IS CAPITALISM DEVOURING ITS CHILDREN?

By Friedhelm Hengsbach

[These theses presented at the Post-Economic Growth Forum January 19, 2011 are translated from the German on the Internet, www.postwachstumsoekonomie.org/Hengsbach-Thesenpapier.pdf.

Bankers still deny responsibility for the financial crisis. Friedhelm Hengsbach is a great social ethicist and author of many books and articles on social justice, sharing and solidarity.]

THE UNPARALLELED CRISIS

(1) Is the financial crisis unparalleled? The models of interpretation executed uncontestedly for 30 years suddenly change. The crisis starts from the center and seizes globally the whole monetary sphere and the real economy. The last bank crisis was in 1929/30. The present crisis extends to three dimensions – the monetary, ecological and social dimensions.

TROUBLESHOOTING

(2) In troubleshooting, abnormal individual behavior presses immediately: risk fever and the greed of individual actors. That is the reason for the call to morality and more individual responsibility.

(3) System crises can also be explained through system errors. In the macro-world, structural financial services (credit guarantees, stock loans, certificates and derivatives) are traded. Foreign financing and leverage are rampant, credit expansion is out of control, banks are under-capitalized and a market-friendly balancing is carried out.



In the macro-world, the disparity of income- and asset-distribution produces regional and global imbalances based on structural creditor- and debtor-positions. The money function has changed (asset-object versus means of exchange). Prices on property markets are guided by subjective short-term expectations unlike prices on the commodity markets anchored in the real economy. Central banks were fixated on the inflation of commodity-prices and deemed the explosive rise of asset-prices as hardly relevant. Private rating agencies were trusted more than the public oversight and control. The risk of system-relevant banks was generally underrated.

THE STATE



(4) The state summoned as rescuer was an element of the crisis. The state deformed the solidarity security-systems and eased the burden with appeals to private provisions. Working conditions were deregulated. Atypical work (subcontracted labor, time limits, part-time work, pseudo-independence and precarious work at poverty wages) were normalized. Governments speeded up the reorganization of Rhine capitalism to an Anglo-American financial capitalism through their financial- and fiscal policies to make Germany competitive as a financial center.

(5) The crisis management of the government follows the expectations and interests of the financial businesses. Despite advance warnings, the state organs stumbled into the crisis relatively unsuspecting. First, problems were smoothed over. Finally, the state was extorted by the banks. Bailing out the banks was regarded as without alternative and the bankruptcy of a bank as taboo. Creditors and banks were relieved and the general public burdened. Selective interventions followed, single-handed national efforts, an expansion not a breaking down of system-relevant banks and a double redistribution. The procedure of covering all the banks with an umbrella was repeated in the bailout of states in the Euro-zone against which there is speculation with abundantly available money aided and abetted by the rating agencies. “Deficit sinners” were branded… The German government bailed out the banks that promised credits to the affected states. Disadvantaged population groups bear the consequences of a protection of the creditors and of an extreme public indebtedness.



(6) Alternatives to the practiced crisis management include identifying segments of the banking system that caused the “core meltdown.” A partnership of creditors and banks, an orderly insolvency of banks and states, a demand renunciation, debt cancellation, the breakdown of system-relevant banks, a system of separated banks or prohibition of investment banking, restricting banks under public mandate to carrying out monetary transactions, the investment business and financing real investments of businesses.

NEW POLITICAL-ECONOMIC INITIATIVE

(7) The return of traditional thought-models proves to be a cul-de-sac and hides the danger of a repetition or continuance of the instability of the global financial system. States rely on growth-acceleration, bailing out banks at the expense of broad sectors of the population and the post-democratic collaboration with lobbyists that hold the state hostage.

(8) As long as the majority of the population lives below their means regionally and globally since their supply of vital goods and the general provision of essentials are deficient, a real economic stimulation, a higher value-creation, is the way out of the crisis. More fields of employment could be opened up by an ambitious ecological reorganization of the economy and person-oriented services. They could replace the traditional industrial work for export. Restoring regular paid work by strengthening free collective bargaining secured by the legal anchoring of an industry-wide minimum wage, a strong declaration of general obligation and payment of subcontracted labor according to the pay-scale of the subcontracted industry and by participation of the workforce and the public authority in capitalist decision-making. A relatively balanced distribution of income and assets is unlikely as long as an equal joint-determination of the three social actors (capital, labor and public authority) is not carried out.



(9) In the micro-sphere, a global financial architecture withy just participation would be characterized by required capital holdings and sharper liability rules, by stronger credit restriction and cautious balancing by a system of separated banks or even the prohibition of investment banking, the exclusive licensing of cooperative banks and savings accounts that organize monetary transactions and payments, operate the investment businesses and finance the real investments of businesses, the priority of micro-finance and a tax on speculative financial affairs. The rights of the people to an autonomous financial regime should be respected.

(10) In the macro-sphere, public oversight and control should be extended to all financial enterprises, financial businesses and financial centers. Rating agencies should become public institutions and system-relevant banks dismantled. The melting away of the hegemony of the US dollar calls for a multi-polar monetary system. Within the currency zone, growth- and stability funds should be established as the credit-givers of last resort. In regional currency zones, an internal solidarity financial equalization and community loans are indispensable. States should not be forced to finance the provision of public goods through credits of profit-oriented private banks. Interest-free central bank credits should be established under precise conditions.