Posted April 5, 2009
When the meltdown of the sub-prime mortgage market last Fall began to spread to major banks, investment houses and insurance companies, the Bush administration responded with massive bailouts the financial sector. Before they left office in January, the Bush gang extended billions in loans to the ailing auto industry. Since Obama took office, the calls for new loans and other bailouts have multiplied, as the deepening global recession threatens new sectors—both industrial and financial—of the US capitalist economy.
Many commentators believe that this new role for the government in the market marks the death of “free market”—neo-liberal—policies. For conservative talk-show hosts the bailouts and loans have raised the specter of socialism (we wish!). The liberal pundits are ecstatic—hoping for a new age of government regulated capitalism. Many on the radical left have echoed the liberals’ enthusiasm, hoping for a new “New Deal” that will regulate finance and industry, and increase demand for goods and services through higher wages and social benefits for working people.
Is neo-liberalism with its deregulation of capital, labor, and commodity markets really dead? Clearly, a big expansion of social welfare and rising wages is not on the agenda—despite the hopes of many on the left. The Democrats are rapidly back-tracking from their commitment to the Employee Free Choice Act (EFCA), which would make union organizing easier and has the potential of raising working class wages. The Obama administration is clear that its plan for “universal” health care is rooted in subsidies for private insurance companies, funded through taxes of those workers who have employer based health insurance. It is very likely that if Obama’s plan is adopted it will be the model for reforming Medicare into an even more private insurance based program.
But what about these bailouts? Isn’t this evidence that the era of unregulated, free market capitalism is dead? The first wave of Bush administration bailouts came with “no strings attached.” The big banks and insurance companies were free to do with billions in tax payer dollars what they liked—including paying their Executives huge bonuses while millions lose their jobs and homes.
However, the Obama administration’s new approach to bailouts seems quite different. Like the Bush administration’s auto loans, the Obama regime places very strict conditions on new bailouts for auto and other industries. In fact, the new bailouts resemble the earliest form of neo-liberalism—the International Monetary Fund (IMF) and World Bank (WB) structural adjustment programs of the 1980s.
In the 1960s and 1970s, governments across the global South borrowed heavily from the IMF and WB to finance locally owned industries whose development could end their countries’ dependence on trans-national corporations. Their plan was to repay the debts—interest and principle—through exports of industrial raw materials and foodstuffs. When global economic growth began to slow in the mid-1970s, more and more governments in Africa, Asia, and Latin America found themselves unable to pay their loans.
Faced with the possibility of whole nation states defaulting on their loans, the IMF and WB entered into negotiations with the debtor governments. In return for forgiving some of the debt, renegotiating payments and interest rates, the governments in the global South agreed to implement structural adjustment policies. The heart of these policies was a commitment to balancing state budgets through massive cuts in social programs and the elimination of restrictions on foreign investment. Put simply, the debt relief programs became a lever for depressing working class and popular living standards and reopening the global South to transnational, imperialist investment.
The conditions Bush placed on the first auto loans, and the conditions Obama is placing on future loans to the auto and other corporation have a similar goal. While the salaries and obscene bonuses for executives are not under scrutiny, the wages and salaries of workers certainly are. With the willing cooperation of the UAW officialdom, the auto companies have already agreed to reducing labor costs and work rules to those of foreign plants operating in the US.
The Obama administration’s plans for the auto industry deepen structural adjustment—under the banner of “equality of sacrifice.” Obama’s plan requires US auto corporations to dump their least profitable operations and merge (“alliances”) with foreign auto companies. His “auto-team,” which includes a former advisor to the President of the United Steelworkers, wants the UAW to assume even more responsibility for its active and retired members’ health care.
Rather than an abandonment of neo-liberalism, the Obama administration’s plans for government bailouts brings structural adjustment ‘home’ to the imperialist heartlands! As the bailouts move beyond massive subsidies to the financial sector, loans and subsidies to failing corporations are becoming an important mechanism to restructure industry and manufacturing—to restore the profitability and competitiveness of US capitalist production.