FROM CRISIS TO CRASH

By www.beigewum.at

[This 1998 editorial from the Austrian journal Beigewum is translated from the German on the World Wide Web,  http://www.beigewum.at.]


The seamy sides of liberalization and the unbridled power of financial markets are obvious. The most adventurous zigzag lines describe the current stock prices on the news reports. While large investors easily hide their losses, economic and political collapse threaten Indonesia and Russia.

For over a year, a fierce crisis has shaken the international financial markets. At the beginning was the collapse in the greatly acclaimed tiger countries. In the meantime the crisis has spread worldwide. Russia faces a hunger winter, the Latin American money markets threaten to collapse and western industrial countries will not be spared.

The representatives of orthodox market theory are not weary emphasizing that the causes for the crises only refer back to economic errors in the afflicted countries according to the motto: “Everyone is the creator of his own happiness.” This rhetoric can be quickly unmasked as pure ideology given the constant ascent and descent on the stock exchanges and currency markets. The financial crisis can strike any country, even if it has strictly liberalized and deregulated according to the neoliberal theory.

Deregulation and liberalization have contributed considerably to the present chaos. A disturbing factor that casts waves at one end of the world can lead to domino effects. The free flow of individual financial market titles also represents a worldwide interweaving of individual transactions.

THE RISE OF THE FINANCIAL INDUSTRY

The starting points of this development were the US and Great Britain in the 1980s. With a discourse that skillfully mixed “modernity” and “tradition”, Margaret Thatcher set out at the end of the 1970s to establish a new worldwide economic power out of England described as “on the road to ruin” and initiate a neoliberal monetarist experiment supported more by new fashionable economic ideas than profound economic insights. In the film “Empire State”, a parable on the Thatcher- and Reagan revolution of those years, the director Ron Peck sums up the departure euphoria of his protagonists in a sightseeing helicopter flight over London: “You must forget what it used to be like here. There is a new British energy, fitter, leaner, hungry to compete and ready to assert itself in the world’s financial and commercial arenas. A new nation needs a new kind of city. So we’re building it.”

This interweaving of cultural, political and economic factors is part of the attempt to establish a new accumulation model under the hegemony of the moneyed interests based on the criteria emphasized in the film: flexible, energetic and dynamic.

FINANCIAL MARKETS: ASYLUM FOR CAPITAL

This reorganization of capital became necessary on the backdrop of a crisis that began expanding in the early 1970s. The mass markets were largely satiated and the working population was increasingly pert in their claims. Capital increasingly sought to escape this uncomfortable situation in new organizational forms, new branches and new markets. This brought us “lean production,” “flexible specialization”, the growth of the service sector and “globalization”.

The financial markets prove to be an ideal place of refuge for anxious owners of capital. They are flexible and global. An IBM stock can be exchanged in a few moments for a Yen credit or a government bond. For big customers, the expenses are trifling. State incursions like taxes and restrictions tend to zero. The regulatory thicket is nowhere as trifling as in Germany. Best of all, one no longer needs to scuffle with bothersome female workers in the production process.

Profits were and are now gained from shares (dividend distributions based on business profits), national debts (compound interest financed by taxes), credits (interest payments from private or state debtors), organization of firm takeovers or the purchase and sale of securities at the right moment. The latter is a very popular option since it requires the least waiting-time. Through deregulation and internationalization, getting into and out of investments as fast as lightning is increasingly possible.

With this flexibility, pressure is exerted on everything that does not bow to the desires of investors. This structure is the central lever for the restructuring and realization of better profit conditions for capital in general, not only the much reviled “speculators”.

YUPPIES AND FINANCIAL HEGEMONY

The adoption of certain values and cultural models by wide parts of “civil society” made possible the realization of this new model. Great Britain and the US whose governments pushed deregulation and liberalization most vehemently were those countries where the Yuppie-myth of the 1980s blossomed most powerfully.

Great Britain offers a fine example for the popularization and diffusion of Yuppie values. In the course of Margaret Thatcher’s assumption of office, an increasing disparagement of unions and implicitly the working class occurred. The appearance off traders on the London International Financial Futures and Options Exchange (LIFFE), a very dynamic stock exchange, could have an identification function for a part of the working class and bridge over and whitewash class differences. The LIFFE market responsible for short-term options and term-businesses is ruled today by the so-called
“Essex boys” given favor and fascination in the British media landscape of the past years. The masculine and “bullish” Essex boys often came from proletarian families and caused sensation in London’s best society when whey appeared at the end of the 1980s with garish shirts and casual suits.

Until then, the dark suit was regarded as the imperative dress code in banks and stock exchanges. “If they don’t wear dark suits, they must be bicycle messengers bringing the sandwiches.” Aristocratic and elitist ignorance prevailed where lost world fame was regained via the finance-capitalist revolution. The cultural hegemony of a new Yuppie-generation that promoted aggressive-proletarian values now followed the “gentlemanly narrative” of the old banking aristocracy.

A PEOPLE OF SHAREHOLDERS

The grand vision is that co-workers joyfully agree with their own dismissal by focusing on their rising dividends.

The next step is the effort to dismantle the public pension systems (allegedly suddenly “unable to be financed” despite rising national income) and the conversion to private pensions funds in Europe. Employee funds are directed to the stock market and all pensioners in hope must believe in business profits whether they like it or not to finance their pensions through dividends.

EXODUS FROM THE HEADLOCK

The real problem of this pro-financial market discourse is that it seemed successful in the boom years. Experts who warned of the bursting of the speculative bubble were stylized as perpetual fault-finders and the economic losers could hardly oppose the dominant discourse.

Now the crash is imminent. “Can shareholder power be maintained under these circumstances?”, the “Financial Times” (9/24/1998) asks nervously. Resistance gains ground. Meanwhile all debtors are no longer sure whether they should continue to be subject to the demands of liberalized financial markets. Malaysia has reintroduced capital transaction controls in reaction to the Asian crisis. Leading US economists like MIT-professor Paul Krugman and the chief economist of the World Bank Joseph Stiglitz speak positively about these restrictions. However a real reform of the world financial system loudly demanded but never tackled after every new crisis is still unlikely. The most interesting proposal, the introduction of a tax on currency transactions, the so-called Tobin tax, was already presented in the seventies.

No one dares touch this hot iron despite the undeniable advantages connected with this tax – like lower financial market volatility and enormous revenues from the tax for public expenditures.

A group of French activists whose patience seemed to be at an end may be an exception. With the economist Chesnais and the associations of the movement of the unemployed, several independent unions and some leftist alternative journals like Le Monde Diplomatique founded an action committee: ATTAC – Action for a Tax on Transactions to Aid Citizens). This alliance relies on a broad mobilization of the population to introduce the Tobin tax to finance important social projects. In addition they have worked out a catalogue of economic measures. Their ideas find enormous approval in France. Contacts with foreign organizations, the internationalization of their project, are still sought (cf.  http://attac.org/).