Henry C.K. Liu hliu at
Sat Feb 17 21:54:49 MST 2001

Dennis R Redmond wrote:

> To paraphrase Brecht, woe to the nation-state which needs a heroic
> one-party state. On the other hand, it's true that the Party is the only
> thing keeping the neoliberal wolves from devouring China wholesale.  China
> is developing a rather feisty developmental state, which seems to be
> quickly learning everything Japan has claimed to have forgotten about how
> to rig markets to improve the lives of ordinary citizens (you can't turn
> sideways in Shanghai without bumping into a chip fab these days). It
> wouldn't surprise me if the developmental state turns out to be China's
> next successful global export, the logical follow-up to guerilla
> revolution and the Hong Kong blockbuster.

 In China, the policy for the past two decades has been to deveolp socialist
market economy. By that, the Chinese planners aim at forcing state-owned
producers to respond more readily and directly to consumer preference, Its
objective is different from the "free" market of the West, which often works
to limit consumer choice by promoting monopoly.  The trend in the last two
decades in financial capitalism has been to favor size and market dominance,
sweeping away all the regulatory safeguards of anti-trust. While unit cost has
dropped, it does so at the expense of choice. The earlier trend towards social
capitalism (the widespread ownership of the means of production by the
investment of pension funds of individuals) has been reversed by a
counter-trend of professional fund managment which often acts against investor
interest in favor of institutional interest.  Individual investors are left
with narrow and artificial investment options. Markets are now manipulated by
instutional manager who maximize profit by promoting and exploiting volatility
rather than growth.  Individuals are unwittingly allowing fund managers to use
their retirement funds to force the company they work for to tke on debt that
will lead them into bankruptcy or to under-fund their pension obligations to
enhance shareholder value. The extra return from people's IRA accounts are
seldom sufficient to compensate for the damage caused by the effects of their
speculative invesment strategies. Yet every month, workers take comfort in the
appreciation of their IRA account without realizing that such apprecitation
has been presurring their bosses to fire them.

Free market is increasing free to exploit the ingnorant.  There is widespread
opposition from both the left and the right against corporatization of the
world, because the corporate structure has become the vehicle of choice for
the private control of public asset, by a few with the  money of many.  Wall
Street has a term for it:  "cascading", a strategy in which a private  holding
entity can gain control of public companies through ownership of less than 5%
of its equity.  this is the most heinous kind of capitalism, taking the
capital of the masses to exploit the masses.

While I follow the logic of Bush argument of the need of a large tax cut and
the need to front load it , I nevertheless have reservation that a tax cut
itself can prevent the coming financial collapse.  The issue,
it seems to me is not the size or timing, or even the distribution of the Bush
tax relief but whether tax
relief is in fact a measure that addresses the real cuase of the economic ills
facing the US and global economy.

Part of the problem is global overcapacity which US consumers alone can no
longer absorb.  Thus the US market of last resort as the engine of the glbal
conomy is sputtering.  US profit continues to invest in expanding global
production capacity while the US consumer is choking from debt.
Until global demand rises rapidly, there is no propspect to save the US from
an economic collapse.  Now the US consumption is actually sustained by its
capital surplus.  This surplus comes profit squeezed from low wages in the
rest of the globe. Thus a US tax cut will not add to aggregate global demand.
In fact, it will exacerbate the growing US capital account surplus, robbing
global consumption to fuel rising US captial account surplus.  O'neill makes a
lot of sense by saying that a strong dollar policy should be re-examined, but
he was immediately criticised.
(DowJones Business New: 18:10/ 02/16  U.S. Treasury Secretary O'Neill Causes
Stir With Dollar Comment.  Mr. O'Neill was quoted in the Frankfurter
Allgemeine Zeitung as  saying, "We are not pursuing, as often said, a policy
of a strong dollar. In my opinion a strong dollar is the result of a strong
economy."  The comment was viewed by currency markets as a modification by the
Bush administration of the rigid adherence the Clinton administration had in
describing a strong dollar as being in the best
interests of the U.S..   Mr. O'Neill, who for 13 years was chairman of Alcoa
Inc.,  Pittsburgh's giant aluminum manufacturer, has been viewed with
suspicion by currency markets who wondered if he would heed  complaints from
fellow manufacturers that a strong dollar, by making exports more expensive,
was hurting their sales.  The euro, which had been sinking against the dollar
in recent days, rebounded more than 1% at the end of European trading from
Thursday's close, despite the Treasury Department's clarification. However,
the U.S. currency regained some ground in New York trading despite finishing

A lower dollar is the quickest way to redistrube purchasing power globally,
which is what the global economy needs.

Another point is the misleading picture GDP gives. The economy is not merely
hitting zero GDP growth.  If you look at the financial sector of the GDP, the
situation is much more alarming.  While financial institutions are only
experiencing minor slow down, the nature of the transaction value which GDP
measures is hidden by the numbers.  Bankruptcies and financial restrucutring
are replacing IPOs as sources of revenue. Plausible denial has been the major
reason Japan's economy stayed stalled  for a decade. One cannot fix problems
unless one first recognizes them.  The  talking heads are now
admitting that there is a sectoral recession in  manufacturing in the US, but
they hedge by saying it is only 15% of the economy.  The financial sector is
still strong , they say. In finance capitalism, GDP can be
maintained even in a shrinking economy.  Restructuring and work-outs are
replacing the drop in IPOs deals so the finance sector is kept busy. However,
common sense will tell us that when funeral parlors are
busier than pediatricians, society is heading for trouble. That is why the PPI
is rising.  From where I sit, every company is having collection problems with
vendor financing and  every debtor is warning creditors that foreclosing debt
will only exacerbate chain reactions. Bad news on Nortel brought down the
share prices of all its suppliers.  Nortel in turn warns that if its customers
go bust, it will face more difficulty which in turn will put its suppliers out
of business. Well, what the talking heads are not saying is that many of
Nortel's customers are also its suppliers. Interdependence mean we all swim or
sink together. I have been looking at GE for a year now.  It looks like a
terminal patient with the cancer of debt.
and GE is the world largest company.  It owns 15% of practically every company
to which it leads money which its gets from the commercial papers market with
no collateral.  GE can easily cause the CP market to freeze.

The NYSE data on  Market Capitalization  of Domestic Listed Companies
(excluding closed-end funds - official FIBV figures) in all exchanges in
12/29/00 was $30.9 trillion dropping from $36.29 trillion in  12/31/99. That
is $5.4 trillion of asset evaporated in a $9 trillion annual GDP economy.
The high tech sector of the US economy has lost 40% of its market
capitalization, but the debt that created the market cap before its fall had
not been worked out.   It will take more than a decade to work it out at
current rates with much destruction of human happiness.  The US criticized
Japan precisely of this unwillingness to face the need of the debt workout.
But the Japanese system can afford this denial of reality, becoasue it is
structured to insulate economic pain from the public and the government can
afford the reality becuase of the trade surplus.  The US system does not enjoy
either of the benefits.  A decade long stagfaltion will producing political
and soical unrest in the US.

The economy is hold its breath waiting for the tax cut to bail it out.  The
disappointment will hit after the tax cut is implemented.


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