intro

These are notes from a series of workshops about how the capitalist system works. Hopefully they are accessible to anyone, even if you’ve never thought much about economics before. This is work in progress, your comments and suggestions would be appreciated.

workshop 1: capitalism — an economic system

workshop 2: the high seas of finance

workshop 3: the global division of labour

workshop 4: markets and the state: liberalism and neoliberalism

workshop 5: crisis

workshop 6: our consuming desires

workshop 7: beyond …

You can also download and print out the workshops as a zine (booklet). The zine is in two volumes: volume 1 has workshops 1-4; volume 2 has workshop 5-7 and a further reading list. Each one will print as about 80 A5 pages, so on 20 double-sided sheets of A4. You can also download it all in one file, which isn’t formatted for zine printing.

kaputvol1

kaputvol2

Kaput all-in-one

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Austerity talk at Bristol Anarchist Bookfair 20 April

BBF Talk April 2013

Panel discussion topic: Is there an alternative to austerity?

What is austerity?

1) Public sector: cuts to government spending. But also private sector: wage and job cuts.

2) Austerity in Europe and other rich regions since 2009. Rest of world not suffering austerity, in fact the opposite: “developing” world continues to grow apace, and moves towards greater welfare compromises (e.g., Latin America).

3) But austerity now is very similar to neoliberal “structural readjustment” policies pushed by WB and IMF in 80s and 90s in “3rd world” and Eastern Europe after fall of Soviet regime.

Summary: more broadly, austerity = end of post-war consensus  in rich parts of world(high employment economy with half-decent wages and working conditions, and social safety net.)

What made the post-war consensus?

1. Class struggle. Ruling elites had to surrender some of their profits to keep workers from revolting.

2. Growth. What made it easier for the ruling elites is they didn’t really have to give up much of their wealth. So long as growth keeps up, can give some of the new stuff to workers, rather than redistribute existing wealth away from the rich. See this also in developing countries clearly today: e.g., welfare projects in Brazil, Venezuela, and through Lat Am funded not by redistribution of wealth but from rapid growth.

3. Neo-colonialism. Remember that most of the world never had a welfare state. Direct: how much of UK welfare state funded by colonial exploitation? Indirect: terms of international trade in which 1W (“first world”) countries dominant, could exploit resources and markets of 3W.

Why austerity? (1)

Immediate answer: policy decision by states. In poorer European countries, pushed on local govts by the Troika (EU, IMF, WB). In richer countries like UK, choice of local govt.

Partly genuine: within globalised financial markets need to reassure finance sector, investors, fear to lose rating, so raise country’s borrowing costs.

Corruption: revolving door, politicians and bankers all in it together.

Ideology: victorious neoliberal consensus, all main parties agreed. (Thatcherism).

Could a national government go against austerity within existing global capitalist system?

Ideology aside, if a country defaults it will be shut out from global financial system. But there are successful examples from Latin America: Argentina, Ecuador.

2 reasons Argentina succeeded:

1) more recently, local funding from Venezuela, so didn’t need to access global markets (and increasing strength of regional financial markets in the “South” means increasing independence);

2) cheap exports: because it had stuff to export.

What would Greece, or UK, export? More generally, both these points connected to fact that there is a global shift towards economies of LatAm, they are booming – but same shift is away from Europe.

Global shift.

1) Neoliberalism: from 70s on, expansion of global capitalist financial system bringing more countries into global market. Accelerated in 90s with fall of communism.

2) Outsourcing: manufacturing shifts to low-wage economies (see Exhibit A).

3) Financialisation: (in general) manufacturing no longer profitable in 1st world, but big profits to be made in financial sector, creaming profits off global trade through NY, London. 1960s: financial profits were 15-20% of all profits in the US; 2000s: they were 35-40%. (See exhibit B).

4) Consumer debt bubble: a) need people to keep on consuming; but b) workers in 3W too poor to buy shit, whilst in 1W unemployment up, wages stagnant; luckily c) booming deregulated finance sector with loads of money to lend. Solution: lend money to consumers, so they can keep on spending even though wages low.

Summary: (exhibit B) in UK, 7 million people working in finance, helping cream profits off the global market. Another 7 million people making them cappuccinos. Wages low, but consumer lifestyles funded by debt.

Yes, we have been living beyond our means.

Austerity politicians say we have been living beyond our means, borrowing more than we can produce. This is not true of public spending: public borrowing up not because of wasteful public sector, but because nationalised debts of banks. (See exhibit C).

But it is true of the consumer economy. Consumers in 1W have been living beyond our means. (See exhibit D). Our consumer lifestyles, the amount of shit we consume, have raced ahead, while we have produced less and less of the stuff we use. This stuff is produced in Asia and Latin America, by workers living in Dickensian conditions.

As the debt bubble collapses, we will no longer be able to afford all this stuff. More of it will be consumed in Asia and Latin America, as a middle class develops there.

So what now?

Could we keep alive the post-war consensus going?

Do we have class struggle?

Do we have growth?

Do we have neo-colonialism?

Answer 1: produce more stuff here. Rebuild manufacturing industry. Problem: no growth. In globalised economy, we can’t compete with low wages in 3W.

Answer 2: tax the rich. Redistribute from the rich elites to keep funding public services. Problem: no class struggle. (Another problem: globalisation, so easier capital flight.)

Answer 3: we can’t. There is no alternative to austerity, not within the globalised capitalist system.

So: choices for anarchists.

Choice 1: keep on believing in consumer/welfare dream, along with the remnants of the left, hoping that by some miracle that mass class struggle and growth will reappear.

Choice 2: give up on growth economics. There is more to life than consuming shit products. Focus on getting control of the resources to produce the things we actually need. Don’t mourn the collapse of the paternalist mega-state, but see this as an opportunity for creating self-organised communities of mutual aid, and ways of living that can survive economic and ecological crisis.

—-

Exhibit A. Manufacturing wages per hour.

Germany

$26.90

US

$23.03

UK

$21.14

Greece

$10.38

Brazil

$4.45

Mexico

$3.93

Philippines

$1.13

China

$0.81

US Bureau of Labor Stats. Data from 2010, except China from 2006.

 Exhibit B: Thatcherism under Blair

UK

Manufacturing

Financial, business service, and insurance

Retail, hotels and restaurants

1997

4.2 million jobs

4.9m

4.9m

2007

2.9m

7.15m

7.1m

 (sources: Graham Turner; Office for National Statistics)

Exhibit C: government debt.

In 2007, the average government deficit (how much the state spends more than it receives in taxes) was 0.6% across the Euro countries. Governments owed on average 66% of their GDP. In 2010 the average deficit was 7%, and average debt 84%. The table below shows some of the changes in specific countries:

Deficit 2007

Debt 2007

Deficit 2009

Debt 2009

Spain

1.9%

36.1 % of GDP

-11.1

53.2

Ireland

0

25

-14.4

65.5

Italy

-1.5

103.5

-5.3

115.8

Greece

-6.4

105

-15.4

126.8

Germany

0.3

64.8

-3

73.5

France

-2.7

63.8

-7.5

78.1

Source: Eurostat / Economist Intelligence Unit estimates.

 

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sub-prime collapse role-playing game

Aim of this game is to act out some of the relationships within the crisis.

Focus: the interconnectedness of different institutions and people, how we are tied to the financial system, the role different institutions played, the different financial instruments developed.

Props: Newspapers, String, fake money, AAA card, bike pump to pump the market,

Roles:

Narrator

Prospective homeowners

Mortgage seller (a banker) or a mortgage seller who liaises with the banks

Ratings agencies

Hedge funds, pension funds and other money market funds

Central bank

State

Deal out roles and props at the beginning?

The narrator can read out the action parts too as well as the narration parts just to make clearer what is happening.

~ end game~ discuss key points & any questions…

SCENE ONE: the Boom

Housing boom begins in 2001. Low US interest rates fuel the housing market. Predatory lending both by banks and mortgage dealers target the unbanked high risk population with the lucrative prospect of home ownership. They start giving out cheap mortgages to those who were seen as ‘sub prime’, meaning low credit worthiness and therefore very probable being unable to repay.

Actions: A mortgage seller waves around cheap money and offers mortgages encouragingly to the prospective homeowners. The prospective homeowner gives a sheet of newspaper to the mortgage seller. Newspaper represents a mortgage debt, meaning the promise that continual interest payments and the full value of the loan will be repaid at regular intervals. The prospective homeowner gets connected to the mortgage seller with string. This is repeated with a few people until it is visible that a few people are tied to the bank.

Narration card TWO: Securitisation

Narration: A lot of these mortgage sellers operated as long arms or fronts for big banks, others were more independent outfits funded through the financial markets. In any case, the mortgage boom was largely funded by the opaque method of securitisation. This process pooled all the mortgage debts from the prospective homeowners together, structuring them into bonds — mortgage backed securities — which were then sold on to other investors. (Explain a bit more here about how bonds work).

Action:

A banker comes and stands back to back with the mortgage seller. This mortgage seller passes on all the sheets of newspaper (i.e. the prospective homeowners mortgage debts) to the banker in exchange for money. S/he tears the newspapers into strips and mixes and matches different ones and crunches them up and creates several newspaper balls.

(pause)

Narration:

The newspaper balls represent mortgage backed securities: home-buyers pay interest on mortgages; their interest payments are mixed together by the bankers; and then banks pay on the interest to the investors who bought the mortgage backed securities. Another key player here are the Credit rating agencies. These are private companies that analyse the bonds and “rate” how safe they think they are, so giving the market confidence that the streams of interest will keep on flowing. Rating agencies get paid on commission by the banks whose products they will rate.

Action:

Credit rating agency now appears. The banker shows the newspaper balls to the rating agency person who looks at the pathetic crunched up newspapers and gives the thumbs up, showing ‘AAA’ card. This means these bonds are top quality investments, and act as a signal to other investors to buy them. The rating agency holds up high the AAA card for all to see. The banker gives the rating agency money.

Narration card THREE: Everyone gets involved

Narration: All the financial institutions, the big players get involved. These could be hedge funds, pension funds and other banks. So if we take the example of pension funds, they have collected everyone’s pension contributions into big funds and invest them in different financial instruments, like equities, bonds or other securities like CDOs. They see that these instruments are rated highly, and want to invest in them. They also buy them off the mortgage seller / bank. This allows the banks that originated the loans to earn more money and keep on giving out mortgage loans.

Action:hedge fund, pension fund, other banks persons appear, eyeing up the balls of crunched up newspaper. Seeing the ratings, they pay the banks to buy them. So some of the crunched up paper now goes to the different funds. The string is lengthened to include these people. Money cards and crunched up bits of paper are exchanged and going all over the place. More and more loans are given out to more and more homeowners. The bank itself will be buying these as well from other banks, so the bank too accumulates these. Accumulated debts go in a pile around people’s feet. This goes on and everyone is happy.

(pause)

Narration card FOUR: Crisis

Narration:

The music stops: housing market slows, and interest rates rise: prospective homeowners find it hard to meet mortgage payments. Rising defaults undermine the collateral base of the mortgage backed securities, i.e. the some of the strips inside the balls are now debts which will not get repaid. Asset prices are falling. Banks are feeling the beginnings of the credit squeeze and are now less willing to lend money against the mortgage securities.

Action:

A few of the prospective homeowners begin falling to their knees, pulling sharply on the string and making it uncomfortable or shaky for the bankers. Resize the crunched up balls: remove some of the strips and make half the size. Some bankers and fund people are still trying to borrow money from others, the other bankers / fund people refuse to lend them the money.

(pause)

Narration: Things get really bad abruptly, when everyone realised they have accumulated numerous (trillions) worth of assets they no longer know if they can rely on. Parts of the income streams they contain are defaulting and they don’t know how much what they have is worth. They know in fact that they have become bad debts, and can no longer get rid of them, nor can they obtain new finance to repay old debts. Lehman Brothers collapses. The credit crunch is here. All the dollars are ‘hoarded’, they’ve got the money, they just don’t want to lend it.

Action: More and more prospective homeowners are unable to pay, also falling to their knees and bringing the banks to their knees as well. People should start pulling on their string and moving around to show how chaos in one area affects all others.

(pause)

Narration card FIVE: Rescue

Narration: The central bank steps in and gives out money to encourage the bankers to lend to each other and for them not to collapse. The federal reserve pumps in massive amounts of liquidity to the banks. The banks use this money to hoard it. This fails to get the interbank market working again, and so the state comes in, bypasses the central bank and (part or fully) nationalises the banks.

Action: The central bank person comes in, and starts handing out dollar cards to the bankers who are on their knees, pumping air. Meanwhile home owners are falling flat on the ground. The bankers are still shaky and are on the verge of falling flat on the ground.

The state person steps in front of the central banker. The state buys major stakes in the banks, and therefore many of the crunched up newspapers get passed to the state, so the bankers now can stand up straight again. The homeowners remain on the ground. The state and bankers move close together, standing up.

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notes from the dayschool

Plan of the day

1) principles of capitalism (2 hrs)

what is capitalism? group brainstorm 10 mins

what’s wrong with capitalism? 10 mins

production processes

example: stalinist central planning 10 mins

small groups: what does a capitalist production process involve? 20 mins

feedback and discussion 30 mins

short break (10 mins)

enclosures and the state: enclosures in history, and today (30 mins)

write up some examples of enclosures

what about enclosures today?

role of state

question to leave with: how are cuts related to enclosures?

LUNCH BREAK (1 hr)

2) crisis game (3 hrs)

– (during break, write up some figures on world GDP and post round walls)

brainstorm: what is crisis? – 10 mins

discussion of growth (and explain GDP etc.) – 10 mins

– sub-prime crisis (game part 1) 30 mins

clarify finance details, questions 10 mins

5 min break

– eurozone crisis (game game part 2) 20 mins +

questions / discussion 20 mins

5 min break

– discussion: — who’s responsible? / what are the causes? 1 hr

(could include — small group bit thinking about causes of crisis

then discussion: different levels of explanation; wage freeze; global shifts)

BREAK 20 mins

3) concluding discussion (1 hr)

questions from the day

positive end: alternatives? What do we do?

 

1) capitalism: an economic system

What does “capitalism” mean?

* Not just one “correct” definition.

* We will start by looking at capitalism as an economic system.

* Capitalism not “natural”, or the only system possible. Throughout history, many different ways of organising economics.

Organising production and distribution

Economic systems as ways of organising what a society or group produces, and how these products are distributed amongst different people in the group. Questions like:

  • Should we put our energy into making toys, or guns? How much time should we spend working, or playing? How should we use land, forests, oil, and other natural resources? Who gets to decide these questions? Who gets all the pies?

Example: Soviet Planning

Each individual soviet republic (Russia, Kazakhstan, etc.) had a planning commission. The central planning commission Gosplan, in Moscow, collected statistics about what resources were available in the economy, and then issued detailed plans for what was to be produced by different regions and sectors (minings, agriculture, manufacturing, etc.)

Other examples …

NB: Systems aren’t monoliths

So what is capital?

18th century: three “factors of production”: land, labour, and capital. Nowadays, land just another kind of capital. So: capital = inputs to the production process except for labour. E.g., factory buildings and machinery, raw materials like steel or electronic components. Neoliberal expansion: human capital, intellectual capital, etc. Finance Capital = “instruments” traded in financial markets = agreements about future distribution — IOUs – not physical things.

From cattle to capital.

So: capitalism.

No pure “capitalist system”, but many systems which are more or less capitalist. But some basic elements:

Markets. Decisions are made by interactions of buyers and sellers, using prices.

Commodification. Things that are bought and sold in markets are called commodities. Over the history of capitalism new kinds of resources have become commoditised, enclosed.

Private Property. The only people who can buy and sell in markets are those who have ownership rights over commodities. >> Property rules – laws, conventions, regulations about who owns what, and what they can do with their property >> Enforcement – the state.

Profits. Companies chase after profits, e.g. by producing and selling new commodities. Investors finance companies for a share of the profits.

Capital. To make profits you need to own capital, “tangible” or financial.

Profit and markets.

A car company needs to think about a number of markets. On the one hand, it aims to make as much money as possible in the car market. On the other hand, it wants to buy the inputs it needs as cheaply as possible in input markets.

inputs outputs

steel etc. = £2.5m

1000 cars = £10m

Electricity = £300k

machines (depreciation) = £500,000

labour = £700,000

Material Costs = £4m

Revenue = £10m

The thing is that, usually, the company will only get the revenue from its car sales after the cars are produced. But it will need to pay for inputs in advance. So it will have to borrow money to fund its production. This brings in another kind of (input) market – financial markets. Financial costs include interest and dividends on borrowing / shares.

costs revenues

Material Costs = £4m

Sales = £10m

Finance Costs = £2m

Total Costs = £6m

Total Revenue = £10

Suppose the car manufacturer got it right and it can sell all its cars for £10,000 each. Then it makes a profit of £4 million (Profit = Revenues – Costs). Governments may take some of that in tax. Out of what is left, the car company owners now have a new decision: how much should they invest in expanding the business, buying more up-to-date machines, etc.? And how much should they keep for themselves to spend?

Or: the factory can only sell 500 cars, or has to sell them all at half price, then it makes a £1 million loss. The input costs and interest payments still have to be paid. If the company can’t borrow more money to keep afloat, it will go bust.

2) enclosures and the state

The military and the monetary get together whenever they think it’s necessary”. Gil Scott Heron

1500s-1800s: Enclosures in England.

August 1842: The governments of China and Britain sign the Treaty of Nanking, after China loses the first Opium War. China agrees to allow opium imports, to declare free trade in five port cities, and to give Hong Kong to Britain.

January 1933: Adolf Hitler is elected Chancellor of Germany. Massive state spending on arms and infrastructure gets Germany back to growth and full employment. Similar policies also work economic wonders in Japan, the US, the UK, and elsewhere, ending the Great Depression.

July 1945: The Labour Party comes to power in the UK, introducing the post-war welfare state.

August 1953: The British government, working together with the CIA, organises a coup to topple the Iranian government headed by Mossadegh, which had nationalised the Anglo-Iranian Oil Company. This company was then majority owned by the British government, and was a major contributor to the cost of the British Welfare State – but paid little back to Iran. It has since been privatised, and renamed BP.

September 1973: General Pinochet seizes power in Chile from the left-wing Allende government, which had nationalised US corporate property in the country. The “Chicago Boys”, Chilean economists trained at Chicago University, are given control of economic policy. Their “neoliberal” programme of privatisation and deregulation will inspire Reagan and Thatcher.

November 2011: the leaders of two European democracies – Greek prime minister Papandreou, and the Italian Berlusconi – resign. Without elections, they are replaced by bureaucrat economists heading “technical governments”. With one mission: to push through the “austeritypackages” of cuts, privatisations and job losses demanded by Europe’s bankers.

What are “commodities”?

What things can be traded in markets? Can anything be a commodity? How has this changed? Over history? In your lifetime?

What roles does the State play in capitalism?

  • Enforcing property rights – legal system.
  • Regulating markets.
  • Acting as consumer/producer of last resort. (Military, welfare state.)
  • Original appropriation – creating new markets, enclosures.
  • Manufacturing consent – education etc.

Resistance to enclosure.

Make a list. E.g.,

England, 1549. Kett’s Rebellion. A peasant army of up to 16,000 rebels uprooted enclosure hedges, defeated a government army, and captured Norwich. Their first demand was that “no man shall enclose any more”. When they were eventually defeated, 3500 were massacred.

Chiapas, Mexico, 1994. The Zapatista Uprising. Around 3000 indigenous rebels launched an insurrection on 1 January. Their programme included communal village land rights, as well as rejection of NAFTA, (North American Free Trade Agreement).

3) some global trends

Global income statistics estimated (or “guesstimated”) by economic historian Angus Maddison. GDP per person (annual income measured in 1990 dollars).

 

1 AD 1000 1500 1820 1900 1970 2008
W. Europe 576 427 771 1194 2885 10,169 21,672
US 400 400 400 1257 4,091 15,030 31,178
Ex USSR 400 400 499 688 1237 5,575 7,904
L. America 400 400 416 691 1,113 3,996 6,973
China 450 466 600 600 545 778 6,725
India 450 450 550 533 599 868 2,975
Africa 472 425 414 420 601 1,335 1,780
World Average 467 453 566 666 1,261 3,729 7,614

Global income and growth stats from http://www.economywatch.com/

Data Sources: IMF, World Bank, UN, OECD, CIA World Factbook, Internet World Statistics, The Heritage Foundation and Transparency International

  2007 2008 2009 2010 2011 (est.)
World $55,703 bn

5.4%

$61,268 bn

2.9%

$57,920 bn -0.52% $ 62,909 bn 5.01% $68,652 bn

4.4%

Eurozone $12,372 bn

2.86%

$13,614 bn

0.45%

$12,476 bn -4.08% $ 12,192 bn

1.74%

$12,938 bn

1.63%

US $14,062 bn

1.95%

$14,369 bn

0%

$14,119 bn

-2.63%

$14,657 bn

2.8%

$15,227 bn

2.76%

China $3,494 bn

14.2%

$4,520 bn

9.6%

$4,990 bn

9.2%

$5,878 bn

10.3%

$6,515 bn

9.59%

Greece $311 bn

4.28%

$349 bn

1.02%

$327 bn

-2.05%

$ 305 bn

-4.54%

$310 bn

-3.04%

World financial assets ($ tr)

1990 2000 2007 2008
Total assets 48 112 194 178
equities 10 37 62 34
private debt secs. 10 24 48 51
govt. debt secs. 9 17 29 32
bank deposits 19 34 56 61
World GDP 21.2 37 56.8 60.7

4) behind the crisis

Global inequality

Average hourly wages in manufacturing industry, as estimated by the US Bureau of Labor Statistics. 2010 – except China 2006.

Germany $26.90
US $23.03
UK $21.14
Greece $10.38
Brazil $4.45
Mexico $3.93
Philippines $1.13
China $0.81

Recent employment figures from the UK (source: Turner; Office for National Statistics):

Manufacturing Financial, business service, and insurance Retail, hotels and restaurants
1997 4.2 million jobs 4.9m 4.9m
2007 2.9m 7.15m 7.1m

 

Wage squeeze, debt bubble (source TUC “Unfair to Middling” 2009, ONS)

 

Average annual real wage increase UK:

1980s: 1.9%

2000s: 0.9%

 

Wage share in UK (Wages as % of GDP):

1945-1970: 58-60%

1975: 64.5% (peak)

1996: 51.7% (post-war low)

2008: 53.2%

 

Household debt/income:

1980: 45%

1997: 91.1%

2007: 157.4%

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anti-capitalist economics dayschool @ Cutscafe Saturday 13 October

Capitalism for anti-capitalists.

Saturday 13 October 11am — 7pm @ Cutscafe, Central London

check here for venue info: http://cutscafelondon.wordpress.com/

A study day on the economics of the global capitalist system. Come along if you want to understand more about how the monster works, and think about how we can destroy it before it destroys us. No previous knowledge of economics needed.

Run by Kaput (anarchist economics education cell) and Corporate Watch (corporate critical research since 1996). Taking place at the Cutscafe, an occupied space building resistance to the cuts in the run-up to October 20.

Topics will include:

* what is capitalism?

*basic principles of capitalist economics

* the financial system

* markets and states

* global power and global shifts

* crisis

* creating alternatives beyond capitalism

This will be a whole day of study and discussion. There will be breaks.

Much of the day will be based on the study materials here: https://network23.org/kaput/

See also: http://www.corporatewatch.org/

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