This old thigh-slapper on how capitalism works will illustrate: Four people go to a restaurant, and three leave through the toilet window. The mug is left with the bill. For the diners who have departed, it is a very efficient way of dining (all you can eat, free); for the mug, and potentially for the restaurant, it is ruinous. Variously, the mug is the investor, the shareholder, or increasingly, the taxpayer, the pension fund.
Many are predicting that the now constant financial crisis means the end of capitalism. I do not share these fears (or for others, such hopes). Capitalism will survive. It is democracy that will have its wings clipped; with it, the European social welfare state.
To use the analogy: the banks invited the governments to dinner and said they could order whatever they wanted. We can guess what happens when you give a politician an a la carte menu and free rein. It suited the banks too. After gorging themselves, the banks discovered their pockets were mostly filled with nothing but expired, plastic cards. They needed to get paid. The politicians had a coronary at the table. The bankers quickly left through the toilet window, the directors so bloated, they could barely squeeze through; a handful got stuck. The restaurant and its staff were left with the bill.
What did the banks do with those sovereign bonds? They used it to plug the hole they blew in the financial system in 2008. In a sense, they have swapped subprime mortgage lenders for countries. Essentially, they leveraged ever more credit to underwrite their unregulated (by the EU treaty) financialisation. We have gone from "too big to fail" to "too big to save".
Newspapers write almost glibly of a trillion ‘stimulus' here (in the USA ending up in currency markets and the like) and a trillion ‘bailout' there (in the USA used for bankers' bonuses, mergers and further acquisitions).
It is worth reminding ourselves what we mean by the shorthand of a "trillion dollars"; it is: $1000000000000. If I gave you ten dollars every second of every minute of every hour of every day, after 3170 years I still wouldn't have finished paying you out $1 trillion.
I accept that a well-structured free market with its hive brain making aggregate conclusions is the most efficient economic tool mankind has ever invented. But the global financial market has ceased to be this. In fact it is hugely unproductive, if not counter-productive. Mobile capital has become an end to itself, and it is staggeringly wasteful.
Banks were meant to facilitate commerce. They are meant to be a service, like water, roads, electricity, telecoms. Banking should never have become an "industry". Instead of serving, they are draining the economy. Solid investment (factories, infrastructure and so forth) has been steadily replaced with silly money (luxury consumerism, real estate bubbles, phoney financial instruments, everything on tick).
A telling example is how often the market no longer reflects the true price of commodities (as determined by return versus risk; supply versus demand). Coffee hit record high levels when there was no increased demand, no drought or fall in crops, in fact when nothing at all had changed in the real world. Investors were parking money is something supposedly more real than the Euro. The results of such speculation can have real world consequences for production and be devastating on the living.
Taxpayers are now expected to pick up the tab for the wealth the financial industries have destroyed in the global markets. Politicians have acted hand in glove with a greedy and incompetent financial elite that has transformed the global market into a piggery, taking no account of present and future costs to society.
The political question now is: should it be the poor, the youth, and the middle class who pay the price for this?
How much choice do they have? It may well be that a country such as Iceland that allowed its banks to fail will come out better and quicker than those who bailed out their banks and saddled future generations with massive debt.
There is no doubt that the Greek government and its bureaucracy has behaved scandalously. But the fact is people have structured their lives (30 years in the EU; 10 years in the Euro) on what they were told and were all too willing to believe. The hardships faced by many vulnerable members of Greek society are real and they are brutal. Successive governments have bribed the electorate. But the central powers of Europe, especially Germany, were eating at that dinner table too.
We should also not make the mistake of equating the various sovereign crises. The world economy is tightly enmeshed, but the reasons in Italy or Spain are not exactly the same for what went wrong in Greece. And what went wrong in ‘socialist' Europe is different in important ways from what has gone wrong in ‘capitalist' USA.
One thing we can be sure of is that South Africa will not be immune. Even China is beginning to show cracks as a result of what is happening in Europe and the USA. The current ANC government - as incoherent as it is in terms of economic policy - does not give one much confidence that it is prepared, either preparing or even capable of responding adequately when the crisis hits, as surely as it will. We need to see a bit more than our finance minister scratching his bald pate.
Of course the ANC government are not alone in being befuddled. In the public arena and our business media there is a deathly, terrible silence surrounding our global financial exposure. Not much more is said other than that Europe is our biggest trading partner (one third of our exports) and so we will be affected badly (among the worst case scenarios, our automobile industry could potentially fail), and a world recession will mean government's present pipe dreams on how it plans to reduce unemployment are doomed.
The Presidency's attitude is all too smug, while tinged with victimhood. The European crisis "is harming the developing world as well, and the developing world did not play any part in causing this crisis," Mac Maharaj said. "Where are we on this matter?"
Could the government please answer their spokesperson's question?
What changes are mooted for current economic policy to ensure we have a buffer against the storm? How are we going to protect our citizens and the most vulnerable when it hits? How exposed are our banks? Since government allowed pension funds to invest overseas (Old Mutual and Liberty Life were the first to move vast amounts outside of South Africa), do we know how solid those investments are? How will the political storm be managed when the jobs promised do not materialise as a world recession, possibly depression, strikes?
This is the time for innovation and creative solutions. Take Belgium for example, where the country's sovereignty is being protected from technocratic intrusion by the citizenry taking up the sovereign debt in government bonds.
Instead, the so-called crisis of capitalism (which is actually even more so a crisis of socialism in Europe) has opened a rhetorical space in the tripartite alliance to roll out failed ideas and disguise excessive spending on a profligate elite. In our crony and monopolistic private sector, South African executive management is following Wall Street, while in the public sector our officials are taking after Kenya (the most overpaid government in the world). We have mayors with six digit salaries. It is an elite hegemony that will sink us as surely as it has sunk economies elsewhere.
The divisive onset of Manguang together with the centenary celebrations of the ANC, do not bode well for a government knuckling down to address the economic recession that will strike in 2012. Instead, we are to be embroiled in a debate around the merits of capitalism, when it is democracy we should be worried about. Fascist populism only ever thrives under economic hardship; after which it destroys itself together with its country.
Parastatals are a good, because ideologically speaking relatively neutral, example to illustrate the sham capitalist versus dirigiste debate. Whether nationalised or wholly privatised and opened to competition, either way would be better than the chimeras we are currently menaced with. Under Thabo Mbeki and Trevor Manuel the country embarked on the creation of the worst of both worlds - semi-privatised monopolies.
In some cases, we saw initially a marked improvement in customer service levels. In a space of a couple of years, Telkom and the Post Office outlets were portentously transformed into looking like a branch of your local bank.
However, protected by the state from competition, their service charges have rocketed. They are now profit-driven monopolies with hardly a societal conscience. Telkom's exorbitant data charges are literally strangling education in this country, not to mention small businesses. Eskom is off the chart in terms of costs; forcing ordinary consumers to finance its capital projects and subsidise toxic industries like smelters.
(And what will happen down the line when the industries Eskom's ambitious coal plants are promised to power find their goods hit with carbon taxes levied by the importing nations of the world? South Africa will discover its goods are once again uncompetitive. Nothing less than our future economy is at stake here.)
After rendering tens of thousands of people unemployed and dumping them on society's doorstep, trimmed down state-owned enterprises still take huge bailouts, pay dividends to private shareholders and award staggering bonuses to an elite (often politically connected). Sound familiar? I'm thinking of the merchant banks on Wall Street and in London of course.
It is this nexus of power that needs to be broken, whether they are bourgeois capitalist or state owned enterprises.
The real revolutionaries today, the real left, are not our sickeningly obedient Communists (voting for the Protection of State Information Bill even while the workers in the unions are threatening to take Constitutional Court action against it), or our arthritic Trade Unions (ever shrinking as their interests narrow and hurt the unemployed), or the proto-Fascist leaders of the ANC Youth League (cheering for tyrants the world over), or our ossified ANC (looking every bit a hundred years old), but radical democrats, people who demand freedom of speech, accountability and transparency; people like those on Tahrir Square or for that matter on the streets of Athens.
Who better mirrors the free market - the 1% hegemony fortified in Wall Street, or the anarchical, headless, consensual Occupy Movement on Liberty Square? The technocrats huddled in Brussels or the protestors on the streets of Europe?
Our democratic freedoms are our best insurance policy against being hoodwinked.
I would go even further in terms of democratic principle. Our lives are organised around our economic life. It seems logical that democracy needs to start there.
A democratically run company (which includes the workers as well as the shareholders) is far less likely to poison its own community (where the workforce lives) or to up stakes and relocate willy-nilly to Australia because government wants to impose a transaction tax (as British financial companies are threatening to do).
The people should demand a new business model: one that includes the future costs stemming from production (tax breaks, borrowings from future generations, costs to the environment and our health from pollution etcetera). For hidden in the calculation of profit is an ideological position. Business has been allowed to cherry pick the costs for which it will accept responsibility, slip through the toilet window, and dodge the actual bill.
We can simply no longer - if for no reason other than climate change - ignore these costs as we have done in the past. As one economist put it, we have run out of road to kick the can down.
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