Wednesday, 7 September 2011

Capitalists don’t like markets

Back in the 1980s, the billionairess Leona Helmsley famously said “We don't pay taxes. Only the little people pay taxes”. What is true for taxes is similar to what is true for markets. The rigours of the market are for the ‘little people’ to bear, and are used to force through cutbacks, closures and attacks on living standards. But if the market threatens the stability of the capitalist system – and the ‘big people’ - it will be overridden.

The latest market-busting move was on Tuesday 6 September, when the Swiss National Bank drove down the value of the Swiss franc by 8% in fifteen minutes. In a dramatic statement, the SNB set a minimum rate for the franc against the euro at 1.20 (above the market rate of 1.11 just before the announcement), and pledged to buy ‘unlimited quantities of foreign exchange’ if necessary to do so. Financial markets had previously bought the franc as a ‘safe haven’, since this citadel of secret bank accounts has little government debt, is rich and has been a longstanding, low tax bolt-hole for financial capital.[1] But the rise in the value of the franc had gone too far, having appreciated by around 30% in the past 18 months. This put a serious squeeze on the domestic economy and Swiss companies. After failing to stop the capital inflows with zero (even negative) interest rates and previous currency interventions, the Swiss authorities decided to adopt these more drastic measures to curb the market.

There has been a flurry of other panic measures. In Europe in early August, after the share prices of their major banks slumped, amid fears of growing bad debts, the governments of France, Italy, Spain and Belgium imposed a ban on the ‘short-selling’ of some financial stocks. Meanwhile, the Bank of England, the European Central Bank and the US Federal Reserve are providing cash to banks that cannot get it from anybody else, the Fed has bought a mountain of mortgage-backed securities banks cannot sell and the ECB has bought euro government bonds that nobody else will buy. Many governments have also, explicitly or implicitly, guaranteed the deposits in their banks to lessen the risk that the market might take fright.

Everywhere, the crisis is leading to a more overt politicisation of what bourgeois ideology had previously lauded as a ‘free market’. Emergency administrative measures and ‘temporary regulations’ until the markets ‘calm down’ - these are the order of the day. Things are not yet quite at the pitch they were when US President Nixon unilaterally suspended the convertibility of the US dollar into gold in August 1971, also as a ‘temporary measure’, much to the surprise and dismay of America’s trading partners.[2] But don’t be surprised to see further measures to control markets as the crisis develops. Nor be surprised when these policies bring discord among the major powers, since political measures cannot be passed off as the work of the logic of the market.

Tony Norfield, 7 September 2011

[1] The lakeside Swiss canton of Zug is reputed to host 27,000 corporations that have registered there for tax purposes – about one for every four inhabitants!
[2] Nixon’s speech said: “I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.” Convertibility was never restored.

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