A new tipping point in the global economic crisis

Nick Beams

The announcement by the global mining giant Anglo American that it will sack 85,000 workers world-wide, put 60 percent of its assets up for sale, and reduce its mining sites from 55 to just 20 signifies that the crisis of the world capitalist economy is heading toward a new tipping point. The world economy is threatened by a plunge into deep slump, coupled with a financial crisis even more devastating than that which erupted in 2007–2008.

The immediate cause of the Anglo American decision is the plunge in prices for all major industrial commodities—iron ore, coal, copper, nickel and manganese—to name but a few. Having reached their lowest levels since 2009, they are continuing to fall, signifying that, despite the trillions of dollars poured into financial markets over the past seven years by the world’s central banks, the over-riding tendency in the world economy is towards recession.

Nowhere is this more sharply expressed that in China, the centre of global manufacturing. Earlier this week, official data showed that Chinese exports slowed markedly in November due to falling global demand, while the currency, the renminbi, hit its lowest level in four years. The expectation is that if Chinese financial authorities withdraw support, the renminbi will rapidly fall still lower, sending another deflationary wave through the global economy.

The lack of confidence in the country’s growth prospects in the upper echelons of the financial and economic elites is exemplified by the flight of capital, with foreign exchange reserves recording their third-largest monthly fall in November.

In the years immediately following the 2008 financial crisis, the conventional wisdom was that the so-called BRICS countries together with emerging markets would provide a new base of stability for world capitalism. That rose-tinted scenario has been shattered.

The downturn in China is now ripping through world markets. The Brazilian economy is experiencing a contraction on a scale not seen since the Great Depression of the 1930s, Russia is in recession, India faces mounting corporate debt problems, and South Africa, together with economies across the continent, is being hit by falling commodity prices. The future for emerging markets is exemplified in Venezuela, the site of some of the largest oil reserves in the world, where the economy is set to shrink by 10 percent this year.

In its quarterly review of the world economy issued earlier this week, the Bank for International Settlements warned that the “uneasy calm” that had characterised global financial markets could soon be disrupted by the motion of “deeper economic forces that really matter.”

Over the past period, financial markets, sustained by the flood of cheap money from central banks, have seemingly been able to continue ever upwards in defiance of deepening global recessionary trends. However, the conditions have been created for this house of cards to collapse as the “deeper forces” assert themselves.

One of the most significant areas to which cheap money has flowed is the financing of high-yielding “junk” bonds, often issued by energy companies. With the price of oil reaching over $100 per barrel as recently as the early months of 2014, it seemed to be a viable strategy. But with oil now trading at below $40 and threatening to plunge even further, possibly down to $30, it is rapidly unravelling.

The rise of energy-related debt defaults is only a symptom of a more general process.

Last Friday, the Financial Times reported that more than $1 trillion in US corporate debt had been downgraded so far this year, as defaults climbed to their highest levels since the 2008 financial crisis. Analysts with the three major credit rating agencies—Standard & Poor’s, Moody’s and Fitch—expect the default rates to increase over the next 12 months, a process that could be accelerated if the Federal Reserve decides to lift is base interest rate next week.

An analysis by Deutsche Bank, portions of which were published on the Financial Times ’ web site this week, pointed to the potential for a rapid shift in financial markets.

“Late stages of every credit cycle,” it noted, “… are built on the theory as to why this time is different. This type of attitude was prevalent going into 2015, when credit markets largely dismissed the oil sector distress, choosing to believe this was an isolated issue and will stay that way.”

But, as the assessment went on to elaborate, this has proven not to be the case, as the percentage of corporate bonds designated as being “in distress” has steadily risen.

“From its starting point in energy a year ago, it has now reached other commodity-sensitive areas such as transportation, materials, capital goods and commercial services. But it did not stop here and is also visible in places like retail, gaming, media, consumer staples and technology—all areas that were widely expected to be insulated from low oil prices, if not even benefiting from them.”

The growing potential for a renewed financial crisis was also highlighted in a report issued by the US investment bank Goldman Sachs last month. It noted that corporate leverage in the US was now at its highest level in a decade.

Low interest rates and the incessant profit demands of speculators had encouraged corporate America to go on a spending spree, financing share buybacks, dividend hikes and a series of merger and acquisition deals, funded through the issuing of bonds. But the flow of cash has not kept pace with bond issuing, with the result that the total amount of debt on balance sheets is “more than double pre-crisis levels.”

Goldman reported that even after the energy sector was stripped out, the net debt to earnings ratio was at its highest point since the financial crisis. “The spectre of rising rates, potential global disinflation (dare we say ‘deflation’?), declining operating profits and wider credit spreads continues to create near-term consternation for weak balance sheet stocks,” the report concluded.

The Bank of England has added its voice to those expressing concern over the stability of financial markets, warning of the consequences of the divergence between the policies of central banks, as the Fed moves towards tightening while the European Central Bank and the Bank of England maintain a loose monetary policy.

The bank’s Financial Policy Committee said it was difficult to predict how markets would react to any increase in the Fed rate. The minutes of a meeting held at the end of last month and released on Wednesday state, “Capital flows had been sensitive to diverging prospects for monetary policy around the world and there was a risk of further volatility as that policy divergence progresses.”

The deepening global economic crisis is one of the driving forces for the eruption of militarism, especially over the past month. At the same time, the escalation of the war drive can only exacerbate the economic and financial situation. This underscores the fact that the mounting world economic and political disorder is not the result some kind of temporary or passing disequilibrium, but the expression of an ongoing and deepening breakdown of the global capitalist system.

Report highlights gap between executive and workers’ pay in UK

Barry Mason

The trade union-backed Labour Research Department (LRD) has issued a report showing how the gap between highly paid executives and most of the workforce is widening exponentially in the UK.

The salaries of top-paid executives in 2014 were a staggering 183 times the wages of average workers.

The LRD research noted at least 535 executives were being paid at least £1 million a year in salaries, with other payments and expenses on top.

According to LRD the UK’s current top earner is Sir Martin Sorrell, who is the chief executive of the advertising and public relations group WPP. He reportedly receives remuneration of £43 million a year, which includes a quarter of a million pounds to enable his wife to be with him on business trips.

The top 10 earners according to LRD are:

1. Sir Martin Sorrell, WPP, £42,978 million per annum

2. Tony Pidgley, Berkeley, £23,296 million

3. Ben van Beurden, Shell, £19,510 million

4. Jeremy Darroch, Sky, £16,889 million

5. Erik Engstrom, RELX Group, £16,176 million

6. Peter Long, TUI Travel, £13,333 million

7. Rob Perrins, Berkeley, £12,357 million

8. Tidjane Thiam, Prudential, £11,834 million

9. Breon Corcoran, Betfair, £11,627 million

10. Antonio Horta-Osorio, Lloyds Banking Group, £11,544 million

In 2014 the average pay of chief executives at the UK’s top 100 companies was £4.964 million. In comparison, according to the Office of National Statistics an average worker earned £27,200, making the ratio of pay 183:1.

The gap between executive pay and that of an ordinary worker continues to accelerate. The ratio has risen from 160 times in 2010 to 183 times today. In 1988 the pay of an average FTSE 100 chief executive was 47 times that of an average worker.

Deborah Hargreaves, the director of the High Pay Centre, commented: “Pay packages of this size go far beyond what is sensible or necessary to reward and inspire top executives. It’s more likely that corporate governance structures in the UK are riddled with glaring weaknesses and conflicts of interest.”

The pay of executives in the public sector is also becoming increasingly divorced from that of most public sector workers. After enduring no pay rise for several years public sector workers’ pay is now capped at 1 percent for the life of the current government.

This has meant a big cut in real terms for the majority of public sector staff. According to the Daily Mail , over 500 top executives at council offices across the UK earned more than £150,000 last year. Some 50,000 executive level employees in the National Health Service (NHS) are on six figure salaries.

While not at the same level, the pay gap between senior managers and workers is also increasing, especially in the UK and the United States. A recent press release by the global management consultancy, Hay Group, stated the pay gap between senior managers and “lower-level” workers in the UK had widened by 5.3 percent, while in the United States it had widened by 7.2 percent since the recession began in 2008.

Adam Burden, a consultant at the Hay Group, said: “Globally, the job level pay gap increase has accelerated since the recession. However, it is not purely a post-recession issue. This is a complex trend that has been building for the past 30 years, through economic boom as well as bust.”

As well as pay levels for top executives soaring away from that of workers, their pensions are also rising steeply. The Trades Union Congress (TUC) produces a regular pension-watch report based on annual reports from FTSE 100 companies.

The average pension contribution (including cash alternatives) made to executives by a FTSE 100 company is 34.1 percent. Seventy percent of executives in the UK’s top companies receive cash lump sums for at least part of their retirement provision. Of these the vast majority pocket stand-alone cash payments. “These pay-outs alone are often multiples of the total pay package of a typical worker in the same company,” the TUC report notes.

The report highlighted some of those in receipt of enormous pension pay handouts, with Richard Solomons, chief executive of InterContinental Hotels Group, receiving £3.2 million and Douglas Flint, an executive at HSBC, getting three quarters of a million in cash contributions.

The ongoing rise in wealth and income inequality continues to impact adversely on the health and social conditions of the vast majority of workers. The recently released annual report produced by Sir Michael Marmot, chair of the Commission on Social Determinants of Health, showed that around a quarter of households in England do not have sufficient income to be able to live healthy lives, up from 20 percent in 2008.

The report plots the number of years a person can live without suffering a disability. In Blackpool, a neighbourhood suffering multiple deprivations, the number of years a man is likely to live free of disability is 55, while in the affluent neighbourhood of Wokingham in southeast England it is 71, a difference of 16 years.

UK and Ireland devastated by floods

Joan Smith & Robert Stevens

The human cost of the severe flooding in large parts of northern England, Wales, Scotland and Ireland over the last week is emerging. The flooding resulted from Storm Desmond, which struck on December 4, bringing 30cm of rainfall in 24 hours.

Three people are known to have died, two drowning in the floodwaters. One of the fatalities, a 70-year-old man from County Tyrone, Northern Ireland, was found on a cross-border road in County Monaghan. According to reports, his car was stuck in flooding and he was swept away when he got out of the vehicle. Another man died when he fell into the River Kent in Cumbria.

An estimated £500 million of damage was caused by the flooding. More than 5,000 homes were affected by floodwater, with many people still without power.

The county of Cumbria in the north west of England was the worst hit, with the population in major urban centres, including Carlisle and Lancaster, deluged in water and thousands losing power to their homes. The waters rose to the first floor [i.e., second floor in US English] of some houses and 40 schools were closed across the county.

Roads and houses throughout the region, which includes remote areas of the Lake District National Park, were almost completely submerged and mobile homes swept away. Thousands of tonnes of debris fell onto roads, carriageways and bridges in landslides. Railway lines were submerged under up to eight feet of water.

In Cumbria, the historic Pooley Bridge, built in 1764, collapsed under the pressure of floodwater from the River Eamont. Many of the region’s 1,500 bridges are under threat of collapse.

Heavy rain has continued all week, worsening the crisis and affecting rescue and cleanup operations. On Thursday evening, soldiers and fire brigades were sent into the Cumbrian town of Glenridding in the Lake District, which had already been deluged, with reports of boulders weighing up to a tonne being washed into the area.

As with recent floods in the region and other parts of the UK, entire communities were initially left to fend for themselves. It was not until two days after the flooding began that the government even convened a meeting to discuss the crisis. By that stage, at least 60,000 homes were already without power, with many lacking clean water.

Following Prime Minister David Cameron convening the emergency Cobra committee Monday, the army was mobilised in Carlisle and other locations to help evacuate the many residents trapped by floodwaters. By Wednesday, 1,000 homes remained flooded.

The Royal Lancaster infirmary was forced to run on generator power after an electricity substation flooded. This cut the electricity to 55,000 homes and businesses in Lancaster, Morecambe, Carnforth and surrounding areas. The universities of Lancaster and Cumbria were forced to evacuate students after losing power, with Lancaster shutting down for the rest of the term.

Businesses, both small and large, were forced to close due to storm damage, putting hundreds of jobs at risk. Water treatment centres have also been out of action across the affected counties.

The response from the government has been predictable. Prime Minister David Cameron toured the flood-affected area, declaring that the defences were adequate but the storm had been too fierce. Chancellor George Osborne proposed a paltry £50 million flood damage relief, just 10 percent of the estimated damage costs. Virtually no relief is being granted towards the present crisis, with each family affected only able to claim up to £5,000 to protect their homes in future, by, for example raising electricity sockets to safer levels or installing barriers. As a result, many people are turning to charities for any relief from their grim situation.

The fact that only 15 percent of those affected by last winter’s floods received promised financial help points to a situation whereby those flooded this week face ongoing hardship, on top of the ever-present threat of more floods.

Storms such as Desmond have become more frequent over the last decade as global temperatures rise causing milder, wetter weather. Three such major storms have hit Britain since 2005. Some areas in Cumbria are now being submerged on an annual basis. This disproves that such occurrences are “once in 100 years” events, which is how successive governments in Britain continue to describe virtually every flooding crisis.

This “once in 100 years” myth has been used to justify brutal cuts in flood defence funding. In the years prior to 2010, there had been a relative increase in flood defence spending, as the result of a number of devastating floods over the previous decade, in which large parts of the UK, including areas of major urban centres such as Sheffield, England’s fourth largest city and the historic university city of Oxford, were submerged. What were modest increases in flood defence funding came to an abrupt end after the Conservative-Liberal Democrat coalition came to power in 2010, as more than £100 billion in spending cuts was imposed.

Although rainfall hit record levels, the latest floods highlight how in the age of austerity, the ruling elite are seizing what is left from the public purse and spending it on the military and war.

Following the devastating floods in Somerset and parts of the Thames valley in 2013-14, the government proposed a meagre £2.3 billion to be spent on flood defences nationally over a six-year period.

In contrast, earlier that year, two “super” aircraft carriers were ordered to be built, each costing £3.1 billion. Over 2015-16, a tiny £370 million will be spent on flood defence, just 0.8 percent of the £45 billion that will be have been spent on the military’s budget.

Decades of underfunding have resulted in totally inadequate flood defences. The defences built following floods in Cumbria in 2005 failed to keep the latest deluge out from people’s homes.

There is no longer even a national budget available for flood defence in the UK. In 2011, a new funding system was introduced that meant local authorities and businesses were encouraged to “match” flood defence costs with national government. This led to defences being prioritised by cost rather than effectiveness. Under this scheme, inadequate defensive walls were built in Cockermouth, west Cumbria, after severe flooding in 2009, with a substantial amount of funding raised from the local community. These proved ineffective against the floodwaters last weekend.

Tim Farron, the leader of the Liberal Democrat and an MP for some of the worst affected areas, who was trapped in his car during the flooding, commented this week, “It is heartbreaking to see the impact of flooding once more on local people….Lower priority schemes were shelved and should have been funded.”

However, in the 2010-15 Conservative-Liberal Democrat coalition, Farron supported the cuts to flood defences nationally. In 2013, Farron praised the dropping of the Vital Uplands project of Natural England, the government’s adviser for the natural environment in England. Vital Uplands proposed growing more vegetation on hills in local areas in order to absorb more rainwater and reduce “the risk of downstream flooding”.

Major flooding crises are now commonplace in the world’s major capitalist countries. Well into the 21st century, the populations of major urban areas are offered essentially no protection from what are entirely predictable weather events. As global temperatures rise, so do the chances of major devastating storms.

In Britain, as across Europe and the United States, governments routinely claims there is no money for basic infrastructure requirements. Commenting on the Chancellor’s Autumn Statement in which unprecedented public spending cuts were announced, the Financial Times noted that it revealed, “The nation’s physical infrastructure—roads, railways, housing, schools and hospitals, flood defences and the rest—suffered swingeing cuts during the last parliament.”

Yet billions in public money are being handed over to increase military spending. Last month, the Cameron government announced a further £12 billion in military spending.

Stocks plunge amid fears of global slump and credit meltdown

Barry Grey

Global stock markets plunged Friday as oil prices hit new lows, threatening to crash the junk bond market and trigger a new financial meltdown. Investor nervousness was heightened by the prospect of the US Federal Reserve Board raising interest rates for the first time in nearly a decade when it meets next week.

Fed officials have repeatedly signaled to the financial markets that any increase will be small and interest rates will remain well below normal levels for an indefinite period. However, any increase from the current near-zero level will likely intensify a selloff of junk bonds, a large percentage of which are energy-related, threatening to destabilize the entire credit system.

The Dow Jones Industrial Average fell 309 points (1.76 percent), the Standard & Poor’s 500 index dropped 39 points (1.94 percent), and the Nasdaq index fell 111 points (2.21 percent). For the week, the S&P 500 fell 3.8 percent, its worst week since late August, at the height of the global selloff that followed China’s surprise currency devaluation. The Dow dropped 3.3 percent for the week and the Nasdaq plunged 4.1 percent.

European markets also fell sharply, with the major indexes in Britain and Germany declining by more than 2 percent and the French CAC 40 sliding by more than 1.8 percent. The composite EURO STOXX 50 fell by 2.04 percent.

Most Asian markets were also down substantially, and the MSCI all-country index fell 1.44 percent.

The deepening global slowdown, reflected in collapsing prices for oil and other basic commodities, as demand falls and markets grow increasingly glutted, is now wreaking havoc on the corporate bond market. Energy and other commodity-producing companies are finding it increasingly difficult to finance debt loads that grew rapidly when oil was selling for $100 a barrel and central banks were flooding the financial markets with virtually free credit.

Now, write-downs and defaults on high-yield, high-risk “junk” bonds issued by these firms are rising, heightening the prospects of a new financial crisis even worse than the Wall Street crash of 2008.

Energy and other firms facing rising borrowing rates and declining prices for their stock are cutting costs by slashing jobs and selling assets. This week, the global mining giant Anglo American announced that it will eliminate 85,000 workers, 60 percent of its workforce; put 60 percent of its assets up for sale and close more than half of its mining sites.

US employment in mining, a category that includes oil extraction, fell by 123,000 jobs in November from a year earlier. This massive downsizing is, however, just the beginning. The new year promises to see a further decline in commodity prices and an acceleration of layoffs.

Crude oil prices fell to their lowest levels in seven years on Friday. Brent crude, the international benchmark, fell to $37.36 a barrel and West Texas Intermediate, the US oil benchmark, slid to $35.67 a barrel. These benchmarks declined 13 percent and 11 percent respectively just in the past week.

The new declines were largely triggered by two developments. Last week, the OPEC oil cartel removed formal limits on production, and on Friday, the International Energy Agency said Iran’s return to world markets next year, when sanctions are removed, would increase the glut in supply.

Crude oil is down 63 percent from 2014, but other basic commodities are also collapsing. Natural gas is down 52 percent and copper is down 40 percent. Prices for iron ore, aluminum and platinum have also plummeted. This week, the Bloomberg Commodity Index plummeted to its lowest level since June 1999.

The free-fall in commodity prices is a sharp expression of the global economic slowdown that was long underway even as stock and bond prices continued to soar, fueled by cheap credit and an ever more ruthless assault on the living standards of the working class. The slowdown in China as well as the so-called emerging market economies has sapped demand for goods.

In Europe, Japan and North America, growth was been negative or anemic, in large part because corporations have reduced their investments in production and diverted funds to speculative and parasitic operations such as stock buybacks, dividend increases and mergers. This has further enriched the financial aristocracy while driving the living standards of the broad masses of people even lower.

This week, it was reported that imports to China fell 8.7 percent in November compared with a year earlier, and Chinese exports fell 6.8 percent year on year. Productive activity in the world’s largest manufacturing center has been steadily declining. The slowdown was reflected in a fall in the Chinese currency Friday to its lowest level in four-and-a-half years, sparking concerns of a new devaluation.

As for the United States, the Institute for Supply Management reported last week that manufacturing in the US contracted in November, falling to its lowest level since June 2009.

Concerns over the impact on the bond market of the fall in oil prices and the general economic slowdown spiked Friday after a large mutual fund specializing in high-risk, high-yield corporate bonds linked to the oil industry suddenly announced it was liquidating and blocking investors from getting their money back.

Third Avenue Management closed its $788 million Focused Credit Fund in the face of a rush of redemption orders from clients that it could not meet. The firm failed even to notify the Securities and Exchange Commission in advance of its announcement, underscoring the desperate character of the move.

This could be just the tip of the iceberg. Standard & Poor’s Rating Service warned recently that 50 percent of energy junk bonds are “distressed,” meaning at risk of default. The situation is, if anything, worse for bonds in the metals, mining and steel industries, of which, according to S&P, 72 percent are distressed.

Overall, some $180 billion of debt is distressed, the highest level since the official end of the “Great Recession” in June of 2009. S&P reports that corporate defaults topped 100 this year, the first time that has occurred since 2009. Almost one-third of these were oil, gas or energy companies. There have been 40 Chapter 11 bankruptcy filings by North American oil and gas producers.

In all, more than $1 trillion in US corporate debt has been downgraded this year. Moody’s Investors Service predicts that corporate defaults will increase to 3.8 percent next year from 2.8 percent this year, under conditions where corporate debt is at is highest levels since the 2008 crash.

CNN Money on Friday cited an analyst who covers the metals and mining industry as saying, “Sentiment is horrendous. It’s the worst since the financial crisis—and it’s getting worse every day.”

The Financial Times quoted John Roe, a fund manager at Legad & General Investment Management, harking back to the lead-up to the 2008 crash by noting, “We saw this kind of thing before in 2008-09 in the property market, when a number of funds had to be closed because of liquidity problems.”

Billionaire speculator Carl Icahn, who is heavily invested in one of the distressed oil companies, Chesapeake Energy, wrote on his Twitter account Friday, “Unfortunately, I believe the meltdown in high yield is just beginning.”

More than seven years after the 2008 financial meltdown, not only is there no genuine economic recovery, the measures taken to rescue the banks and the financial elite have compounded the underlying contradictions of the world capitalist system, bringing it to the brink of an even more catastrophic breakdown.

Social inequality and the disintegration of the American middle class

David Walsh

The implications of the changes in American social life indicated by the findings recently published by the Pew Research Center on the sharp decline in the number of middle-income households are enormous. The data revealed that, by Pew’s definition, middle-income households for the first time no longer constituted the majority of American society.

The figures are remarkable. The share of the national wealth accruing to middle-income households, the study reported, was 43 percent in 2014, down from 62 percent in 1970. The median wealth of middle-income households has fallen by 28 percent over the past decade and a half. The share of income going to upper-income households has risen from 29 percent to 49 percent over the same period.

The Pew report is only the latest in a series of studies pointing to the malignant class divide in American society. The US economy has been transformed over the past four decades entirely to the benefit of the corporate-financial aristocracy. Only the very, very rich have prospered. America is now a full-blown plutocracy.

The great majority of the population has experienced an unrelenting deterioration in income, benefits and conditions of life.

The very poorest have suffered the most. Many survive on next to nothing. One in 50 Americans has no income at all and lives on food stamps. Fifty million people are food insecure on an annual basis. Fifteen million people in the US earn $10 an hour or less. In terms of purchasing power, the annual income of a minimum wage earner has declined by 32 percent since 1968.

A “fair day’s pay” and a “decent job” are things of the past for most of the population. Workers in industry, union or nonunion, have been pummeled in recent decades. The experience of the autoworkers, whose starting pay has been halved and benefits eviscerated, is one of the sharpest expressions of a generalized process.

A sizable portion of what was once considered the solid American middle class, as the Pew data suggests, faces increasingly precarious and straitened circumstances: managers, administrators, technicians, health care professionals, high-tech workers, office workers of every type and description.

To provide only a few examples of some of the once better-off groups:

The Coalition on the Academic Workforce reports that as of 2009, 75 percent of the instructional workforce of nearly 1.8 million in two- and four-year institutions of higher education in the US “were employed in contingent positions off the tenure track… Although most faculty members serving in contingent positions hold a master’s degree or higher and almost all hold at least a baccalaureate degree, their earnings are not remotely commensurate with their training and education.”

One commentator refers to the “growing proletarianization of legal careers.” He continues: “Little by little, the professional in the liberal tradition leaves the scene. The legal professional is increasingly an employee—of the state as a judge, a prosecutor, or a public defender; of large business; or of a law firm.” Another speaks of physicians’ “loss of political, economic, and cultural authority.”

The ruling elite in the US and its apologists in the media and the trade unions have been peddling the myth of the “great American middle class” since the 1950s. This was part of the struggle against the influence of socialism. One cultural commentator notes that the fact that the American middle class was large and would continue to get larger “was one of the nation’s proudest achievements” and was “also ammunition against communism.”

At the height of American capitalism’s affluence, a host of shallow, self-serving observers proclaimed the failure of Marxism. Ben Wattenberg, an author and commentator associated with leading Democratic politicians in the 1960s and 1970s, smugly claimed that contrary to Marx, “the American working class…became the middle class.”

Stewart Alsop, a Newsweek columnist, commented in 1969, “Something has happened in this country which, as any good Marxist will tell you, can’t happen…the proletariat has become bourgeois.”

This line of reasoning, of course, was also the basis for “New Left” protest politics and remains a staple of the pseudo-left today.

The argument that America was a middle class-dominated society was always a lie, even at the height of the postwar boom, concealing the brutalities of the class struggle. Now such claims stand completely exposed by the course of social evolution.

Marxists have long analyzed these developments and foreseen their consequences. Almost exactly 17 years ago, on December 21, 1998, in response to the impeachment of Bill Clinton, the World Socialist Web Site editorial board posted a statement, “Is America drifting towards civil war?” The statement argued that the crisis in Washington arose “from an interaction of complex political, social and economic processes,” and that bourgeois democracy was “breaking down beneath the weight of accumulated and increasingly insoluble contradictions.”

The editorial board pointed, above all, to “the proletarianization of vast strata of American society, the decay in the size and economic influence of the traditional middle classes, and the growth of social inequality, reflected in the staggering disparities in the distribution of both wealth and income.” Large numbers “of white-collar, professional and middle management workers have been affected by corporate downsizing and restructuring, with their salaries, benefits and job security dramatically eroded.”

The WSWS statement continued: “The unprecedented degree of social inequality imparts terrific tensions to society. There is a vast chasm between the wealthy and the working masses that is hardly mediated by a middle class. The intermediate layers which once provided a social buffer, and which constitute the main base of support for bourgeois democracy, can no longer play that role.”

This analysis was absolutely correct, and more than two-and-a-half decades of ever greater appropriation of the national wealth by the top fraction of the super-rich, under both the Bush and Obama administrations, have only imparted greater ferocity and bitterness to those “terrific tensions.”

The seismic socioeconomic shifts have objectively and decisively undermined the basis for bourgeois democracy. It is a commonplace that a stable middle class is the necessary foundation of any parliamentary system.

As part of the general unraveling, the American ruling elite has itself undergone a transformation. It relies more and more for its wealth and privileges on financial swindling and manipulation. A relatively small section of the upper-middle class has also benefited from the stock market bonanza and other forms of parasitism.

Ruthlessly determined to defend every penny of their ill-gotten gains, the ruling elite and its political representatives in the two major parties have moved dramatically to the right. The American establishment, openly in some cases, more discreetly in others, is actively working to establish authoritarian, police state dictatorship. This reactionary drive goes hand in hand with militarism and a policy of endless global warfare.

The rise of a fascistic element is personified by the ignoramus-billionaire Donald Trump. His xenophobia and occasional populist demagogy are part of an effort to channel the outrage and fears of desperate, unstable sections of the petty bourgeoisie, in particular, in a deeply reactionary direction. The emergence of such a tendency is a serious warning to the working class, against whom its blows will ultimately be aimed.

The polarization of American society into a fabulously wealthy elite, at one end, and broad sections of the population who depend on a wage (at best), at the other, sets the stage for convulsive struggles. The Pew statistics and all the figures on deepening social inequality lead to one overwhelming political reality: there is no reform solution to the crisis of American capitalism.

The putrefaction of American capitalism is producing not only Trumps and Carsons, and, for that matter, Obamas, it is preparing a mass revolt by the working population. What is becoming an open rebellion of autoworkers against the companies and the union, behind which stands the state, belongs to the same historical moment. The bourgeoisie offers poverty, dictatorship and war. The working class will find a way out of its impasse through revolution.

Child poverty increases across Canada

Roger Jordan

Several recent reports have shown that for many of the most vulnerable sections of the Canadian population, conditions are worse today than at the height of the 2008-9 financial crisis.

Nationally, 1.3 million children are living in poverty, Campaign 2000 revealed in a report released late last month. This represents 19 percent of all Canadian children or almost one in every five.

The highest child poverty rate is on the island of Cape Breton, Nova Scotia, once a center of steel-making and coal-mining, where one in three children are poor. This rises to 42 percent among children six and under. Overall the child poverty rate in Nova Scotia is 22 percent, a more than 10 percent increase from 2013.

In Ontario, Canada’s most populous province, the child poverty rate now stands at 20 percent, an almost five-percentage point increase from the 15.2 percent rate recorded seven years ago. The trade union-supported provincial Liberal government presides over minimum wage rates and levels of social benefits that fall far below the official poverty line.

The growth of child poverty provides a devastating indictment of the entire political establishment, which has worked tirelessly to uphold the interests of the ruling elite at the expense of working people. In 1989, when the child poverty rate was 15.8 percent, the House of Commons, at the urging of then New Democratic Party (NDP) leader Ed Broadbent, unanimously adopted a motion ostensibly committing the politicians to eradicating child poverty by 2000. Instead, in the intervening 26 years, all of the establishment parties have taken measures when holding federal or provincial office to expand corporate power and the wealth of the rich while undermining living standards for the vast majority.

Campaign 2000 was established in 1991, when it was already clear that Canada’s governments were making no progress towards the poverty-elimination goal the House of Commons had proclaimed two years earlier.

Significantly, the province with the highest rate of child poverty, at 29 percent, is Manitoba, which since 1989 has been governed by the social-democratic NDP. During its more than decade-and-a-half in office, the NDP has slashed public spending, while cutting taxes for big business and the rich, and presided over a chronic crisis in family services and child care that has cost the lives of many children and youth.

These measures were taken as part of the ruling elite’s broader strategy of eliminating the welfare state measures that it was forced to concede to working people as the result of the massive social struggles of the last century.

The federal Liberal government of Jean Chretien and Paul Martin that held power from 1993 to 2006 imposed the largest social spending cuts in Canadian history, including major reductions to the transfers to provinces and territories used for funding healthcare, post-secondary education, and social welfare programs. This was followed by a series of generous income, corporate and capital gains tax handouts to big business, the rich and super-rich. The Conservative government of Stephen Harper sped down the trail blazed for them by the Liberals, implementing wave after wave of public service cuts in the name of balancing the budget.

Child poverty in Manitoba is a “chronic nightmare,” declared the “Manitoba Child and Family Report Card 2015,” which was issued as a companion report to Campaign 2000’s national survey. The authors of the “Report Card” are wedded to the perspective of lobbying the big business politicians to undertake measures to mitigate the deepening crisis. But even they have been compelled to sharply criticize the Manitoba NDP government. In 2009, the NDP government introduced a poverty reduction strategy, followed two years later by the passage of a “poverty reduction” act. “The problem,” declared the report, “with all these resolutions, motions, strategies and acts is that they stop at declaring intent.”

The Manitoba Report Card also pointed to the debilitating impact poverty has on young people: “Children in poverty are more likely to experience impaired cognitive, emotional and social development, to suffer from poor health status and increased risk of poor health in childhood and throughout their lives, (and) to have poor school performance and less satisfying careers.”

Child poverty figures are also above the national average in British Columbia, with 20.4 percent living below the poverty line. A report by First Call on provincial poverty rates noted that over 50 percent of BC children in single parent families live in poverty.

In last week’s Throne Speech, the newly-elected federal Liberal government vowed to tackle child poverty by creating a new “Canada Child Benefit,” which will provide a modest income increase for poorer families. Even if the Liberals fulfill this promise—the government has already warned that its financial projections are being thrown askew by Canada’s economic slowdown—it will do nothing to overturn the decades of attacks on the public and social services upon which millions of low-income Canadians rely.

One expression of the poverty crisis is the growing difficulty that hundreds of thousands are having in putting food on the table. According to a separate report from Food Banks Canada, the use of food banks across the country over the past year rose, with over 850,000 people using them each month to feed themselves or their families. Over 30 percent of that number was made up by children. “This is troubling,” Katharine Schmidt, Food Banks Canada director, told CBC. “The number increased this year again for the second year in a row. In fact, we’re 26 percent higher today in terms of food bank use than we were in 2008 when the global economic downturn happened.”

In Alberta, where the economy has been in a downward spiral due to the collapse of oil prices, food bank use shot up by over 20 percent during the past year. The province has also witnessed a doubling in the rate of employment insurance claims since a year ago as thousands of lay-offs have been announced in the oil, energy and related sectors.

Large numbers of those using food banks are part of the ever-expanding “working poor”; people who, in spite of having one or multiple jobs do not earn enough to feed their families and provide them with basic necessities. According to figures from the Canadian Press, minimum wage rates have stagnated and even fallen back in relation to the cost of basic foodstuffs, which have exploded over the past fifteen years.

In 2000, a litre of milk cost $1.41 but that has now risen to $2.48, an increase of 75 percent. A loaf of bread was up 126 percent, from $1.31 in 2000 to $2.96 in 2015 and minced beef rose by 232 percent from $3.90 to $12.96 per kilo. Meanwhile, the minimum wage saw an increase over the past fifteen years of only 52 percent, from $6.90 per hour to $10.55.

This has had an impact on widening sections of the population. According to a Statistics Canada report released earlier this year, over 1 million households suffered from food insecurity in 2012, meaning that they lacked the money to either purchase sufficient amounts or a wide enough variety of food. A separate study, carried out by PROOF, a research organization which campaigns to reduce food insecurity, calculated that in 2013, well over 3 million individuals, including close to 1 million children under the age of 18, lived in households which experienced food insecurity. This equates to approximately one in six children.

Revealing the complete inadequacy of social welfare provisions, the PROOF report noted that fully 68 percent of those in receipt of social assistance were food insecure, and 33.7 percent of those claiming employment insurance (EI). However, the statistics showed that having a job did not remove the risk of not being able to afford food, with 61 percent of the households designated as food insecure relying on wages for their income.

The food crisis is particularly acute in Canada’s three northern territories, the Yukon, Northwest Territories and Nunavut. Food Banks Canada estimates that more than 4.4 percent of the population in the three territories relies on food banks to eat. According to the Nunavut Bureau of Statistics, food prices are twice as high in the territory than the Canadian average. Forty-five percent of households in the territory were food insecure in 2012.

OECD finds UK pensions amongst lowest in world

Margot Miller

British state pensions are among the lowest in the world, paying out a mere 38 percent of what the recipient earned when working, according to the Organisation for Development and Cooperation (OECD).

The OECD report, Pensions at a Glance, makes a comparative study of pensions in 34 countries. Only in Chile and Mexico was the replacement income as a proportion of average earnings lower than in the UK. The figure of 38 percent compares with 90 percent in the Netherlands and 80 percent in Spain and Italy.

For the 1.29 million pensioners who have to survive on the state pension alone, this means extreme hardship. The maximum weekly state pension in the UK is currently set at a miserly £115.95, so that retirees are reliant on either an occupational or private pension to supplement this meagre amount. However, a third of 40- to 60-year-olds cannot afford to pay into a second pension.

Pensions have come under sustained attack by the previous Labour, Conservative/Liberal Democrat coalition and present Conservative governments, intensifying since the fallout from the 2008 bailout of the banks.

This is an indictment of the pseudo-left backed Trades Union Congress (TUC), and its affiliated partners, who betrayed the struggle of public sector workers in defence of their pensions in 2011/2012. Despite mass support for the one-day strike in support of public sector pensions, the unions agreed separate deals that have resulted in workers having to work longer and pay more for an increasingly smaller pension when they retire.

On top of this, for new retirees, the more generous final salary pension is being replaced by an average salary pension. The take-up of the final salary scheme has dropped from 43 percent in 2006 to 13 percent in 2015.

The Blair Labour government initiated the assault on final salary pensions when Chancellor Gordon Brown in 1997 scrapped tax relief on pension firms’ dividends. This saved the treasury £7 billion a year at the expense of workers’ hard-won pensions, making the final salary scheme much more expensive to run.

Another concession made by the TUC and public sector unions was accepting a hike in the retirement age. This is to be raised in phased stages from 60 years for women and 65 years for men, to 65 years for both sexes by 2018, 66 years in 2020 and 67 years by 2028. It is to be reviewed regularly thereafter, with a possible target of 70 years of age.

Mark Pearson, deputy director of the OECD directorate for Employment, Labour and Social Affairs, said, “UK citizens are in general not healthy enough to go on working into their late sixties.” One in two people in the UK over 60 years of age suffers from chronic health problems.

April 2016 will see the introduction of a new flat rate state pension (nSP) of £155.65 a week, which will replace the current two-tier system, part of which is earnings related. Still a miserable amount to live on, this sum is hardly an increase when the loss of the pension-credit safety net, which presently makes up the weekly income to £151.20, is factored in.

According to Malcolm Mclean, senior consultant at the actuarial firm Barnett Waddingham, only one in three retirees will qualify for the full nSP. Recipients will need to have paid in 35 years of National Insurance contributions to qualify, compared to 30 years in the old scheme.

The nSP is leading to the loss of thousands of pounds for as many as a million people. Those who retire after April 5, 2016 on a final salary works pension will lose inflation proofing for part of their income. Some could lose up to £28,000 under the new rules.

The OECD is sanguine about these pension changes, however, stating: “The newly designed system could provide both an adequate retirement income and be financially sustainable.” In contrast, a more realistic assessment that takes into account the impact of the parlous state of the global economy on pensions, by the same authors, says, “The likely protracted uncertainty in financial markets … cast doubts on the ability of defined contribution systems and annuity schemes to deliver adequate pensions.”

With quantitative easing and low interest rates, the danger is that pension funds will be invested in riskier ventures that could compromise their solvency. PPF Pension Funds have reported a £367.5 billion deficit in UK pension funds in 2015 due to low interest rates.

Increasing unemployment due to austerity cuts, an end to a “job for life”, zero hours contract working, low wages, precarious employment—all these factors mean less income from taxes (National Insurance) to sustain pensions. Regardless of poverty wages, however, the government is automatically enrolling, or rather forcing, all workers earning as little as £10,000 per annum into a company pension scheme. This is to prepare for the complete scrapping of state pensions.

In the UK, only 5.6 percent of GDP is spent on state pensions, compared to an average 7.9 percent in the other OECD countries. This is despite the fact that the UK has an older population. The charity Independent Age recently reported that 750,000 pensioners are being forced to choose between paying for food or heating. While 1.6 million pensioners live in poverty, 900,000 pensioners live in “severe poverty” (on incomes of less than half of median income).

Particularly at risk of pension poverty are the self-employed, as well as the burgeoning numbers on low incomes. The labour market has changed to such a degree that since 2001 the number of self-employed workers has increased by 40 percent.

By 2050, the OECD report predicts that 18 percent of the UK’s population will be over 65 years of age, an increase of 8 percent over present numbers. Increasing longevity has been cited as a reason for the looming crisis in pension liquidity, to justify attacks on pensions and cover up for the unravelling of the capitalist-based economy.

Despite increasing pensioner poverty, the OECD report says that pensioners on average enjoy a larger weekly income after housing costs than people of working age. Particularly hard hit by the recession are young people, either indebted with student loans though working in non-graduate jobs, unemployed, or working as cheap labour. Low paid work and the denial of housing benefit for those aged under 21 years of age means that youth are increasingly dependent on the older generation. Many are forced to reside in the family home into their thirties, unable to afford to buy a house or pay exorbitant rents in private accommodation.

Under another of the government’s changes to occupational pensions, workers over 55 years of age can withdraw their pension pot—even if they have not retired—and invest it as they choose. They may be tempted to use the money to pay off the student loans of their children or pay for a deposit so their offspring can buy a house, thus risking extreme poverty in old age.

Cash reserves in the National Insurance Fund, which finances pensions, has plummeted in the past few years. The Centre for Policy Studies present a bleak picture of the under-45 age group facing tax hikes and a later retirement age, while those under 35 years of age can expect the state pension to be scrapped altogether.

Mining giant Anglo American to cut 85,000 jobs

Gabriel Black

Anglo American, the world’s fifth largest diversified mining corporation, announced Tuesday that it would slash its workforce by 85,000 workers, out of a total of 135,000, under the impact of the stagnating world economy and the ongoing decline in commodity prices.

Anglo American’s announcement comes amidst a building series of layoffs and stark cost cutting procedures in the global energy and resource sector. According to the New York Times, over 250,000 oil and gas workers have lost their jobs since the beginning of the decline in oil prices—a third of those layoffs happening in the United States.

Fueling the contraction is the plummeting of global commodity prices. The West Texas Intermediate oil index, for instance, has lost over sixty percent of its value since mid-2013. This Monday oil sold for the lowest price since the nadir of the stock market crash in 2009.

Platinum, of which Anglo American is the world’s largest producer, making 40 percent of the world’s newly mined supply, has lost half of its value in the past four years. Platinum sold for around $1900 per ounce in the fall of 2011. At the time of writing it was selling for $872.75 an ounce. Similar trends are reflected in every resource commodity, with iron ore and oil leading the way down.

Undergirding this global contraction in commodity prices, however, is a deeper stagnation of the entire global capitalist economy. In nearly every section of the world warning signs have emerged of industrial contraction, overproduction, and mounting financial risk.

China and the rest of the emerging markets, once expected to buoy global economic growth, are experiencing their lowest rates of growth in decades. Chinese November imports fell 8.7 percent relative to the year before—exports were down 6.8 percent year-on-year.

Brazil is in the midst of a deepening six-quarter-long recession. Gross domestic product in the third quarter of this year was down 4.5 percent from 2014.

This contraction in the developing countries has killed profits for commodity producers and refiners who are stuck with mass overcapacity and nose-diving prices. The Australian Business Spectator reports that the major Chinese steel mills lost 38.6 billion yuan between January and October of this year and have been converting their mills into other types of operations to stay afloat. The steel mills “are reportedly breeding pigs, opening kindergartens and providing plumbing services to improve their situation.”

In addition to cutting off nearly two-thirds of its workforce, Anglo American, which has dual headquarters in the UK and South Africa, will stop paying dividends to its investors until at least 2018. The company’s stock has fallen from a high of over 1,250 points in February of this year to just 327 at the time of writing—a loss of 74 percent of its value.

As part of the restructuring process, Anglo American will shrink its six businesses down into three. The company will sell its phosphates and niobium businesses next year. It aims to cut $3.7 billion out of its yearly operational costs by 2017. Altogether it hopes to reduce its assets by 60 percent.

Despite the stunning size of the overhaul, some market analysts doubt if it will be sufficient. Kieron Hodgson, a mining analyst for Panmure Gordon & Co., told the Associated Press that the move was “underwhelming as a package.” Hodgson stated, “The business needs to reappraise itself in a manner that gives it a future.”

The Australian quotes IG market analyst Evan Lucas, who says, “The fallout of Anglo-American will spread through the big five.” The other four major mining companies, Glencore, BHP, Rio Tinto and Vale, have already wiped jobs from their payrolls, but they are expected to intensify these cuts and also stop or diminish dividend payments in the near future.

In September of this year, mining giant Glencore lost 30 percent of its value in a single day after an analyst predicted the company’s equity would be wiped out if commodity prices continued to fall. Also in September, BHP Billiton, the world’s largest mining company by revenue, cut 14 percent of its workforce, nearly 17,000 employees. The five mining giants have lost between 60 and 88 percent of their stock market value since their high point in 2011.

While the US Dow Jones Industrial index appears to be relatively protected from the growing economic storm, this is only because the Federal Reserve has pumped markets full of easy money to bolster confidence. In the United States, the underlying contraction of the world market is beginning to financially express itself in the decline of US corporate high-yield bonds this year—the first annual loss since the 2008-2009 crisis. The Wall Street Journal reports, “Defaults are rising after several years near historically low levels, as new bond sales stall and companies with below-investment-grade credit ratings struggle to refinance their debt.”

Overall, the International Monetary Fund expects 2015 to be the worst year of global growth since 2009. In the United States, the manufacturing sector contracted last month for the first time in three years. In November, the PMI (Purchasing Managers’ Index) was at 48.6 percent, below October’s 50.1 percent. Fifty percent indicates no month-to-month growth.

The Organization for Economic Cooperation and Development (OECD) warned last month of a “dramatic slowdown in global trade growth” citing a “larger than expected” slowdown in China and the expected end of the Federal Reserve’s near-zero interest rate program.

Imperialism, the “war on terror” and anti-Muslim hysteria

Andre Damon

On Monday, Donald Trump, the billionaire candidate for the Republican presidential nomination, called for a “total and complete shutdown of Muslims entering the United States” following the terror attacks in Paris and San Bernardino, California. This is only the latest in a series of increasingly fascistic and violent demands from the Republican frontrunner.

Although he went farther than other members of the US political establishment, Trump’s call was in line with remarks by other politicians, including Republican Senator Ted Cruz, who called for a ban on Muslim, but not Christian, refugees from Syria last month, and Louisiana Governor Bobby Jindal, who said he had ordered state police to place mosques under surveillance.

David Bowers, the Democratic Party mayor of Roanoke, Virginia, last month approvingly invoked America’s history of interning Japanese Americans in concentration camps during the Second World War. “It appears that the threat of harm to America from ISIS now is just as real and serious as that from our enemies then,” Bowers declared.

The resurgence of such reactionary political demands in the United States is mirrored in the other imperialist countries. In Britain, Prime Minister David Cameron has branded opponents of the authorization of war in Syria as “terrorist sympathizers.” In France, Marine Le Pen's neo-fascist National Front (FN) received the largest share of the vote in this week’s regional elections, amidst the effective abrogation of democratic rights by the government of President François Hollande and the promotion of a climate of fear and hysteria in the wake of the November 13 attacks in Paris.

Throughout Europe, there has been a deliberate whipping up of anti-Muslim chauvinism in response to the refugee crisis, as all the major powers seek to justify their plans for the expansion of war in Syria.

In the US, the statements by Trump have been met with self-righteous indignation by politicians and media figures, who claim they are shocked by his statements. Who are they kidding? The blathering of this fascistic imbecile expresses only in more concentrated form the perpetual hysteria one hears every day in the media. The difference between Trump and someone like CNN’s Wolf Blitzer is just a matter of degree. He is the product of a diseased political environment.

As for Obama, in his national address on Sunday, the president postured as a critic of Republican calls for targeting Muslims. Yet the Obama administration is responsible for the continuation of an imperialist policy in the Middle East that has devastated entire countries, with at least a million people, mainly Muslim, killed in the process.

The unleashing of the forces of extreme reaction is, in fact, an organic expression of the nature of imperialism itself. As Lenin stressed , imperialism is “reaction all down the line.” Writing in the midst of World War I, he wrote, “The difference between the democratic-republican and the reactionary-monarchist imperialist bourgeoisie is obliterated precisely because they are both rotting alive.” The putrefaction of contemporary capitalist society—based on parasitism, financial swindling, war and looting—is once again spewing up political filth in the form of racist demagogy.

The whole experience of the 20th century has demonstrated the fact that imperialist war is always accompanied by attacks on democratic rights and the whipping up of xenophobia. American involvement in World War I, nominally undertaken by Woodrow Wilson to make the world safe for democracy, brought with it the lynching of workers and the imprisonment of socialist leaders including Eugene V. Debs, followed by the anti-socialist Palmer Raids.

The period leading up to and during World War II brought with it unspeakable horrors, including the rise of fascism and the Nazi Party’s “final solution,” which led to the murder of 11 million people and the extermination of a large section of European Jewry. In the United States, the administration of Franklin Roosevelt oversaw the internment of Japanese Americans and the imprisonment of leading members of the Trotskyist movement under the Smith Act.

The period of the Korean War was the heyday of McCarthyite witch-hunts of socialists in the trade unions and entertainment industry. The French colonial war in Algeria brought the country to the brink of civil war, including the massacre of peaceful demonstrators and the invocation of a state of emergency. During the Vietnam War, the FBI in the US massively infiltrated political organizations and oversaw assassinations of oppositional figures, including leading members of the Black Panthers.

During every imperialist war, the ruling class seeks to cultivate the most backward and racist sentiments. The “war on terror,” which has led to the deaths of at least a million Muslims, is no different, creating an environment in which racist hysteria is relentlessly promoted in the media.

The deep social roots of the drive to war and the attack on democratic rights are demonstrated by the fact that the end of the Bush administration did not lead to a significant change in course. In fact, the abrogation of democratic rights continued under Obama, whose particular contribution was the institutionalization of state-sponsored murder as a central plank of American foreign policy.

The political impotence of what counts for contemporary liberalism, as well as the various pseudo-left organizations, is a result of the fact that they are deeply implicated in promoting and justifying war and militarism.

There is not widespread or deep-rooted popular support for the conceptions advocated by Trump and the political establishment as a whole, despite the constant barrage of media propaganda. But the organized expression of anti-imperialist and democratic sentiments depends on the independent political mobilization of the working class on the basis of a program directed at the source of war and political reaction: the capitalist system.