to not let unemployment go below 6-8%, as that would fuel inflation, not to mention the cost of labour. It has co-opted the national bourgeoisie in these countries. But most, importantly, with the creation of the massive industry of financial instruments, unthinkable when Lenin was writing his thesis, it has succeeded in the most massive ‘rent-seeking’ activity in history & this not only has partly solved the capitalist contradiction of recurring situations of over capacity, it has united the biggest of the big bourgeoisie of all countries into one bloc. This perhaps, seems to be a longer term solution to the possible contradictions between the bourgeoisies across borders. It is also no longer limited to just the surpluses by the capitalist enterprises; it is primarily fuelled by the savings of the working people. Capital is truly ‘International’ now. Not that it has shed ‘Gothic’ methods of imperialism. It has waged war across the world, where necessary & backed its corporations to conduct violent means of expropriation of resources where feasible. The Middle East & the whole continent of Africa continue to be cases in this respect. The fight against the paramount adversary The left, particularly the CPI (M) is the only force that understands the danger of this phenomenon. It is the only political & social force with the necessary ideological rigour & has a history of consistently fighting against it. International Finance Capital directly, not in the abstract, threatens every segment of the society; economy, industry, agriculture, education, culture & governance. However, given the nature of this danger, massive & quick, it is no longer enough to just organise the protest, post-facto. Active steps need to be taken to organize the people against it & execute a strategy of ‘continuous proactive intervention’. Till the time a people’s revolution can supplant this system, the left has to take this non-classical phenomenon in to account in its trade union organizational strategy.The workers in the financial system of India have to play the ‘pro-active’ role & intervene in the daily machinations of international finance capital, as its daily activities itself are enormous in its impact. The small investors, be it banks, insurance funds, mutual funds, direct stock buyers, whose money is ultimately used for this massive speculative activity by a miniscule minority, have to be organized. They need to have a say in the investment decisions of the funds & the companies. The government has to be forced to bring in iron clad regulation & punitive laws to guarantee the protection of the retail investors & punish the institutions, persons responsible for the huge destruction of wealth. As Marx has analysed that Capitalism will not disappear due to its crises, it will come back, unless the revolutionary forces are strong & can ‘expropriate the expropriators’; but will require massive destruction of assets, the most effective being war. These crises endanger the lives of farmers, farmworkers, organized & unorganized labour, high income skilled proletariat, which forms the bulk of the middle-class & the small, midsized sections of industry. It is completely standardized across its destruction of the lives of farm-workers (an increasing breed with part time exposure to proletarian jobs), be it Bhangor in the South 24 Paraganas of West Bengal, Uttar Pradesh or even highly subsidized France. It affects the skilled factory worker as much as the knowledge worker earning 1000 times the country’s per-capita income. It affects every pensioner on the globe, be it New York or Mumbai. The current condition will lay the ground for unifying all sections of the working class along with the peasantry for a comprehensive & a long drawn out battle against this. This is also one issue which beckons the solidarity of the exploited masses across borders, creating the foundations of an international front against the rabid expropriation by the international finance capital & its imperialism. Lenin, in ‘Imperialism, the last stage of Capitalism’ had also postulated that this highest stage of Capitalism, completely under the control of Finance Capital will also create the best conditions for the revolution. The Indian left has to bring out the movement against Finance Capital from its current abstract existence & flesh out its effects on all sections of society & dovetail all the existing class movements with it. The revolutionary workers in the finance sector has to, for eg., take the Bombay Stock Exchange‘s ‘Trading Server’ & the network under its command. Shutting it down, even for a day will send shivers up the spine of Finance Capital internationally. What would a month or a year’s lock down do?? Once international finance capital starts getting hit hard, & thereby its primary state sponsor, the US, it will force the contradictions between the US & and expropriated countries & their people. While one cannot predict or time the revolution, one can neither wait for it to fall on our head like a ripened apple. The right analysis of this scourge will also reveal the quickening of the crises of Capitalism. The concrete conditions for changing the current correlation of class forces will only move in favour of the working classes. The 2008 crisis, which is still raging, with a new bubble appearing, in the form of ‘commodity speculation’ shows that the capacity of the world’s working classes to bail it out has significantly decreased. While the US & EU has spent almost half its GDP for the bail out, the crisis has only exacerbated & is spreading to developing economies. Every program, every movement has to be planned & executed keeping the objective of leading the revolution against the current system in order to create a proletarian state. No patchwork, no more of Keynesian intervention can save this system. It has to be a socialist economy, run by the working classes, under the guidance of a Marxist-Leninist party, with a clear goal to move towards a state of Communism, nothing less! The rapid degradation of the global environment is a ‘Red Line’, which has not featured in the earlier attempts at the resolution of the contradictions of Capitalism. Every step needs to take us ahead towards this objective, be it parliamentary or people’s movements. In fact, every policy of the left, in governments or otherwise, needs to answer the fundamental question, ‘Does this decision take us closer to the revolution?’
Posted on: Sat, 14 Sep 2013 13:21:22 +0000
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