DESPITE standing opposed to each other labour and capital are linked closely. Labour with its power depends on the latter while it reproduces capital and the first one is needed by the latter one for its ever expansion. Capital carries on its operation for reproduction, accumulation, and aggrandisement, and thus creates its crisis that fails to deter it from the process of crisis creation. Recent profit data and related aspects are evidence of this.
‘A large share of the increase in profits has accrued to the financial sector,’ says the World of Work Report 2009: The Global Jobs Crisis and Beyond (International Institute for Labour Studies, Geneva, ILO). The financial sector’s share of total corporate profit in advanced economies reached 42 per cent in 2007, up from about 25 per cent in the early 1980s, it says. In Australia, Italy and Japan, it doubled in 1970-2005, increased by a factor of 1.5 in Spain and France, and in Germany, it has levitated around 44 per cent since the 1990s. The UK had the most ‘amazing’ rise from the 1980s to the 2000s, an increase by a factor of three. In the emerging and developing economies it has increased a little. Banks, etc, although the report has not mentioned, in some aspiring-middle income economies also reaped profits by getting engaged in speculation, a symptom of a complex disease in the economy of those societies.
Profits primarily accumulated through financial channels instead of trade and commodity production, as has been mentioned by G Krippner (‘The financialization of the American economy’, Socio-Economic Review, vol. 3, 2005). Finance is now no more a supporter of real economy in the advanced capitalist countries. ‘The financial explosion in the US and other advanced capitalist economies since the 1960s’, as Foster and Magdoff argue in their The Great Financial Crisis (Monthly Review Press, 2009), ‘is symptomatic of the underlying stagnation tendency that has its roots in the whole pattern of accumulation under monopoly-finance capital.’
Stagnation in the whole capitalist economy for decades has propelled a protracted growth of the financial sector in the advanced capitalist countries reducing the scope for development of the real economy. ‘The search by capital for profitable outlets for its surplus despite the stagnation of investment opportunities within production, coupled with the belief that asset prices as a whole went only one way – up – generated a secular financial explosion’ (ibid.) Share of finance in GDP among the advanced economies has increased tremendously in the last 30 years: in the US, it raised to 20 per cent in 2007 from 13 per cent in 1970, and in the European Union, it went to 30 per cent in 2007 from 15 per cent in 1970. Dividend recapitalisation, leveraged buyouts, hedge funds, loved by bankers and investors turned speculators for higher and quicker profits, are only a few of monopoly-finance capital’s many speculation tactics fuelling financialisation.
Dividend recapitalisation, planned and carried out very quickly, sometimes within days, is practiced to boost returns and recoup a private equity firm’s initial investment within a very short time. A targeted? firm is bought out ?on ?additional ?debt, ?then ?used ?to ?pay ?its ?buyout ?sponsor ?a ?dividend.? In the US, the ILO cited in its above mentioned report, 188? companies ?issued ?more? than? $75 billion ?in ?debt? that? was ?used ?to pay? dividends? in 2003-2007. In the first seven months of 2007, 129 dividend recapitalisations amounting to ?$47 billion were carried out. In? Europe, ?of ?the ?19 ?recapitalisations ?in ?the first ?half ?of ?2007, ?buyout ?firms ?paid ?out ?€6.1 billion,? more than ?80 per? cent ?of ?private ?equity firms’? initial? investment,? and for? the ?same period ?in ?2006, ?the? total ?payout ?was ?€5.3 billion ?for ?28 ?deals.?
Similarly, leveraged buyout, acquisition of a firm or division of a firm by private equity firms or other investors, Stromberg informs, increased almost all over the world: in the US, it grew eightfold in 2003-2007. Buyout activity outside the US has grown more rapidly in the past few years than that of the US (‘The new demography of private equity’, 2007, http: //www.sifr.org/pelle.html). It has more than quadrupled over the past seven years compared to the previous 30 years in Africa and the Middle East while it has more than doubled in Asia and increased by more than five times in Eastern Europe in the same period. About 70 per cent of all leveraged buyouts, amounting to the tune of $2.7 trillion, were made in post-2001 period. The daily trading on the world currency markets, as Foster and Magdoff brought to notice in November 2006, went ‘to the current average of $1.8 trillion a day’ from $18 billion a day in 1977. ‘That means that every twenty-four days the dollar volume of currency trading equals the entire world’s annual GDP!’ (TGFC).
The financial markets’ increasing important role in the operation of the non-financial sector, the perverse effects of financialisation, has been mentioned by the ILO report. Financialisation has reduced the scope for development of the real economy. Operational investment has been ‘crowded out’ as non-financial corporations earn higher returns from financial investments than non-financial investments. Rising profits, the ILO report said, have not translated into commensurate increases in real investment. The share of investment as a percentage of operating surplus between the 1980s and the 2000s declined in almost all the advanced economies: for the EU, it declined from 47 per cent to 40 per cent, for the US from 44 per cent to 39 per cent. In Europe, the sharpest declines were experienced by Austria (from 50 to 44 per cent), Finland (from 57 to 36 percent), Germany (from 48 to 35 per cent) and Ireland (from 44 to 28 per cent). In the majority of advanced economies, investment as a percentage of GDP has declined since the 1980s. In the high-income OECD countries, it declined by 3.1 percentage points from 1980 to 2006. In the Euro areas, it declined by 3.1 percentage points in the same period; in Germany, by 6.3 percentage points; in Japan, by 8.7; and in the UK and US by a little over a percentage point.
The profits of non-financial firms, according to the report, were used more to pay dividends instead of investing in the real economy, a major aspect of the character of monopoly-finance capital. In all advanced economies, as the report mentioned, dividend payouts increased: in Germany, Italy and the UK, between 1995 and 2000 it was more than 50 per cent; in Austria and France above 40 per cent. In France, Italy and the Netherlands, the marginal payout in 2001–05 (change in dividends between 2001 and 2005 divided by the change in profits between 2001 and ’05) exceeded 70 per cent, more than 40 per cent in Finland and Spain and about 30 per cent in Australia, Austria, Denmark and Japan. The report said: ‘During the 2000s, less than 40 per cent of profits of non-financial firms in developed countries were used to invest in physical capacity, which is 8 percentage points lower than during the early 1980s.’ Dividend distribution pattern is an important indicator of the capital markets’ growing influence in the real economy. In the US, as the report informed, dividend as a percentage of total profits was 22.8 per cent in 1946–1979 while it rose to 46.3 per cent in 1980–2008. The share of profits distributed to shareholders increased from 30 per cent of corporate profits before tax in 1990 to 48 per cent in 2002.
The financial sector’s profit, as the report told, as a share of total wages and salaries of all private sector workers increased from 24 per cent to 40 per cent in 1990–2005. It attained an amazing rise within a span of only 15 years. The financial sector’s sky rocketing profit and ever increasing greed for more returns have adversely affected wages and job stability in the real economy. Economies with more pervasive risky financial practices experienced bold decline of wages as a per cent of GDP, the report said. This reality pushed it to comment: ‘It has long been claimed that today’s profits would be tomorrow’s investments and more jobs later on. But reality has not kept to the promise.’ This is the character of monopoly-finance capital: it declines to make productive investment as it finds higher and quicker profit in speculation. The gravity of economy moves to speculation instead of productive investment.
According to Wirtschaftswoche, the German business weekly, the price-earnings ratio — comparing the market value per share to the annual earnings per share of the respective enterprise — has reached a historic maximum of 133. A price-earnings ratio of 14 or more is considered to mean shares are valued excessively. In Germany, the 30 largest enterprises listed on the DAX plan to transfer over 20 billion euros to their shareholders in the spring of 2010. That is 71 per cent of their net profits. In the previous record year, 2007, the corresponding figure was only 45 per cent.
There is the other side of the coin. Labour worldwide suffered while capital increased its profit. Real wages in the non-financial sector stagnated over the past 15 years. In the five most financialised countries, the ILO report found, wage share declined by 3.6 per cent over the period 1989 to 2005 while in the case of five least financialised countries, it was a decline by 2 per cent. Leveraged buyouts have a negative impact on employment as has been shown by the majority of recent studies on such buyouts in the US. ‘[T]he jobs crisis is much larger in size than unemployment figures suggest.’ ‘[I]n the 51 countries for which data are available [for the report], at least 20 million jobs have been lost since October 2008 when the financial crisis started. But unemployment is only one dimension of the jobs crisis: about 5 million workers are at risk of losing jobs now.’ The report estimated that about 43 million workers were at risk of exclusion from the labour market. This risk is acute for the low-skilled, migrant and old workers. Two-thirds of the countries for which data for the report were available did not have unemployment benefits. ‘Only one-third of developing countries provide some form of social protection to informal sector workers and the self-employed.’ About 5.5 billion people are at risk while only 20 per cent of the world’s population is covered by social security. These facts are only tips of iceberg, sufferings of labour around the world, and tell nothing but a class war waged by capital against labour. The present Great Financial Crisis and the Great Recession have worsened labour’s condition.
The mounting economic and social imbalances almost around the world are now recognised even by the mainstream. The World of Work Report 2008 of the ILO discussed this stark global fact. Within-country income inequality grew excessively (by a factor of almost three) in both developed and developing countries since the early 1980s.
Labour is not only suffering from lost jobs, risk of unemployment, inequality, etc. In mid-May, 2009, the ILO in The Cost of Coercion report on the patterns of forced labour worldwide, said: the ‘opportunity cost’ of coercion to the workers affected reaches over $20 billion annually. The report elaborated the growing number of unethical, fraudulent and criminal practices leading people into situations of forced labour. ‘Most forced labour is still found in developing countries, often in the informal economy and in isolated regions with poor infrastructure, labour inspection and law enforcement.’
The Working Time around the World: Trends in working hours, laws and policies in a global comparative perspective, another ILO study (2007), said: an estimated 22 per cent of the global workforce, or 614.2 million workers, are working ‘excessively’ long hours. That means that more surplus labour is squeezed out of labour to gain more profit. The report, spotlighting working hours in 50 countries, estimated that one in five workers around the world or over 600 million persons were still, so many years after adopting universal working hour, working more than 48 hours a week, often merely to make ends meet. And, merely making ends meet means consuming only to reproduce capital. Finding of the study on married couples with children was: men’s paid working hours tend to increase while women’s paid working hours decrease. But women are also to bear the burden of unpaid work, longer working hours. The study noted the possibility of underemployment of a considerable number of short-hours-workers in developing and transition countries. The possibility made them more likely to fall into poverty, the cursed domain that capital creates.
Informal employment, a nice way out for the responsibility-shedding mainstream, and the expanding service sector are major sources of longer working hours. The report said that, generally speaking, laws and policies on working time had a limited influence on actual working hours in developing countries, especially in terms of maximum weekly hours, overtime payments and their effect on informal employment. In the informal economy with about three-fifths of it self-employed, about 30 per cent or more of all self-employed men work more than 49 hours a week. That means that it is one hour less than the universally recognized 8-hour working day if a proud self-employed fellow forsakes the weekly day-off and works for seven days a week. The average working hours in manufacturing sector in a number of developing countries are significantly longer, the report said.
The global financial system went close to collapse, a product of speculation monopoly-finance capital engaged in. It is still reeling with the wheels of the crisis. Political crises are emerging within countries, among countries and within blocks. But the systemic problems are still not being adequately addressed. Actually, addressing the systemic problems is beyond the capacity of monopoly-finance capital. ‘If the status quo prevails’, the World of Work Report 2009 said, ‘the dominance of finance over the real economy will continue and, in all likelihood, become even stronger in the future.’ That means that there will be more seeds for crises, more inequality and more deprivation. This crises-ridden future will not only be for labour, but for all the peoples.
But the dynamics of crisis creates countervailing forces. Merkel, the German chancellor, Schäuble, the German finance minister, Jean-Claude Trichet, the European Central Bank president, in separate discussions, etc, months ago expressed fear that the shameless enrichment of the financial oligarchy could unleash an uncontrollable social rebellion. This fact, told by establishment, highlights (1) the eternal and unsaturated hunger for profit, and (2) the establishment’s fear of rebellion. Related processes determine the path to change and development that mechanical forces fail to subvert. Recent developments, sometimes like wildfire, in many societies are showing the trend.
‘A large share of the increase in profits has accrued to the financial sector,’ says the World of Work Report 2009: The Global Jobs Crisis and Beyond (International Institute for Labour Studies, Geneva, ILO). The financial sector’s share of total corporate profit in advanced economies reached 42 per cent in 2007, up from about 25 per cent in the early 1980s, it says. In Australia, Italy and Japan, it doubled in 1970-2005, increased by a factor of 1.5 in Spain and France, and in Germany, it has levitated around 44 per cent since the 1990s. The UK had the most ‘amazing’ rise from the 1980s to the 2000s, an increase by a factor of three. In the emerging and developing economies it has increased a little. Banks, etc, although the report has not mentioned, in some aspiring-middle income economies also reaped profits by getting engaged in speculation, a symptom of a complex disease in the economy of those societies.
Profits primarily accumulated through financial channels instead of trade and commodity production, as has been mentioned by G Krippner (‘The financialization of the American economy’, Socio-Economic Review, vol. 3, 2005). Finance is now no more a supporter of real economy in the advanced capitalist countries. ‘The financial explosion in the US and other advanced capitalist economies since the 1960s’, as Foster and Magdoff argue in their The Great Financial Crisis (Monthly Review Press, 2009), ‘is symptomatic of the underlying stagnation tendency that has its roots in the whole pattern of accumulation under monopoly-finance capital.’
Stagnation in the whole capitalist economy for decades has propelled a protracted growth of the financial sector in the advanced capitalist countries reducing the scope for development of the real economy. ‘The search by capital for profitable outlets for its surplus despite the stagnation of investment opportunities within production, coupled with the belief that asset prices as a whole went only one way – up – generated a secular financial explosion’ (ibid.) Share of finance in GDP among the advanced economies has increased tremendously in the last 30 years: in the US, it raised to 20 per cent in 2007 from 13 per cent in 1970, and in the European Union, it went to 30 per cent in 2007 from 15 per cent in 1970. Dividend recapitalisation, leveraged buyouts, hedge funds, loved by bankers and investors turned speculators for higher and quicker profits, are only a few of monopoly-finance capital’s many speculation tactics fuelling financialisation.
Dividend recapitalisation, planned and carried out very quickly, sometimes within days, is practiced to boost returns and recoup a private equity firm’s initial investment within a very short time. A targeted? firm is bought out ?on ?additional ?debt, ?then ?used ?to ?pay ?its ?buyout ?sponsor ?a ?dividend.? In the US, the ILO cited in its above mentioned report, 188? companies ?issued ?more? than? $75 billion ?in ?debt? that? was ?used ?to pay? dividends? in 2003-2007. In the first seven months of 2007, 129 dividend recapitalisations amounting to ?$47 billion were carried out. In? Europe, ?of ?the ?19 ?recapitalisations ?in ?the first ?half ?of ?2007, ?buyout ?firms ?paid ?out ?€6.1 billion,? more than ?80 per? cent ?of ?private ?equity firms’? initial? investment,? and for? the ?same period ?in ?2006, ?the? total ?payout ?was ?€5.3 billion ?for ?28 ?deals.?
Similarly, leveraged buyout, acquisition of a firm or division of a firm by private equity firms or other investors, Stromberg informs, increased almost all over the world: in the US, it grew eightfold in 2003-2007. Buyout activity outside the US has grown more rapidly in the past few years than that of the US (‘The new demography of private equity’, 2007, http: //www.sifr.org/pelle.html). It has more than quadrupled over the past seven years compared to the previous 30 years in Africa and the Middle East while it has more than doubled in Asia and increased by more than five times in Eastern Europe in the same period. About 70 per cent of all leveraged buyouts, amounting to the tune of $2.7 trillion, were made in post-2001 period. The daily trading on the world currency markets, as Foster and Magdoff brought to notice in November 2006, went ‘to the current average of $1.8 trillion a day’ from $18 billion a day in 1977. ‘That means that every twenty-four days the dollar volume of currency trading equals the entire world’s annual GDP!’ (TGFC).
The financial markets’ increasing important role in the operation of the non-financial sector, the perverse effects of financialisation, has been mentioned by the ILO report. Financialisation has reduced the scope for development of the real economy. Operational investment has been ‘crowded out’ as non-financial corporations earn higher returns from financial investments than non-financial investments. Rising profits, the ILO report said, have not translated into commensurate increases in real investment. The share of investment as a percentage of operating surplus between the 1980s and the 2000s declined in almost all the advanced economies: for the EU, it declined from 47 per cent to 40 per cent, for the US from 44 per cent to 39 per cent. In Europe, the sharpest declines were experienced by Austria (from 50 to 44 per cent), Finland (from 57 to 36 percent), Germany (from 48 to 35 per cent) and Ireland (from 44 to 28 per cent). In the majority of advanced economies, investment as a percentage of GDP has declined since the 1980s. In the high-income OECD countries, it declined by 3.1 percentage points from 1980 to 2006. In the Euro areas, it declined by 3.1 percentage points in the same period; in Germany, by 6.3 percentage points; in Japan, by 8.7; and in the UK and US by a little over a percentage point.
The profits of non-financial firms, according to the report, were used more to pay dividends instead of investing in the real economy, a major aspect of the character of monopoly-finance capital. In all advanced economies, as the report mentioned, dividend payouts increased: in Germany, Italy and the UK, between 1995 and 2000 it was more than 50 per cent; in Austria and France above 40 per cent. In France, Italy and the Netherlands, the marginal payout in 2001–05 (change in dividends between 2001 and 2005 divided by the change in profits between 2001 and ’05) exceeded 70 per cent, more than 40 per cent in Finland and Spain and about 30 per cent in Australia, Austria, Denmark and Japan. The report said: ‘During the 2000s, less than 40 per cent of profits of non-financial firms in developed countries were used to invest in physical capacity, which is 8 percentage points lower than during the early 1980s.’ Dividend distribution pattern is an important indicator of the capital markets’ growing influence in the real economy. In the US, as the report informed, dividend as a percentage of total profits was 22.8 per cent in 1946–1979 while it rose to 46.3 per cent in 1980–2008. The share of profits distributed to shareholders increased from 30 per cent of corporate profits before tax in 1990 to 48 per cent in 2002.
The financial sector’s profit, as the report told, as a share of total wages and salaries of all private sector workers increased from 24 per cent to 40 per cent in 1990–2005. It attained an amazing rise within a span of only 15 years. The financial sector’s sky rocketing profit and ever increasing greed for more returns have adversely affected wages and job stability in the real economy. Economies with more pervasive risky financial practices experienced bold decline of wages as a per cent of GDP, the report said. This reality pushed it to comment: ‘It has long been claimed that today’s profits would be tomorrow’s investments and more jobs later on. But reality has not kept to the promise.’ This is the character of monopoly-finance capital: it declines to make productive investment as it finds higher and quicker profit in speculation. The gravity of economy moves to speculation instead of productive investment.
According to Wirtschaftswoche, the German business weekly, the price-earnings ratio — comparing the market value per share to the annual earnings per share of the respective enterprise — has reached a historic maximum of 133. A price-earnings ratio of 14 or more is considered to mean shares are valued excessively. In Germany, the 30 largest enterprises listed on the DAX plan to transfer over 20 billion euros to their shareholders in the spring of 2010. That is 71 per cent of their net profits. In the previous record year, 2007, the corresponding figure was only 45 per cent.
There is the other side of the coin. Labour worldwide suffered while capital increased its profit. Real wages in the non-financial sector stagnated over the past 15 years. In the five most financialised countries, the ILO report found, wage share declined by 3.6 per cent over the period 1989 to 2005 while in the case of five least financialised countries, it was a decline by 2 per cent. Leveraged buyouts have a negative impact on employment as has been shown by the majority of recent studies on such buyouts in the US. ‘[T]he jobs crisis is much larger in size than unemployment figures suggest.’ ‘[I]n the 51 countries for which data are available [for the report], at least 20 million jobs have been lost since October 2008 when the financial crisis started. But unemployment is only one dimension of the jobs crisis: about 5 million workers are at risk of losing jobs now.’ The report estimated that about 43 million workers were at risk of exclusion from the labour market. This risk is acute for the low-skilled, migrant and old workers. Two-thirds of the countries for which data for the report were available did not have unemployment benefits. ‘Only one-third of developing countries provide some form of social protection to informal sector workers and the self-employed.’ About 5.5 billion people are at risk while only 20 per cent of the world’s population is covered by social security. These facts are only tips of iceberg, sufferings of labour around the world, and tell nothing but a class war waged by capital against labour. The present Great Financial Crisis and the Great Recession have worsened labour’s condition.
The mounting economic and social imbalances almost around the world are now recognised even by the mainstream. The World of Work Report 2008 of the ILO discussed this stark global fact. Within-country income inequality grew excessively (by a factor of almost three) in both developed and developing countries since the early 1980s.
Labour is not only suffering from lost jobs, risk of unemployment, inequality, etc. In mid-May, 2009, the ILO in The Cost of Coercion report on the patterns of forced labour worldwide, said: the ‘opportunity cost’ of coercion to the workers affected reaches over $20 billion annually. The report elaborated the growing number of unethical, fraudulent and criminal practices leading people into situations of forced labour. ‘Most forced labour is still found in developing countries, often in the informal economy and in isolated regions with poor infrastructure, labour inspection and law enforcement.’
The Working Time around the World: Trends in working hours, laws and policies in a global comparative perspective, another ILO study (2007), said: an estimated 22 per cent of the global workforce, or 614.2 million workers, are working ‘excessively’ long hours. That means that more surplus labour is squeezed out of labour to gain more profit. The report, spotlighting working hours in 50 countries, estimated that one in five workers around the world or over 600 million persons were still, so many years after adopting universal working hour, working more than 48 hours a week, often merely to make ends meet. And, merely making ends meet means consuming only to reproduce capital. Finding of the study on married couples with children was: men’s paid working hours tend to increase while women’s paid working hours decrease. But women are also to bear the burden of unpaid work, longer working hours. The study noted the possibility of underemployment of a considerable number of short-hours-workers in developing and transition countries. The possibility made them more likely to fall into poverty, the cursed domain that capital creates.
Informal employment, a nice way out for the responsibility-shedding mainstream, and the expanding service sector are major sources of longer working hours. The report said that, generally speaking, laws and policies on working time had a limited influence on actual working hours in developing countries, especially in terms of maximum weekly hours, overtime payments and their effect on informal employment. In the informal economy with about three-fifths of it self-employed, about 30 per cent or more of all self-employed men work more than 49 hours a week. That means that it is one hour less than the universally recognized 8-hour working day if a proud self-employed fellow forsakes the weekly day-off and works for seven days a week. The average working hours in manufacturing sector in a number of developing countries are significantly longer, the report said.
The global financial system went close to collapse, a product of speculation monopoly-finance capital engaged in. It is still reeling with the wheels of the crisis. Political crises are emerging within countries, among countries and within blocks. But the systemic problems are still not being adequately addressed. Actually, addressing the systemic problems is beyond the capacity of monopoly-finance capital. ‘If the status quo prevails’, the World of Work Report 2009 said, ‘the dominance of finance over the real economy will continue and, in all likelihood, become even stronger in the future.’ That means that there will be more seeds for crises, more inequality and more deprivation. This crises-ridden future will not only be for labour, but for all the peoples.
But the dynamics of crisis creates countervailing forces. Merkel, the German chancellor, Schäuble, the German finance minister, Jean-Claude Trichet, the European Central Bank president, in separate discussions, etc, months ago expressed fear that the shameless enrichment of the financial oligarchy could unleash an uncontrollable social rebellion. This fact, told by establishment, highlights (1) the eternal and unsaturated hunger for profit, and (2) the establishment’s fear of rebellion. Related processes determine the path to change and development that mechanical forces fail to subvert. Recent developments, sometimes like wildfire, in many societies are showing the trend.
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