CHAPTER 2

THE ASSAULT ON LABOR

To hundreds of millions of workers around the world, the picture is familiar: wages are dropping, good jobs are disappearing, services are deteriorating, plants are closing. A global assault on workers' living standards is taking place. But who and what is behind this assault? and how is it being carried out?

At the most elementary level, it's true to say that the assault in being planned and carried out by world capitalists, by a global capitalist class. In itself, such a bald statement says very little. Who is the capitalist class and through what actual institutions are they carrying out the policies of austerity, restructuring and privatization? For while capitalists and capitalism have dominated the world economy for three centuries, how this domination is exercised has changed repeatedly and radically, even in the past couple of generations. So, to begin to understand the assault that labor faces and has begun to respond to, a good place to start is to look at labor's adversary -- the institutions of capitalist rule.

Today, these institutions are characterized above all by an unprecedented degree of concentration and global unity. The "global economy" that is so much talked about in the financial pages means that now in every country in the world it is the same massive multinational corporations, the same international organizations, the same International Monetary Fund that are calling the shots, that are dictating economic policy. The rivalries among capitalist units are subordinated through these multinational institutions into a single unified and global class, headquartered in the United States. This is true at the level of corporations and the individual capitalists that control them, at the level of national governments and at the level of intergovernmental institutions. For the first time in human history, since the 1991 collapse of the Soviet Union, the entire planet is joined in a single political and economic empire. This is true not through some clandestine conspiracy, but through the open control exercised by the International Monetary Fund, by the giant corporations and by the unrivaled economic political and military power of the United States.

This global unity is a source of enormous strength to the capitalist class, but it also is a source of potential political weakness. For today, throughout the world, workers for the first time are confronting not a myriad of separate enemies, but a single enemy. In demonstrations round the world, the IMF is now the most prominent organization denounced, not the local national government. And the growing awareness of a single enemy can, and in certain ways is, leading to a growing awareness of the need for a similar global unity on the part of labor.

GLOBAL CORPORATIONS

The basic unit of a capitalist economy is the corporation, and today the world economy is dominated by a relatively small number of giant multinational companies. In the United States, the 500 largest corporations have revenues, in 1994, equal to no less than 92% of the national income, excluding that portion provided by governmental services. On a world scale, the largest one thousand corporations had revenues of 8 trillion dollars a year, equal to a third of the total global income.[1] The myriad smaller companies supply the needs and dance to the tune of these global behemoths.

Who owns and controls these thousand companies? Who are the capitalists themselves? Corporations are directly controlled by their boards of directors, which typically number about a dozen directors per board. But these thousand companies aren't run by 12,000 people, since typically the average individual capitalist sits on the boards of five or six major corporations. Only about 2,500 individuals constitute the board members of these thousand giants. All of them meet together repeatedly on the several boards they sit on, so the interest of the corporations and of the class as a whole are continuously being discussed. In particular, nearly all these individuals sit on the boards of some one or two hundred top financial institutions, where the broader concerns of the capitalist markets are among the topics routinely considered at board meetings, for they bear directly on the health of these financial institutions -- banks, insurance companies, and investment companies.

For example, on the board of the Bankers Trust New York Company, one of the world's leading bank holding companies, sit directors of Mobil, J.C. Penney, Exxon, Warner Lambert, American Express, Corning, Revlon, RJR Nabisco, Sara Lee, Union Carbide, and Xerox, among others.[2] In a 1980 survey by the staff of the US Senate Committee on Government Affairs, Bankers Trust directors sat on the board of no less than 74 major corporations ranging from industrial giants like IBM, insurance companies like Mutual of New York, media like the New York Times and Macmillan Inc.[3] Such interlocking boards provide control over institutions, such as mutual life insurance companies, that are not formally owned by shareholders. Equally, they provide meeting places for directors of ostensibly competing firms to coordinate policies. Thus today directors from Exxon and Mobil both sit on the board of Bankers Trust. In 1980, on the same board sat directors from Ford and General Motors. And, of course, directors from various competing financial institutions sit together on many boards of industrial firms -- First Chicago and Chase Manhattan on General Motors board, Chase and Bankers Trust on the boards of JC Penney and Xerox and so on.[4] Again, in 1980 directors for J.P. Morgan sat on no less than 35 corporate boards with directors from Citicorp, nine with directors from Bankers Trust, 23 with those from Manufacturers Hanover.[5]

The sharp edge of "free market competition" is somewhat blunted within the chummy network of these directors. But, of course, boards of directors are responsible to the shareholders of corporations, the owners. Who owns these thousand global companies? The first answer is ... other companies, specifically financial institutions : pension funds, life insurance companies, mutual funds, investment companies, bank holding companies, trust departments. In the US, 46% of all stock in all corporations is owned by financial institutions.[6] But among the top 500 corporations, the concentration of institutional ownerships is considerably greater. As shown in the accompanying chart, the overwhelming majority of major US corporations are more than 50% owned by financial institutions and virtually none has less than 40% institutional ownership. So while free market publicists write that US industry is owned by millions of shareholders, in fact, the giants like GE, GM, Ford, Mobil, Exxon, IBM and so on are all either majority or near-majority owned by financial institutions.

So who really owns the corporations? In terms of who controls the shares and votes them, who influences the policies of the companies as major shareholders, the answer is less than 100 institutions, a combination of bank trust funds, investment companies, insurance companies, and a few public pension funds. The individuals (overwhelmingly men) who represent these firms on the boards of the top 500 corporations are representing the interests of the major shareholders -- they are both directors and, in effect, owners, for ultimately it is the boards of these financial institutions that make policy to be carried out in the companies where they are major shareholders. This power of ownership is reinforced by the fact that the same institutions, especially the banks and insurance companies, are, of course, the creditors of the major corporations as well, holding over two-thirds of all corporate debt.[7]

Well then, if the financial institutions own the corporations, who owns the financial institutions? The financial institutions own other financial institutions, as shown in Chart 2. The majority of shares of virtually all the top banks are held by other financial institutions, and in most cases, ownership is concentrated in between two dozen and four dozen institutions. Thus Wells Fargo is majority owned by some 30 institutions, and Citicorp by 55,(mainly the same ones). [8] The shareholders, those to whom the boards of directors are responsible, turn out to be...themselves. The same individuals who sit on the boards of the giant financial institutions, collectively sit on the boards of the institutions that own all these corporations, including the financial ones. The 2,500 people we mentioned above are the same 2,500 who constitute the boards of these top financial institutions. It is they , not the millions of small shareholders, who exercise ownership and control over the world's largest corporations and over the world economy--a huge concentration of power in the hands of individuals responsible to no one but each other.

The picture is a bit more complicated, however, since in many cases these institutions are holding stock to benefit other institutions -- principally the private pension funds. Five banks in particular, in the US, (Mellon, State Street, Northern Trust, Bankers Trust and Chase Manhattan) manage assets for 82% of pension funds.[9] In terms of ultimate, or beneficial ownership -- who gets the money, rather than who controls the shares -- private pension funds are the largest players, with half of all institutional holdings, followed by mutual funds, with a quarter, public pensions 18% and life insurance companies 7%.[10] In general, the pension funds allocate their control to other institutions, but they, in turn, are controlled by the boards of the major corporations. Pension funds, too, are highly concentrated, with over 50% of total assets in the hands of the top 100 pension funds.[11] So again, ownership runs in a circle, coming back to the same 2,500 people.

Ironically, in legal terms, the pension fund assets that are needed to cover their obligations (more than 98% of all assets) are the property of the pension holders -- mainly their workers -- and are merely held in trust by the corporations' funds. Yet not only do the pension funds provide the means by which corporate boards of directors can exert ownership control over other large corporations, they have a huge impact on corporate profits as well. Since corporations need contribute only so much to pension funds as are not covered by the earnings of pension fund assets --stocks and bonds -- the more the pension funds earn, the less the corporations contribute and in direct proportion the greater the corporate profits. In 1992, for example, pre-tax corporate profits were 370 billion dollars, while private pension fund assets held by corporations were 3.1 trillion. [12]Thus a 1% increase in the value of fund assets that year would tend to increase profits by 8%. Again, the big corporations are linked together into a web of control and profit, where the success of one depends on the causes of all others. "Free market competition" has gone the way of the Dodo some decades back.

This close interconnection extends across international borders, despite the loud propaganda about "international competition". In the first place, many of the individual corporations are themselves completely multinational, having their production facilities spread around the globe. In the second, the web of interconnections among corporations respects no artificial boundaries. In a 1987 study of the auto industry[13], for example, Prof. Cheitran Marfels found that 29% of GM autos, 48% of Fords', 31% of Chrysler's, and 39% of Renault's were made outside the "home" country. Among the 17 firms that make nearly all the world's cars, interrelationships were the rule. General Motors owned 34% of Isuzu, 50% of Korean automaker Daewoo, 5% of Suzuki and had joint ventures with Toyota and Volvo. Ford owned 25% of Mazda and had joint ventures with Volkswagen. Chrysler owned 24% of Mitsubishi, which, in turn, owned 15% of Hyundai, and Chrysler as well owned 15% of Peugeot. As the chart shows, every one of the leading manufacturers was linked directly or indirectly with every other through mutual ownership or joint ventures. In many cases the "foreign imports" auto makers point to with trembling fingers (generally to try to justify their latest attacks on wages or working conditions) come from plants wholly or partially owned by the companies doing the pointing. Of course, companies try to maximize their own sales -- but not at the cost of seriously damaging rivals in whom they generally have significant investments. International competition exists more as a useful myth than an economic reality.

Thus we see that control over the world's giant corporations and over the world economy is concentrated in an extremely tiny ruling layer of big capitalists, probably numbering no more than two to three thousand people who sit on the boards of these corporations, and exercise ownership control through the giant financial institutions. Naturally, these capitalists personally profit enormously from their control over global wealth. Through their corporations, they control at least 30 trillion of the total 40 trillion in world financial assets.[14] But their personal wealth is immense as well. Based on surveys of wealthiest individuals[15], we can estimate that the personal holdings of this tiny ruling elite totals around 2 trillion dollars, or about one eighth of all net assets held by all the world's households. Not only do they make the policy decisions that govern world capitals, they derive the lion's share of the benefits as well.

Of course, ranged around this small elite of decision makers is a much larger capitalist class in the economic sense -- those who derive most or all their income from investing capital. This broader capitalist class benefits from the policies decided by the corporate elite, but generally doesn't participate in making policy. In comparison with the population as a whole, it is still small. In the United States, for example, nearly half of all financial assets owned by households are owned by the richest half percent of households, some half-million families. These capitalist families, earning at least $200,000 a year, and on average much more, had, in 1989, 11% of the total income of all Americans.[16] On a global scale, this broader layer of small and medium capitalists numbers perhaps one to two million out of the world's more than a billion families.

While workers often look on all employers as "bosses" there is an important distinction that must be made. Capitalists -- those whose main income is based on accumulating and investing capital -- are a small minority even among employers, most of whom are small employers who do not accumulate capital. In the United States, for example, there are some 11 million small businesses, many of whom do not employ any labor other than that of the proprietor. Those who are self-employed are economically part of the working class, generally gaining their living through contract work for corporations or government. Small employers who are not capitalists constitute an intermediate layer between labor and capital. On the one hand, their businesses, which tend to be services, generally prosper in proportion to the well-being of the workers who are their main customers. On the other hand, as employers, they try to keep their own workers' wages as low as possible. But since they generally only earn enough to cover their own living expenses, not to accumulate and invest enough capital to constitute their main income, they are not part of the capitalist class and their interests are in generally sharply different from that of the capitalists. Small farmers in all countries are typical of this intermediate layer, as are shopkeepers.

NATIONAL GOVERNMENTS

Above the level of the individual multinational corporations and their cartels lie the various national governments, which in many ways, are scarcely less controlled by capital than the corporations themselves. In the dominant capitalist nations, the so-called group of seven (the US, Canada, Japan, Germany, The United Kingdom, France and Italy) capitalists control over national government policies is exercised through two distinct institutional paths. The most direct control is through the central banks, which are virtually independent from any political force outside the capitalist class. More indirect, but still highly effective control is exercised by the overwhelming power of corporate money in the electoral process.

The most powerful of the central banks and the model for all of them is, of course, the Federal Reserve Bank of the United States. The Bank's influence over both the US and the world economy is direct and extremely important. The Fed is the only entity in the United States that is empowered to create money, and it also sets the cost of that money -- the interest rates. It can create new money in a couple of ways: first, by simply lending money to the Federal government, which it can do without limit. Since the Bank has no need to borrow the money that it lends, it is simply generating the money by governmental fiat. In addition, the Fed lends, on demand, to private commercial banks, providing them guaranteed access to money at the discount rate, the interest rate it charges. Again, this is new money that the Bank did not borrow from anyone and which is not generated by taxation. Finally, it directly limits how much money commercial banks can lend, since it sets a reserve requirement that determines the ratio of a bank's assets that must be deposited on reserve at the Bank. Lifting these requirements reduces the amount of money banks can lend, reducing them increases this amount, again controlling the supply of money.

The Fed fixes the price of money -- the interest rates --as well. It does this directly by determining the discount rate, the cost of money to the banks. But it also sets the short term interest rates the Federal government must pay, and short term rates generally, by the operations of its Open Market Committee. The committee determines how much money the Fed will lend at any time to the Federal government. Lending more money naturally bids down interest rates, lending less increases them.

Through its control over interest rates, the Fed, like other central banks, has a huge impact on the economy as a whole. Increased costs of borrowing money, in an economy heavily burdened by debt as today's is, means less money available for expansion of production, and less money for payment of wages. Since consumer interest rates are pegged to commercial ones, rising interest rates also acts as an indirect tax on workers as a whole, siphoning money out of their pockets in the form of higher mortgage payments, car payments and credit card payments. Reduced business and consumer spending, in turn, slows production and drops employment, as well as putting more pressure on corporations to cut costs -- through wage cuts, benefits cuts, layoffs and speed up. Increased unemployment caused by production slowdowns, in turn, decreases the ability of unions to successfully strike, and reduces their effectiveness in fighting wage cuts.

Given this vast governmental power, it would seem that the Federal Reserve Bank, of all governmental institutions, would have to be subject to democratic control. In fact, it is the part of government most directly controlled by private capital. The Federal Reserve is composed of 12 regional reserve banks, each having its own board of directors. The boards of directors of these Banks are "democratically" elected -- by the member commercial banks of each region. The private banks thus have complete control over their regional Reserve banks and their elected directors, in turn, appoint the President and Vice President of these banks. At a national level, the Federal Reserve has a board of directors which are appointed by the President of the United States. On the one hand, however, these are not appointments as in the executive branch, serving at the "pleasure of the President," they are appointments for 14-year terms, and the governors cannot be removed during that term. This effectively insulates them from both the elected executive and Congress. In addition, the most important decisions are made not by the Board of Governors alone, but by them and the representatives of the regional banks, responsible directly to the private bankers. Changes in the discount rates must be made by the regional bank heads, acting with the approval of the Board of Governors. The Open Market Committee consists of the seven governors, plus five representatives of the regional banks, so again nearly half the power is allocated to those responsible purely to private interests. In practice, the governors as well respond equally to the wishes of the private banks, having no countervailing political pressures on them.

The behavior of the Fed offers abundant evidence that it carries out the policies of the private banks even when that is clearly contrary to the interests of the general population. One recent example has been the openly avowed Fed goal of preventing real wage increases, despite the fact that this is precisely the best indicator of the general standard of living. The Fed, in the early and mid nineties, as it raised interest rates explicitly stated that its goal was to ensure that unemployment did not drop so far as to "increase wage pressures". In other words, unemployment must be maintained at a sufficiently high level that unions will be too weak to fight for higher real wages.

A second example is the collaboration between the Fed and the Treasury Department to funnel government money to the commercial banks. If the goal of these two agencies was to minimize the Federal deficit, as they often loudly proclaimed, they would naturally want to reduce the interest payments on the national debt. When the Fed lowered short term rates, the Treasury could have reduced its interest payments by shifting Federal borrowing to shorter terms. In fact, it shifted to longer terms, which kept long-term interest rates high because of the huge Federal demand. At the same time, the Fed was liberally lending to banks at the discount rate which at times fell to as low as three percent. One arm of the Federal government, the Fed was thus lending money to private banks at 3% while another arm, the Treasury, was borrowing the same money back from private banks at 8%. The result was a huge direct subsidy to the banks of hundreds of billions of dollars, paid for by US taxpayers.

While we are taking the US Federal Reserve Bank as an example, the structure and behavior of the central banks of Germany, England, Japan and other leading industrial nations are extremely similar. In all cases, their main instrument of control is their ability to fix interest rates, an instrument which has strengthened as the debt burden of the economy has grown. The central banks use high interest rates to apply pressure on corporations to curb working class incomes and to increase unemployment, weakening union strength, as they did through most of the eighties and again in the mid nineties. The banks lower rates typically to prevent an uncontrolled deflation and credit crisis, as in the early nineties, or to allow corporations to yield concessions to the working class, when this is deemed politically essential, as happened in the late sixties and during the seventies.

The central governments of the main industrial powers are a second avenue of capitalist control over economic policy, and a second main institution in imposing the current policies of "structural adjustment". The control wielded by major corporations and individual capitalists over the national governments of the advanced countries is too widely acknowledged and too overwhelmingly documented to require much comment here. In the United States, for example, the overwhelming majority of funds raised by candidates of both republican and democratic parties, and by the parties themselves, is contributed by either corporate Political Action Committees directly, or by wealthy capitalists. The hundreds of millions of dollars in "soft money" raised by the political parties, without any real restrictions, is completely dominated by corporate contributions. These ties of corporations to the major parties of Japan and Europe are scarcely less subtle.

In the advanced capitalist countries, the national governments have played the leading role in the assault against the working class. As we'll detail later in this chapter, the national governments have been central in weakening the ability of unions to resist austerity, in directly lowering wages through cuts in their real minimum wage, in privatizing services and industries, and in cutting essential services, such as health and education that form part of the working class's standard of living. In general, without the leadership of the national governments, the multinational corporations would have been totally unable to launch a general offensive against workers.

By contrast, the national governments of the Third World countries have been massively weakened over the past fifteen years, ceding much of their sovereignty to international organizations, particularly to the IMF. The growing indebtedness of most Third World countries has led to their national governments becoming, to a large extent, the mere enforcers of politics that are actually formulated by the IMF and the international financial community. These international organizations constitute the third main institutions leading the assault on labor.

CAPITAL'S WORLD GOVERNMENT -- THE IMF

The International Monetary Fund has become world capital's most important economic institution and quite possibly the most popular target of demonstrations and protests in the world. It started functioning in 1947, in the aftermath of World War II, at a time when the United States was completely dominant among the capitalist countries, being the only one not to have been damaged by the war. The current structure of the IMF preserves that American dominance to a large degree. The IMF is run by a board of governors, appointed by the central banks of the members' countries. Voting rights, however, are proportional to the size of the countries' economy. The US alone has 20% of the voting rights, while the group of seven countries together have 45%.[17] In practice, the IMF never takes action that conflicts with the interests of American and international capital.

The IMF exerts its influence over the world economic policies in two ways. One method is "consultative", in that the IMF Executive Committee meets with the governments of each member country annually and gives it advice on economic affairs. But by far the most important method is through its "conditional" loans. When a country is unable to borrow money from commercial banks and other private sources -- such as by floating bonds -- the IMF steps in as a "lender of last resort". But there is a catch to this generosity. The loans are conditional on the country agreeing to and carrying out a Structural Adjustment Plan (SAP) negotiated with the IMF, and in most cases effectively dictated by the IMF. The importance of such IMF agreements is magnified by the fact that commercial lenders will generally not resume their own lending to a country unless it has first made an agreement with the IMF.

The international debt crises of the early 1980's enormously increased the power of the IMF. During the seventies, Third World countries had borrowed heavily to finance their oil imports after the 1974 oil price increase. The further price increases in 1979, combined with soaring interest rates and dropping commodity prices, made it impossible for many of these countries to continue to repay their debts without further borrowing. At this point the IMF became the economic dictator of most of the world, stepping in to impose its SAPs on dozens of nations.

Debt was turned, via the IMF, into an instrument of economic control. With relatively small amounts of investment, international capital could control vast flows of real wealth. For example, among Third World countries the total external debt represents about 40% of gross national product. Interest on this debt, the only money directly controlled by the debt holders, amounts to only 2% of GNP and total debt service, payments of interest and principal, only 4%. [18] But through the IMF's SAPs, control over the entire 4 trillion dollar Third World GNP is given to the creditor banks. And, of course, the IMF's own loans are only small fractions of total debt. With 40 billion dollars in total loans outstanding, the IMF effectively controls the Third World economy, whose annual output is 100 times larger than this debt.

In some individual countries the situation is even more extreme. Russia, for example, with a $700 billion economy, is tailoring its internal economic policies according to the IMF dictates. Yet the total external debt of Russia is only $80 billion, 12% of GNP and the IMF loans so eagerly sought by the Russian government amount to a few billion dollars. By contrast, the United States' foreign debt is over one trillion dollars, and represents some 20% of GNP, yet the IMF obviously plays no major role in dictating US economic policies. [19] Indeed, in some cases, like Russia, the national government willingly collaborates with the IMF to conveniently shift blame for its policies to the Fund.

In general, however, it is the Fund that calls the tune. And it is the tune that we have already heard -- austerity, privatization and restructuring. The IMF universally calls for cuts in consumption, social services and wages in all countries. In the deficit countries, where it has the most power, it justifies these universal policies by saying that these countries are "living beyond their means" as the IMF's 1993 pamphlet (Common Misconceptions About the IMF) puts it, and must cut back consumption to cut imports and increase exports. This prescription ignores, on the one hand, the impossibility to all countries simultaneously decreasing imports and increasing exports. On the other hand, it ignores the historical experience that developing countries are always net importers of capital -- indeed the United States, for most of its history, was a permanent deficit country, and of course, is again today.

But the IMF's prescription of austerity is not limited to developing countries, nor to those with balance of payment deficits -- countries importing more than they export. In Italy, the IMF recommends "tighter limits on health spending, cuts in government expenditures and wage costs" and cuts in pensions[20] (1994 World Outlook and Annual Report). In Germany it recommends cutting "excessive social spending" and reductions in wages.[21] In France it recommends cutting the minimum wage, especially for youth. [22] (An effort which was beaten back by a massive protest of students and workers, as we'll see in Chapter 7). In general, it praises countries for "their efforts to reduce the bargaining power of unions." [23] And the IMF repeatedly blames high wages for high unemployment, on the reasoning that if workers would only reduce the wages they accept, employers would gladly hire all of them, a peculiar logic that ignores the fact that decreased wages means decreased consumption and production and thus increased, not decreased, unemployment.[24]

The IMF's championing of privatization is scarcely less subtle. IMF's Executive Director urged governments, in an address of the IMF board of governors, to "focus on those areas where (government's) actions are indispensable and most effective -- security, education, health, social safety nets and establishing transparent rules so markets can operate efficiently -- rather than participating directly in production and distribution of goods." [25] In virtually every country where it operates it has either encouraged, or enforced via conditional loans the massive sell-off of state-owned industries to private investors, often at a fraction of the companies' real values.

On restructuring of industries -- the deliberate closing of factories to support prices -- the IMF is a bit more reticent. It is, after all, hard to justify the large scale destruction of productive resources. However, the IMF has expressed, for example in its 1994 report, concern about falling prices for non oil commodities, which it blames on oversupply. This is a bit ironic, since, of course, the IMF's diligent efforts to cut consumption does tend to produce downwards pressure of prices. But, in fact, the reduction of capacity as consumption falls is a vital part of the IMF's strategy -- without such reduction, falls in consumption would lead to a run away deflation, as in the Depression, and massive defaults on debts.

The most egregious examples of the IMF policies of restructuring come as by-products of mass privatizations, where privatized industries are generally shut down soon after they are sold off. In Eastern Europe and the former Soviet Union this mass shut down of industries following privatizations has led to huge falls in production, generally by 50% or more. Similarly the large scale privatizations of Mexican industries was followed by falls in domestic production. These restructurings occur in many cases where the motivation is clearly to support world price structures, even at the expense of worsening balance of payments for individual countries. For example, the IMF has forced Bangladesh, one of the world's poorest countries, to privatize and shut down much of the jute industry, despite the fact that jute is the country's only principle export.[26] This seems paradoxical since the IMF generally encourages export industries. However, jute directly competes with synthetic fibers produced by multinational forms whose prices have been under increasing pressure. Eliminating jute production by decreasing overall supply acts to support fiber prices, and thus chemical company profits. The consequent mass unemployment and misery for hundreds of thousands of Bengali workers is, to the IMF, a mere by-product.

IMPLEMENTING CAPITAL'S ASSAULT: AUSTERITY

The multinational corporations, national governments and the IMF work together to impose the basic polices of the capitalist assault: austerity, privatization and restructuring. How are these policies actually being implemented? To begin with austerity: the goal here is cutting the overall cost of labor, not just wages alone but also the essential services needed to support the working population, such as health and education.

The most important method of imposing austerity is the global leveling downwards of wages, the setting up of a global competition among workers that continuously eats away at labor compensation. This involves attacking the wages of the lowest paid workers, both locally and in the world, and then removing all the barriers that prevent leveling wages downwards toward that lowest level, anything that interferes with workers' competition with each other. By analogy, capital's strategy is like pulling the plug on a sink and watching the water drain to the lowest available level. The wages of the lowest paid workers are continuously reduced -- going down the drain -- and the wages of everyone else is pulled down towards the ever-descending level of the bottom. This occurs both as work is shifted from high wage sectors and regions to low wage ones and as the wages of every sector and region are pulled down through global competition. The process works both globally between countries and within individual countries.

The techniques of carrying out this global wage drain vary, however. For the lowest paid sectors in the globe, competition with still lower paid workers obviously is not an available weapon. To pull the plug and depress the wages of these lowest paid workers, the principal tool world-wide is the devaluation of currencies and deliberately induced massive inflation, combined with a repressive apparatus that prevents wages from rising in step with inflation. For example, in 1994, the IMF and the French government enforced a 50% devaluation of the CFA, the currency of nine African countries that are former colonies of France. The result was an immediate 100% increase in the price of all imports in the local currency and, since all these countries are heavily dependent on imports, a huge increase in overall prices. In consequence, real wages fell by nearly 40%.

In Mexico in the early 1980's and again in 1995, a rapid devaluation of the peso, again under IMF plans, and following huge capital flights by international investors, had the same results: prices soared and real wages dropped by nearly 50%. Here direct repression of workers struggles through a corrupt union leadership restricted wage increases far below inflation. Often governments dictate real wage decreases directly, as in Brazil in 1983, in another IMF enforced plan, where wages were indexed at 80% of the inflation rate, resulting in real wage losses equal to 20% of inflation.

But, in any case, sudden devaluations immediately cut wages, so that any union struggle is an attempt to regain old levels and thus inherently tends to lead to sharp real wage losses. The same scenario was played out dramatically in Eastern Europe in 1990 and the former Soviet Union in 1992, when the fall of the Communist regimes was accompanied by IMF proposed massive devaluation of currency, in the case of Russia, by some 200-fold. (As will be detailed in the section on the former Soviet Union a massive theft of state financial resources, including gold, was part of the cause of the size of the devaluation). This instantly produced a mass of highly skilled workers receiving wages a fraction of those in the West. In early 1992, wages in Russia averaged $10 a month and citizens were hired by Western firms for $20 a month, less than 1% of the pay received by their colleagues in the United States or Western Europe. At the same time massive inflation reduced real wages by half. Here, the inflation was not driven by imports, but by a bidding upwards of goods that were enormously cheaper than the world market price. Even in 1995, after huge inflation, average wages remained around $100 a month. Naturally, this massive inflation also made worthless workers' considerable savings in these countries, further reducing their total buying power and eliminating reserves that could be relied on for strikes.

Devaluations are not the only means of lowering pay in countries outside the developed capitalist core. While it is often difficult to use foreign competition as a way to lower wages in countries with already low pay, within any country there is inevitably a pay differential. By cutting the minimum wage, all wages can be ratcheted downwards from internal competition among workers. Thus in Bangladesh, the IMF insisted on a cut in the minimum wage from $23 to $20 a month, which the Bangladesh government enforced, over the mass protests of unionists there.[27]

More ominously, there is an increasing recourse to forced, unpaid labor, a reinstitution of slavery, as the ultimate competition with wage labor, and the way to force down even the lowest pay rates. Of course, such forced labor is not directly encouraged by IMF adjustment policies. But it is the unrelenting pressure to increase exports and to cheapen the cost of production of such exports that makes government wink at or even encourage such practices. In many countries of Southern Asia, most notably Pakistan, this has taken the form of forced child labor, in which children are sold by impoverished and debt ridden peasants to rug factories or other plants. There, the children, sometimes shackled, work without pay until a certain age. Alternatively there is increasing use of prisoners as slave labor. China is most notorious for this practice, although it is not limited to that country, by any means. In both cases, not only is the cost of labor reduced to a bare minimum, but competition with free labor forces their wages down. In both cases, the traditional high security costs of slavery are avoided -- in the case of child labor, because children do not need much force to enslave them, and in the case of prisoners because the costs are absorbed by the state. (We will return to the serious issue of forced labor in the chapter on the Third World.)

For the largest fraction of the population that are peasants, not workers, austerity policies generally means higher direct taxation. Under IMF Structural Adjustment policies, government deficits are reduced not only by reducing spending on social services, but by increasing taxes on the peasantry. In most countries, this generates a continuous stream of impoverished peasants leaving their farms and moving to the cities to seek work. High resulting levels of unemployment, typically around 30-50%, again create competition and depress wages. Finally, of course, all these policies in non-developed countries are made easier by open repression. In Bangladesh, for example, when a general strike in 1994 protested IMF imposed austerity, there were mass arrests of union leaders. In Bolivia, in 1995, a general strike against privatizations and austerity policies was answered by the imposition of a state of siege, outlawing of all public meetings and the arrests of 10,000 union officials. In Mexico, government repression is routinely used against leaders of independent unions.

The attacks on wages in the poorest countries (and those newly poor, like the former Soviet Union) are essential to the overall strategy of austerity. Why do these wages, already so low in comparison with those of the advanced countries, have to be reduced still further? The answer is that, in a global economy, capitalism tends to equalize the cost of labor in a given product. Much higher wages in the advanced countries are compensated by much higher levels of productivity, which cuts the cost of labor per item produced to levels comparable with those in much lower wage areas. This is a reflection of the much higher levels of education, and the accompanying much higher levels of mechanization such education allows. To produce a real competitive drain on wages in the advanced countries, where the vast majority of labor costs are located, it is essential for capital to push already depressed Third World wages still lower.

Simply reducing wages in some countries would do capital no good globally unless the barriers that prevent competition among the world's workers are at the same time broken down. This is the primary motivation for the spate of free-trade treaties -- NAFTA in North America, GATT for the whole world. By eliminating or decreasing tariffs, these treaties have made it far easier to shift factories to the lowest wage areas, in order to supply markets within the advanced countries. These shifts, in themselves, radically reduce wage costs, and the threat of such shifts is used relentlessly to batter down advance country wages. Thus, in the wake of the collapse of wages in Poland, General Motors purchased a recently privatized auto factory there and began producing GM cars there for export to West Europe, paying wages starting at $1 an hour.[28] At the same time, GM closed plants in the US and West Europe, where wages were typically $20 an hour. In Mexico, following the devaluation of the peso in early 1995, and the passage of the NAFTA treaty, US manufacturers shifted production in a wide variety of industries from the US and Canada to Mexico, causing the loss of 150,000 jobs.[29] The huge shift in production of consumer goods to China is obvious to anyone going into an American store, where even the baseballs are made in China. In some cases, factories are literally moved. A massive steel plant built in 1979 in Fontana, California, in 1994 was cut apart into 200-ton pieces and shipped to Beijing, China.[30]

This, then, is the "international competition" that we have heard so much about, especially when employers are trying to cut wages. The combination of massive austerity in the developing countries with trade liberalization has led to a shift of work from high to low wage areas, frequently with the same company being at both ends of the shift. The "foreign competition" for GM-USA is often GM Poland, and the competition is purely among workers, not corporations. The impact of these globally driven shifts on the advanced countries is obvious. On the one hand, the loss of manufacturing jobs increases unemployment and increases domestic competition among workers for the remaining jobs. In the US, for example, a shift of more than $100 billion dollars a year in the trade deficit, has directly accounted for the loss of over three million jobs, and nearly half of the 1995 unemployment.[31] Such increases in unemployment weakened the ability of trade unions to fight wage cuts and speed-up in the advanced countries. At the same time, the threat of "foreign competition" and of "moving to Mexico -- or China" is used directly as a threat to enforce acceptance of austerity in the US, Europe and Japan. This global whipsawing has established the most direct possible links between the interests of workers in the advanced and undeveloped countries, links in interest that workers are beginning to act on to fight such austerity, as we'll see in later chapters.

imposing austerity on the industrial countries

Generating competition among workers and breaking working class solidarity both domestically and internationally, is crucial to achieving austerity in the advanced countries, since the tools used in the developing countries -- planned inflation and open repression -- are of limited use in the industrialized states. The obstacles in the way of open repression, established by decades of struggle by working people, make its widespread use against workers impossible at the present time, although anti-labor laws are beginning to be reintroduced, most notably in Great Britain. And the deliberate fostering of inflation to slashing real labor costs is a two-edged sword in the developed countries. On the one hand, the rapid inflation set off by the massive and deliberate oil price increases of the seventies and early eighties were, in fact, used to rapidly slash real wages in the advanced countries. But at the same time, such inflation cut as well the real value of capital, which is measured in terms of the dollars, marks and yen. For this reason, central banks much prefer, in general ,to minimize inflation in the industrialized nations.

This leaves competition among workers as the main way of imposing austerity. Here the role of national governments is crucial for it's primarily these governments that can break down the institutional barriers that have been built up to hold back such competition among workers, barriers gained in previous struggles. Equally, it has been primarily organized labor that has determined how fiercely the collapse of such barriers are fought. In countries, particularly the United States, where an aggressive national government has met with weak and ineffective opposition from unions, losses in standards of living have been sweeping. While in countries where stronger unions have put up more resistance, as in Germany, the losses have been more limited.

In the US, the Federal government has done much to generate competition among workers. Unemployment does not directly weaken unions unless scabs are willing to cross picket lines and companies stay open in the face of strikes. In the US, this had not happened from the 30's until the Reagan administration in 1981 led the way by breaking the air controllers strike with civilian and military scabs. That example, combined with the shift in Federal policy to allow firing strikers, in defiance of Federal law (the so-called permanent replacements of strikers -- a subtle distinction from firing) allowed corporations to play off unemployed and underemployed workers against strikers.

At the same time, the government eroded the minimum floor of support for workers' incomes . Republican and Democratic administrations alike held the minimum wage in the US fixed as inflation reduced its value by nearly 40%, and as unemployment benefits were cut and eligibility for unemployment tightened. In addition, welfare payments, the ultimate floor on workers' incomes, were also cut. The result was the production of a large body of desperate workers, willing to cross picket lines for any chance at even minimal pay. The threat of "permanent replacements" with such desperate scabs was widely acknowledged to be the primary reason for the enormous fall off in strikes in the US in the past twenty years, and the ability of employers to force cuts in real wages and working conditions.

In addition, existing labor-law enforcement effectively ceased in many areas. In New York City for example, but not there alone, flagrantly illegal sweatshops paying far below the minimum wage -- as low as a dollar an hour -- illegally employing child labor have flourished under the noses of enforcement agencies. In California, illegal immigrants were held in slavery in such sweatshops. Again, not only does this directly reduce wages for employers of this sweated or even forced labor, it produced competition that pulls down all wages.

In the US, unions have in general, been ineffective in combating these radical shifts in government policy and, in fact, have until recently rarely fought them at all, in part because of the union leaders' close ties to the Democratic Party. Indeed, many unions have repeatedly yielded to company demands for wage and benefit concessions, and even allowed internal whipsawing of individual factories against each other, as in the auto industry. The direct result has been an erosion of real wages in the US by 20%.

In addition, without organized opposition, US corporations have been able to reduce their workforces, substantially, imposing speed up and longer hours on the remaining workers, again because of the threat of replacement with unemployed workers. The continuous drum beat of downsizing and layoffs, even by companies who are maintaining production and not investing in automation, has resulted in a nearly 10% increase in working hours in the US and almost universal speed up during those hours. Naturally, the increased unemployment caused by such speed up and longer hours has increased the competition for jobs.

But where such austerity measures have been resisted through worker solidarity, losses in workers' living standards have been slowed. In France, mass protests by students and workers in '94 prevented the imposition of a "youth minimum wage" which would have allowed payment to those under wages 40% below the existing minimum. The massive strikes in '95, referred to at the start of Chapter 1 rolled back Government assaults on pensions. In Germany, where the unemployment rate in 1994-95 hovered around 10%, German metallurgical unions first supported their east German members in a strike that preserved rapid wage gains aimed at erasing the gap between eastern and western German wages. Then, in 1995, another strike forced corporations to stick to a pledge to reduce hours of work to 35 per week.

But the ability to resist austerity policies is not limited to Europeans. In late 1994 and 95, US auto workers at a series of parts plants suffering from 50-60 hour weeks successfully struck, demanding, for the first time, not higher wages but the hiring of more workers to reduce unemployment roles and cut working hours. Only a few thousand jobs resulted from these strikes, but they were indications that the rise in unemployment and speedup was not an inevitable process.

To be sure, even in countries where unions remain strong, the global whipsawing laws allows capital to impose significant austerity. In Germany, for example, the transfer of significant manufacturing capacity to lower wages areas --including the United States south -- has led to an unemployment rate above 9% and a concomitant cut in overall income, despite substantial unemployment benefits.

The role of national and local governments in imposing austerity is not limited to methods that reduce direct wages and incomes. Of nearly equal importance have been the global and sweeping cuts in the government provisions of essential services in health and education, cuts that have been generally accompanied by cuts in taxes on the wealthy and on businesses. In New York City, headquarters of world capital, cuts in the funding of public hospitals, have led to sharp increases in infant mortality rates, with a normal weight baby born in public hospitals having a two thirds higher risk of death than one born in the cities' private hospitals.[32] In the Third World, IMF imposed budget cuts have reduced the share of GNP devoted to health and education by over 12%, at a time when national wealth as a whole is declining.[33] In Russia, where IMF imposed austerity has been most devastating, health expenditures fell from 3% under the Soviet regime to just 0.3% in 1995, with catastrophic results in rising death rates and falling life expectancy.[34] Nor have educational systems been spared. In California, the public university system, once the best funded in the nation, expenditures have been slashed and tuition in the university system greatly increased.

Finally, national governments use shifts in taxation to further erode workers' incomes. In the United States, for example, Social Security taxes have risen on workers earning less than $50,000 a year, while taxes have been drastically cut, from 80 to 35%, for those earning over $200,000 a year. Fees for previously free services, especially public education, have multiplied, imposing a hidden taxation. And a greater burden has been put on inherently regressive forms of taxation such as sales taxes and value added taxes, which fall most heavily on working people.

Thus the imposition of austerity relies heavily on the cooperation of national governments and the IMF. Without the global whipsawing, destruction of labor guarantees, internal erosion of wage minimums and welfare, budget cuts and tax shifts, it would be impossible for the corporations alone to carry out such austerity policies.

PREVENTING DEFLATION:

RESTRUCTURING AND DESTROYING INDUSTRY

In the 1930's, austerity policies that cut global consumption led to a devastating fall in commodity prices, corporate and banking collapses as debts went unpaid, and an uncontrolled rise in unemployment in the Great Depression. The Depression not only devastated working people -- it caused the destruction of large sectors of capital as well. Today, central bankers and industrialists alike are well aware of the need to prevent a similar deflation. The only way this can be accomplished is by the planned destruction of productive capacity in step with decreases in consumption. Since any individual corporation cutting production would reduce its own market share, by its nature such "restructuring" of industry has to be done at the international level by agreements among governments or corporations in an entire industry. In essence, restructuring is the process of creating global cartels to cut production.

Aluminum provides a simple example of how the process works. First, a fall in the demand for a specific commodity produces, or threatens to produce, a collapse in prices. In the case of aluminum, world aluminum demand fell precipitously from 1989 to 1992, for two reasons. On the one hand, the recession in the West and austerity measures there and in the Third World contracted demand. On the other, the collapse of the Eastern European and Soviet economies, brought about by the transition to capitalism, and its accompanying soaring prices, almost eliminated their internal demand for aluminum. But production did not fall nearly as much. Instead, Soviet, and then Russian, aluminum plants started to export aluminum, produced at extremely low cost (due to plummeting Russian wages) to the world market. By 1993, Russian aluminum exports had increased six fold over '90 levels. As a result, world aluminum prices dropped by nearly half.

Then came "restructuring". In February 1994, major aluminum producing companies and representatives of the national governments of the US, Russia, Canada, the European Union, Australia and Norway, the main producing countries, met together to establish a producer's cartel.[35] Production quotas were agreed to for each country, and it was agreed to reduce the overall level of production. But the heaviest cuts in production were slated for the "highest cost" producers, that is the countries where the wages were highest. Almost immediately, American aluminum production was cut 10%, resulting in over ten thousand layoffs. Russian production boomed, with American and European aluminum producers sending bauxite ore mined in their Third World mines to Russia for refining to aluminum, and then to re-export for American and European industrial markets. As a result of the restructuring agreement, aluminum prices stabilized. From the standpoint of the producer, a deflation of prices was avoided, and profit margins were actually boosted as production shifted to low wage regions. The results from the standpoint of the American workers laid off was not as rosy.

To look at a much larger industry, take steel. Steel production peaked in the capitalist world in 1974 and has been stagnating since then. Again, there was a potential for major price declines with the contraction of world industrial demand. But the European Union, and its predecessor organization, the European Coal and Steel Community, stepped in to "restructure" the industry -- closing factories to maintain prices. Despite mass protests by European steel unions, European programs have succeeded in reducing west European steel production over the past 20 years by 25%. At the same time, production in Third World countries has risen by 200% -- again shifting production from high wage to low wage regions. In the US, restructuring carried out by the steel companies themselves has reduced production during the same period by almost 40%, turning formerly booming industrial regions like the Mon Valley in Western Pennsylvania into virtual ghost towns.[36]

Such plant closings were not, it must be emphasized, the inevitable consequences of contracting demand. Demand in a market economy exists relative to a given price level. If prices had been allowed to fall, demand would have been maintained and production would have increased. But in such a case, profit levels would not have been maintained -- for this "restructuring", generally under governmental or international controls, was essential. And, as with austerity policies, effective resistance is possible. In Germany, where strong steel unions mobilized repeatedly against mill closings, in 20 years production losses have been limited to 14%, while in the United Kingdom, where union resistance was far weaker, production fell in the same period by 50%, despite British wages being considerably lower than German ones.[37]

PRIVATIZATION

While austerity and restructuring are described by supporters of these policies as unfortunate necessities, privatization is touted as a glorious economic step forward, liberating economies from inefficient government bureaucracies. In the past decade, privatization, universally urged by the IMF, has been applied by just about every government in the world. Throughout the globe, public sectors have shriveled with privatizations ranging from core governmental services in the US such as postal sorting or day care centers for state employees to telecommunications in West Europe to the entire manufacturing sector in Russia.

There is no doubt that the massive wave of privatization has brought huge new profits to capital, but to working people it has been an unmitigated disaster, for exactly the same causes that have made it a boon to capital. First of all, privatization paves the way for restructuring and austerity -- privatizations of factories and services universally means reduction in production, employment, wages and services provided. It is politically extremely difficult for governments to directly shut down productive plants -- it too rapidly becomes an immediate political issue. But if plants are privatized and then shut down, the political opposition is dispersed and weakened. This is exactly what happened, for example, in the former East Germany. After unification in 1990 and the privatization of virtually all of the formerly state owned industry, the East German auto industry was entirely shut down, steel and cement were decimated, the highly advanced machine tool industry eliminated. In just two years following the mass privatizations, East German manufacturing output had shrunk by a fantastic two thirds. The elimination of jobs was similarly vast -- more than 40% of East German workers permanently lost their jobs and became unemployed in 1990-92.[38] In many areas the only jobs remaining today are in demolishing the closed factories. In Russia, the later wave of privatizations in 1993-94 led to an equal wave of plant closings and slashes in production, with total output falling by 50%.

Nor is this phenomenon of mass plant closings limited to the former East Bloc. In Bangladesh, the battle over the privatization of the jute plants, referred to earlier, is particularly intense since the plan openly calls for the closing of nearly all the plants once they are privatized.

The consequences of labor in mass unemployment and the collapse of production are clear, but so are the benefits for capital. Why shut down previously productive enterprises? As in any restructuring part of the motivation is a controlled decline of production to maintain prices in a market shrunken by global austerity. But by shutting down previously state owned enterprises, new capitalist owners can protect their own profitable production while reducing global capacity at the same time. In general, the sale prices of privatized industries are so trivial in relation to their actual value that the "investment" in plants that will never produce again, is easily regained in higher prices maintained elsewhere. At the same time, the massive shut downs of state owned industries expands the market available to existing capitalist production. Thus in East Germany, as Eastern auto plants were shut, imports of Western made cars increased. In Russia, entire cities whose main product was domestic made clothing have ceased production, while Moscow stores are filled with "western" imported clothing, generally made in low wage areas such as South Asia.

Privatization also eases the imposition of austerity. On the one hand, privatization of public services universally leads to cutting the amount of service available. The most extreme example of this is in Russia, where the mass privatization of health services has led to cutting the total expenditures on health by ten-fold, with catastrophic consequences for life expectancy. At the same time, privatization nearly always involves cuts in wages and staff. In the United States Post Office, for example, unionized sorters paid $10 or more an hour have been replaced with privatized contractors, usually located in the South that pay $5 an hour.[39] In New Jersey, state employed day care workers earning $26,000 a year are to be replaced with private child care providers paid $16,000 a year, and staffing levels are to be cut.[40] And, of course, in the former East Bloc, privatizations have been accompanied by massive cuts in pay, generally around 50% in real terms.

In addition to reinforcing austerity and restructuring privatization in itself represents a transfer of wealth from labor to capital. Where plants and services are maintained in being, revenue that previously flowed to the state and was available for essential services is diverted to private profit. In cases where the state still funds the services, the cost to the state often increases rather than decreases with privatization. And, for the most part, privatizations occur at little or no cost to the capitalist investors. In Mexico, and in many other Latin American countries, in the 1980's, privatizations of major state run enterprises, such as the Mexican telephone system, came in "debt for equity" swaps, in which creditors of the Mexican state redeemed debt for shared in privatized sectors. In Russia, industries were "sold" to managers for less than 1% of their market value. These vast thefts of wealth, linked to austerity which lowers the wages of workers in these industries, represents huge shifts in the division of income between workers and owners.

THE IDEOLOGICAL OFFENSIVE

The policies of the global assault on labor are being accompanied by a propaganda offensive that seeks to justify these policies and to weaken workers' resistance to them. This propaganda tries to cover up the actual motivation for the assault and make it appear that cooperation with austerity, restructuring and privatization is in the interests of workers themselves. Clearly it won't do for those implementing the policies to say, "we want to transfer large amounts of wealth from labor to capital, from billions of workers and peasants to a few thousand big capitalists and a few million small and medium capitalists. Please help us to do this" Such frankness will scarcely be rewarded with political support. Instead, advocates of the policies of the assault use four main arguments to try to win labor support and broad political acquiescence.

The first argument is that of "free market efficiency" --that the policies, while perhaps painful in the short run, in the long run will bring a higher standard of living, lower unemployment, and real economic growth -- in short that the policies will really benefit everyone, not just capital. The second is the need for labor-management cooperation. In today's highly competitive global economy goes this argument, labor must help corporations compete and be profitable, and thus preserve the jobs the workers depended on. The third, and perhaps most dangerous argument is the appeal to nationalism in all its forms. As in the Great Depression, in a contracting world economy, the nationalist argument urges each national or ethnic group to compete against the others, cutting for themselves the biggest piece of a shrinking pie. This ranges from the need for workers to support their corporations in their rivalry with foreign firms, to anti-immigrant measures, to the fomenting of ethnic warfare and the re-growth of fascistic movements. Finally, advocates of the policies of the assault contend that there simply is no alternative -- there is no better economic policy possible.

Let's look at these arguments in turn. The most ubiquitous is the "gospel of the market". In a nutshell, it goes something like this: "The world economic system is in trouble because there are too many obstacles in the way of business efficiency and the investment that leads to more jobs and growth. Consumption must be cut so there will be more money going into investment. Corporations must cut back jobs, wages and benefits now, so that they can compete more efficiently, become more profitable, leading to growth in the future. Privatization of government enterprises will improve efficiency and cut waste, again leading to growth. In short, we have to tighten our belts now temporarily, become lean and mean, and thus pave the way for economic growth in the future, which will eventually lead to a higher standard of living for all." We can look at this argument in two ways -- first, can it possibly be right, even in theory? And second, is it right in actual practice, that is, do these policies accomplish what this argument says they should?

In general, the free market arguments don't make any sense, if they are looked at even cursorily. If consumption is cut in every country around the world, as the IMF and other capitalist institutions urge, if wages and benefits are reduced, then inevitably production must fall as well, shrinking the world market still further, thus increasing unemployment, not increasing growth. While money taken from workers' wages does increase corporate profits, such profits cannot go into funding new factories, if the market is contracting. No capitalist in their right mind is going to build new factories if they don't have enough orders to keep existing factories running. Instead, profits flow inevitably into market speculation, a pure chase of paper profits that create no new jobs, except for Wall Street manipulators. Similarly, for individual companies, who cut wages and lay off workers to "become more competitive", no competitive advantage is gained, since all other companies around the world are doing exactly the same thing. However, again, the market for goods contracts, enforcing new rounds of layoffs. Even in theory, austerity and restructuring lead to more austerity and restructuring. "We're firing you to preserve jobs" makes just as much sense as it seems to.

It does, however lead to higher profits, even as the market and production shrinks-- in the mid-90's stock markets are at historic high levels, in real-dollar terms, while living standards and employment shrivel -- indeed stock prices rise with every announcement of mass layoffs, in anticipation of increased profits. Individual companies don't gain competitive advantages, but all companies make more profits as wage costs decline. Austerity and restructuring thus make perfect sense for capitalists ,but not for workers,even in theory.

In practice, the results are exactly the same. The IMF has imposed Structural Adjustment Programs on dozens of poorer countries around the world, arguing that short term pain and austerity would lead to long term gain and growth. In 1986, the IMF began structural adjustment programs in eight mainly African countries. How did these programs work? In the poorer nations, per capita food intake, as measured in calories per day, is a crude, but reliable, measure of real wage and consumption levels. For the IMF's "Class of '86" we can compare consumption levels in 84-86 with those two to four years after the start of the program, in 1988-90. FAO figures[41] show that the result of the IMF programs was in almost all cases a sharp fall in already dismal levels of consumption. In this period of IMF structural adjustment, food consumption fell by 5% in Bolivia, 15% in Burundi, 3% in Gambia, 5% in Niger, 1% in Senegal and 8% in Sri Lanka. Only in Haiti and Mauritania did food supply levels increase slightly. In those countries where food production per capita figures are available through 1992, the destruction by the IMF-approved policies continues unabated. By 1992, per capita food production had fallen in Burundi by 5%, in Gambia by 15%, in Haiti by 16% (prior to a 1992 collapse of another 22%), in Mauritania by 10%, in Senegal by 19%. If we use conventional measures of GNP per capita, the results are much the same. In the decade of the 1980's GNP per capita fell in Niger by 36%, in Mauritania by 12%, in Madagascar by 24%, in Bolivia by 20%. In two countries, Uganda and Ghana, conditions declined so rapidly that the death rates for children under 5, which generally are dropping in developing countries, actually rose by 2 and 8% respectively.[42] In these two countries nearly a fifth of all children born do not survive to their fifth birthday. Thus, over a six year period, the medium term results of IMF austerity and restructuring is further sharp declines in the standard of living.

To take another example, that of Mexico, the IMF praised Mexico consistently during the 1980's and 90's for carrying through profound reforms to privatize industry, cut domestic consumption and increase exports, while opening up the country to imports. The IMF-approved plans led to dramatic falls in real wages during the early and mid 1980's, which were only partially recouped in the past few years. Yet now, after following the IMF prescriptions, Mexico is again in a deep financial crisis, and, with IMF advice, has imposed yet another round of sharp austerity on its own people. The pro-government union federation, the CTM, found that the real value of the minimum wage in 1995, following this latest round of austerity, was only one third of what it had been at its peak in 1976, and that average real incomes are at their lowest levels since 1935. Unemployment is over 11% with another 16% underemployed at less than the official minimum wage.[43]

What of the long term results? IMF spokesmen point to Chile as an example of free market success. Chile is indeed an excellent example of the results of IMF policies. In 1974, following the bloody Pinochet military coup, the first of a series of IMF plans was agreed to by the Chilean dictatorship. These plans were renewed in 1983 and from 1985 to 1989 a medium-term IMF plan was in effect. The result has been a steady erosion of Chilean living standards. In 1972, under the Allende government, the FAO reported the average Chilean consumed 2807 calories per day, not far below the contemporary level in Japan. In 1980, after six years of IMF policies, the food supply had dropped by 6%. By 1985, it had dropped by 8% and by 1989 by 11% to 2484. In 20 years, Chilean food supplies had fallen from the level of Japan to the level of Mauritania.[44] Since Chile is a semi-industrialized country, where workers will economize in many ways before reducing their food intake, these figures greatly understate the real decline in living standards. But they show that after 20 years of IMF rule, there is no end to the austerity. Unsurprsingly, policies aimed at reducing domestic consumption do just that--permanently, or at least as long as the polices are adhered to.

The variant of the free market, "austerity is good for you" argument used in the advanced countries, contends that high wages are the cause of unemployment and that reducing wages creates jobs. Again, the idea that reducing wages, and thus overall consumption, can create jobs, when the demands for goods is contracting, is a strange one. But in any case, it is clear that it doesn't work. Among nations today, high unemployment and low wages often go together, as in Spain, which has the lowest wages in Western Europe, and an unemployment rate of 25%. Japan, with its overvalued currency, now has the highest wages in the world, and yet has an unemployment rate of little more than 3%.( Japanese unemployment figures are understated but even realistic figures give Japan among the lowest rates in the world)..

For a given nation low wage policies don't reduce unemployment either. In the United States, real wages have dropped by 20% and real minimum wages by a whopping 37%, yet unemployment is higher, not lower, today than in 1973, especially when involuntary part time work is taken into account.

The drumbeat of propaganda for privatization is even louder than that for austerity -- privatization brings the wonders of market efficiency to dinosaur-like public factories and services. Again, even on the surface, this argument makes little sense. Shifting a service or product from public, non-profit to private for-profit status inevitably means that somewhere a profit must be generated. This can come only by increasing the price of the service or product or by decreasing the wages of those who provide it -- in order to channel some to the capitalists, who alone benefit from privatization.

But we need not discuss theory, since the market transformations of the former Soviet bloc countries provides a colossal experiment in the effects of privatization. By any objective measure, not only has privatization led to catastrophe in these countries, but the further privatization of industry and essential social services has gone, the greater the extent of the catastrophe. By nearly every measure, every country is worse off today than under even the corrupt and ineffective rule of the Stalinist bureaucracies, hardly a model of public administration. Those countries who have privatized the least, such as Slovakia, where nearly all essential services and large-scale industry are still public and the Czech Republic and Poland, where most industry and services are public, have suffered far less than Russia, where there has been nearly complete privatization of industry and such essential services as health.

What are the "benefits of privatization" in practice? To be sure, a few thousand ex-Communist bureaucrats have become fantastically wealthy as the owners of privatized factories. Foreign multinationals have found new sources of profit by buying for a song privatized factories with their low-wage work force. But the impact on workers has been less favorable. First, real wages have plummeted, dropping from 22% in Slovakia, 28% in Poland, and more than 50% in Russia. Even if real wages were to immediately and miraculously begin rising at as fast as 2% per year, the wage level of the Soviet period would not be regained for 20 years in Poland and 40 years in Russia. In Russia the collapse of minimum wages has been even more severe, their real value falling by an incredible 80%, or a five-fold reduction. Unemployment has soared, reaching nearly 45% in former East Germany, and 12-15% in the rest of East Europe, excepting only the Czech republic. Industrial production has plummeted, dropping by 70% in East Germany, where privatization is complete, 45% in Russia, 33% in Poland. While the cheerleaders of privatizing contend that the East Bloc was producing nothing that people wanted to buy, and that shortages make money worthless anyway, the consumption of such basic necessities as food has, in fact, withered away under the market reforms. Meat consumption, for example, has dropped by 9% in Czechoslovakia and a massive 20% in Russia and 29% in Ukraine.[45] Evidently, meat is among the things ex-socialist populations are glad to do without.

Of course, in the West, where production is mostly private, privatization of social service is more the issue. Here, the record of the East is even grimmer. Throughout the region medicine production and supply has been privatized, and in Russia, the entire public health service, except for children, has been dismantled, while in East Europe, in general, some form of public health funding has been maintained. Real public health spending in East Europe has dropped by around 30% in Slovakia, the Czech republic, Poland and Hungary. In Russia, it has fallen by more than two thirds.[46]

The consequences of drastically falling consumption, social service and unemployment on the population is grim. Birth rates have plummeted, again most severely in the most privatized countries. In the "least privatized" economies such as Slovakia, the fall is only about 10%. But in thoroughly privatized Russia, the drop in birth is 34%, and in Eastern Germany the fall is a fantastic 70%. [47] The typical "family size" there, if present trends continue, will be .4 children per couple -- in other words, the typical German couple is not having any children at all.

The reverse picture holds true of death rates -- they are rising throughout the regions, but only slightly for less privatized economies -- 5% for Slovakia -- and enormously for much-privatized Russia, where the death rate has risen 50% since the collapse of the Soviet Union. Among the benefits of privatization in Russia is a fall of eight years in the life expectancy. According to the United Nations, there has never been a similar sharp fall in life expectancy in any country during peacetime in recent history.[48] So, for falling wages, rising unemployment, collapse in production, and a rapid expansion of grave-digging, privatization is clearly the prescription.

NATIONALISM -- THE OLDEST TACTIC

The use of nationalist, ethnic, religious and racial prejudices to divide and weaken the working class is the oldest and most used tactic of capital. Today, nationalist rallying cries are particularly ironic at a time when the entire global economy is integrated and the multinational corporations themselves have freed themselves from any national boundaries or allegiances. Unfortunately, despite its age and absurdity, nationalism has not lost its effectiveness.

At its most pervasive level, nationalist rhetoric is used to mobilize workers on behalf of corporations in their, mostly fictional, struggle against the corporations and workers of other countries. Thus, today, we see Chrysler workers supporting ex-Chairman Lee Iococa in denouncing predatory Japanese auto imports. The extent of the deception involved here is evident when one considers that, for example, Chrysler is the main shareholder in Mitsubishi and Peugeot, that 31% of Chrysler's cars are made outside the United States, and that more broadly the majority of cars and auto parts imported to the United States are made in factories either owned by the US Big Three, or by companies in which they have a major shareholding interest.[49] Workers are being drafted into a charade of international competition as a way of aligning them with corporate interests, and as a way to get them to compete with other workers around the world in lowering their own wages and working conditions.

The broadbased campaign against the North American Free Trade Treaty, unsuccessful though it was, provides a glimpse of what an effective counter to such appeal to nationalist competition can be. Many of the American and Canadian unions participating in this campaign made contact with independent unions in Mexico and jointly denounced the treaty as an attempt to reduce wages and working conditions in all three countries. Both before and after the treaty was approved, unions like the United Electrical Workers, and individual locals within the United Auto Workers actively collaborated with Mexican organizing drives and strikes, making the point to their own members that the only way to fight "international competition" was to raise the wages and working conditions of workers everywhere in a joint fight against common multinational employers. As we'll see in later chapters, such moves to establish international bargaining and international labor solidarity actions are one of the key tasks before the global labor movement today.

A second, and generally more vicious, form of this tactic is the fostering of anti-immigrant and racist divisions within individual countries, a tactic that has been most prominent recently within the United States and France. Like the nationalist rhetoric about foreign competitions, the rhetoric about illegal immigrants is enlisted to encourage a cutthroat competition among workers. In this case, it is competition for low paying jobs and services. Large corporations, and the politicians who serve them, have no interest in expelling illegal immigrants. On the contrary, they want to make their life so difficult and precarious that they will work for anything. In cities across the US illegal immigrants are being exploited at wages far below the minimum wage under sweatshop conditions and, in some cases, in actual slavery. Initiatives such as proposition 187 in California, which attempts to strip illegal aliens of their rights to attend school and to receive emergency medical care, are intended, on the one hand, to intimidate them further and make them more desperate for any jobs. It is also intended to turn them against legal residents, so that they can serve as strike breaking force. Equally important, such campaigns are aimed at diverting the anger of legal residents over deteriorating services against a portion of the working class, the illegals, rather than against capital which is stripping essential services of the financial resource needed to function.

In both the US and France, such anti-immigrant campaigns are inevitably linked to racism (although in California, support for Proposition 187 was also high among Hispanic populations). As with the fascist movements of the thirties, racist appeals can find a response within chronically unemployed layers, shopkeepers, and professionals who have no organizational links to the working class and whose desperation can be re-aimed away from capital and towards other workers. Fortunately, in general, the labor movement in both countries has begun to mobilize against the anti-immigrant propaganda. In California, unions were not only active in the fight against proposition 187, but have started to launch organizing drives that unite illegal and legal immigrants and citizens, such as in the construction dates in Southern California. We will look in greater depth at the question of racism and immigrant backing in later chapters.

The most extreme form of nationalism is evident in the "ethnic" and religious warfare that has broken out in various spots in the world, most notably in the former Yugoslavia. Contrary to the impression circulated by most of the media, these conflicts have not arisen out of centuries old simmering antagonism -- they have been quite consciously and artificially been created. In Yugoslavia, for example, following the collapse of the communist states, the IMF had, with the cooperation of the Yugoslav leadership, imposed a program of severe austerity. Yugoslav industry had never been state owned, unlike the situation in other Eastern European countries. Instead, plants are owned by workers' collectives. However, the new policies were shifting the plants to private ownership, reinforcing the already great powers of the plant managers. At the same time, general wage austerity was cutting the standards of living of Yugoslav workers. There was considerably opposition for the workers, and, in the early 90's, there were widespread strikes. It was at this point that the Communist bosses, such as Milosevic, began their sudden transformation into raving nationalists, who advocated the breakup of Yugoslavia into its constituent states such as Croatia, Slovenia and Bosnia. None of these states were, in fact, ethnically based, but had more or less arbitrary borders. In none of these states were any democratic referendum held to approve the breakup -- indeed there was little popular support. Nonetheless, by 1992 Croatia, Solvenia and Bosnia had broken away from Serbia and Montenegro. But by itself, this was not at all enough to ignite a murderous war.

For that, the Yugoslav government selected some 20,000 criminals from its prisons, together with some ex-convicts, provided as leadership a few psychopathic fascists and armed them with hundreds of tanks, heavy artillery and tens of thousands of machine guns from the well-equipped Yugoslav army. It was this hardy band that then swept into Croatia and then overran most of Bosnia. In an unarmed society of a few million, 20,000 criminals armed with tanks and heavy guns can, unsurprisingly, do an enormous amount of havoc. It was this deliberate act, not some long-brooding antagonism, that initiated and sustained the bloody wars in Croatia and Bosnia. In the process, of course, the standard of living of the Yugoslav workers was reduced far below the original austerity plans of the IMF, and resistance to such austerity disappeared in the face of the mobilization of the Yugoslav oppositions for war.[50]

IS THERE AN ALTERNATIVE?

The simplest argument used in defense of the policies of austerity and restructuring is that there is no other choice. As Murray Seeger, a spokesman for the IMF, said at a meeting in 1994 with trade union representatives, "The world is going through a structural adjustment. There is no use for steel, there is no use for jute. We say to governments you have to adjust, you have to adapt, you have to restructure. Things can't go on as they do now."[51]

Like the other arguments for the assault on labor, this one is false. The myriad of human resources exists to greatly expand the standard of living of workers and peasants through the world, to provide in a generation a decent housing, clean water, good food, good education and good health services for every human on Earth. But these resources are currently either idle or wasted in non-productive pursuits like the armaments industry. The financial resources to mobilize these real resources exists as well, but they too are wasted in a endless spiral of speculation and profit.

In the past few years, concrete programs and plans of action have been discussed and are being adopted by labor organizations. We will look at these concrete proposals in later chapters. But to understand what is the alternative to the assault, what can be done, we must first look at why the assault is occurring. To cure a disease, we must know its causes. So it is to the causes of the assault on labor and the general economic crisis the world is enmeshed in that we turn now.

CHART I

SOME TYPICAL LARGE CAPITALISTS[52]

John Henry Bryan

Chmn, CEO, Sara Lee Corp.

Director: Amoco, Catalysts, First Chicago Corp, First National Bank of Chicago, General Motors

Phillip M. Hawley

Director: AT&T, Atlantic Richfield, Bank of America, Johnson and Johnson, Weyerhauser

William R. Howell

Chmn, CEO, J.C. Penney

Director: Bankers Trust, Exxon, Warner Lambert

Vernon E. Jordan

Director: American Express, Bankers Trust, Corning, Dow Jones, J.C. Penney, Revlon, RJR Nabisco, Ryder Systems, Sara Lee, Union Carbide, Xerox

Charles M. Pigott

Chmn, CEO PACCAR

Director: Boeing, Chevron, Seattle Times

Charles S. Sanford, Jr.

Chmn, Bankers Trust

Director: J.C. Penney, Mobil Corp.

Frank A. Shrontz

Chmn, CEO Boeing

Director: Boise Cascade, Citicorp, MMM

John G. Smale

Chmn, CEO, Proctor and Gamble

Director: General Motors, J.P. Morgan, Morgan Guaranty Trusts

George H. Weyerhauser

Director: Federal Reserve Bank of San Francisco, Boeing, Weyerhauser, Rand, Safeco

CHART II

INSTITUTIONAL OWNERSHIP OF VARIOUS INDUSTRIES

(% OWNED BY OTHER CORPORATIONS AND FINANCIAL INSTITUIONS)[53]

Aerospace 63

Airlines 51

Aluminum 60

Banking 54

Broadcasting 46

Chemicals 43

Computers 54

Electrical Utilities 34

Electrical Equipment 42

Electronic defense 65

Food 44

Health 53

Insurance 53

Machine Tools 69

Machinery 54

Oil 53

Publications 52

Rail 58

Savings and Loans 52

Steel 52

Phone 30

Transportation Equipment 51

CHART III

INSTITUTIONAL OWNERSHIP OF LEADING US CORPORATIONS

(% OWNED BY OTHER CORPORATIONS AND FINANCIAL INSTITUIONS)[54]

Banking

Citicorp 63

Bank America 53

Chemical 68

Nations Bank 56

J.P. Morgan 60

Chase Manhattan 62

Bankers Trust 68

Banc One 49

Wells Fargo 64

PNC 53

First Chicago 70

Northwest 66

Bank of NY 66

Mellon 66

Aerospace

Boeing 49

United Technologies 76

McDonnel Douglas 53

Allied Signal 69

Lockheed 96

General Dynamics 56

Textron 66

Northrop 60

Grumman 36

Chemical

Dupont 42

Dow 56

Occidental 47

MMM 62

Wr Grace 77

Union Carbide 52

Computers

IBM 39

Hewlett Packard 58

Digital 57

Unisys 44

Apple 46

Intel 71

Electronics

GE 54

Motorola 73

Westinghouse 36

Rockwell 34

Raythronics 71

ATT 30

ITT 71

Auto

GM 48

Ford 61

Chrysler 67

Metals

Alcoa 80

Reynolds 80

USX 66

LTV 71

Bethlehem 86

Oil

Exxon 40

Mobil 52

Chevron 44

Texaco 58

Amoco 57

Shell 29

Atlantic 60

Pharmaceuticals

Johnson and Johnson 51

Bristol Myers 45

Merck 45

Abott 40

Pfizer 60

Publishers

Time Mirror 57

Knight Ridder 63

McGraw Hill 67

New York Times 52

Scientific

Kodak 61

Xerox 85

Honeywell 63

Transportation

United 83

Delta 67

CSX 59

Federal Express 79

CHART IV

OWNERSHIP OF SOME INDIVIDUAL COMPANIES[55]

United Technologies -- 26 institutions own 48%

Top Investors: Capital Research, Bernstein, Fidelity, Neubold, Ivesco, Smith Barney, Bankers Trust, Wells Fargo, Miller

Boeing -- 34 institutions own 31%

Top Investors: Capital Guardian, Wells Fargo, Ivesco, Bankers Trust, Capital Research, Franklin, Cooke, College Retirement

Bankers Trust -- 20 institutions hold 41%

Top Investors: Capital Research, Wellington, Barrow, Wells Fargo

Wells Fargo -- 30 institutions own 48%

Top Investors: Berkshire, Neubergers, Smith Barney, Capital Research, wells Fargo

Chemical -- 23 institutions hold 41%

Top Investors: Barrow, Bernstein, Fidelity, Capital Growth, Lazard Forces, Bankers Trust

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