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Spartacist Canada No. 159

Winter 2008/2009

Ruling Class Fleeces Working People

Financial Crisis: Bankruptcy of Capitalism

Those Who Labour Must Rule!

The economic crisis that exploded on Wall Street over the fall has reduced some of the most powerful financial institutions in the world to twisted wreckage. As it expands and deepens, the economic crash is putting at risk the livelihoods of hundreds of millions of working people around the globe.

In the biggest bailout in American history, the U.S. government allocated $700 billion to buy out the “toxic assets” of banks and other major financial institutions. Aptly dubbed “cash for trash” by international bankers, under the bailout deal the government would pay a premium for “trash” on bank ledgers, centrally mortgage-backed securities that high-rolling financiers bought en masse in speculative schemes to cash in on the housing price bubble. When that bubble burst, bankers began to sharply cut back lending to businesses, consumers and even to each other, triggering an even deeper economic crisis. Even as capitalist politicians cynically decry Wall Street “greed,” Washington has now expanded its subsidies to compensate the losses of the banking and financial looters to a staggering $7.7 trillion.

North of the border, Stephen Harper declared during the federal election campaign that “the fundamentals of the Canadian economy are sound.” Days later, the Tory government announced that Canada’s banks would also be bailed out to the tune of $25 billion—since tripled to $75 billion.

Raising the spectre of the Great Depression, bourgeois economists and media pundits insist that bailouts to Wall Street and Bay Street are the price everyone has to pay for restoring stability. But no one really believes they will do much for the economy. The stock market continues to plunge as credit tightens even further. Now the auto bosses, who have already axed tens of thousands of jobs and gutted pensions and other hard-won benefits, are demanding their own share of the bailout money. You don’t have to watch The Sopranos to know extortion when you see it.

The working class, poor and oppressed have plenty to fear as this crisis is being played out on their backs. Mortgage foreclosures are sweeping the U.S. at a rate not seen since the 1930s. The wholesale destruction of pension programs means that many are also seeing the retirement monies that they invested in stock market and other accounts go up in smoke. September saw the biggest monthly job losses in the U.S. in five years.

In Canada, nearly 400,000 manufacturing and forestry jobs have already been destroyed, and now workers in other sectors face mass layoffs. After throwing some 60,000 employees on the scrapheap, telecom giant Nortel is on the brink of collapse, its stock rated at zero by one prominent financial analyst. Since March of this year, almost $100 billion has disappeared from the value of Canadian pension funds. For those who still have a job, it’s another day older and deeper in debt trying to make ends meet—paying the rent or mortgage, groceries, credit cards and other debts, gas and car payments.

Like all the inevitable economic crises that occur periodically under capitalism, the current crisis reflects a key contradiction of capitalism identified by Karl Marx and Friedrich Engels. Under capitalism production is socialized, that is, concentrated and organized in vast corporations, but the means of production—and the appropriated, socially produced wealth—remain the private property of a few.

V.I. Lenin, leader of the 1917 Russian Revolution, in his 1916 study Imperialism, the Highest Stage of Capitalism, described how imperialism, the system of modern, decaying capitalism, “leads directly to the most comprehensive socialisation of production” under capitalism. Lenin emphasized that the monopolization of production and the dominant role of finance capital impel the imperialist powers to divide the world as they strive for markets and spheres of exploitation in the countries of belated economic development. He explained:

“The development of capitalism has arrived at a stage when, although commodity production still ‘reigns’ and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of the profits go to the ‘geniuses’ of financial manipulation. At the basis of these manipulations and swindles lies socialised production; but the immense progress of mankind, which achieved this socialisation, goes to benefit…the speculators.”

The current financial crisis is a compelling argument for a thoroughgoing socialist revolution to seize the banks, the factories, mines, mills and other means of production from the hands of the capitalists who have appropriated and squandered the wealth produced by the working class. Socialized production must be extended to socialized ownership through the producers taking control of society. The way out of the endless cycle of capitalist economic crises and imperialist wars was shown by the 1917 Bolshevik Revolution, when the Russian workers took power in their own hands, expropriating the bourgeoisie and establishing a workers state. Today we fight for international socialist revolution, for the collectivization of the means of production and for economic planning on an international scale.

The Shackles of Class Collaboration

Since the counterrevolutionary destruction of the Soviet Union in 1991-92, America’s rulers, with their Canadian junior partners in tow, have reveled in the supposed “death of communism” as they increasingly savaged the unions, drove up the rate of exploitation of the working class and made life unlivable for the poor. Now working people everywhere are enraged at seeing their tax dollars going to line the pockets of those responsible for their ruin.

With its hands on the means of production, the working class uniquely has the social power and interest in sweeping away this deeply inhumane system. However, there is a huge disproportion between this necessary perspective and the present consciousness of the working class. It is commonplace for workers in Canada, as in the U.S., to identify themselves as “middle class.” Such false consciousness is transmitted to the workers by the pro-capitalist trade-union bureaucracy and the NDP social democrats, who push the idea that the workers have a common “national interest” with their exploiters.

In a November 18 statement, NDP leader Jack Layton called on the Harper Tory government to “signal a new willingness to work together in the interests of all Canadians…. Working together is the only way we will overcome the economic challenges.” On October 6, Canadian Labour Congress (CLC) president Ken Georgetti called on the government to institute “an emergency national action plan with input from labour” including “measures to audit, re-regulate and shore up our battered financial system.” Two weeks later, another CLC statement added: “Working people know there will be sacrifices. They should not be expected to make them all, or any for that matter without consultation.”

“Working together,” a “national action plan,” agreement to share the “sacrifices” as long as labour is “consulted”: such is the bankrupt political perspective pushed by the New Democrats and labour tops. Their program of a “partnership” between labour and capital has long served to sap the fighting power of the working class by shackling it to the capitalist class enemy. Its cost has been savage attacks on living standards, the wholesale destruction of unionized jobs, the slashing of health care and the looting of EI and other social programs, while the capitalists “divide and rule” over the workers by whipping up anti-Quebec chauvinism and racism against immigrants. Now the Harper government, citing the financial crisis, is moving to ban strikes in the federal public sector until 2011.

Enough! The situation desperately cries out for class struggle against the capitalist rulers’ onslaughts. Labour needs a fighting leadership that will unleash the power of the multiracial working class in struggle for its own interests and in defense of all the poor and oppressed. First and foremost that means breaking the chains forged by the present labour misleaders, which have shackled the working class to its exploiters. A revolutionary workers party would give conscious leadership to the struggles of the working class not only to improve its present conditions but to do away with the entire system of capitalist wage slavery. For a class-struggle leadership of the unions! Those who labour must rule!

Capitalist North America: Crumbling Infrastructure, Deindustrialization

Shunning investment to expand and modernize industrial capacity and to repair crumbling infrastructure, such as bridges, roads and power grids, the capitalist rulers have expended the economic surplus they appropriate through the exploitation of labour on a succession of speculative binges. First came the stock market boom driven by the supposed “revolution” in information technology (the IT/dot-com hoopla) in the mid-late 1990s. This was followed by the housing bubble in the early-mid 2000s. Now we are witnessing a classic financial crisis such as described by Marx in Capital (Volume III):

“This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.”

The current crisis was conditioned by a broad transformation of the U.S. financial industry since the late 1980s that was exemplified by the repeal, under the Democratic Party Clinton administration, of the Glass-Steagall Act, a Depression-era law that sought to limit speculation by commercial banks. A component of that transformation was the explosive development of derivatives and other forms of “financial engineering.”

A major attraction of entering into derivatives contracts for the purpose of speculation is that often very little money needs to be spent up front. In such highly “leveraged” investments, both the risks and the possible payout can be astronomical. “Financial engineering” also allows large banks to offload risk onto others. For example, when a bank issues bonds using mortgages as collateral, the buyers of those bonds take on the risk that the mortgages will default. The enormous expansion in the volume of mortgage-backed securities is what Marx called fictitious capital. This is an increase in paper wealth that is not based on an increase in productive capacity (e.g., in factories, electric-power plants, transport systems, communications networks) or in this case even by an increase in the quantity and quality of consumer goods.

The deterioration in the condition of the working class is directly related to the deindustrialization of North America. Since 1979 the share of the labour force employed in the goods-producing sector in the U.S. has fallen steadily from almost 28 percent to under 15 percent. In Canada, former industrial centers in Southern Ontario, Quebec and the B.C. Interior have been devastated by plant closures.

The U.S. trade deficit, which is equal to more than 5 percent of the gross domestic product, is now far higher, in absolute terms and in proportion to GDP, than in any other major capitalist country. The result is an historical anomaly in which the world’s most powerful capitalist power is also the world’s leading debtor. Consequently, Asian countries and the Persian Gulf states are accumulating an ever larger stock of U.S. Treasury bonds and bills as a major component of their foreign-exchange reserves. This state of affairs is a potential source of enormous instability for the world economy. Should central banks change their minds about parking their capital in U.S. government debt and begin to diversify quickly out of dollars, it could trigger a quantum leap in interest rates and precipitate an even more profound world economic downturn.

The Myth of “Regulation”

It has now become conventional wisdom to blame the meltdown on Wall Street on inadequate government regulation and then to blame inadequate regulation on the U.S. Republicans’ supposed belief in “free market fundamentalism.” An editorial in the New York Times (20 September) asserted:

“This crisis is the result of a willful and systematic failure by the government to regulate and monitor the activities of bankers, lenders, hedge funds, insurers and other market players. All were playing high-stakes poker with the financial system, but without adequate transparency, oversight or supervision.”

In reality, speculative binges that inevitably crash are endemic to capitalism. An example is the 1720 South Sea Bubble in England, where rampant speculation in the stocks of the South Sea Company led to a financial collapse whose impact was felt internationally. (David Liss’s 2000 novel, A Conspiracy of Paper, is a good read on the subject.) One need only look back to the last major financial crisis, the collapse of the dot-com stock market boom in 2000-2001. In that case, the preceding speculative bubble took place under the Democratic Clinton administration, not a Republican White House. The wild inflation of financial assets was centered on corporate shares rather than newfangled, exotic securities like CDOs (collateralized debt obligations) and CDSs (credit default swaps).

Stock market transactions were and are highly regulated in the U.S. by the Securities and Exchange Commission. Nonetheless, at the height of the bubble in 2000, the shares of companies listed on the S&P 500 Index were trading at 36 times their average earnings over the previous five years. The so-called price-earnings ratio was at the highest level in over a century. When the crash came, it wiped out more than a third of the stock market’s paper wealth. And then came a recession as corporate spending on new plants and equipment plunged and employment fell for three straight years.

In all modern capitalist countries, the overall supply of money and availability of credit is regulated through the operations of the central bank. No sustained speculative bubble, whether centering on corporate shares or mortgage-backed securities, can occur behind the back of the central bank. And the Federal Reserve, the U.S. central bank, helped fuel first the stock market boom and then the housing-price bubble through its “easy money” policy. When the former went bust, the Fed flooded financial markets with money. It cut the interest charged on short-term loans to member banks from 6.5 to 1 percent by 2003, the lowest rate in half a century. During most of this period, the so-called federal funds rate was less than the going rate of inflation. In effect, the government was giving away money for free—and as much as they wanted—to Wall Street financiers. No wonder the latter then spent with reckless abandon.

In late 2004, the London Economist warned that America’s “easy money policy has spilled beyond its borders” and “has flowed into share prices and houses around the world, inflating a series of asset-price bubbles.” Almost all European countries were infected with speculative bubbles regardless of the political and ideological character of their governments or the particular laws and practices regulating their financial markets. Countries like Spain, which have been governed by social-democratic parties, experienced an even more extreme inflation of housing prices than did the U.S.

Now these and other European countries are also facing the day of reckoning. A large British bank, Northern Rock, which specialized in mortgage loans, went bust and had to be taken over by the government. The French, Belgian and Dutch governments have been involved in “rescue” operations for two major banks, Dexia and Fortis. The Union Bank of Switzerland—one of the largest in the world—has been hit by heavy losses and there is now talk of a bailout for this global titan. The German government announced that it will guarantee all private savings, to the tune of more than $700 billion, after a group of banks pulled out of a deal to provide more than $48 billion to rescue the large German mortgage lender, Hypo Real Estate. Thomas Mayer, chief economist for Germany’s Deutsche Bank, bemoaned: “In this day and age, a bank run spreads around the world, not around the block.” To maintain that the current international financial crisis could have been prevented by more regulation and better oversight by Washington is like arguing that the destruction caused by a 100-foot-high tidal wave could have been prevented by adding a few feet to a six-foot-high jetty.

At the political level, the West European imperialist ruling classes are conflicted between worrying about the fallout from the Wall Street crash and gloating over the sudden weakening of their American imperialist rival. A recent study by the German economics ministry points to a “noticeably worsened external economic environment.” On the gloating side (which didn’t last too long) is a lengthy piece in the leading German bourgeois journal Der Spiegel online (30 September) titled, “The End of Arrogance: America Loses Its Dominant Economic Role”:

“With its rule of three of cheap money, free markets and double-digit profit margins, American turbo-capitalism has set economic standards worldwide for the past quarter century. Now it is proving to be nothing but a giant snowball system, upsetting the US’s global political status as it comes crashing down.”

End of the “Globalization” Myth

The current economic meltdown demolishes the notion peddled by various liberal and radical ideologues of a new era of “globalization,” positing that capitalist rule had transcended the nation state and that agencies like the World Bank and the International Monetary Fund had become some kind of world capitalist government. Currently the national bourgeoisies of various countries, including those in the European Union consortium, are scrambling to shore up their own economic interests. The move by Ireland to guarantee the debts and deposits of its six largest banks provoked the ire of the British New Labour government, which feared a loss of depositors in its banks as people headed for greener pastures.

Noting that the “lack of a unified regulatory structure and a co-ordinated European response has led some governments to act unilaterally to protect their banks, even at the risk of infuriating their neighbours,” an article on the website of the Financial Times (3 October) quoted Willem Buiter, a professor at the London School of Economics, writing in his Financial Times blog: “The Irish guarantee is the most ‘in-your-face’ beggar-thy-neighbour provocation since medieval armies catapulted bubonic-plague-ridden corpses into the cities they were besieging.” Meanwhile, the Dutch government ripped up its part of the deal with Belgium to bail out Fortis, declaring that it would now spend this money to take full control of the bank’s operations in the Netherlands alone.

The “globalization” myth was premised on the liberal-pacifist notion that the capitalists don’t need state power—i.e., armed bodies of men—to defend their interests both against the exploited at home and against rival capitalists in other countries. As the world today is once again riven by an economic crisis, rivalries among competing imperialist powers that have led to two world conflagrations are once again heating up.

The union bureaucrats’ calls to “defend Canadian (or American or German…) jobs” against foreign competition amount to a chauvinist defense of the interests of their “own” imperialist rulers against the working class, both at home and abroad. The leadership of the Canadian Auto Workers (CAW), long one of the most vociferous advocates of such protectionism, has now joined with the auto bosses in pleading for government bailouts. “The Canadian government has provided $100 billion in support for banks, but it also needs to support the real economy,” said CAW president Ken Lewenza in a November 20 statement. Lewenza went on to complain that “offshore imports will take 30 per cent of the North American market this year” while bragging that the giveback contracts the CAW signed with the auto companies earlier this year will save the latter $300 million a year!

In both Canada and the U.S., the nationalism pushed by the union tops has been a disaster for auto workers. Tens of thousands of jobs are gone for good, pension funds have been liquidated and multi-tier wage systems imposed. While surrendering gains won in the past through hard labour struggle, the CAW and United Auto Workers tops have miserably failed to organize the non-union, often Japanese-owned, auto plants that have mushroomed in the U.S. South and elsewhere, including in Southern Ontario. As for the parts sector, before his retirement former CAW head Buzz Hargrove signed a yellow-dog deal with Magna’s Frank Stronach that bans strikes and even day-to-day union protection on the shop floor in exchange for largely meaningless union “recognition.”

Reform vs. Revolution

The defense of the class interests of the proletariat must be imbued with the program of international solidarity and struggle that Marx and Engels inscribed on the banner of the communist movement more than 160 years ago: “Workers of the world, unite.”

In sharp contrast, the various reformist left groups who tail after the NDP and union bureaucracy have reacted to the crisis with abject pleas to patch up capitalism. The International Socialists (I.S.) urge a “massive fight-back among workers to demand that the government—no matter who is in power—nationalizes the banks and guarantees our jobs and pensions” (Socialist Worker, 6 October). More recently, the I.S. reacted to the auto crisis with the call, “GM should be retooled under public control” (21 November). The same issue of Socialist Worker says “a financial transfer tax to discourage short-term speculation in stock markets” must “be implemented in every Canadian stock exchange immediately.”

The Fightback group adds its own twist in a November 20 website posting that calls to nationalize the banks and that they be “combined with the Bank of Canada.” This new “socialist central bank,” says Fightback, should get a management “elected one third from the bank employees, one third from the Trade Union movement to represent the working-class as a whole and one third from the government.” From fiddling with the stock exchange to retooling the Bank of Canada, the reformists’ fealty to the capitalist state and its institutions is overt and unashamed.

Calls to nationalize the banks have also been raised in the U.S. by the International Socialist Organization (ISO, formerly affiliated with the Canadian I.S.) in an editorial titled “Why not a bailout for the rest of us?” (Socialist Worker [U.S.], 1 October). Just in case anyone might mistake their call as any challenge to bourgeois rule, the ISO is quick to add: “Nationalized banks are nothing new. For much of the second half of the 20th century, they were the norm in Western Europe—and they remained capitalist institutions to boot.” No kidding! In the mouths of mass reformist parties in Europe, like the old Labour Party in Britain, calls for nationalization were typically nothing other than a prescription for bailing out bankrupt enterprises and financial institutions. By these lights, even the ISO allows, “It’s hard to describe the federal government’s recent adventures in the banking industry as something other than nationalization.”

To avoid confusion between what they are calling for and what the U.S. government has already done with its $700 billion bailout package, the ISO argues, “An economic bailout on pro-worker terms would include much more than nationalizing the banks.” What follows is a wish list of beneficial programs such as a moratorium on home foreclosures, job creation, public works to rebuild schools and housing in the inner cities and so on. According to this pipedream, all of these demands can and will somehow be legislated by the capitalist state. As Lenin explained nearly a century ago, bourgeois parliaments are “instruments for the oppression of the workers by the bourgeoisie.” “Important questions under bourgeois democracy,” he emphasized, “are decided by the stock exchange and the banks.”

For the working class and the poor to get their hands on the money that will provide jobs, education and health care requires breaking the power of the bourgeoisie. Capitalism cannot be defeated short of the proletarian seizure of state power, which will abolish the private ownership of the means of production and institute a planned socialist economy. Only then will the wealth and productive capacity of society be used to serve the needs of the majority, not the profits of the few.

The Necessity of Revolutionary Leadership

The discrediting of neo-liberalism in the wake of the financial crisis by no means indicates the fall of bourgeois ideology. We can now expect a return to the “left” wing of the bourgeois political spectrum, including at least lip service to the program of deficit spending associated with the British liberal bourgeois economist John Maynard Keynes. But Keynesian fiscal policies never did, and never could, stop the cyclical crises of overproduction which are inherent in the capitalist system.

It is a liberal myth that Franklin Delano Roosevelt’s “New Deal” with its Keynesian fiscal policies pulled the U.S. out of the 1930s Depression. In fact, the American economy did not recover its pre-1929 level until the imperialist slaughter of World War II set the war industries running in high gear. The New Deal was, however, successful in heading off a proletarian socialist movement. During the 1930s, American workers waged hard-fought class battles to organize for the first time in mass industrial unions. However, thanks in large part to the Stalinists and social democrats at the head of these unions, the incipient radicalization of labour was diverted into FDR’s Democratic Party.

Today’s financial crisis has exposed the bankruptcy of the capitalist mode of production for all who would wish to see. But the capitalist system cannot be defeated and overthrown without proletarian revolutionary consciousness and leadership. Speaking in July 1920 at the Second Congress of the Communist International, which took place during revolutionary upheavals in capitalist Europe as well as a global economic crisis, Lenin stressed that “There is no such thing as an absolutely hopeless situation” for the capitalists:

“The bourgeoisie are behaving like barefaced plunderers who have lost their heads; they are committing folly after folly, thus aggravating the situation and hastening their doom. All that is true. But nobody can ‘prove’ that it is absolutely impossible for them to pacify a minority of the exploited with some petty concessions, and suppress some movement or uprising of some section of the oppressed and exploited. To try to ‘prove’ in advance that there is ‘absolutely’ no way out of the situation would be sheer pedantry, or playing with concepts and catchwords.”

—“Report on the International Situation and the Fundamental Tasks of the Communist International”

The destruction of the Soviet Union in 1991-92 has led to a profound, though uneven, regression in political consciousness internationally, with most advanced workers no longer identifying their struggles with socialism. Unlike when Lenin spoke in 1920, there is today a vast disproportion between the rottenness of the imperialist system and the atomization, disorganization and false consciousness of the proletariat, which is at a level not seen since the formation of the mass workers parties in Europe in the 1880s, many of them nominally socialist and in some cases Marxist. Thus working people today are at a particularly difficult pass.

In the Transitional Program, the founding document of the Fourth International, written on the eve of World War II, Bolshevik leader Leon Trotsky put forward a series of demands aimed at bridging the struggles of the working class to the understanding of the need to overthrow the decaying and anarchic capitalist profit system. To unmask the exploitation and fraud of the capitalist owners and the swindles of the banks, he argued that the workers should demand that the capitalists open their books “to reveal to all members of society that unconscionable squandering of human labor which is the result of capitalist anarchy and the naked pursuit of profit.”

Pointing out that “imperialism means the domination of finance capital,” he raised the call for the expropriation of the banks while arguing that this would produce “favorable results only if the state power itself passes completely from the hands of the exploiters into the hands of the toilers.” In the face of mass unemployment, he called for working-class struggle for a shorter workweek at no loss in pay to spread the available work, for a massive program of public works and for wages to rise with prices to guard against the ravages of inflation.

In opposition to the capitalists and their reformist agents, Trotsky argued:

“Property owners and their lawyers will prove the ‘unrealizability’ of these demands. Smaller, especially ruined capitalists, in addition will refer to their account ledgers. The workers categorically denounce such conclusions and references. The question is not one of a ‘normal’ collision between opposing material interests. The question is one of guarding the proletariat from decay, demoralization and ruin. The question is one of life or death of the only creative and progressive class, and by that token of the future of mankind. If capitalism is incapable of satisfying the demands inevitably arising from the calamities generated by itself, then let it perish. ‘Realizability’ or ‘unrealizability’ is in the given instance a question of the relationship of forces, which can be decided only by the struggle. By means of this struggle, no matter what its immediate practical successes may be, the workers will best come to understand the necessity of liquidating capitalist slavery.”

—Adapted from Workers Vanguard Nos. 921 and 922, 26 September and 10 October

Spartacist Canada No. 159

SC 159

Winter 2008/2009


Ruling Class Fleeces Working People

Financial Crisis: Bankruptcy of Capitalism

Those Who Labour Must Rule!


India: The Nandigram Massacre

“Left Front” Government’s State Repression in West Bengal


Capitalist Crises and the Bourgeois State

(quote of the issue)


Obama: Commander-in-Chief of Racist U.S. Imperialism


NDP: Prop for Canadian Capitalism

Layton’s Little Drummer Boys


First Issue of Canadian Trotskyists’ The Vanguard, 1932:

“Bankruptcy of Social Reformism”

(From the Archives of Marxism)


Holiday Appeal for Class-War Prisoners


Philadelphia D.A. Seeks Death for Mumia Abu-Jamal

Free Mumia Now!


Celia Hart, 1963-2008