SouthFront: Analysis & Intelligence’s contributor David Hungerford has been continuing to provide a “leftfist” look on the situiation in the world. Today, he is comparing economies of the US and Russia and studying the ground of their contradictions.
Russian aviator at the air base around Latakia, Syria
The war in Ukraine has led to a dangerous rise in tensions between Russia and the United States. More recently tensions have also arisen over the war in Syria. The problems are sometimes seen as “Russia’s fault.” Another theory is “both of them are at fault.”
Both ideas are wrong. The growth of tensions began with the United States’ meddling in Ukraine’s internal problems. Russia has only reacted to the deeds of the United States and its fascist henchmen.
Likewise Russias part in Syria is by agreement with the government of Syria. It is legitimate by the standard of international law, and by rights of sovereignty. The proclaimed policy of the United States is regime change. It is a policy that goes against every principle of international law, and all rights of sovereignty. Regime change in Syria is legitimately the concern of the people of Syria, and no one else.
The United States government and its media mouthpieces say regular Russian military forces have invaded Ukraine. But there is no evidence of Russian military formations there. No problem! Remember what Dr. Goebbels said. Just keep repeating lies. Belief counts, not the truth.
The second line, that Russia and the United states are both at fault for the tensions, is also wrong. One way to see that is to take a look at economies of the two countries. There is a vital difference that shows Russia needs peace.
Russia has a great problem: obstruction of capital liquidity. That is, it is difficult for capital to flow where it is needed. The United States has the opposite problem: there is too much capital. Returns on capital are everywhere paper-thin. Russias problem can only be solved internally. It needs peace. The United States problem cannot be solved internally.
Russia’s wealth was plundered in the1990s, under Eltsin. The fight for control of formerly state-owned assets was often decided by criminal violence. Most of Russia’s assets ended up in the hands of “oligarchs,” billionaires who have no legal claim to the wealth they control.
Some of the most prestigious western academic institutions joined in the fray, helping to transfer financial assets to western countries through the IMF. If the good professors wanted to transfer wealth into their own pockets, they were in a position to do it.
The government has passed laws against the off-shoring of capital, and has made efforts to repatriate capital that is illegally hidden abroad. Nevertheless the oligarchs remain in place. Israel Shamir writes, “Putin is not a communist, he does not want to restore the Soviet Union; he is loyal to Russias rich, he sticks to the monetarist school of thought, he trades in dollars through Western banks, he did not nationalize so many industries and lands taken over by the crooks.” (Endnote 1)
A peace mission of American citizens visited Russia in June of this year. It was organized by Citizen to Citizen Initiative. (Endnote 2) About 20 people went.
The mission’s activities included large and small group meetings, informal get-togethers, conversations, parties, observations, cultural events, the works. We visited Moscow, Stalingrad (the Eltsin name is “Volgograd”), Ekaterinburg, and Leningrad (Eltsin called it “St. Petersburg.”)
There is substantial progress from the wreckage of the 1990s. There are also unsolved difficulties. A typical sign of a shortage of liquid capital came from a small entrepreneur. Asked where he got his start-up capital, he said he borrowed the money from a charitable fund. He got a two-year loan at a very high rate, 20%. That struck us as very odd!
Another small entrepreneur said he had no start-up capital, he just started working. The operation was threadbare. He is obviously a hard-working man, so his story is believable. But it added to the mystery.
The contrast between education and healthcare also raises questions.
According to the Organization for Economic Cooperation and Development (OECD), Russia has the best educational system in the world. People in our mission were generally of the opinion that Russia’s educational system is superb. We could see it. Many Russians speak good to flawless English, usually with an American accent; a cab driver might have a degree in law. Russia’s educational system was up and running by 1937. The emancipation of women also stands out. These are legacies of socialism.
On the other hand, what we saw of the health care system was uneven. A hospital in Volgograd was run-down. A dental office in Ekaterinburg was very up-to-date. According to the OECD, life expectancy in Russia is only 70 years. Russia can train skilled medical personnel. That is not the problem. The idea that capital is unable to move freely fits the facts.
We learned more in Leningrad (Eltsin called it St. Petersburg.) Victor Komarev, an engineer who runs a manufacturing operation, gave us a talk. He said the oligarchs run the country by a “conspiracy of silence.” One says to another, “I know how you got your money.” That is to say, illegally.
If capital is held illegally, loans and investments are very risky. If a borrower defaults or someone runs off with investment money, the oligarchs can hardly go to court. They’re crooks! Court is the last place they want to be!
Mr. Komarev said he has his manufacturing done in Germany. Asked why, he said it would cost twice as much in Russia. That indicates a lag behind advanced world levels of labor productivity. Automobiles are almost entirely imported. They are nearly all from Japan, Germany, or Korea. You do not see domestic autos like Renaults in France, or Fiats in Italy. That is another indicator of low labor productivity. Big rugged Kamaz trucks of domestic manufacture are commonplace, however.
Again, difficulty of obtaining capital fits the facts. The human capacity to develop productivity is there, but capital is evidently not.
We also had a meeting with Sergei Dimitrienko, who runs a business school in St. Pete. Asked where his students get their startup capital, Mr. Dimitrienko said there is a shortage of cheap money. Startup arrangements are “very individual.” In other words, two dozen startups borrow capital in two dozen different ways.
Everything points to the problem of “frozen” capital, due to the oligarchy. This problem can only be solved internally. It gives Russia no reason to take aggressive actions internationally. To the contrary, stability and peace are needed.
Sometimes a firm stand against aggression must be taken in the interests of peace. Neville Chamberlain’s policies of collusion with Hitler, usually passed off as “appeasement,” opened the door to aggression. Careful study gives little reason to find Russia warlike.
Financial conditions are just the opposite in the United States, the country of capitalism’s greatest success. The forces of production are literally choking themselves to death. It has become too rich, too productive, too developed to be a stable capitalist country.
The financial system is in chaos. If the financial system in a capitalist country falls into chaos, sooner or later everything else falls into chaos.
There is too much money! It seems very strange. But Karl Marx saw it long ago.
In the Communist Manifesto, Marx says that in commercial crises “there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity the epidemic of over-production . . . there is too much civilisation, too much means of subsistence, too much industry, too much commerce.”
Marx’ meaning is very broad. Overproduction means more than a warehouse full of textiles that can’t be sold because the market is glutted. Overproduction can also take the form of excess capital, money for which no profitable investment can be found.
Marx shows us that excess capital and excess population spring from the same cause: ever-higher levels of worker productivity. In a given amount of time each worker makes more stuff. Less capital is needed to pay workers. Oops, now there is even more capital that cannot be used!
Higher productivity also means fewer workers are needed. That is why there are only half as many manufacturing workers in the United States today as there were in 1979. From the capitalist point of view, productivity increases the number of unneeded people. The U.S. prison-industrial complex is precisely capitalism’s way of dealing with the “problem” of excess population – put all the black guys in jail!
Capitalists will always need workers. On the other hand, the workers do not need capitalism. They need to do away with it.
Capital investment takes two forms, debt and equity. Capital can be loaned (debt), or used to buy shares of stock ownership of an enterprise (equity.) Marx lumps the two together under the heading of interest-bearing capital. He says both establish claims on production, that is, on new capital created at the point of production.
The stock market capitalization of a given company is share price times the total number of shares. If ABZ Corporation has a total of ten shares selling at $2.50, its market capitalization is $25. If the share price goes up to $3.00, the market cap is $30. If the share price drops to $2.00 the market cap drops to $20.
There is an ocean of capital on U.S. financial markets.
The Federal Reserve gives the total debt outstanding in the United States at the end of 2014 as $58.4 trillion. Stock market valuations (equities) fluctuate, but a reasonable estimate is that total market capitalization stays in the neighborhood of $20 trillion.
Those are numbers we can see. There are trillions more we can’t see, stashed in offshore banks by respectable capitalists or hidden in safes by gangsters. It’s hard to tell the difference. In any case we can estimate there is $90 to $100 trillion of capital on the United States economy. In what sense can it be said that is too much money?
Some people gnash their teeth and cry, “$58 trillion in debt! It can never be repaid.” The debt is not supposed to be repaid! It is supposed to stay out there and bear interest. We can understand more by looking at what actually happens. For example, financial “bubbles,” i.e., hugely overvalued financial markets, repeatedly lead to crisis.
The financial crash of 2008 was triggered by a “housing bubble.” Between 1997 and 2006 the total United States mortgage market expanded from $4.3 trillion to $10.6 trillion. Many new homes were built, but that did not cause the crisis.
Bankers rigged the housing market. They gave mortgage loans to borrowers whom they knew could not repay. For example, the price of a house worth $160,000 would fraudulently be pumped up to $340,000. A loan to buy would be given to a borrower who, the lenders knew, could only repay on a price of $120,000. These are not just illustrative numbers. That sort of thing actually happened, millions of times!
The banksters thought they knew all the tricks. They did all they could to outwit crisis. The collapse happened anyway. The crisis of 2008 was the worst in eighty years. It blew away all illusions of Almighty and Eternal Capitalism.
Wall Street never learns. Today the U.S. mortgage market is again badly overpriced. Equities are generally overpriced. As already mentioned, returns on capital are paper thin. Capital markets are in danger of collapse. It is basically the same in Europe, in Japan, and in China.
There is only one explanation: the many trillions of dollars of available capital overload the capacity for profitable investment. U.S. imperialism and its allies are driven to plunder the world in a desperate scramble for profits. They commit aggression after aggression – Iraq, Afghanistan, Ukraine, Yemen, Libya, Syria. There are also tensions between Japan and China, between India and Pakistan, and elsewhere.
The United States and Russia are both capitalist countries. But U.S. imperialism is a source of war. Russia needs peace.
Forward-looking people everywhere should observe the difference. They must concentrate on the target, to reign in U.S. imperialism and prevent war. That is the best way to be prepared for whatever happens.
Endnotes
- Posted at http://www.globalresearch.ca/kiev-chestnuts-blossom-again/5456548
- Posted at http://www.ccisf.org
