THE
BANKRUPTCY OF CAPITAL?
A
pertinent recent article is by the excellent Phillip Inman in the Observer
(London) for 23rd June 2019:
‘Investors’ demand for dividends will push us
further to disaster’
His
query: why – when investment is so low – are companies ‘borrowing like never
before?’
Where is the money going? It’s not
going into a vast stockpiling of raw materials and equipment to off-set a
likely no-deal Brexit. It’s not going into R & D. (And it almost goes
without saying that it is not going into substantially higher workers’ wages
across the board. – MM) The majority of companies are in fact ‘acting as cash
machines and shovelling money into the greedy mouths of the sovereign wealth
funds, money managers and desperate pension savers that own so much of the
stock market.’
Despite mediocre demand, UK companies
have been dishing out record dividends ‘reaching £19.7 billion in the first
quarter of this year…a rise of more than 15%’ compared to the first quarter of
2018.
Inman concludes that the blame for the
present state of the economy lies not so much with Donald Trump’s trade wars or
the slowdown of Chinese manufacturing: ‘…the real culprit is that voracious
animal with the unlimited appetite – the shareholder’. Why is one not falling
about in surprise?
Moving on from Phillip Inman, I might
add that it has been common practice for big corporations to use money
supposedly aimed at investment in operations (which is what Quantitative Easing
or QE was for) to buy back their own shares on the stock market in order to
inflate the value of those shares.
Meanwhile, money is being borrowed in order to feed the voracious
appetite for dividends and huge CEO remunerations. It looks suspiciously like a gigantic Ponzi
scheme.
This wheeze is attributed to one
Charles Ponzi, who – in the 1920s – paid back his investors with money he was
taking from incoming investors, a great idea (though it could never last)
brought to perfection ninety years’ later by the staggering billions that
Bernie Madoff creamed off from his gullible clients among the rich and famous
without so much as investing a single one of their dollars on the New York
Stock Exchange, or any other exchange. Madoff had to confess as the influx of
new clients failed to keep pace with promises made to his existing ones. (A miraculous
12%.) This kind of operation goes on all over the world all the time on a
smaller scale and more legit basis because mention of ‘the stock market’ is
never brought into the pitch – though people buying into such a scheme for any
great length of time usually lose their cash anyhow. One operation I know of
offered an ultimate pay-off after a period of regular modest monthly
contributions of £81,000.00, which concluded the deal. Meanwhile you were
encouraged to get your friends to join the scheme, which of course you would
have to since only more and more clients would keep the whole thing afloat. This
one typically sank long before the great day: the existing ‘clients’ were not
repaid what they’d put in. Madoff and the original Ponzi broke the law by
posing as real stock market traders making real investments, which landed them
both in prison in time. Madoff is presently serving a life and afterlife
sentence of 150 years. I trust the sentence is not part of his inheritable
estate.
What Inman is discussing is technically
legal but essentially Ponzi in robbing Peter to pay Paul: companies borrowing
astronomic sums to pay out astronomic dividends to keep shareholders happy, not
to speak of CEOs.
From the beginning of capitalism
shareholding was usually essential in order for the capital to be raised to
fund a venture until the profits came in. Naturally, of course, the
shareholders would not get their dividends until the company in question had
paid off its obligations and to beef up the technology and the research behind
it to keep one jump ahead on its competitors – usually by making the goods
cheaper for the same-quality commodities than the competitors could manage
(until the latter caught up, of course). It was quite traditional for
shareholders to have to pass up a dividend in a particular year because the
company was going through a thin patch that would soon be got over. But with
the long boom of c. 1945-1975 and beyond, dividends were considered par for the
course. And in the 1980s – with a rough time for capitalism in the later 1970s
- there was the stunning success of the ideology of ‘shareholder value’: shareholders
goaded by the takeover merchants used their power over the company concerned to
demand being at the head of the queue for share-outs from the profits. What
concerned them was to be in the money in case of some general collapse of the
economy. The overall rate of profit had meanwhile been in decline since the end
of the 1960s, and has never reached the earlier figures, except for a brief fillip
in the 1990s. At the same time productivity (output per worker, the basis for
surplus value) is entering something of an alarming downturn. The rich need
more money – ready money – than they have ever felt they needed before because
capital taken as a whole is becoming riskier. But giving lavish pay-outs to the
undeserving instead of reinvesting in the development of production
efficiencies and improvements is in fact making things even riskier. (Of course the ‘undeserving’ includes those
modest pensioners with money in the big pension funds who – with niggardly
State Pensions – actually do need the money through no fault of their own.) In
the 1930s Great Depression the prolongation of hard times was due to rich
investors sitting on their ‘insurance’ against the self-same hard times they
were perpetuating by not investing in new factories and jobs. Thus the present
apparent anomaly of companies being in huge debt and awash with cash at the
same time. (Meanwhile the IMF has reported that some $13 trillion is actually missing from the world economy altogether:
presumably laundered away or resting in untouchable tax havens.)
Of course whether you are a mortgagee
or a company borrowing on a large scale, the spectre is interest rates. At
present they are low – so, okay if not for savers, or for disappearing bank
branches once dependent on paying reasonable interest to their depositors. But
raise the rate of interest by as little as 1-2% and the whole system will come
tumbling down in terms of stranded and failed debtor companies. No wonder that
when the US Federal Reserve mooted the possibility a few months ago of raising
interest rates by modest 1% or so the uproar was so great that the plan was put
back in the desk drawer: but sooner or later it will have to be pulled out
again. It is precisely because interest rates are so low that borrowing is so
rampant, but this state of affairs is unstable. The Governor of the Bank of England,
Mark Carney, does not seem mindful of the Ponzi Effect or disappearing high
street banks when he advocates even lower
interest rates than today’s on the grounds that this will stimulate overall
economic recovery. The central bankers’ bank, the Bank for International
Settlements, says otherwise: ‘Rate cuts driving perilous addiction to debt, says
BIS’. – Daily Telegraph Business, 1 July 2019. The system is in deep do-do when
even the central bankers can’t agree on what should be done. But by far the
worst impact from unravelling company finances is even now being felt by
millions of workers.
Workers suffer as companies pay them
less than what should be the going rate for the job: recent small rises in
wages do not make up for wage stagnation since about 1980 – plus the gradual
erosion of company pension schemes, payment for overtime, holiday and sickness
pay: in short the gradual erosion of terms of work that went with permanent
employment – often lifelong – in individual companies. That is, in favour of
for example zero-hour contracts and the break-up of a workforce into the
bogusly ‘self-employed’, which makes each worker responsible for his and her
own pension, sickness benefit and so on. And meanwhile we have deaths, ambulance
call-outs and workers on the job being denied toilet-breaks in such paradise
environments as Amazon warehouses (or do I mean workhouses?) I leave out of
account poverty wages for women and children in factories around the world
Hundreds of thousands of families in this country, with both partners at work,
are surviving on personal debt, foodbanks and ‘in-work’ benefits: a scandal
that such benefits would even be necessary – a huge state subsidy of business. A
common sight in my neighbourhood in the daytime is that of toddlers and infants
being walked by rather elderly ‘parents’ – read grandparents – because the
actual parents are both working their socks off. Our government now boasts ‘near-full
employment’ under these conditions. Impoverishment in-work is the way it is
achieved.
In fact, unions for self-employed have
sprung up around the world to meet a need for solidarity and action but I
suspect the borrowing businesses that over-exploit their workforces do so as
much out of panic as greed. As in: ‘When
will interest rates go up?’ Fortunately that is not a problem for those
who can’t afford a mortgage anyhow. Their problem is the size of the rent.
Meanwhile immigrants from poor
countries in the throes of murderous turmoil due in the main to massive exports
of their capital to rich ones (far more capital is exported from the developing
to the developed world than the other way round) are desperate for work when
they arrive in a strange land and likely to take anything going, surreptitiously
welcomed by the bosses. They are perceived as a ‘threat’ by native white
workers, which the fascists play upon: the fault is the immigrants’! Send them back where they came from!
Divide-and-rule over all workers is the classic ploy that fascists exacerbate. Racism
is not only morally reprehensible: for workers it is economically
self-defeating. Do those on the Left emphasise this sufficiently to workers? Or
do they base their opposition to racism solely on moral identity politics? That is instead of focussing more than ever
on class economic interest through solidarity – worldwide? (You won’t see many ‘Labour
moderates’ engaged in this kind of agitation.)
The fear we can dispel is that amongst
those who work and are exploited: ‘Get organised!’ Far more difficult to deal with is the fear
of those who economically rule us because materially they have so much more to
lose than we do if things get really serious. Why, indeed, is Marx vilified so
fiercely if he died way back in 1883? It is the vilification of fear.
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