Militarist Obama and Corporate Nobel: Peaceful Partnership

Saswat Pattanayak

There simply need not be any elements of surprise or shock at Barack Obama receiving Nobel Peace Prize. Almost every year, this award has been granted to neoliberal policy brokers otherwise known as liberals, social democrats, or simply the firm believers in Eurocentric democratic ethos that can be ruthlessly applied on lesser countries via doublespeaks. Obama joins Ahtisaari, Gore, Dae-jung, Trimble, Belo, Walesa, Robles, Esquivel, Begin, Sakharov, Sato, Cassin, Kissinger, Wilson, etc., as the latest torchbearer of the most overrated award in the human history.

Liberal media are attributing his win to moments in anticipation, while conservatives are yet to get over the shock. However, Obama is absolutely worthy of winning the prize and he must be congratulated for the same as a regular recipient of this insipid achievement. Even a cursory look at past few winners should indicate that Obama’s prize perfectly fits.

Last year’s winner, Martti Ahtisaari was almost a NATO agent who worked tirelessly as an anti-communist and aspired to end Finland’s neutrality through his fetishized versions of a corporate Finland as a prosperous Finland.

The year before, Al Gore – a dubious champion of environmental hanky-panky that has no pragmatic basis but plenty of populist boasts with an ability to marry corporate america with Zionist media lobby received the award. Gore’s multi-billion dollar campaigners have been chiefly free market champions who “reformed” Soviet Union and infamous money launderers such as Howard Glicken, Nate Landow and terrorist Rabbi Meir Kahane.

When Kim Dae-jung won the award, he was known as a firmly indoctrinated champion of capitalism, and a tireless communicator in the process of introducing “democracy” in North Korea, the kind of diplomatic talks which can bring down socialistic systems rather smoothly.

David Trimble, a Protestant leader from Ireland hell bent to punish Sinn Fein, the left-wing political wing of the IRA has also been an obvious choice. Comparable to him was a previous winner Carlos Filipe Ximenes Belo, a Roman Catholic bishop appointed to rid East Timor of the last of its radical strands. As though Portuguese occupation was not enough, an illegal encroachment of the country via NATO-backed Indonesia was to be done to eliminate the communists. After its successful atrocities, Belo and Jose Ramos-Horta have become the human face to the “peaceful” interventions in the lives of indigenous peoples through religious pacifications. The peoples can no more demand for reparations in a religious colony.

Lech Walesa, a pronounced reactionary leader in Poland organizing trade unions against the communists, received Nobel merely for such attempts. Alfonso García Robles collaborated with the nuclear powers in order to promote a non-nuclear zone for Latin America without demanding nuclear dismantling of the West. Nobel Peace Prize has traditionally been conferred upon non-agitating peaceniks who like much of social democrats, do not wish to alter the equation of the privileged while ensuring limitations for the oppressed. Dangerous tools are safe in the hands of the mafia, and very dangerous in the hands of the commoners. Nobel prize committees have year after year acknowledged this colonial notion.

Adolfo Pérez Esquivel, another product of Christian missionary position of effecting changes without revolutions- changes as feeble as conversion to a dogmatic religion, was an illustrious winner. Even as vocally opposed to wars and policies led down by the kinds of Bush, the Nobel Peace winners are not the ones who even address the root causes of wars – class conflicts – and have acutely selective memories when it comes to linking the Church with perpetuation of bourgeois wars.

Menachem Begin, a zionist militarist who launched massive attacks against Iraq and Lebanon even before anyone witnessed Gulf Wars was another perfect winner. One of the biggest war maniacs in recent history, he was the architect of Begin Doctrine, way more vicious than any unofficial Bush doctrines the peaceniks have resented.

Andrei Sakharov, an exaggerated dissident who in the peak of cold war was perhaps so oblivious of American expansions that he created a stir through his advocacy in support of the imperialistic intentions; and immediately was conferred Nobel Peace Prize.

Yet another winner was Eisaku Sato, a reactionary conservative collaborator of Japanese-American interests, the principal opponent to Communist China’s recognition as a UN member, and a prime donor to Taiwanese causes. Here was another classic example of a liberal crony of the routine violators of international sovereign policies.

In previous years, René Cassin, chief legal advisor to Charles de Gaulle has won this coveted award, as has George Marshall. Marshall, the post-war propagandist was instrumental in implanting market economies in communist Europe through bribing, investing and coercing.

Albert Schweitzer’s racist stances on African peoples were well known when he won the Nobel Peace for his White Man’s burdens. So was Woodrow Wilson, a racist, segregationist president whose life was marked by pursuance of the American doctrine of imperialism and global hegemony.

Lesser said the better it is about Henry Kissinger, his pronounced hatred for Third World solidarity movements and his war-mongering. If Cold War achieved demise of Communistic alliances globally, it was done through the only weapons the capitalists know of: money, diplomacy and religion. The role of Nobel Peace Committee in converting the interventionists to heroes and legitimizing their methods of covert propaganda operations is unparalleled.

If Dalai Lama through soothing words of peace and spirituality attempted to undermine a peoples’ republic and won the awards through relegating Tibet into ancient conservative times, then it should not surprise anyone why F.W. de Klerk also won on behalf of South Africa. “Non-violence” in our times of global capitalism translates to unconditional surrender on part of the agitating masses to a reformed society. The reforms must take place within the overarching designs of the former colonial masters. Aung San Suu Kyi is another instance of a revolutionary whose limits have been set by Washington DC.

Since the inception of Nobel Peace Prize, an overwhelming majority of the awards have gone to pronounced anti-communists, masquerading as “reformers”. Mikhail Gorbachev is the brightest instance. Second largest category is the Christian religious saints, bishops and preachers. Goes without saying, their roles have been exemplarily complimenting the “pacifist” reformers. Wherever there was communistic presence, the Christian values needed to be imported there to sabotage peoples’ movements. West Bengal in India is a case in point, where Mother Teresa’s Missionaries of Charity had to deserve Nobel Peace Prize through its covert operations of religious conversion, selective care and influence upon CIA-backed dictators in Africa. Communists are bound to agitate the hungry against their class exploiters, but the Saints pacify the hungry through capitalistic charity funds. Who wins the Nobel Peace is anyone’s guess.

Around the time when revolutionary spirits in Latin America was sky-high and Che’s dreams of unifying the region was slowly gaining grounds, Nobel Committee chose Oscar Arias Sánchez who through smooth means, implemented neoliberal economic policies in Costa Rica.

The last category of Nobel Peace Prize winners have great affinity with Zionist causes. The brightest scholar here is Elie Wiesel – the man with the irresponsible claims on the “uniqueness of Holocaust” and one infamous for downplaying or flatly refusing to acknowledge that other genocides caused by the Nazis have any comparable significance. Speaking of Israelis, Shimon Peres and Yitzhak Rabin were certainly not the exceptions.

Deconstruction of “Peace” in Nobel Prize and Lenin Prize:

With so many hardcore militarists (Wilson, Kissinger, Begin, Sato, etc.,) winning Nobel Peace Prize, not to mention scores of illustrious supporters of the aggressive Euro-American bloc during Cold War, how exactly is “Peace” defined by the wise committee?

Nobel jurists further the Eurocentric views of the world and they should not be blamed for it. After all, the people of color, the oppressed people in majority of the world did not have the financial means to combat the advertorial impacts of the aura surrounding this prize. For instance, Lenin Peace Prizes have been awarded to freedom fighters against colonial masters in many African and Asian countries, but the relevance of that great award has never been highlighted as part of collective historical knowledge.

Lenin Peace Prize, that truly revolutionary recognition of the people who strived to bring peace among nations has been relegated to obscurity through sheer exhibitionism on part of the European capitalists disguising themselves under the banner of Nobel. The sheer magnitude of diversity among the winners of Lenin Peace Prize, their roles in dismantling of colonial powers, and their relentless struggles on the sides of the oppressed are testimony to the true acknowledgment of what constitutes peace.

There is a rejoice among people of color upon the Nobel Peace Prize being awarded to Barack Obama. That is just and proper. But what escapes media attention is the fact that Nobel Prizes have been racist awards ever since their inceptions. Not a single black person has won a Nobel Prize in Chemistry, Physics or Medicine. Out of a total of 789 Nobel Prizes conferred thus far, only 11 have been awarded to black people. Out of these 11, one was an economist, three were laureates, and as many as 8 were pacifists!

How does it so happen that whereas black accomplishments are overlooked in every field of life by the colonial powers, they happen to be so useful when it comes to recognizing their peaceful conducts? How is it that the oppressed are awarded not for their agitations, but for their accommodations?

Quite naturally so. Nobel Prizes have been Eurocentric mechanisms to brand those people as the greatest human beings on the planet, that dutifully submit to the whims of colonial and imperial powers. Those people who have put their acts together to intervene in revolutionary situations with their negotiating skills to prevent escalation of class wars. These are the people who have pronounced that the exploiters and the exploited can and must live together in harmony with the class divisions remaining intact. Nobel Prizes are granted to those chosen few among the minorities that have a greater impact over the masses compared to their revolutionary counterparts.

There should not be any surprises. Nobel Prizes are offered by the Royalists, the status quo upholders, the deniers of class society. Their construction of “peace” is determined through their worldview, which comprises the refusal for a replacement of unjust world order, and strong resentment at revolutionary forces. Barack Obama’s win is the most natural continuation of Nobel Peace Prize tradition. Peace in Nobel Prize tradition is capitalistic utopia. In the realist world, peace can prevail only through equitable redistribution of privileges. Capitalism simply cannot accept that. Hence, peace itself has to be redefined.

Contrasted to that, majority of Lenin Peace Prizes were granted to people of color, and a huge majority of them were agitators. These were true proponents of peace for the peoples in the world. Kwame Nkrumah (Ghana), Angela Davis (USA), Samora Machel (Mozambique), Agostinho Neto (Angola), Paul Robeson (USA), Ahmed Sékou Touré (Guinea), Julius Nyerere (Tanzania), W. E. B. Du Bois (USA) were some of the leading freedom fighters against colonialism. Lenin Peace Prizes were also awarded to Pablo Picasso (Spain), Brazil’s Jorge Amado, Saifuddin Kitchlew (India), Pablo Neruda (Chile), Bertolt Brecht (East Germany), Thakin Kodaw Hmaing of Burma, Nicolás Guillén of Cuba, Lázaro Cárdenas of Mexico, Pakistani poet Faiz Ahmed Faiz, Modibo Keïta of Mali, Aruna Asaf Ali (India), Kamal Jumblatt of Lebanon, Salvador Allende of Chile, Lê Duẩn of Vietnam, Miguel Otero Silva of Venezuela, Palestinian poet Mahmoud Darwish, Mikis Theodorakis of Greece, and Abdul Sattar Edhi of Pakistan, among many other undisputed champions of human liberty. When Nelson Mandela was awarded Lenin Peace Prize in 1990, his legacy was not insulted by getting him to share the stage with F.W. de Clark.

In the world revolutionary histories, there are heroes, and there are sycophants. There are radical activists who march on without awaiting an award, and there are naive moderates that fall into grander schemes of manipulated dictums. In its truest sense, Nobel Peace Prize has never been awarded to peace activists barring on a couple of occasions. One worthy winner was Linus Pauling of the United States. The second one was Le Duc Tho of Vietnam. Like another radical Jean-Paul Sartre, Le Duc Tho too, had refused to accept Nobel Prize. Sartre refused to bring glory to racist France, and Le Duc refused to accept the prize at the same terms as Kissinger and to share the stage with him.

Nobel Peace Prize, in reality is an apologist for, and celebration of continued Eurocentric imperialism. Obama is the latest one to have been “humbled”. Amidst his militarist interventions in Afghanistan, Iraq and Pakistan, through his announcements for larger US troops for invasions and bigger budget to feed the military-industrial complex, the Nobel committees have yet again perpetuated a reactionary definition of peace. In their world of successes and achievements, they have merely crowned their King.

Crisis and Class Struggle: The American Way

Pratyush Chandra

If we have to name a single industry prototypical of post-second world war capitalism, which to a large extent defined the nature and range of economic activities in this period, the choice would undoubtedly be the automobile industry. With the financial crisis finally taking its toll over this industry (especially the Detroit Three – GM, Chrysler and Ford), the crisis has almost acquired a general character. The most interesting aspect of this long impending collapse in the automobile industry is its bearing for the industrial regime that will evolve out of the present crisis – this will largely depend on the balance between the forces (classes and their agencies) which will see through this process of restructuring. The bailout package has already been declared and it aims to completely disarm the workers, that too with the assent of their own unions.

A foremost business magazine, The Economist (‘A Giant Falls’, June 4 2009) while assessing “where did it all go wrong”, found the “insupportable burden” of its commitments to workers (that they wrested through decades of their struggle) as the single most important factor that led to the bankruptcy of General Motors, the collapse of the American pride. So obviously the general consensus is being created that these commitments were not justified. It was a case of “mismanagement and decline”. Thus, “the auto unions, themselves once emblematic of what workers could achieve within capitalism, have been reduced to lobbying to save “their” companies, and a decades-long trend in private-sector labor negotiations has now confirmed collective bargaining as having shifted from demands by workers to demands on workers.” (Herman Rosenfeld, ‘The North American Auto Industry in Crisis’, Monthly Review, June 2009)

General Motors (GM), that shaped the American way of life and economy for so many decades, is bankrupt, now, and Obama has alighted to save it. The bankrupt capitalists hid themselves behind the State which is determined to save the “American way of life”. Such determination can be fruitful only under the condition of some sort of social corporatism – through the state-sponsored or negotiated peace among capitalists, and between workers and capitalists. The first reproduces a capitalist-class-for-itself, while the second submits the workers to the logic of capital accumulation and the competitive needs of “their” employers. Didn’t Gramsci teach us that corporatism (or consensus) is the only alternative, besides coercion, for dealing with the crisis of legitimation and accumulation in capitalism?

Around 90 years back, in October 1920, a crisis had struck another giant automobile company, Fiat, in Turin (Italy). To counter the militancy of Italian workers, evident in the tremendous Workers’ Councils and factory occupation movements, the Fiat management had offered a scheme of co-operation, which the workers summarily rejected. Gramsci and his comrades understood the designs of the State and Fiat behind their ideology of co-operation – to get the workers at their mercy. The Turin Communists understood that within this scheme, “[t]he workforce will necessarily have to bind itself to the State … through the activity of working class deputies…. The Turin proletariat will no longer exist as an independent class, but simply as an appendage of the bourgeois State. Class corporatism will have triumphed, but the proletariat will have lost its position and role as leader and guide.” (Quoted in Antonio Gramsci, ‘Some Aspects of the Southern Question’, Pre-Prison Writings, Cambridge University Press, 1994, 325-326)

Where Italian premier Giolitti could not succeed, Obama has succeeded. The “working class deputies” in the US have ultimately bound the workforce to the State and the bourgeoisie, right at the time of a crisis, a moment that Marx and Engels acknowledged as “one of the most powerful levers in political upheavals”. Crisis indeed is a moment for heightening class struggle. Why not? If capitalism itself is shaped through open and hidden struggle between capital and labour, then should the moment of crisis be left out from this fight? At least capitalists are not going to do that; they know the meaning of the crisis – now or never! And in the absence of any strong labour movement, they know it is an opportunity not to be lost.

There are diagnoses and recipes going around to save the ‘economy’ from the deepening crisis, as if the economy in itself is something neutral, and we can struggle over its colour once it is saved. Even when capitalism is blamed (taking into consideration the growing interest in Marx throughout the First World) for its own ailments, the revival is recommended through various interventionist measures. There are many Keynesian quacks nowadays roaming and gossiping around irritating the capitalists – “we told you so”. But the capitalist knows what to do. Yes, intervention, if it’s must, but on whose cost – capital’s or labour’s? The capitalist must be bailed out, and the labourer must be reined in. Social corporatism is not at all bad, if it subjugates labour to the ‘general interests’ of the economy.

Capital doesn’t want to mess up with labour. It has tried to evade the very circuit in which labour-power has to be bought in, but every time it does that destiny reminds it of its painful bond with labour. This time capital had almost created a world of its own without the nuisance of labour. But these consumers and debtors, on whom it relied so much, betrayed it – it suddenly realised that these were in fact the same little urchins – those children of labour, whose devilish smell and smile it wanted to forget.

Time and again, the capitalist class is reminded of the basic lesson in political economy that ultimately profit generates in the productive sector, through engagement with labour. But this class which is composed of competing entities – individuals or groups – relapses into amnesia once prosperity steps in, as they compete to “accumulate, accumulate…”. Ultimately, they all find it ideal to directly jump from M(oney) to M'(oney) without going through the strenuous process of production where they must deal with labour, which simply cannot behave like another dumb ‘factor of production’.

Once capital comes to its senses, and realises its inevitable bond with labour, it tries very hard (and every means) to sterilize labour – alienating it from its creativity (hence, its destructivity) and thus, its humanity. Whoever – capital or labour – mobilises its class and community first during the crisis commands the post-crisis phase. Here labour is always at a disadvantage, it has to make an enormous extra effort and prior preparation to come to command. If it arrives late, it gives enough time for capital and its agents to put themselves in their headquarters. They don’t meet in the streets (only leaving their dogs and watchdogs for the street-fights) but in lavish boardrooms and in the offices of national and international agencies. The labouring multitude is reduced to its representatives, who are b(r)ought in these offices to negotiate a deal. Thus, the social compact is attained.

This is what has happened in the auto industry and will probably happen in many other cases until and unless the working class too realises that crisis is a moment of class struggle, not of negotiation and compromise. In fact, what is a compromise, but an institutionalisation of class struggle under the conditions of capital, in which the defeat of labour is immanent!

An Open Letter to President Obama: Against the Rhetoric of Hope

Saswat Pattanayak

Dear President Obama,

I hope you truly emerge as the hope you have claimed yourself to be.

A hope for the ordinary people, who have believed in your promises of change and cried tears of joy upon your election.

A hope that will let the likes of Bernard Madoffs to face trial and be sent to jail, not left to enjoy house arrest at his comfortable multi-million-dollar penthouse, while, need I mention, thousands of young people of colour languish as under-trial prisoners of the industrial complex you are going to chair, a couple of days from now.

A hope that will finally help you decide whether or not you will cancel the series of billion-dollar extravaganzas that have been planned to herald your taking up a position of responsibility to serve, not rule. At a time when the world is reeling under economic depression a hope that you shall declare these scums of earth – those that are spending $50,000 a ticket to get a favoured seat at the ceremony to crown you – as your enemies, not friends.

A hope that you will finally advise your celebrity fans – the multimillionaire friends – that an election to a post is merely incidental, not phenomenal enough, to demand rhetoric like “Anything is possible in America – the greatest country on earth”. And that bunch of Hollywood celebrities may also be advised to root out the trees that hide their mansions from public purview so that people can get a view of how stinking, parasitical, gluttons the so-called commercial artists really are, living in the richest boulevards and inspiring the rest of the nation to become like them – almost in a pattern of dark humor.

A hope that you will rid yourself of the comparisons with Dr Martin Luther King, because unlike you he never would claim today that your election proves in any form, kind or shape that America has suddenly become intelligent or free, or both, in selecting its leader. He would never have accepted funds from Wall Street and Zionist lobbyists. He would never have accepted corporate media favors. He would never have remained silent at Israeli atrocities on Palestine. Unlike you, Dr King would not have claimed America has no colour lines just because two clowns in form of McCain and Palin could not inspire White America enough. Did I mention Dr King would not have voted unconditionally for the $700-billion corporate bailouts as you did – thus ensuring their media throw around bullets at a desperately sinking people’s hopeful minds?

A hope that you will be a world leader, rendering thoughtful humanitarian progressive opinions, not promising reactionary interventionist military tactics. Your urge to pursue military wars against tethering economies of Pakistan and Afghanistan is far from the hope the world looks forward to from the leader of a country that has, in the first place, created the mess those regions are.

A hope that you will truly stop addressing the AIPAC Zionist causes and rather side with the progressive Israeli and Palestinians in order to end the war on peoples in the Middle East – a war directly funded by American taxpayers money. So much so that the working class Americans are forced to pay 47% of their tax money towards fighting wars against Arab peoples. And now they hope, President Obama, that you will conduct direct negotiations with the Hamas- legitimately elected to government in Gaza – instead of funding hate against the Middle East by furthering flow of tax money to the Israeli militarist state. Certainly not to depend on the Republican Party adviser, Pentagon chief Robert Gates, to decide on your behalf – a process you have already formalised.

A hope that you will “fully withdraw” from Iraq and not “reduce” the presence of American troops there- your claim throughout that American troops are “part of the solution in Iraq” is a wisdom that is contrary to laws of international human rights as applied to sovereign nations, not to mention one that has resulted in slaughter of well over a million innocent people. Despite Abu Ghraib and despite well-documented deaths of civilians at the hands of the American military your view is abjectly hopeless: “The fact is that our US military is probably the most capable institution on the planet in terms of carrying out extraordinarily difficult assignments. And I continue to be concerned that we have set out for ourselves just an enormous task of rebuilding an extremely volatile and large country, and the military is not going to be able to do it alone so we’re going to have to have some good policies from Washington to move it forward.” Dear President Obama, the ordinary voters, deeply anguished at Republican measures and deeply brainwashed by Democratic media, have pledged their hopes on you. This is time, they hope you can move the military backward and “bring the boys back” home, not to move them forward into any more tortures in the Middle East that bring us shame as human beings, not just as divinely blessed Americans.

A hope that you do in fact refrain from the last lines in your speech in quoting the tradition: “Thank you, God bless you, and may God Bless the United States of America.” As it turns out, there are so many of us atheists and so many of us followers of non-Christian God that it pains to notice the lack of a break in the tradition when it comes to religious diplomacy. In fact, Christian fundamentalism runs so high in the land that you had to invite the most infamous reactionary pastor to herald you as the leader – a man who most despicably declares homosexuality as a disease and opposes same-sex marriages. And oh, even while you used the media to woo the sizable section of LGBT constituency, your own opposition to gay marriage is also well pronounced. And yet, our depressed, repressed and suppressed sexual minority still hopes you will make true of your promises and get rid of seeds of intolerance such as the Godmen who preach against “God’s own”.

A hope that you will sincerely withdraw your inaugural speech in favour of a more pragmatic, critically progressive one. Your opening lines that “If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer” just does not sound convincing enough. Are we not the same people who voted year after year based on what the media had to convince us on foreign, domestic and economic policies? A country having the largest record of anti-democratic measures, of having committed vote scams and frauds at presidential level, of having maintained an elitist tradition of two richest parties ignoring everyone else, an electoral process that decides on candidates based on how much funds they generate thereby eliminating anti-corporate candidates effectively – how could this country suddenly become the land of the dreams of its founding fathers (not to mention, that you keep forgetting some of those were slave-owning fathers) and torchbearers of democracy (or demon-cracy, dear President considering even on the day of your speech all the anti-democratic policies were still in place- from Guantanamo Bay to Iraqi oilfields? From military bases in Kuwait to assertions in NATO, from supremacism in the UN Security Council to maintenance of Cold War ties with dictatorial regimes of Saudi Arabia or installed state armies in much of Africa to slaughter people’s outfits?)

A hope that you will carefully snap your ties with the likes of Warren Buffett. Is it merely incidental that the very year you got elected was the year when Buffett was declared as the richest man in the world – the man who you claimed time and again was most qualified to be your economic adviser. The capitalist accumulator of ill-gotten wealth, the man who has become the charity celebrity – such a charitable man he is that he has promised to donate his billions to another charitable (sic!) buddy of his, Bill Gates for the Melinda and Bill Gates Foundation! As though the activities of Gates Foundation in perpetuating life-threatening diseases in Africa by funding illegal factories were not enough, now your adviser and angel investor in your “middle-class” campaign, Mr Buffett, has to make the corporate houses stronger while rendering the government weaker – steps such as this which have caused the recent havoc at the first place to begin with.

A hope that you will sincerely abuse your own illusions about this country that you might have missed opportunities to critically reflect upon. Just because you were born in the land with a certificate that enabled you to contest as a Presidential candidate does not mean that you will continue the tradition of shoving to silence millions of hard-working taxpayers of the land who do not have the “legality” – a privilege that is bestowed not by some unseen supreme force, but by political leaders of the respective times. The “illegal workers” who clean the tables and the dishes before feeding millions of Americans every passing day of today are the black suffrage of yesteryear. The minority Hispanic, Asian and Black women workers – who earn way less than the minimum wage reserved for the male workers every hour, as housekeepers and nannies and bargirls in sectors that do not allow for unions and demands – are the Rosa Parks of today, whose voices have been silenced amidst glories of your victory. And you have led the rhetoric, Mr President, when you declare, “We are America. We are the nation that liberated a continent from a madman, that lifted ourselves from the depths of Depression, that won Civil Rights, and Women’s Rights, and Voting Rights for all our people.” In your elite school education they obviously rendered a myopic study of what America in the 21st Century was like. Perhaps you need to only go through your own EEOC reports to witness racial harassments, gender disparities in pay and discrimination based on sexual orientation before making sweeping statements on the nature of liberation embedded in the idea of Americanism.

A hope that you sincerely and finally acknowledge that the same Washington DC political lobby and the same Wall Street economic lobby are the ones that have lifted you to power. By default, your struggle will be against the working class people who on a daily basis wage wars against the aforesaid corridors of powers. And the poor working class whose money will continue to be spent on your imperialistic fanciful wars against Iraq, Gaza, Pakistan and other threats, as and when conveniently produced by the White House, with more than a little help from your so-called liberal press – the CNN and the New York Times that work overtime to turn the country into a land of hero-worshippers.

A hope that you, indeed, emerge as a hero worthy of the worshipping. This is no reality TV show and as brother Gil Scott Heron (hope they taught him in the Ivy Leagues) says the people’s revolution will not be televised. The streets of Gainesville, Harlem, Huntington and New Orleans will not have makeup artists and publicists to let people show their best faces forward. The masses do not possess the charm and power that the televised news anchors possess. They even do not have a right to define what constitutes poverty line in the country. They, however, will hope that you increase the official poverty line to demonstrate the reality of debt-ridden society of America. $21,000 annual income for a four-person family is worse than just poverty, Mr President, while calculating the millions of invisible in the land of billboards by Coca-Cola, Wal-Mart, General Electric, Proctor & Gamble, American Express, Johnson & Johnson, Bank of America, Nike, KraftFood, Comcast, Costco, Burlington, UnitedHealth Group – all of these corporations and more whose shares are owned by your buddy Warren Buffet and your friends on the Wall Street. After having hoodwinked the poor of the country with corporate media propaganda that you stand up for their causes, while in fact you get funded by their class enemies, the people hope your friendly media conglomerate stops celebrating your words of free American joy immediately!

A hope that you will also remember what Dr King had said in the context of televised glorification of racial harmony as “cruel manipulation of the poor” and American War Presidents’ presence in foreign land as “the greatest purveyor of violence in the world today”. Neither media propaganda about social normalcy in blatant disregard of the poor class, nor White House prerogatives to perpetuate wars in foreign lands have lessened, let alone, ceased. How can you continue to parrot that that no one should “question the power of our democracy”, and herald the biggest destructive force in recent world history – the US military – as the “most capable institution on the planet”?

Perhaps so, you have a need to showcase hope. But you know, acute realities continue to bite.

In Defence of Hamas

Pothik Ghosh

A spectre is haunting Palestine, it is the spectre of Al Qaeda. How else can we explain the near complete abandonment of the Palestinian cause by the international liberal community for which Palestine and its struggle for national self-determination were, till the other day, a never-ending love affair? The erstwhile drivers of the pro-Palestine global liberal consensus blame – allusively if not explicitly – its erosion on the emergence of the radical Islamist Hamas as the principal political agency of their resistance. That, in their reckoning, is completely indefensible at a time when the terroristic depredations of Al Qaeda’s pan-Islamism have sought to put the very existence of secular modernity in jeopardy all across the world. Clearly, this liberal perception, permeated as it is by the current international climate of anti-Islamist (even anti-Islamic) opinion, finds nothing wrong in projecting Hamas as a local manifestation of Al Qaeda’s reign of internationalist terror and obscurantism.

That has, in the context of the current Israeli attack on the Gaza Strip, meant responses ranging from a spirited advocacy of “Israel’s right to defend itself” (the US and the UK governments) and equal condemnation of violence on both sides (various European regimes) to ineffective ritualistic criticism of the Israeli invasion by such die-hard allies of the Palestinian struggle as New Delhi, which has of late found a rather amenable seller of defence hardware in Tel Aviv. And if there can be an abomination greater than the relentlessly brutal assault being unleashed by the Israeli ground, air and naval forces on Gaza Strip, it is constituted by such absurdly heartless, even cynical, reactions. They indicate a wholly unwarranted ideological victory for the Zionist project of occupation and territorial annexation. That the core ideology of Hamas, elected to head the government of Gaza by its inhabitants three years ago, is Islamist has made it easier for the Israeli propaganda machine to render its vile acts of occupation – such as the 30-month-long blockade of Gaza – internationally legitimate. It has helped Tel Aviv suggest to its old and new allies, if such suggestion were necessary, that Hamas’s Islamist anti-Israeli position is merely a variant of the virus of pan-Islamist violence that is periodically purveyed by Al Qaeda within their geo-political boundaries.

The ideological victory of the Zionist enterprise has, however, more to do with the current global conjuncture than the effectiveness of the Israeli propaganda machine. The eagerness of most ‘democratic’ nation-states and sizeable sections of their liberal societies to read in the ascendancy of an Islamist Hamas the degeneration of the Palestinian people and their struggle for self-determination stems from this conjuncture, which is characterised by a complete instrumentalisation and institutionalisation of the ideas of liberal-democracy and secularism into an anti-democratic centre of capitalist class power and social domination. What is forgotten, as a consequence, is the true historical origin of the ideology of secularism in the various popular democratic struggles in the western world against institutionalised religion.

It is this subjugation, or shall we say blinding, of secular reason by power that has compelled the liberals of the world to not only equate Hamas’s Islamist ideology with that of Al Qaeda’s but has also led them to believe that the decision of the majority of Palestinians, particularly those in Gaza, to jettison the secular-nationalist Palestine Liberation Organisation (PLO) for Hamas is a case of wilful fundamentalist aberration. Had the rational capacities of the liberals not been so contaminated by status quoist considerations of power and social privilege, they would have realised that no people – certainly not those who are waging a war of resistance like the Palestinians – choose their political agency, and the ideological idiom and identity that come with it, at their own pleasure and free will. The failure of the global liberal community to ask, let alone figure out, why the Palestinians chose to dump their traditional secular leadership of the PLO, particularly its Al Fatah faction, for an Islamist Hamas has clearly been due to their ideological inability, if not reluctance, to see the political in terms of the social and vice-versa. In other words, the question of political autonomy, which is what all identitarian struggles for self-determination essentially are, poses the question of cooperative and dialogic social association either directly or implicitly.

What is, however, even more unfortunate is the failure of the global Left forces, in all their national varieties, to insist that their persistent backing for a national self-determination movement like Palestine is precisely because it has served to continuously foreground the aforementioned impulse of social transformation. Instead, their pretext for supporting the Palestinian struggle merely because it is a struggle for national self-determination has, ironically enough, put them on the same page as the liberals who now find Palestine a troubling and embarrassing issue. Such support has, precisely because it has reified the idea of political autonomy and national self-determination, been rendered ineffective. Worse, it has put paid to all hope of engaging the liberal community on its ideologically blinkered, if not politically motivated, perception of Hamas’s Islamist politics.

Autonomy, after all, is nothing but a means of seeking true representation of the self by struggling against its false representation by a regime of class domination, which is the logical consequence of a capitalist social order based on the ethic of competition, alienation and difference. Clearly then, autonomy cannot be won unless the order of competitive socialisation is transformed into one of cooperative social association.

In that context, the subjectivities of various movements of political (national, sub-national, caste, race, gender, religious) autonomy, insofar as they pose the question of autonomy and real representation of the concerned socio-political identities without dialectically unfolding the social transformative aspect immanent in them, continue to be articulated by the bourgeois logic of competitive socialisation. It is, therefore, hardly surprising that political autonomy and self-determination are, as far as such subjectivities are concerned, mostly articulated in terms of sovereignty – a bourgeois notion of competitive socio-politics which philosopher Georges Bataille explained as the complete invasion of the other by the self. Yet, it would be difficult to deny that such subjectivities at their moment of resistance – against their experience of social domination and false representation – unconsciously posit the objective struggle for decimation of the bourgeois order of competitive socialisation, and its transformation into a domain of free association.

The reason why the PLO’s leadership no longer finds too many takers among Palestinians, especially the preponderantly poor population of Gaza, is not only because it has ceased to posit such free associative and dialogic mode of socialisation but also because it has been actively blocking and undermining it. To see the rise of Hamas as an outcome of the corruption and venality of the PLO – manifest most acutely in the latter’s post-Oslo Palestinian Authority (PA) – is to merely put the problem in a moral frame. In real political terms, this venality of the PLO is no more than a manifestation of the emergence of a privileged class within the larger Palestinian society. Members of traditional propertied classes among Palestinians together with the new intellectual-political elite, chiefly of PLO and Al Fatah vintage, comprise this new class. This social phenomenon has, at the political level, found expression in the institutionalisation of the PLO and its version of the Palestinian movement. It is no coincidence that West Bank, which is home to Palestinians who have much better access to socio-economic entitlements such as education, employment, health, and various civic amenities both in quantitative and qualitative terms, is the base of PLO, PA and their secular Palestinian identity. On the other hand, Gaza, inhabited principally by pauperised and proletarianised Palestinians, has come to be the centre of Hamas’s politics of uncompromising anti-Israeli resistance.

It is in this context that Hamas’s refusal to expressly eschew its stated position of not recognizing Israel’s right to exist must be examined. The Oslo Accords between Tel Aviv and Yasser Arafat’s PLO in 1993 led to the Palestinians, under PLO’s leadership, recognising Israel’s right to exist as an independent nation in exchange for Tel Aviv’s acceptance of Palestinian national self-determination through interim self-government arrangements within the pre-1967 boundaries. The acceptance of those boundaries meant, in practical terms, accepting only the two territories of West Bank and Gaza Strip as Palestinian. It is these accords that culminated in the setting up of the PA. But in real terms, Oslo has meant Palestinian self-determination only on paper as Israel has been engaged in gerrymandering “facts on the ground” by constantly pushing more and more Jewish settlers way beyond the real pre-1967 borders and deep into the Palestinian territories as recognised by the Oslo Accords. That Israel would need to continuously violate the spirit of Oslo in this fashion is fairly clear. Its Zionist raison d’etre of Eretz Yisrael, the “land of Israel” for all Jews of the world, will keep inducing it to acquire more and more land for building new settlements for Jews, who continue to pour in from every corner of the world to seek the fulfilment of this founding promise of Israel.

The PA, especially under Arafat’s successors Ahmed Querie and Mahmoud Abbas, not only acquiesced in this brazen molestation of Oslo by Israel but even facilitated the violation by using both its security forces and armed Al Fatah fighters to keep Palestinian protesters, obviously more in Gaza than West Bank, at bay. That Abbas and his PLO crowd have watched, more or less silently, even as Tel Aviv has mounted its atrocities in Gaza ever since a Hamas government pushed PA out of there, is entirely of a piece with the PLO’s post-Oslo stance.

The PLO’s collaboration in this Israeli project of subverting the spirit of Oslo is both a cause and consequence of preserving the social interests of the privileged Palestinian classes in West Bank. The compliant collaboration of the PA with Israel has not only meant that the much better access of its privileged Palestinians to socio-economic entitlements and concomitant socio-political power, vis-à-vis the Palestinian poor of Gaza, is ensured. It has also helped this elite to fend off the political challenge of the toiling classes, rallied behind Hamas, through the instruments of Israeli occupation. It is, therefore, hardly surprising that the Israeli endeavour to change “facts on the ground” have been directed more at Gaza than West Bank.

That, however, does not mean that the PLO and the PA have stopped posing their versions of a self-determined Palestinian identity with regard to Israeli occupation. But their recent ‘struggle’, which has inevitably turned out to be an apology of the concerted resistance movements it had earlier conducted, poses the identity of the privileged Palestinian class in a spirit of competition with regard to the privileged sections among the Jews, whose interests are embodied in the ideological-political project called Israel. As a result, the PLO-PA ‘struggle’ against Israel is merely geared towards enhancing the social position of the Palestinian elite within the stratified global political-economic order as it obtains to in the region. Clearly, the existential impulse of the Palestinian identity currently posed by the PLO-PA is that of reinforcing the capitalist logic of competitive socialisation. That collaboration with Israel takes precedence, for the PLO-PA, over its assertion of Palestinian autonomy indicates the quest of the privileged Palestinian classes for self-determination is essentially a bourgeois competitive enterprise to further their social domination. That, needless to say, has only reinforced the hegemony of global capitalism, and its Yankee-Zionist moment in the region.

Hamas’s refusal to abandon its stated position questioning Israel’s right to exist is, in that context, a repudiation of Oslo, which in reality paved the way for collaboration between Tel Aviv and the PLO-PA. That conferred a fig leaf of legitimacy on continued Israeli occupation, directed at denying the Palestinian underclass its real autonomy, but also enabled the social domination of the underprivileged Palestinians by their own social elite under the PLO-PA’s wing. To that extent, the Hamas-led resistance in Gaza for Palestinian national self-determination has, at this juncture, been both a struggle against socio-political domination and the bourgeois logic of competitive socialization that has engendered it.

All that does not, however, still explain why an agency of the Palestinian underclass, which is ranged against the collaborationist apparatus of Israeli occupiers and a Palestinian elite, would need to abandon its original secular-nationalist ideological idiom for a more puritan variety of Islam. And this question cannot be answered unless the secular-nationalism of the PLO, which was rejected after it became the ideology of a political institution of a privileged Palestinian elite, is located within the ideological-social space of Islam in the West Asian, especially the Palestinian, region. Islam has been the dominant indigenous cultural form in that region and all stirrings of enlightenment among its predominantly Arab peoples have been in its language. Arab-Christians have adopted the modern nationalist discourse, which has been articulated in this specific form of Islamic language, as much as the Arab-Muslims. The secular-nationalist ideology of the Palestinian national struggle under the PLO can be traced to the late 19th century Nahada (Arab Renaissance), when Islam was read against its traditional grain to articulate an absolutely modern idea of Arab nationalism against the Turkish Ottomans, whose imperial caliphate had then embodied the traditional idea of institutionalised pan-Islamism. It should, therefore, be clear that the secular nationalism of the Palestinian resistance under the PLO was not secular in the conventionally understood western sense of the term. It was imbued by Islam, albeit a liberal and inclusive variety of it. The ideological shift of the poor Palestinians – who now constitute the vanguard of the Palestinian struggle for self-determination – towards a relatively more traditionalist and pietistic conception of the religion must, therefore, be seen as a movement within the Islamic ideological space, away from its more liberal end, precisely because this liberalism has lost its earlier inclusiveness. To claim this was the only alternative the proletarianised Palestinians of Gaza had, considering that an effective working class force was absent in Palestine would be like stating the obvious.

And yet, it would be grossly inaccurate to equate the Hamas-led Palestinian struggle with Al Qaeda’s international jehad merely because both articulate their politics in the idiom of religious Islam. Hamas’s so-called radical Islam is, clearly, an organic language of protest, resistance and autonomy against socio-political domination by a foreign state and an institutionalised, secular local elite. Al Qaeda, on the other hand, posits its Islam as an anti-dialogic institution that needs to be imposed on the entire world in the form of an international caliphate. In fact, Al Qaeda’s institutionalised religion is no different from the institutionalised anti-democratic secularisms of modern capitalist powers it seeks to displace. Clearly, Al Qaeda’s struggle against capitalist liberal modernity is a competitive struggle of a section of disgruntled Gulf Arab elite funded by petro-dollars against other sections of that same elite and their socio-political allies within the stratified hegemony of global capitalism. Al Qaeda is a force of fascist reaction, Hamas the harbinger of dogged resistance and hope.

50 YEARS ON… And the same challenge of making a Revolution

Lázaro Barredo Medina, GRANMA

“THE dictatorship has been defeated. The joy is immense. And yet, there still remains much to do. We won’t deceive ourselves by believing that everything will be much easier from now on; perhaps it will be much more difficult.”

This is what Commander in Chief Fidel Castro told the people on January 8, 1959, the day of his entry into Havana. Many people could never imagine the immense challenge that they would live to experience.

Suffice it to say that just a few days later, Fidel proclaimed the right to self-determination in terms of relations with the United States and immediately, the aggressions, attempts on his life and anger on the part of U.S. politicians began, evidence of which can be seen in speeches and articles of the time, as in an editorial of Time magazine, the mouthpiece of the most conservative sectors, entitled: “Fidel Castro’s neutralism is a challenge for the United States.”

But the Cuban people could not be neutral in the face of the United States. The triumph of the Revolution that January 1959 signified for the Cuban nation, for the first time in its history, the real possibility of exercising the right to self-determination. From that moment on, neither the U.S. president, Congress nor its ambassadors could continue making decisions on what could or could not be done in Cuba. The bitter dependence had been brought to an end; a dependence that saw U.S. governors and ambassadors enjoying a degree of power in Cuba that was far greater than the actual power that they had – with respect to decision-making – within the U.S. federal government or in relation to any of the 50 states that make up the U.S.A.

When full national independence was achieved, the Revolution began to exercise that right by immediately applying the program that Fidel had announced during the Moncada trial of 1953 and which is contained in his historic self-defense speech History Will Absolve Me.

Cuba established the economic and social regime that it believed was most just and established a socialist state with participatory democracy, equality and social justice.

The country’s economy was characterized by limited industrial development, essentially depending on sugar production and a latifundia agricultural economy, where landowners controlled 75% of the total arable land.

Most of the country’s economic activity and its mineral resources were managed by U.S. capital, which controlled 1.2 million hectares of land (a quarter of the productive territory) and most of the sugar industry, nickel production, oil refineries, the electricity and telephone services and the majority of bank credits. Likewise, the U.S. market controlled approximately 70% of Cuban imports and exports, within a system of highly dependent volumes of exchange: in 1958, Cuba exported products worth 733 million pesos and imported 777 million pesos worth of goods.

The prevailing social picture was characterized by a high unemployment and illiteracy, a precarious healthcare, social assistance and housing system for the vast majority of the population, as well as abysmal differences in living conditions between urban and rural populations. There was a high degree of polarization and unequal distribution of income; in 1958, 50% of the population earned just 11% of total income, while a 5% minority controlled 26%. Racial and gender discrimination, begging, prostitution and social and administrative corruption were widespread.

Addressing the social and economic problems in Cuban society could no longer be put off and could only be resolved if the Cuban people had control of their own wealth and natural resources. Thus, using the 1940 Constitution and in line with international law, Cuba exercised its right to take control of these resources and assumed total responsibility for this action. The island paid compensation to all nationals from third countries (Canada, Spain, Britain, etc.) with the exception of U.S. nationals, given that that government rejected the provisions outright and transformed the Cuban government’s decision into a pretext for unleashing a war unprecedented in the history of bilateral relations between the two nations.

Not only did the Revolution hand over land to campesinos who, up until then, had been subjected to semi-feudal conditions of production and forced to live in extreme poverty, but it also determined that that all the country’s resources should be allocated to national economic development and improving the material and living conditions of the population. To give just one example, in the 1980s alone, approximately 60 billion pesos were allocated to the construction of productive and social facilities.

The process of industrialization underway paved the way for economic and productive diversification. Under the Revolution and up until the economic crisis which began with the disintegration of the Soviet Union and the East European socialist bloc between 1989 and 1991 – what we in Cuba call the Special Period – the country’s capacity for producing steel grew 14-fold, fertilizer increased six-fold, the oil refining industry quadrupled (not counting the new refinery in Cienfuegos), the textile industry grew seven-fold, tourism three-fold, to mention but a few. The state also created complete ranges and new industries such as machinery, mechanics, electronics, the production of medical equipment, a pharmaceutical industry, construction materials, a glass industry and ceramics, as well as making investments to increase and upgrade the sugar, food and light industries. In addition to these endeavors, we have the development of biotechnology, genetic engineering and other branches of science.

The country has also made great efforts in terms of improving its infrastructure. Electricity generation has risen eight-fold and water storage capacity has increased 310 times, from 29 million cubic meters in 1958 to nine billion-plus cubic meters today. There has been diversification with respect to roads and freeways and modernization of ports and other areas. Social needs have been covered fairly well, except for housing, which has been Cuba’s biggest problem.

The progressive growth and diversification of productive potential and the application of a widespread social program has allowed the nation to confront the problem of unemployment. In 1958, with a population of six million inhabitants, approximately one third of the economically active population was unemployed. Of this figure, 45% of the unemployed lived in rural areas while, out of 200,000 women in work, 70% were employed as domestic servants. Today, with 11 million inhabitants, the number of people in work is in excess of 4.5 million. Over 40% of workers are women and today they represent more than 60% of the nation’s technical and professional sectors.

In 1958, the number of illiterate and semi-illiterate people in Cuba stood at two million. The average academic level of 15-plus year-olds was third grade, more than 600,000 children did not attend school and 58% of teachers were unemployed. Just 45.9% of school-age children were enrolled and half of them did not attend classes. Only 6% of those enrolled finished elementary education. Universities were available to just 20,000 students.

The education sector received immediate attention from the revolutionary government. Its first task was to develop a masse literacy campaign with the participation of the population. An extensive network of schools was constructed throughout the country and more than 300,000 teachers and professors were in fulltime employment in this sector. The average academic level for those aged 15-plus year-olds rose to ninth grade. One hundred per cent of school age children are enrolled in schools, some 98% complete elementary education and 91% complete junior high. One in every 11 citizens is a university graduate and one in eight has technical-professional qualifications. There are 650,000 students in the country’s universities today and all education is free of charge. Education and vocational skills are also guaranteed for 100% of children with physical or mental disabilities, who attend special schools.

The precarious situation in 1958 with respect to public health was characterized by an infant mortality rate of 60 per 1,000 live births and a maternal mortality rate of 118 per 10,000. The mortality rate for those suffering from gastroenteritis was 41.2 per 100,000, and from tuberculosis, 15.9 per 100,000. In rural areas, 36% of the population suffered from intestinal parasites, 31% from malaria, 14% from tuberculosis and 13% from typhoid. Life expectancy at birth was estimated at 58.8 years.

Around 61% of hospital beds and 65% of the nation’s 6,500 doctors were concentrated in the capital. In the other provinces, medical coverage was one doctor for every 2,378 inhabitants and there was just one hospital for all the country’s rural areas.

Today, healthcare is free of charge and Cuba has more than 70,000 doctors, providing coverage of one for every 194 inhabitants. Almost 30,000 of them are providing services in over 60 different countries. A national network of more than 700 hospitals and polyclinics has been created. Thanks to a widespread vaccination campaign (every child currently receives vaccines against 13 different illnesses) diseases such as polio, diphtheria, measles, whooping cough, tetanus, rubella, mumps and hepatitis B have been almost entirely eradicated. The infant mortality rate is 5.3 for every 1,000 live births and life expectancy exceeds 77 years.

There is also a series of advanced medical services that are not considered as “basic” in the international arena, and are provided completely free of charge, such as intensive care units in pediatric and general hospitals, cardiovascular surgery, transplant services, special perinatal care, treatment for chronic renal failure, and special services for occupational and physical rehabilitation.

The revolutionary state did not focus its attention solely on economic and social measures. It also embarked on efforts to establish an internal legal system to facilitate the right to self-determination via the population’s direct participation in discussions, analyses and the passing of the country’s principal laws. The most notable of these was the 1976 Constitution, supported by 97% of Cubans aged 16 and over through a referendum, as well as other momentous laws like the Penal Code, the Civil Code, the Family Code, the Children and Young People’s Code, the Labor and Social Security Code and many others.

Likewise, the self-determination of the Cuban people is expressed through the right to defend the nation against foreign aggression. Today, more than four million Cubans – workers, campesinos, and university students – are organized in militia groups have access to weapons in their campuses, factories and in rural areas.

However, since 1959, Cuba has had to confront the hostility of 10 U.S. administrations that have attempted to limit its right to self-determination through the use of aggression and the unilateral imposition of a criminal economic, commercial and financial blockade.

One of the universally accepted principles of international law is that state cannot be allowed to coerce another in order to deny it the right to exercise its sovereign rights. Article 24 of the UN Charter states that, in the context of international relations, nations must refrain from using threats or force against the territorial integrity or political independence of any state.

Over the past 45 years, the United States has prohibited any trade with Cuba, including foodstuffs and medicines; it cancelled the Cuban sugar quota; prohibited its citizens from traveling to Cuba via the imposition of heavy sanctions; prohibited the re-export of U.S. products or items containing U.S. components or technology to Cuba from third countries; prescribed that banks in third countries should maintain Cuban bank accounts in dollars or use that currency in their transactions with the Cuban nation; has systematically intervened to prevent or hinder trade with or financial assistance to Cuba on the part of governments, institutions and citizens from other countries and international organizations.

In the 1960s these reprisals forced Cuba to structurally reconstitute its economic relations when and establish its essential markets in countries in the former East European bloc – specifically in the Soviet Union – which meant that the country had to embark on an almost total re-conversion of its industrial technology, means of transport, and provisions, etc.

When Cuba lost its natural markets in Eastern Europe, the U.S. government intensified its blockade via the 1992 Torricelli Act, which used the pretext of “democracy and human rights” to prohibit U.S. subsidiaries located in third countries and subject to the laws of those nations from engaging in commercial or financial operations with Cuba (particularly in respect to food and medicines), and punishing these by prohibiting the entry into U.S. ports for 180 days of vessels transporting goods to or from Cuba or on behalf of Cuba, measures that – given their extraterritorial nature – do not just prejudice Cuba but also harm the sovereignty of other nations and the international freedom of transportation.

On March 12, 1996, the U.S. government passed the Helms-Burton Ac, further aggravating relations between the two countries and assuming the right to sanction citizens of third countries in U.S. courts, as well as determining their expulsion or denying them and their families entry visas into the United States, with the aim of hindering Cuba’s efforts to recover its economy and hampering its possibilities of securing a greater insertion in the international market. That was also a way of attempting to pressure the Cuban people into relinquishing their efforts of self-determination.

More recently, it has adopted the Bush Plan, an attempt to transform Cuba into a colony through an annexationist program and the sibylline intention to intervene via a pretext of “transition,” a scenario in which the State Department would entrust one of its leaders as “governor,” when the Cuban revolutionary state disappears. This plan, with which George W. Bush decided “to precipitate the day when Cuba becomes a free country,” has intensified the blockade and pressure on the Cuban people by repressing family relations between Cubans resident in the United States and their families on the island; grants million-dollar resources to terrorist groups in Miami, as well as to mercenary subordinates in the U.S. Interests Sections in Havana; and promotes formulas to destabilize the country and redouble international pressure on the island.

That hostility on the part of the U.S. has included other notorious manifestations of aggression, ranging from the military aggression through the Bay of Pigs in 1961, the dirty war carried out by counterrevolutionary gangs heavily supplied by the U.S. CIA, bacteriological warfare on agricultural crops (sugar, tobacco, and citric fruits), animals (swine fever), and humans (hemorrhagic dengue), to sabotage plans, bombings using pirate planes, and assassination attempts on the country’s principal leaders.

The actions of terrorist organizations executing military attacks on Cuba from U.S. territory are notorious, and are publicized and fomented by the Miami media. Groups are constantly recruiting adventurers who are willing to head off to Cuba as agents and saboteurs, who openly declare that they have no fear whatsoever of being brought to justice in U.S. courts.

That is why Cuban patriots have had to leave aside their personal interests to serve those of the nation, even sacrificing their family relationships, in order to infiltrate the ranks of those terrorist groups in order to discover their activities and, with this information, prevent the bloodshed of Cuban and U.S. people. They are willing to pay the price of the political irrationality of the U.S. government, as is the case of the five Cuban heroes unjustly incarcerated in U.S. jails for combating terrorism.

The above is compounded by the heavy military mechanism created by the United States around Cuba and its constant tension-generating activities, as well as the illegal occupation of the Guantánamo Naval Base on Cuban territory (today converted into a horrific prison camp), a part of Cuba rented out by force to the United States in the early 20th century and which the U.S. government refuses to return.

In the early 90’s, with the disappearance of the Soviet Union, isolated and reviled by the international reaction, Cuba absorbed the terrible blow of losing the bulk of its markets in a matter of months and an abrupt descent in its gross domestic product. But the island confirmed that it shone with its own light and that it had never been a satellite of anyone, given that it was able to face that juncture on account of the extraordinary resistance of the majority of Cubans, who have acted on the basis of authentic motivations, values and ethical principles.

The Cuban people have made a conscious decision to support the country’s leadership, not only because they identify the system with their own interests, but also because of the responsible manner in which the state took on the crisis, reorganized its forces and designed a recovery strategy, despite the U.S. blockade and conditions imposed by its European allies.

The sacrifices provoked by that situation have been hard, but it has been possible to endure them because of the undisputed social advances attained, because of the confidence deposited in the country’s leading institutions and because of people’s appreciation that their government is not a decadent one or one that is in management crisis or lacking in strategies, but has confirmed that the population has remained at the center of all its work, even in the most difficult circumstances.

Fifty years have gone by and the liberation process has reached this point following the same direction indicated that night, 50 years ago, when Fidel, speaking to the huge crowd awaiting him in what was the dictatorship’s headquarters, affirmed that everything could be more difficult in the future, because we would have to fight to make the Revolution.

That is the challenge of the struggle currently underway to eradicate vices and exalt virtues, with Fidel as a soldier of ideas serving as a compass in the fight for freedom and independence.

Cuba’s enemies are backing their all on the opposite of that. In this world, where politics is a caricature, they cannot comprehend that, in its thinking and action, this Revolution is a process of continuity, and that Fidel will continue to be the leader of the Revolution of today and tomorrow, because, beyond responsibilities and titles, he will continue to be the counselor of ideas to which we will always have recourse, because he has transcended political life to insert himself in an intimate way in the family life of the vast majority of Cubans.

Courtesy: GRANMA

Workers Occupy Chicago Factory: Echoes of Argentina’s 2001 Worker Uprising

Benjamin Dangl

When the 250 workers at the Republic Windows and Doors factory in Chicago were told that the plant was shutting down, they decided to take matters into their own hands.  On Friday, December 5, the workers occupied their factory in an act that echoes the sit-down strikes of the 1930s in the US and the occupation of factories during the 2001 crisis in Argentina.

"They want the poor person to stay down.  We’re here, and we’re not going anywhere until we get what’s fair and what’s ours," Silvia Mazon, 47, a formerly apolitical mother and worker at the factory for 13 years told the New York Times.  "They thought they would get rid of us easily, but if we have to be here for Christmas, it doesn’t matter."

The workers are demanding that they be paid their vacation and severance pay, or that the factory continue its operations.  They were given only three days’ notice of the shut down, not the 60 days’ notice which is required under federal and state law.

On Friday, fifty of the workers at the plant — taking shifts in the occupation — sat on chairs and pallets inside the factory and were supplied with blankets, sleeping bags, and food from supporters.  Throughout the takeover, workers have been cleaning the building and shoveling snow while protesters gathered in solidarity outside waving signs and chanting.

The occupation of the factory — which produces heating efficient vinyl windows and sliding doors — is taking place in the midst of a massive recession, with the rate of unemployment in the US at a 15 year high, and with 600,000 manufacturing jobs lost in this year alone.  As another indicator of the economic crisis, 1 in 10 Americans — a record of 31.6 million — are now using food stamps.

The factory workers are protesting the fact that the Bank of America received $25 billion in the recent $700 billion government bailout, and then went ahead and cut off credit to Republic Windows and Doors, resulting in the subsequent closing of the factory.

"The bank has the money in this situation," said Mark Meinster, a representative of the United Electrical, Radio and Machine Workers of America, the union to which the factory workers belong.  "And we are demanding that Bank of America release the money owed to workers who have earned it and are entitled to it."  On Monday Illinois Governor Rod Blagojevich announced that, in support of the workers, the state will temporarily stop doing business with Bank of America.

President-elect Barack Obama also announced his support: "When it comes to the situation here in Chicago with the workers who are asking for their benefits and payments they have earned, I think they are absolutely right . . . what’s happening to them is reflective of what’s happening across this economy."

Rev. Jesse Jackson delivered turkey and groceries to the workers, saying, "These workers are to this struggle perhaps what Rosa Parks was to social justice 50 years ago. . . .  This, in many ways, is the beginning of a larger movement for mass action to resist economic violence."

Occupy, Resist, Produce: Argentina’s 2001 Crisis

Argentina’s crisis was similar to the current recession in the US in the sense that in December of 2001, almost overnight, Argentina went from having one of the strongest economies in South America to the one of the weakest.  As the occupation of the factory in Chicago indicates, there are some tactics and approaches used in Argentina to combat economic crises that could be applicable in the United States.

During Argentina’s economic crash, when politicians and banks failed, many Argentines banded together to create a new society out of the wreckage of the old.  Poverty, homelessness, and unemployment were countered with barter systems, alternative currency, and neighborhood assemblies which provided solidarity, food, and support in communities across the country.

Perhaps the most well known of these initiatives were the occupation of factories and businesses which were later run collectively by workers.  There are roughly two hundred worker-run factories and businesses in Argentina, most of which started in the midst of the 2001 crisis.  15,000 people work in these cooperatives and the businesses range from car part producers to rubber balloon factories.  Though the worker occupation of Republic Windows and Doors is different in many respects to examples of worker occupations in Argentina, it is worth reflecting on the strikingly similar situations in which workers in both countries found themselves, and how they are fighting back.

The Chilavert book publisher in Buenos Aires offers one example of workers taking back a bankrupt factory to operate it as a worker cooperative.  "Occupy, resist, and produce.  This is the synthesis of what we are doing," Candido Gonzalez, a long time Chilavert worker explained to me during a visit to his bustling publishing house, with printing presses clamoring away in the background.  "And it is the community as a whole that makes this possible.  When we were defending this place there were eight assault vehicles and thirty policemen that came here to kick us out.  But we, along with other members of the community, stayed here and defended the factory."

Candido didn’t attribute Chilavert’s success to any politician.  "We didn’t put a political party banner in the factory because we are the ones that took the factory.  All kinds of politicians have come here asking for our support.  Yet when the unions failed, when the state failed, the workers began a different kind of fight. . . .  If you want to take power and you can’t take over the state, you have to at least take over the means of production."

Una mirada desde el trabajo autogestionado

Back in Chicago, at a time when politicians have failed to respond appropriately to one of the worst US economic crises in history, the occupation of the Republic Windows and Doors factory is a reminder that desperate times call for fresh approaches to social change.

"We aren’t animals," Republic Windows and Doors employee Apolinar Cabrera, 43, told reporters.  Cabrera is a father of two, with another child on the way, and has been an employee at the factory for 17 years.  "We’re human beings and we deserve to be treated like human beings."


Click here to take action to support the workers at Republic Windows and Doors and to hold Bank of America accountable.

Benjamin Dangl is the author of The Price of Fire: Resource Wars and Social Movements in Bolivia (AK Press).  The book includes many stories of workers, families, and activists throughout Latin America working together to build a new world in the face of economic crises.

Courtesy: MRZINE

Workers occupy Chicago factory – “Doing something we haven’t done since the 1930s”

United Electrical, Radio and Machine Workers of America (regularly updated)

Chicago, IL – Saturday Evening, December 6

National news networks CNN, MSNBC and Fox News, as well as Chicago news media, are reporting on the following dramatic developments involving UE members in Chicago.

Members of UE Local 1110 who work at Republic Windows and Doors are occupying the plant around the clock this weekend, in an effort to force the company and its main creditor to meet their obligations to the workers. Their goal is to at least get the compensation that workers are owed; they also seek the resumption of operations at the plant. All 260 members of the local were laid off Friday in a sudden plant closing, brought on by Bank of America cutting off operating credit to the company. The bank even instructed managers at Republic to refuse to pay workers their earned vacation pay and the severance pay they are owed under the federal WARN Act, since they were not given the legally-required notice that the plant was about to close.

Below are some links to ongoing news coverage of this story:,2933,463030,00.html,0,1928458.story

Bank of America, the country’s second largest bank, has received $25 billion in taxpayer money as part of the $700 billion government bailout of the financial industry. The public was told that this bailout was necessary in order to keep credit flowing and prevent the loss of jobs. Yet the very-well-paid executives at Bank of America have actually cut off credit and forced the closing of Republic where workers were, at least up until Friday, producing energy-efficient doors and windows.

Jobs with Justice, the national worker rights coalition, is asking people to sign an online letter to Bank of America, demanding that they provide the needed credit to keep Republic Windows and Doors open – or at a minimum, that they pay workers the money they are owed. Please go to this link to support this important struggle.

UE Local 1110 members, along with community supporters, picketed and rallied in front of Bank of America’s main Chicago branch on Wednesday, December 3. They chanted, “You got bailed out, we got sold out!” Local 1110 President Armando Robles told the news media, “Just weeks before Christmas we are told our factory will close in three days. Taxpayers gave Bank of America billions, and they turn around and close our company. We will fight for a bailout for workers.”

To support the members of Local 1110 in their courageous fight, send checks payable to the UE Local 1110 Solidarity Fund, to: UE, 37 S. Ashland, Chicago, IL 60607. Messages of support can be sent to For more information, call the UE Chicago office at 312-829-8300.

UE has already contacted Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, and will soon be in touch with Sen. Chris Dodd (D-CT), chair of the Senate Banking Committee, regarding Bank of America’s apparent abuse of its public obligations under the federal banking bailout.

Global Economic Crisis-V

Deepankar Basu

Link to Global Economic Crisis-I
Link to Global Economic Crisis-II
Link to Global Economic Crisis-III
Link to Global Economic Crisis-IV

The Long Term Story

The long term story, as I have already indicated, is a story about the rise and (possible) fall of neoliberalism. The Golden Age of Capitalism – the two and a half decades after the second World War – drew to a close by the late 1960s and global capitalism entered a period of structural crisis. The process of general capital accumulation is largely driven by current and expected trends of profitability of capital (measured by the rate of profit). When the rate of profit declines the process of capital accumulation slows down, heralding a period of crisis of capitalism. The rate of profit had peaked in the early-to-mid 1960s in both Europe and the USA; thereafter, the rate of profit continued to decline for the next decade and a half falling from a high of about 20 percent to a low of around 10 percent.

Structural Crisis of Capitalism

Why did the rate of profit fall during this period? The falling profit rate goes to the heart of capitalism and shows up deep contradictions in the process of economic growth and technical change that accompanies capitalist development. The technological dynamism of capitalism is driven by competition between capitals to increase profits by reducing the cost of production. When the share of wages in national income is high, there is a strong incentive for capitalists to reduce the amount of labour required for production. The Golden Age of Capitalism, being a period of regulated and welfare capitalism, had ensured high and rising real wages and therefore maintained a high and relatively constant share of wages in national income. That provided the incentive for adopting labour saving technical change, i.e., adopting new techniques of production that required less and less labour per unit of output. Labour saving technical change increased the productivity of labour.

But the increasing productivity of labour came at a cost: falling productivity of capital or the output-capital ratio (the ratio of output to capital). Labour saving technical change, which increased labour productivity, was only achieved by replacing labour with capital, i.e., more and more labour was replaced by more and more machines in the process of production. This is one of the characteristic features that we often observe with capitalist development: mechanization and the increasing capital intensity of production. The use of more and more machines that increased labour productivity meant that every unit of output now required less labour but more capital; thus labour productivity increased but capital productivity fell.

This is the pattern of technical change, whereby labour productivity increases but capital productivity falls, that accompanies capitalist development during significant periods of time. This is also the way Marx had described the pattern of technical change under capitalism in his discussion of the process of general capital accumulation in Volume 1 of Capital. That is why economists Gerard Dumenil and Dominique Levy has called this pattern “trajectories a la Marx”, while Duncan Foley and Thomas Michl has called it Marx-biased technical change. But what has this pattern of technical change got to do with the falling rate of profit?

The rate of profit is defined as the ratio of profits to the total stock of capital and can be decomposed as follows:

rate of profit = (profit/capital) = (profit/output)*(output/capital)

Thus we see that the rate of profit is the product of two crucial ratios: (1) the share of profits in output, and (2) the productivity of capital. The share of profits in output, though high, had remained relatively stable through the Golden Age of Capitalism; this is a typical pattern observed under capitalism (other than for the neoliberal period). The productivity of capital, on the other hand, fell because of Marx-biased technical change leading to a sharp fall in the rate of profit, and ushering in a period of crisis for capitalism. The sharp decline in the rate of profit meant a decline in the revenues accruing to all sectors of the capitalist class, especially the top fraction. The neoliberal counterrevolution, the sharp turn in economic and social policy around the mid-1970s, was the response of the upper fraction of the capitalist class to their declining income and power (a more detailed development of this argument can be found in Dumenil and Levy, 2004).

Neoliberal Response as a Prelude to Crisis

The neoliberal turn largely managed to achieve what it had set out to. Profit rates started moving up and the revenue accruing to capital, especially the top fraction of capital associated with the financial sector, increased enormously. But it was a period of unmitigated disaster for the working class. Unemployment rates rose across the capitalist world, wages stopped growing (or slowed down considerably) in real terms, social welfare expenditures were gradually cut down, unions and other working class organizations were “busted”; in short, the social power and revenue accruing to the working class was severely restricted. It was a true counterrevolution which restored the power and privilege of the ruling class.

The two figures below demonstrate this in vivid terms. Between 1950 and 1973, real wages had increased at an annual compound rate of 2.61 percent, closely following the phenomenal growth of labour productivity which grew at an average annual compound rate of 2.70 percent. The next 25 years stand in stark contrast to this. Between 1974 and 1999, labour productivity grew at 1.62 percent per annum while real wages grew at only 0.92 percent per annum. Thus, even though labour productivity growth had slowed down significantly, it was still growing at close to twice rate at which real wages increased. This created a stupendous growth in profit incomes and created the source of finance that was to submerge the US working class in debt for the next four decades.

US Productivity

US Real Compensation

A crucial aspect of the neoliberal turn was the deregulation of sundry aspects of the economy, including, most importantly, the domain of operation of finance. The last great crisis of capital during the Great Depression had brought forth several important changes and new developments in the regulatory framework of capitalism. One by one, each of these laws relating to the operation of finance, both domestically and internationally, were whittled down or even outright overturned. Thus, the burgeoning profit income and the shredding of all regulation together created the supply of debt finance in the US economy. The demand for debt arose from a working class facing stagnant wage incomes but long used to growing consumption expenditures. The net result was the largest build-up of debt in the US economy since the Great Depression. During the beginning of the Great Depression total debt was about 300 percent of US GDP; in early 2008, total debt in the US economy was touching 350 percent of GDP. It was this huge debt build-up resulting from three decades of neoliberal economic policies that created a systemically fragile financial superstructure which imploded, leading to a credit freeze, when the housing bubble burst (I have borrowed parts of this argument from Wolf, 2008).



Dumenil, G. and D. Levy. 2004. Capital Resurgent: Roots of the Neoliberal Revolution. Harvard University Press.

Wolff. R. 2008. Capitalism Hits the Fan. Available here.

Global Economic Crisis-IV

Deepankar Basu

Link to Global Economic Crisis-I
Link to Global Economic Crisis-II
Link to Global Economic Crisis-III

The Medium Term Story

The medium term story of the evolving financial crisis begins at the end of the last century. With the bursting of the dot-com bubble at the end of the 1990s, possibilities of a long recession hovered on the horizon. The Federal Reserve, the Central Bank of the US, moved in with the tools of monetary policy to ease the slowdown. The target for the federal funds rate, the key short-term interest rate that the Fed monitors as part of it’s monetary policy tasks, was gradually lowered from over 6 percent per annum to a little below 2 percent within a span of about an year. Lowering interest rates to engineer a soft-landing for a slowing economy is a natural thing to do: reducing the cost of borrowing funds is a key way the Central Bank can affect the level of investment and consumption (especially of durable goods) expenditures and thereby boost the level of aggregate demand in a slowing capitalist economy. With finance in command, this normal and natural move had a perverse effect.

Fed Funds Rate

The effects of the falling federal funds rate gradually cascaded from the short-end to the longer end of the asset market, lowering interest rates on all kinds of contracts. One of the key long-term interest rates affected by this very sensible move of the Fed was the interest rate charged on various kinds of mortgage loans (loans to finance the purchase of homes). With mortgage interest rates falling, consumers not only started purchasing new homes with new mortgage loans but also refinancing their old mortgages. With the demand for mortgage loans increasing, and the increase sustained by a low-interest rate regime, house prices started picking up. Very soon, i.e., within a year or two, economists started noticing a bubble in house prices. There were several indicators of a house price bubble. For instance, the Case-Shiller house price index for 10 US cities – a commonly used price index for houses – increased rapidly since the early 2000s. Even more tellingly, the price-to-rental ratio of houses went through the roof. Between January 2000 and April 2006, the rental of an average house did not increase at all; during the same period, price of an average house increased by about 70 percent, sending the price-to-rental ratio on an upward spiral.

Price-Rental Ratio

The fact that the price-to-rental ratio increased rapidly gave a clear indication that a house price bubble was building up. People were, in other words, purchasing houses not because of the service provided by a house but because of speculative motives. A rough proxy for the value attributed by consumers to the service provided by a house is the rental rate; since this was not increasing, it meant that people were not valuing the real service provided by the house. But prices of houses were shooting up giving an indication of an increasing demand for houses (relative to supply). Most of this demand was clearly arising from speculative motives; many of the house purchases were for the purpose of selling them off at a later date to reap capital gains (i.e., the profit derived from the difference between the selling and the buying price of the asset). Thus, the rise in prices was not driven by “fundamentals” (i.e., increase in the intrinsic value of the service provided by houses) but largely by speculative motives of capital gains; that is precisely what leads to an asset price bubble and that is what happened.

Sub-prime Mortgage Market

A run of a couple of quarters of rising house prices was very soon incorporated into the expectation formation mechanisms of financial markets. As has been observed over and over again in history, rising asset prices very soon creates irrational expectations that prices will keep rising, rising certainly in the foreseeable future if not forever. Such periods of rapidly rising expectations, feeding primarily on itself, have been labelled as “manias” by economists studying periods of asset price boom-and-bust. Prominent examples of such economists are Charles P. Kindleberger and Hyman P. Minsky, coming, as they are, from very different political traditions. In the context of the early twenty-first century US economy, the unprecedented house price bubble created grounds for the emergence of predatory lending and the sub-prime mortgage market. The sub-prime mortgage market was the market for mortgage loans to less-than-creditworthy borrowers at very high interest rates that often came with hidden but onerous terms. (Useful material on predatory lending and the subprime mortgage market can be found here)

A financial innovation that indirectly helped the emerging sub-prime mortgage market and the practice of predatory lending was “securitization”. Securitization, in the context of the mortgage market, meant pooling together hundreds and thousands of mortgage loans together and then selling bonds on that pool of mortgages. Investors buying those bonds – the mortgage backed bonds – received the income stream, both the principal and the interest, entailed by the mortgages as the mortgage borrowers serviced their debt. Securitization required that the entities, usually investment banks like Bear Stearns or Merril Lynch, that were issuing (i.e., selling) mortgage backed securities (the mortgage backed bonds or other kinds of assets backed by the mortgage pool) needed ownership of the pool of mortgages against which those mortgage backed securities were being issued. Thus, the entities that issued the mortgage backed securities went out and bought mortgage loans from the originators of the mortgages, i.e., those who sold the mortgage loan to the borrower, like Country Wide Financial (the largest mortgage seller in the US prior to the financial collapse).

The fact that mortgage loan originators had a market where they could sell off the mortgage loans they had originated created perverse incentives for the originators. Typically mortgage loan originators do a thorough screening to assess the financial background of applicants before making loans. With the emerging market for selling off mortgages, the effort at screening was reduced to zero. Things actually went even further. Since mortgages could be sold off at good prices to the investment banks, the mortgage loan originators had a incentive to start engaging in predatory lending, i.e., push mortgage loans on persons who they knew would not be able to sustain the payments entailed by the loan. Since the originator did not have to bear the risk of failure associated with non-payment of mortgage loans, they had no incentive to make prudent loans. All they had to do was to force some gullible working class person to agree to the sub-prime loan and then turn around and sell it off to some investment bank in Wall Street. Thus, the market for sub-prime mortgages proliferated, driven by rising demand coming from the Wall Street investment banks. And why were investment banks so eager to buy these sub-prime mortgages? To answer this question, let us look a little more closely at the process and results of “securitization”.


Securitization is the division, repackaging and dispersal of debt, earning huge fee income for the entity (usually an investment bank) that is undertaking this process. The process starts with some commercial or investment bank buying a swathe of mortgages, some prime, some sub-prime, from smaller financial institutions and pooling them together. Each mortgage, recall, entails a stream of future payments; so the pool of mortgages, entails some specific stream of future payments. Various categories or “tranches” of bonds, arranged according to their risk characteristics, are then issued against the pool of underlying mortgages, i.e., against the stream of future payments entailed by the pool of mortgages. Investors who buy these bonds (mortgage backed securities) then have the claims on the mortgage payments coming through month after month after month; if some mortgage fails i.e., payments stop the lowest category (i.e., most risky) bondholder loses first, the losses travelling up the tier of the bonds.

Let us look at a specific example: Bear Stearns Alt-A Mortgage Pass-Through Certificate. This is how this mortgage backed security worked. Bear Stearns bought 2871 mortgages from different mortgage originators for a total of $1.3 billion; this mortgage pool had mortgages that had been originated in different parts of the US, each worth on average for $ 450,000. Bear Stearns then pooled these diverse mortgages and issued 37 different bonds against that pool of mortgages; these bonds were called the Alt-A Mortgage Pass-Through Certificates. Alt-A stands for a very specific kind of mortgage: a mortgage where the originator does not ask any questions about the financial situation of the borrower before making the loan. It is not even ascertained whether the person taking the loan has a stable employment or not! Two additional players come into the picture: credit rating agencies and insurance companies.

Since many investors had an idea that the mortgage backed bonds were risky investments, they required some “independent” rating agency like Standard & Poor’s or Moody’s to ascertain the riskiness associated with investing in those bonds. This is one of the typical functions of credit rating agencies: to ascertain the riskiness (i.e., risk of default) of bonds and assign a credit rating to it; credit ratings run from AAA/Aaa (least risky) to C/D (in default). There were two problems with the involvement of credit rating agencies in the whole securitization process. First, there was an acute shortage of reliable information about the mortgages in the underlying pool; recall how the mortgages in the pool had originated in very different geographical locations, had been offered to very different income categories of people. Most importantly, very little information was collected about the financial standing of the borrowers (especially in Alt-A mortgages). So, despite their best efforts, the credit rating agencies could not come up with realistic risk assessment of the bonds issued against the pool of mortgages. The second problem was even more serious: a conflict of interest. Who paid the fees to the credit rating agencies? The same investment banks that issued the mortgage backed bonds; thus, there was a real incentive for the rating agencies to underplay the risk and certify most of the bonds as “investment grade”. That is more or less what happened, as we now know.

The other player in the securitization process was an insurance provider; since investment in mortgage backed securities (and other related assets) carried some risk investors wanted insurance against default. The instrument that was used to provide insurance for such transactions was the credit default swap (CDS), a derivative financial instrument. Suppose an investor bought bonds worth $1 million; then, to insure herself against the possibility of default she could buy CDS from some financial firm like AIG on those bonds. The insurance premium that she had to pay, called the CDS rate or spread, was typically in the range of 1-2 percent of the value of the bonds, $1 million in this case. She would thus pay $ 20,000 (if the CDS rate was 2 percent) and the CDS contract would protect her against default for the period of the validity of the contract (typically a few years). In the bonds were to go into default the firm that had issued the CDS would have to pay her the amount of her losses.

There were several problems with the CDS market. First, it was an over-the-counter (OTC) market and did not operate through an exchange; hence the possibility of monitoring or regulating this market were negligible. All the contracts were bilateral contracts and no one other than the two parties to the exchange could, in principle know the details of the contract. Second, unlike traditional insurance contracts, there were no reserve requirements. Thus, the financial entity selling the CDS was not required, by law, to hold any reserves against the CDS issued, unlike traditional insurance. So, if the CDS were to actually come due there was no guarantee that the firm that had issued the CDS would be in a situation to make good it’s side of the contract. Third, the most bizarre aspect of the CDS market was that the investor buying the CDS was not required to hold the underlying assets.

This third aspect is truly incredible and led to a veritable explosion of speculation. Let us think about this for a minute. It meant that if I believed GM would fail three years down the line, an investor could buy $10 million worth of CDS on GM bonds by paying a fee of $200,000 (assuming a CDS rate of 2 percent); and this the investor could do even though she did not hold any GM bonds. If GM actually failed and her bet was correct she could make $10 million on an investment of $200,000, a phenomenal 49 fold return! One could never expect to make such return by actually holding the bonds, and so investors started making huge bets using the credit default swaps instead of investing in bonds and stocks. By the end of 2007, the CDS market had grown to about $ 55 trillion (about 4 times US gross domestic product).

But who bought the asset backed securities? Who bought the CDS? International investors of all kinds. Around the late 1990s, there was an enormous pool of footloose, speculative capital in the global financial arena. The East Asian crisis, the Russian crisis and several other developing country crises freed up finance for investment in the US; and these investors wanted high returns even if that meant holding risky assets. That is precisely what the Wall Street investment banks were busy churning out: highly risky but high-return investments in the form of the asset backed securities and other more exotic assets. Hedge funds, pension funds, sovereign country funds and other large institutional investors lapped up the exotic assets which promised high returns.

But the whole edifice was built on very shaky foundations. This highly-leveraged investment game could remain profitable if either of two conditions were met: (a) mortgage payments kept coming in, and (b) house prices kept moving up. If mortgage payments stopped coming in, the property could be taken over and sold; hence sub-prime mortgages remained profitable investments even when the borrower was almost certain to default as long as house prices kept moving up. In the middle of 2006 house prices stopped rising and foreclosures started piling up; and then the whole process, the whole speculative game, started unravelling.

To the Short-term once again

With the medium term story more or less under our belts, let us return once more to the short term story and ask: why did Bear Stearns fail? Why did Lehman Brothers fail? Why was Fannie and and Freddie nationalized? What caused the near-collapse of AIG? Bear Stearns and Lehman Brothers went under for very similar reasons: they could not keep borrowing to finance their positions. Towards the end of it’s life, Lehman was rolling over close to $ 100 billion a month to finance it’s investments in real estate, stocks, asset-backed securities, bonds and other financial assets. When news of foreclosures started pouring in, investors became convinced that Lehman had big holes in it’s balance sheet because of it’s exposure to the sub-prime mortgage market. They refused to lend it money; thus it’s cost of borrowing went up, it’s stock prices plummeted and it’s credit rating was dropped. With no other option left, it had to file for bankruptcy on September 15, 2008.

Fannie Mae and Freddie Mac were government supported entities (GSEs) that were created to help low-income homeowners get easy access to the mortgage market. They were meant to guarantee mortgages and was supposed to finance this operation by issuing it’s own bonds which were implicitly backed by the US government. It is now clear that they did not stick to this mandate of theirs. Instead, they used the subsidized loans that they could get from the market (due to the implicit government guarantee) to invest in mortgage backed securities which were backed by pools of sub-prime mortgages. When the sub-prime mortgages started failing, these institutions started losing asset values and it became clear by mid-2007 that they could not sustain the mounting losses. At that point the government stepped in to explicitly guarantee their debt (because it was spread far and wide in the global financial system) which finally culminated in their nationalization.

AIG, the largest insurance company in the US, got into serious trouble because of the credit default swaps that it had written. Around mid-September, about $ 57 billion of insurance contracts that it had written, in the form of CDS, required it to raise serious money. The CDS were all written on bonds linked to pools of sub-prime mortgages and as the sub-prime market worsened, the possibilities of the CDS payouts coming due increased. Because of the possible losses that it could incur, credit rating agencies downgraded AIG. The way the CDS contracts were written, a credit downgrade required AIG to demonstrate that it was capable of making good on it’s contracts; this required it to immediately “post collateral” to the tune of $ 15 billion; if it failed to post collateral, it would be considered bankrupt. Since it did not have that amount of reserves and could not borrow from a tightening credit market, it had to approach the Fed for funds.

Bubble bursts: Delevarging and Deflation

An aspect of the whole build-up that made the unravelling especially painful was the stupendous amount of leverage in the financial system. When the bubble was inflating every investment was so hugely profitable that investors borrowed heavily for investing. This was especially true of the investment banks whose leverage (i.e., ratio of debt to equity) was about 30:1 by 2007; thus, for every dollar of equity these institutions had borrowed 30 dollars. And a large part of the borrowing was at the shortest end of the market. This meant that the investment banks had to continuously borrow from the market (usually roll over their debt) in order to keep financing their assets and investments. This made the system extremely fragile because any serious problem would lead to painful deleveraging (i.e., forcibly reducing debt by various means often involving serious financial loss) and possibly even asset price deflation.

As foreclosures picked up speed, house prices started moving down. Defaults on mortgage payments and falling house prices meant that the mortgage backed securities started losing value. Often this meant that when lenders came knocking on the doors for their funds, assets had to be sold at short notice and at low prices to cover debt payments coming due. A rush to sell assets often led to a further fall in the value of assets, even those not linked to mortgage backed securities, leading to worsening balance sheets in wider and wider circles. With bonds losing value and even facing default, the CDS contracts suddenly started coming into effect. Since CDS issuers like AIG had not held any reserves for such contingencies, they got into greater and greater difficulties as bonds insured by CDS contracts started failing.

Falling assets values meant that financial firms faced greater difficulty in borrowing from the market, partly because the value of assets that they could offer as collateral had already fallen. Falling collateral value often lead to increasing costs of borrowing in terms of higher interest rates. Difficulty is accessing funds gives another push to sell off assets to cover debt payments, taking the spiral one step down. Deleveraging and an asset price deflation and a string of failures and rescues really led the financial system, in mid-September 2008, to completely lose faith in itself; it is this severe loss of confidence that manifested itself in the credit freeze, the center piece of the short-term story.

(To be continued.)

Global Economic Crisis-III

Deepankar Basu

Link to Global Economic Crisis-I
Link to Global Economic Crisis-II

The Need for Aggressive Fiscal Intervention

Before we move on to looking at the global economic crisis from a medium term perspective, i.e., before we take a look at the phenomenon of the house price bubble and associated speculation that created the grounds for the current credit crisis, it might not be amiss to focus on what can be done in the short-run to deal with the real consequences of the economic crisis: the deep and prolonged recession that the US economy will undoubtedly be pushed into. Real GDP figures released by the US Bureau of Economic Analysis (BEA) on October 30 indicated that the US economy was in the midst of a slowdown even before the financial storm hit the world economy in the middle of September. Real GDP in the US contracted at an annual rate of 0.3 percent for the third quarter (i.e., for the months of July, August and September), led by a sharp fall in consumer spending; businesses cut 240,000 jobs in October alone, the highest figure in 14 years. The financial storm, comprising a severe credit crisis and even a possible banking crisis, worsened the slowdown further. In such a scenario, fixing the financial mess, dealing with the credit freeze, averting a possible run on the commercial banking system and restoring confidence in the financial system will not be enough to prevent a plunge into a deep, prolonged and painful recession; addressing the credit crisis is necessary but not sufficient to deal with the grave crisis in the real sector. A direct and aggressive boost to aggregate demand is the only way to prevent the current recession from becoming a depression. Why is that so?

In any capitalist economy, such as the US economy, the level of aggregate economic activity and employment is determined, in the short run, by the level of aggregate demand, and fluctuations in employment and output are accordingly determined by fluctuations of aggregate demand. Aggregate demand is defined as the sum total of all expenditures on goods and services produced in the economy. Macroeconomists divide total expenditure that make up aggregate demand into four categories: consumption expenditure, investment expenditure, government expenditure and net export expenditure. Consumption expenditure is the total spending by households on durable and non-durable goods, and also services; investment expenditure is the total spending by firms on plant, equipment, machinery and inventories, and the residential investment expenditures by households; government expenditure includes the total spending by local, state and federal government agencies on goods and services (excluding transfer payments); and net export expenditure is the net amount that foreigners spend on buying goods and services produced in the domestic economy.

BEA figures released for the third quarter show that every component of aggregate demand emanating from the private sector of the US (or foreign) economy either declined or slowed down when compared to the second quarter. In real terms, consumption expenditure decreased by 3.1 percent, the steepest decline since 1980 when the US economy was in the grip of a severe recession; during the previous recession in 2001, consumption expenditures had not even declined. Investment expenditures, other than those devoted to maintaining inventories, have also declined. Real nonresidential fixed investment expenditures decreased 1.0 percent in the third quarter, in contrast to an increase of 2.5 percent in the second. Expenditures on nonresidential structures increased by 7.9 percent, compared with a much higher increase of 18.5 percent in the last quarter; expenditures on equipment and software decreased 5.5 percent. Real residential fixed investment decreased 19.1 percent, compared with a decrease of 13.3 percent in the second quarter. Demand emanating from the external sector has a similar story to tell: even though exports registered a positive growth, the growth had slowed down considerably falling from 12.3 to 5.9 percent.

This is hardly surprising. With credit drying up, home equity vanishing and layoffs increasing, working-class households cannot be expected to increase their expenditures on the purchase of goods and services; a continued decline in the stock markets, coupled with increasing volatility will make matters worse. A recent survey in the US showed that consumer confidence was at it’s lowest value in 40 years, and so it is almost certain that consumption expenditure will not rise in the foreseeable future. Neither will export expenditures rise to shore up aggregate demand because most of the economies in the world are either already into a recession or are rapidly slowing down. Nor can firms be expected to increase their expenditures on plant and machinery and equipment. And the problem here is more than a credit freeze: even if the credit markets were to ease due to government intervention, which it is adamantly refusing to do, firms might not be willing to expand their operations because they face sagging demand. Capitalist firms produce to make profits; if they expect markets to be down and demand to fall, they will cut back and not increase their expenditures even if the cost of financing goes down.

That leaves us with government expenditure as the only source for increasing aggregate demand. In the midst of possibly the worst economic crisis since the Great Depression, the US government needs to aggressively step up it’s expenditure on goods and services; since private expenditures, either of firms or of households, cannot be expected to increase in the short-term, aggressive fiscal intervention seems to be the only way the US government can prevent the economy from sliding into a decade long L-shaped recession that was Japan’s fate in the 1990s. Moreover, such expenditures are warranted even from a long-term perspective of economic growth. Rebuilding the crumbling public infrastructure like roads and bridges, improving and widening the ambit of the public transport systems in US cities, jump-starting the movement towards green technologies, making health care available to all working-class Americans, increasing the unemployment benefit substantially, investing in the educational infrastructure makes both short-term and long-term sense. It will help boost aggregate demand in the short run and prevent a slide into a prolonged recession, and in the long run it will build the physical and human capital to help take the US economy into a higher growth trajectory.

Two alternatives to boost the economy, which are often brought up in this context, also seem to have lost their efficacy: tax breaks and monetary policy. Tax breaks have already been tried out and does not seem to have worked; reeling under mountains of debt, the tax break (or refund) cheque is often used by households not for making new purchases but for reducing the outstanding debt. The second alternative, monetary policy action, is also rapidly reaching the point where it will become totally ineffective. For it is almost certain now that the US economy is already stuck in what John Maynard Keynes long ago called a liquidity trap, a situation where the Central Bank can no longer boost aggregate demand by reducing interest rates. The Fed has already reduced the target federal funds rate to 1 percent and reducing it further to 0 percent, the lowest it can go, will possibly not help. Even if confidence in the financial system is restored and nominal interest rates lowered, this might not increase borrowing by firms because of their bleak forecast of falling demand for the goods they produce. Monetary policy has reached it’s limits; the only option to ward off a severe recession and decrease the pain on the working class seems to be aggressive fiscal intervention in terms of direct expenditure on goods and services by the US government.

(To be continued.)