IS THERE AN ALTERNATIVE TO "BUBBLE CAPITALISM"?
(The following article is from the February 1-15, 2008 issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $25/year, or $12 low income rate; for U.S. readers - $25 US per year; other overseas readers - $25 US or $35 CDN per year. Send to: People's Voice, c/o PV Business Manager, 133 Herkimer St. Unit 502, Hamilton, ON, L8P 2H3.

By Kimball Cariou

Mid-January saw panic in global markets. Hundreds of billions of dollars were "lost" as stock prices plunged, only to be partly regained the next day, then "lost" again by yet another decline. There is no accurate way to forecast the future of this roller coaster ride. What is certain is that capitalism will continue to be racked by booms and busts, and that working people will pay for the fluctuations of the system.

     One of the first such crashes was the "tulip mania" in Holland. In 1623, a single tulip bulb could cost a thousand Dutch florins, six times the average yearly income. A good tulip trader could earn six thousand florins a month, much as today's stockbrokers rake in millions by trading shares and currencies without ever creating anything of real value.

     By 1635, a sale of 40 bulbs for 100,000 florins was recorded. Thousands of people sold their possessions to speculate in the tulip market. Then in February 1637, traders could no longer get inflated prices for their bulbs, and they began to sell. Many were left holding contracts to purchase tulips at prices far higher than those on the open market, while others owned bulbs worth a fraction of the price they had paid. Investors were ruined, and the Netherlands went into an economic depression.

     (This illustrates the phenomenon of "fictitious" wealth. For example, I happen to own perhaps a thousand comic books purchased during my misspent youth. On paper, this collection is valued at about $5000. But since there are far more sellers than buyers, they remain packed in boxes, nearly worthless in real terms.)

     Modern versions of tulip-mania include the Japanese "bubble." In 1989, land prices hit $139,000 US per square foot in the Ginza district of Tokyo. Fifteen years later, the same real estate went for one-percent of its former value, and housing prices in Tokyo had fallen by ninety percent. An estimated $20 trillion US was wiped out by the combined collapse of Japanese real estate and stock markets.

     The "dot.com bubble" of the mid-1990s saw wild speculation in share prices of internet-related companies. That bubble burst in March 2000, wiping out $5-7 trillion worth of inflated "assets" of technology companies. The NASDAQ index, where many of these shares are traded, fell from 5048 (double its level a year earlier) to about 1200 by October 2002. The NASDAQ is currently around 2200, still below its late-1990s level.

     And now, another bubble has burst, with serious implications for the Canadian economy. The U.S. "sub-prime crisis" is named for one particular feature of the collapse. Millions of low and middle-income Americans are losing their homes, unable to afford rising mortgages. Many were enticed to purchase homes or take out second mortgages, by lenders offering special low ("sub-prime") interest rates for the initial loan period. When the higher rates kick in, "homeowners" who work at WalMart or Burger King can't keep up the payments.

     During the 1990s, "cheap" credit became available more quickly than new homes were built. U.S. housing prices rose much faster than overall inflation rates. Buyers were told that purchasing a home was a guaranteed way to increase their net assets, since housing values would "never drop". This falsehood generated a self-fulfilling prophecy, until the bottom fell out of the housing market, a critical factor plunging the United States into the recession which economists now agree has begun.

     David Rosenberg, the chief North American economist for Merrill Lynch, warns that U.S. house prices will fall by another 25 percent, wiping out $6 trillion in "housing wealth." Housing starts will slide 30 per cent from current levels, corporate profits will drop by 15 percent this year, and 2.5 million jobs will be slashed, leading to "the worst consumer recession since 1980."

     Tory politicians and right-wing pundits argue that the US recession won't affect Canada. But since 25% of the goods and services produced here are sold south of the border, a sharp decline in the US economy will obviously hit Canadians. The impact will be especially hard in sectors where workers are already facing massive layoffs, including manufacturing and forestry.

     A more fundamental question is whether it's possible for capitalism to find a way to prevent such massive disruptions - and whether there is an alternative.

     Answering the second part of the question is one way to start. The socialist economies built during the last century, first in the USSR and then in a dozen or more other countries, were definitely such an alternative. Based on public ownership of productive wealth, and on economic planning for social needs rather than private profit, these economies featured rapid historical growth rates, and none of the cyclical crises which mark capitalism.

     This is certainly not to argue that the socialist economies solved all the problems facing working people. But despite a range of difficulties and shortcomings (largely related to imperialist aggression and interference) these economies did provide full employment, virtually free housing and health care, and a high degree of social equality. Today, socialist Cuba is recognized as the global leader in environmentally sustainable development.

     "Advanced" capitalist societies, on the other hand, are marked by sharp contradictions: a wealth of consumer goods created by workers who can't afford to buy, astronomical incomes for a few, and utter poverty for millions. Speculative economic booms are inevitably followed by collapse and chaos. Perhaps most worrisome, since capitalist profits depend on constant expansion, the system is driven by ever-increasing exploitation of labour power, destruction of the natural environment, and wars to seize control of resources.

     The real issue today is not to guess the severity of the impending economic crisis. It's how the working class can fight back against the attempts of the capitalists to make us pay the full costs of this debacle - and then how to replace their crisis-ridden system before it destroys the planet.

Found at: http://www.peoplesvoice.ca/articleprint11/04_IS_THERE_AN_ALTERNATIVE_TO_BUBBLE_CAPITALISM-.html

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