Am Umbrella for Workers
Domestic demand must be strengthened to overcome the recession. An investment program joint financed by a tax on the rich could create an economic growth (for Germany) of three percent and a million jobs in the medium term. The fraud in public regional banks must end.
AN UMBRELLA FOR WORKERS
Domestic demand must be strengthened to overcome the recession. An investment program jointly financed by a tax on the rich could create an economic growth of three percent and a million jobs in the medium-term
By Michael Schlecht
[This article published in: Junge Welt, 11/19/2008 is translated from the German on the World Wide Web, http://www.jungewelt.de/2008/11-19/008.php?print=1. Michael Schlecht is a union spokesperson for the German Left party (Die Linke).]
The world economy is headed downwards. Like many other countries, Germany skidded into recession in the summer of 2008. No one knows how deep the crash will be. This is the worst economic crisis since the Second World War and is not a "normal" economic downturn. The government claims this crash is a result of the financial market crisis. That is a wrong diagnosis. The economic collapse already began around the turn of the year 2007/2008, a year before the financial crisis began to make holes in the real economy.
The economic upswing that has now ended was triggered by a strong increase in retrofitting investments of around five percent. Worn machines, aircraft, commercial buildings etc. needed replacements. Businessmen had not invested for years. The export demand was high since economic development really hummed in many countries.
In the past, a slightly delayed increase in wages was part of every upswing. This did not happen in the current upswing that is now ending. Even if German chancellor Angela Merkel claimed time and again that the upswing had arrived for people, this was an official government delusion. In July 2007, today's chancellor candidate Frank Walter Steinmeyer (SPD) even described the upswing as an "economic miracle."
The German gross domestic product rose eight percent between 2004 and 2007. Private consumption did not increase even one percent...
The profits of industrialists have climbed over 40 percent since 2003. Standard wages increased much too little, around ten percent. Hardly anything remains as a plus after deducting a price inflation of more than seven percent. The development was really crass for employees without wage protection - 40 percent of the working population today and 30 percent in 2000. Their incomes fell three percent. A real wage loss of ten percent occurred when the price inflation is included.
"Red-Green" is responsible for the malaise along with the CDU/CSU and FDP. Time limits, subcontracted labor, mini-jobs and cancellation of all reasonableness protection for jobs with unemployment benefits I lead to w\massive wage dumping. This is especially disastrous when no wage protection exists. Then predatory capitalism rules. An ever-expanding low-wage sector arose with eight million persons, 20 percent of all employees. Germany is Europe's master in the low-wage sector. Germany is only surpassed by the US where every fourth worker has a low wage.
This social-political scandal has an economic side. The massive redistribution from bottom to the top leads to a drastic weakness of domestic demand. Because of weak purchasing power, economic development stopped when the impulses from the investment push slackened. This has been true since the beginning of 2008. Even the increased export-demand of seven percent in the first two quarters did not help.
On account of the German government policy with Agenda 2010, the upswing never came to the people. That is the only realistic explanation why domestic demand never left the cellar. For the first time in the postwar era, economic policy strangled an upswing.
THE REAL ANARCHISTS
Since late summer, the financial market crash has assailed the real economy and intensifies the downward economic trend there. The financial market crisis paralyzes the world economy since foreign demand collapses. This has horrific consequences for the "export junkie" Germany. In addition, an increasing "credit crunch" is noticeable. Businesses have a harder time receiving credits from their banks. Conditions worsen or no money is available.
The malaise has been seething for a long while. Since 2007 the "sub-prime crisis" was clear. More and more mortgages and negotiable securities prove "rotten" or "toxic." In the course of 2007, banks worldwide had to write off hundreds of billions.
In the spring of 2008, some banks gloated that the worst was past. What an error! The bank bailouts and writing off billions were only an overture. Afterwards the dirge really started up. On September 7, the two mammoth US mortgage banks Fannie Mae and Freddie Mac were nationalized. The bankruptcy of one of the largest investment banks Lehman Brothers on September 15 was very dramatic. Until then, banks lent money without securities to one another even if only for hours. Trust was over with the Lehman bankruptcy. The inter-bank business largely succumbed.
All this had repercussions or blowback. Banks had depended on re-financing through the inter-bank business...
On October 3, 2008 the US Congress passed a $700 billion bailout plan for the American financial sector on its second reading. The German government also whipped a 500 billion euro bailout package for the banks through the parliament that took effect on October 13. Altogether the relief packages for the banks of all European Union countries make available around 1.7 trillion euro.
Many people become dizzy over these amounts. Others shake their heads in disbelief. In the past, it was always said there is no money and saving is a priority. Six billion for immediate construction of child care facilities or seven billion euro for raising unemployment benefits II to 435 euro could not be financed. But enough money exists - in no time - to cushion banks with billions of support.
No one knows whether the relief packages will be enough or what the future will look like. This is what is special about this financial market crisis. No one sees through the system in its totality and calculates the risks. Representatives of capital see the danger of anarchy in every house occupation and every demonstration that becomes a riot. The danger of anarchy is nonsense! The real anarchists are those who brought hedge funds into the country. They opened the casino and allowed commodity sales, forward sales and other neat games of chance. They warned of the dangers of "grasshoppers" and simultaneously rolled out the red carpet for private equity firms. They gained all freedom for financial capital...
MONEY SQUEEZE CAUSES CRISIS
The wage increases in the last ten years in Germany were 20 percent too low. Millions of employees were actually dispossessed of at least 500 billion euro. On top of that, capital received 500 billion euro as a tax gift. Thus a trillion euro flowed to the capital side in the last year.
Where is this money? The largest part of this money will be pumped into the financial markets. Similar developments occurred in many other countries. This is the crucial cause of the real money crunch. In 1980 the investment volume on the worldwide financial markets amounted to ten trillion dollars. Today it is around 170 trillion dollars. The wealth in the real economy created worldwide rose from ten to 60 trillion dollars in the same time period.
The financial market crisis was only possible because employees were massively dispossessed in the production sphere. Large parts of the wealth produced by them are withheld from them. In other words, employees have not been able to prevail or alter the capitalist order of production with all its dislocations. The financial market crisis is a crisis of the mode of production because capital rules over production and distribution, not people.
Another reason for the money squeeze is privatization of old age provisions. This disastrous change was introduced largely in Anglo-Saxon countries and in Germany - by the former Labor minister Walter Riester (SPD). A third of worldwide assets are invested in pension funds, 30 to 40 trillion dollars. In the US, two generations of pensioners now fear part of their pension claims could disappear in thin air. Bagging in supermarkets at the age of 70 will be the life perspective for more and more senior citizens. Therefore the privatization of old age provisions must be stopped. Solidarity transfer procedures should be strengthened and developed.
MILLIONAIRES SHOULD PAY
The core problem of the financial markets is their size. The greater the mass of capital, the greater is its authority. This capital commodifies itself like crazy. The larger the financial markets, the greater is their independence over against the real economy and the greater the inflicted social damage.
An adequate re-regulation will hardly succeed without a quantitative pruning of the masses of capital. Therefore the infusions in the financial markets must be dried up. This becomes concrete in the struggle for the legal minimum wage, raising the Hartz IV benefit and wages and also in struggles against the independent financial markets.
A millionaires' tax is necessary so the vagabond masses of worldwide capital can be whittled down. 80 to 100 billion euro of added annual revenue could be realized with a national tax rate of five percent on assets of a million euro. This millionaires' tax has two decisive aspects over against the demand for a property tax that has been raised for years. With a tax allowance of a million euro, the truly rich, the profiteers of the financial markets, will be forced to pay. With a rate of five percent, it will clearly be a capital tax. The goal is stopping and reversing the expropriation of working persons that has occurred for decades. The German Left party (Die Linke) struggles to recover the money withheld people in the wage battles and social cuts of the last decades.
With the millionaires' tax, the money would be amassed to pay for the bank rescue. Up to September 27, 2009, the rescue would still be financed on credit. However after the German parliamentary election, Agenda 2010 threatens even more massive social cuts than we experienced in the past.
BANKS IN PUBLIC CONTROL
In Germany, a three-tier banking system consists of cooperative banks, a public sector of savings banks with regional banks and the private banking sector. In agreement with the EU, private banks have long tried to privatize the public sector. In 2005, state liability for savings banks and regional banks - the so-called guarantor liability - was abolished. The tendency spread among regional banks to pursue risky businesses. In addition, there was a general rivalry against the private banks that boasted of profits of 25 percent and more.
The 400 savings banks are still a refuge of stability - despite individual black sheep. They have 50 million customers. Taken together, the whole savings bank association is the largest bank of the world.
Banks should hold money and lend it to businesses to invest. To that extent, the bank provider is one of the public necessities. This function is fulfilled very well by the savings banks. However the private banking sector has gone to ruin. Therefore it should be under public and non-profit control - like the savings banks. One could even say, the savings bank is the German bank. What is involved is not a mere nationalization. A democratic control and orientation of company policy of banks to the needs of the population and the real economy is central. The fraud in public regional banks must end.
Time and again the German chancellor proclaims: "we must do everything so this crisis never strikes again." She implies a little transparency and a little regulation could be enough. That is an illusion. The prerequisite for a really sustainable regulation is revocation of the relative independence and inflation of the financial markets. Then the banking- and credit sectors can be transferred to public control. This has to be undergirded with a reorganization and revitalization of the so-called real economy.
THE IMMEDIATE ECONOMIC PROGRAM
An immediate program to strengthen domestic demand is a first step. For the unions, there is no reason to hold back in wage negotiations on account of the crisis. Increased wage income is now necessary on account of the recession. The battles will become harder considering short-time work, threatened dismissals and general insecurity.
The low-wage sector must be drained. The immediate introduction of the legal minimum wage of eight euro rising to ten euro in rapid installments is crucial. Domestic demand can be strengthened around eleven to 18 billion euro. In addition, mini-jobs and subcontracted labor must be driven back and removed. If the free fall of wages stops at the lower end, the wage structures will not continue skidding.
Unemployment benefits II must rise to 435 euro. That will improve the life of the unemployed and support domestic consumer demand with seven billion euro.
The old pension formula must be restored. Three percent higher pensions should be paid out.
In conclusion, domestic demand could be revived within a few months with 30 billion euro through these immediate measures.
A future investment program of 50 billion euro must be implemented by the state.
25 billion euro is needed for childcare centers, schools and universities. Another 25 billion euro is earmarked for investments in protection of the atmosphere. Bridges, streets and waste-disposal systems and other necessities must be revitalized. The public authority must ensure better provisions for the population.
The future investment program is more than a short-term economic support and an important contribution for economic development. It can be completely implemented within four years. A growth impulse of three percent and a million jobs are possible.
The priorities in tax policy should be set without delay so additional expenditures will be financed by greater taxation of the rich and well to do. Expenditures for the future investment program and the costs of the bank rescue could be jointly financed with the millionaires' tax as an important building block.
Strengthening domestic demand and a demand-oriented economic program are even urged by the council of experts, which is really an amalgam of neoliberal proponents. The DGB (Federation of German Trade Unions) recommends 25 billion euro.
In many other countries, the governments recognize the risks for the real economy and propose large-scale programs. In China, a gigantic economic program of 457 billion euro aims at building domestic demand and reducing export dependence. The infrastructure and social benefits will be improved. Within a month, the Japanese government presented its second economic program in the amount of 210 billion euro. In the US an additional economic program is certain. 100 to 200 billion dollars may be infused. All three countries together are injecting around 800 billion euro into the economy to get it moving again.
What should one say about the heroic deeds of the German government? Chancellor-candidate Steinmayer promises a "protective shield for jobs" with four billion euro in 2009 and six billion euro in 2010. Germany is already in a recession. Ten billion euro is a fiftieth of the whole banking package! Stinginess and tricks are part of the "protective shield" for employees. It is so full of holes that it does not protect from the rain or from the rigors of the economy.
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