People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
The Great Capitalist Dilemma
N M Sundaram
IN the constantly shifting sands of the capitalist desert, the currently fashionable paradigm is the primacy of the market, not the market in the old confined sense of defined boundaries of nations, but of the world itself bereft of frontiers. Globalisation is the given name at present, though this is not so new after all. It is this constant mantra chanting through which nation states and people are encouraged to conjure up the mirage of their future prosperity - the prosperity of all nations and of all people. And so the quest in search of this mirage continues in country after country. A bought-over intelligentsia cum media driven conformity and consent, have become the driving force.
ANOTHER GREAT DEPRESSION?
After basking long in the sunshine of increasing growth and profits engendered by the freewheeling economy that globalisation/liberalisation is, and operating without let or hindrance from state and regulatory intervention, the system is now experiencing an enormous crisis that has returned with a vengeance.
The USA in particular had enjoyed the longest period of recession free growth. It had posted the biggest budgetary surplus known in history of a whopping 4.6 trillion dollars. Only months earlier, at the time of the presidential election, the debate centred around how the contending candidates would utilise this huge surplus if elected to the presidency. Now the thought is how small this surplus is compared to the enormity of the crisis that has struck so soon in a matter of months. Then it was the question of how to nourish the free markets more effectively, now it is the question of how to save these markets, which have been stricken so suddenly with utter lack of investor and consumer confidence. The US economy, which was cocky and confident that under the globalisation agenda it would have the best of the whole world, all the time taking and never giving, is facing the worst recession after almost 13 years, so bad that it brings back bitter memories of the days of the Great Depression of the early 1930s.
The gory terrorist attacks on September 11 on the US have exacerbated the crisis that was already simmering. One full week of closure of the New York stock market out of compulsion of the circumstances, as well as to shore up confidence in the economy, did not help matters. Nor did the great infusion of capital into the stock market by the government as well us corporates, the latter through a massive buy-back exercise, bring the desired result. The Federal Reserves attempt to stem the panic by reducing interests rates by half a per cent at a time, twice in just one week (the 9 this year), bringing interest rate to a 39 year low of just 2 per cent, did not stem the oncoming tide either.
The US president and everyone who mattered called upon the people to go shopping, but still the people were not enthused and the shopping malls remained sparsely populated as were the airports. They were doing this hawking when industries were resorting to massive job cuts!
BAIL-OUT FOR INDUSTRIES ONLY
While most industries were affected, both of the old economy as well as the new, notably two major industries demanded immediate attention. There were others too asking to be bailed out, but we will take the case of just these two, namely, the airlines and insurance. These two industries, accompanied by full orchestration by the government and the media, cried out in public for immediate relief. They wanted the federal government to bail them out of the crisis. These were the worthies who, along with the rest, were the strongest votaries of free markets and continue to be so. What happened to the theory that the market would take care of everything?
It was not as if that they believed that their industries would remain insulated from the vagaries of the market, let alone such calamities. In reality they were in the red even before the terrorist attacks on September 11.
It is another matter that there was a colossal and scandalous security lapse on the part of the power that promised security and freedom to the whole world. It is common knowledge that a potential threat remained present all the time in all parts of the world. It is said that those who sow the wind would reap the whirlwind. Tragedy and grief apart, shared by the whole world, the truth of this cannot be dismissed, nor the culpability of the US administration in all this.
It took only a few days after the attacks, for these industries to rush to the government and the Congress for aid. The airlines industry knocked at the doors for an immediate aid of 24 billion dollars! The Bush administration and the Congress, in a rare bipartisan spirit, immediately responded with 15 billion dollars, out of which 5 billion dollars, would be outright cash assistance.
It must be mentioned that the airports and the airlines too were culpable in regard to security lapses. It is said contract labour was manning securities at minimum wages! As one commentator quipped: "When you pay minimum wage you get minimum wage security." Even when facing a slump in demand for air tickets, these companies did not reduce fares. It took them almost three weeks to respond to the market sentiment and reduce prices.
INSURING THE INSURERS
Then was the turn of the insurance companies asking for a bail-out package, on which the administration is said to be working. The insurance companies, besides mentioning billions of dollars of insurance liability, talked of having to face "infinite risk"! Infinite risk indeed! If anybody ought to know about liability it is the insurance companies who have covered the risk. They are the experts in determining risk weightage and in covering it up by an appropriate premium rider. They cover all risks generally, excepting war. They have collected the premium to cover all the risks they have undertaken. Still they talk of unlimited liability and infinite risk!
It is claimed that insurers have paid out huge claims. Estimates of asbestosis related claims run to several billions of dollars. Hurricane Andrew, not to speak of other calamities, cost the insurance companies huge amounts as damages.
In India, public sector LIC and GIC promptly settled life and property related claims due to the Gujarat earthquake, to the tune of crores of rupees, dispensing most formalities, but did not run to the government for cover as the American insurance companies are now doing.
SO WHO FOOTS THE BILL?
Private insurance companies are adept in offloading risk as they are in calculating risk. Otherwise there would not be so many claims-related litigations in American courts. They are notorious in repudiating the claim first and forcing the insured to seek remedy through the courts. There are trial attorneys specialising in this field and getting hefty percentage cuts.
But this is another kind of offloading of risk. The submissions made on behalf of insurance companies before the House Committee on Financial Services on September 26, was nothing but a scandalous effort to offload risk on to the taxpayers. Government bail-out means precisely this; the taxpayers will ultimately be made to carry the burden.
They are in effect asking the government, the Congress and the Federal Reserve to be the insurer of last resort. There could be a lender of the last resort as in banking, but insurer of the last resort? Insurers are the ultimate risk bearers along with reinsurers. This simply is absurd. The insurers know it; still they ask.
A CNN report confirmed on October 16 that the "tax payers would absorb much of the cost of last months terrorist attacks estimated at 50 billion dollars." The report further said: "White House offers plans to insurance companies to withstand future terrorist attacks." Anyway insurers are already steeply increasing premium rates across the board, taking advantage of the situation. What further advice is required: exclusion clauses? An American insurance spokesman stated after the American president declared the fight against terrorism as war that in that event insurers are not liable to pay!
Then there are the other industries too in waiting, including road transport, railroad and steel that could be expected to get increased patronage in the present circumstances.
Commenting on the situation the journal Forbes scathingly commented: "Its appalling. In the aftermath of the September 11 attacks, the nation has been treated to the spectacle of some of corporate Americas top executives lining up in the corridors of Washington, DC, hats in hand, begging for freebies like scruffy men on a soup line."
THE FAILED FREE MARKET
President Bush has approached the Congress for appropriation of 60 to 75 billion dollars as emergency package to revive the economy. This is over and above the 40 billion dollars emergency fund already approved by the Congress, which is obviously intended to rebuild, indemnify and provide compensation to those who suffered loss. How much of this 40 billion dollars will reach the targeted people is anybodys guess. Already indemnity lawyers are sharpening their knives for their hefty cuts. Now it is said that the Republicans in the House of Representatives are bringing a motion before the full house for sanction of 100 billion dollars in emergency assistance to kick start the sagging economy.
Those believing in free market should defend it even if adversity strikes. But at the first sign of difficulty they are seen scurrying to the government, which they wanted to withdraw in the first place, for help and assistance from taxpayers money. This happened again after the New York stock exchange opened. In spite of all the sops provided to the investors, the dark horses were the corporates again who fled from the market, offloading their holdings heavily, and not the individual investors who at best were at their wits, end. Within a week of the New York stock exchange reopening after the forced furlough, the investors found their stocks poorer by 1.8 trillion dollars, which was more than the GDP of France!
After all the stock market is the visible symbol of market capitalism. Why this loss of faith in this icon of free market? What happened to all the tall talk of implicit faith in the virtues of the market? Everything vanished in thin air.
When the government and the Congress have decided to bail out industries at the expense of the tax payers, the minimum they should have asked for, apart from collateral security, which strangely is not even being mentioned, is the guarantee that there would not be job cuts. This is a moral responsibility. Keynes conceptualised state intervention for generating employment and markets. Here the reverse is happening. Workers are being thrown out of job in droves. The airlines industry, sitting pretty on a dole of a whopping 15 billion dollars governmental aid, has already axed over 1,20,000 jobs. These are the days of the dreaded pink slip, named after the colour of the lay-off/retrenchment order. Pink slips have visited hundred of thousands of households already. The September 11 attacks have only accelerated the process.
In India trade unions fighting privatisation commonly use a meaningful expression: Privatising the profits and nationalising the losses. The votaries of privatization and liberalization would pretend not to understand and dismiss it as a meaningless cliché. What is now happening in America is precisely this.
There is nothing to feel surprised about. This is bound to happen. This is happening all the time in the name of reforms. Capitalism has traversed a long journey since the days of Adam Smith and Johan Manard Keynes.
This system of free market capitalism has become so insensitive and heartless that it has lost all claim to honour and humanity. This system that goes by the false metaphor of freedom, shorn of its human mask, is as cruel and self-serving as terrorism itself. This kind of freedom must not be allowed to endure.