Editorial: Stop speculating our jobs away

by Jul 21, 2010All Articles

editorial 15 webThe G20, a forum constructed by the powerfully rich G8 countries, by drawing in the so-called emerging economies of China, India, Brazil and which also includes South Africa, met at the end of June to tackle the on-going global financial crisis and the threat of a further slide into recession. They failed.

There was no agreement to regulate the banks and the financial markets that have gambled citizens’ investments away. In the context of over-supplied markets (cars, computers, electronics, telecoms, furniture, food, etc.) investors have been making huge profits from speculation in bewildering financial instruments, essentially betting on bets, betting on the ability of debts to be repaid or not, profiting from the sale of loans to third parties and many other mystifying financial schemes unrelated to the production of goods and services, i.e. real economic activity where jobs are created and needs fulfilled.

Falling profits in the real economy has absorbed huge flows of capital into the financial markets to the extent they have begun to overtake real economic activity. Almost half the US economy is constituted by financial speculation. As a percentage of total US corporate profits, financial sector profits rose from 14 percent in 1981 to 39 percent in 2001. In 2006, no less than 40 percent of American corporate profits accrued to the financial sector. The growth of finance has, in part, been driven by traditional corporations based in the “real” economy. For instance, by 2003, 42 percent of General Electric’s profits were generated by its financial wing, GE Capital.

However, as the crash of 2008/9 and the many before indicate, financial speculation creates great turbulence and instability. Volatility of currencies, stocks, bonds and other financial markets have created new financial instruments such as credit swaps, collateralised debt obligations and other deriviatives that stand beyond any regulation of the banking system, international financial institutions or by the state. Great private wealth was accumulated in these markets, but more importantly for the present situation, great losses were made to the point at which the entire banking system was threatened with collapse in the USA, Europe, Japan and many other parts of the world.

Hitherto unimaginably vast amounts of money were suddenly found to save the banks in contrast to the standard government cries around the world of ‘No Money’ when confronted by urgent social needs like jobs, housing health, etc.. The result has been that state budgets that were miserly governed with surpluses or at least balanced suddenly swung to record budget deficits. Attacks by speculators (often the same financial institutions that had been bailed out) betting against governments being able to honour the claims of their creditors has led to a new wave of bail outs – this time governments not banks. In turn, government after government, especially in Europe have made a 180 degree turn away from stimulating the economy to avoid recession to brutal budget cuts in the form of public sector jobs, slashing wages and pensions, increasing the retirement age of public sector workers and reducing social and welfare services as well as increasing regressive taxes like VAT. 

The likely result will be constrained economic activity and recession in the industrialised countries.

As Europe is one of SA’s main trading partners the situation in the industrialised world may have very severe consequences for the South African economy and for workers in particular. During the still current recession over a million jobs were lost. This has severely aggravated the mass unemployment crisis facing the country. Whereas most of SA’s trading partners have what for them is politically unsustainable high unemployment levels of between 8 – 12 percent, SA is dealing with unemployment that is running at 25,2 percent – if you can believe Stats SA. But can we believe Stats SA? Their figures exclude nearly 4 million people that have stopped looking for work because they are so discouraged at the prospect of finding a job. Moreover, Stats SA includes as employed many thousands of unemployed people who involve themselves in all manner of survivalist activities such as begging, growing their own food, etc. When discouraged workers are counted as unemployed then SA’s unemployment rate is over 36 percent. Of all G20 countries SA has the highest unemployment rate by some distance.

Yet the South African government refused to support efforts for financial regulation and for a tax on financial speculation during the G20 meetings of finance ministers and heads of state. This is further evidence of the continuity between the Zuma and Mbeki regimes. Without such measures it will be impossible to tackle the unemployment crisis. The efforts of Ministers Patel and Davies who are struggling for a more appropriate economic development path that can create jobs will be thwarted even before their proposals see the light of day. Adding even greater urgency for a new economic direction for SA has been the latest report that while the economy grew at a rate of 4,6 percent of GDP during the first quarter of 2010, a further 79,000 jobs were lost, or 171 000 if we include the agricultural and informal sectors.

In the struggle against job losses and unemployment, it is becoming clearer that there needs to be a break with the ‘market’, especially policies that facilitate hyper-speculative financialisation of the economy. The lesson of the last G20 meeting, as with previous ones, is that this will not emerge from the institutions that have been developed to manage the system. Bringing this lesson home to the political situation in our country is critical. This will require a new alliance, principally of the labour and social movements to drive, through mass action, a programme for a new economy based on the redistribution of wealth and decent work.

Brian Ashley


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