Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page:

From The Socialist newspaper, 5 July 2002

WorldCom fraud: Capitalism Is A Bankrupt System

THE US, the most powerful economy in the world, responsible for a third of world output, is reeling with shock. This time there are no foreign terrorists who can be held responsible for disaster striking. It is capitalism itself that is responsible.

"Karl Marx must be rubbing his hands with glee and saying 'I told you so'."

Daily Mirror, Saturday 30 June

As the Daily Mirror declared on Saturday: "Karl Marx must be rubbing his hands with glee and saying 'I told you so'." Marx explained that, while all kinds of secondary factors can trigger economic crises, it is the fundamental contradictions of capitalism that are the underlying cause.

The current crisis stems not from a few accountancy fiddles, but from the fact, as Marx explained, that the working class collectively cannot afford to buy back the product of their labour. Marx explained that capitalism partially overcomes this contradiction by ploughing the surplus back into industry.

But this, in turn, leads to an even greater production of goods, which the working class at a certain stage is incapable of buying back. This leads to a crisis of overproduction. It was overproduction and overcapacity that led to the South-east Asian collapse in 1997.

For a temporary period the US market was able to ameliorate the problems of overproduction by acting as the buyer of last resort for the world's goods; but that is now coming to an end.

Unfortunately, whilst the current crisis graphically shows the bankruptcy of the capitalist system, the main victims will not be the Wall St traders; it will be ordinary people who will suffer the consequences.

Nearly half of all US voters are shareholders. Many rely on the stock markets for their pension and health care schemes. As insurance analyst Ned Cazalet put it, the insurance companies are facing bankruptcy and "Stephen King is writing the next chapter for the life insurance industry."

Money managers are now recommending that anyone who can take their money out of investment funds and fall back on old-fashioned cash. For those without that option their advice is far from comforting.

In The Observer, independent money manager David Hanratty gives three alternatives for those relying on investment funds for their pensions; ride out the market turmoil and hope, prepare to be poor in old age, or tighten your belts now in the hope you'll have a bit more left for after retirement!

This is scant comfort for the millions of working and middle class Americans who have spent their lives paying money into investment funds in the expectation of a reasonable living standard in old age.

Stock market bubble

THIS CRISIS is not caused by one or two "bad apples" cooking the books. In the late 1990s the boom in the US economy was held up as proof of the superiority of neo-liberal capitalism. All kinds of rubbish was talked about the boom-and-bust cycle no longer existing and new technology having transformed the nature of capitalism.

The Socialist Party explained that the boom was artificially driven by consumer credit and a huge stock market bubble, and that like a bad hangover after an excessive party, the longer the boom went on the worse the comedown was likely to be. In reality the boom ended well before 11 September.

In the year up until March 2002 big business profits suffered the biggest drop since the Great Depression of the 1930s. However, at the beginning of this year, despite there being no rise in profits, most commentators declared that the US economy was on the road to recovery. As we predicted, this has proven to be more than a little over-optimistic.

Although the stock markets fell in the aftermath of 11 September they remain almost as overvalued as they were before the 1929 crash. This has been based on widespread reporting of fictitious profits. As Graham Taylor of GFC Economics explains:

"The government's own profit figures detailed in the national accounts show that the companies were never making the money that they claimed. During the last five years of the bull market, the companies that make up the S&P 500 reported that profits had risen by 96.2%.

"By contrast the government's own figures revealed that corporate sector profits had only risen by 36.1%. The figures implied that US companies could be overstating profits by more than 150%.

"The national accounts figures were hardly a secret. But they were overlooked by analysts who wanted to believe that the US was enjoying a profit boom on the back of a productivity renaissance.

"The facts were too troublesome for those who vehemently believed that the US economy had been transformed by corporate restructuring in the early 1990s."

Workers will suffer

HAVING IGNORED the facts for a decade US, and consequently world, capitalism is now facing the consequences. The danger is that, with their confidence in US profitability badly shaken, investors will take their money out of the US; resulting in a credit crunch and a continuing slide in the value of the dollar; both of which would massively exacerbate the crisis.

The $400 billion a year that has been flooding into the US from abroad could dry to a trickle. As the International Herald Tribune declared in an editorial: "Capital flight is a danger we usually associate with countries like Argentina, but a few more WorldComs and the comparison may seem apt."

Economic crises in the US affect the whole world. The US has, like Atlas, been the prop holding up the world economy. And there is no other country able to take the US's place. The Japanese economy remains a basket case.

The Eurozone, already stagnant, is likely to suffer as a result in the fall of the dollar as its exports become more expensive. So as the "astute business practices" of the 1990s are revealed as the reckless gambling of a terminally short-sighted capitalist class it will be the working class and the poor worldwide who suffer the consequences.

Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.

In The Socialist 5 July 2002:

Change This Rotten System

WorldCom fraud: Capitalism Is A Bankrupt System

New Labour's tax-avoiding friends

Making Criminals Out Of Us All

Innocent Afghans Killed By US 'Friendly Fire'

Watergate: Rotten Apples In A Mouldy Barrel

Argentina: New Crisis As Cops Kill Protesters

Tower Hamlets by-election: Socialist Alliance Provides No Alternative

Lesbian, gay, bisexual and transgender workers: Fighting For Real Equality


Home   |   The Socialist 5 July 2002   |   Join the Socialist Party

Subscribe   |   Donate  

Related links:


triangleLewisham & Southwark Socialist Party: Reform or Revolution?

triangleBristol South Socialist Party: France's 1968 'Month of Revolution'

triangleA socialist approach to Corbyn and a customs union

triangleThe life and legacy of Martin Luther King


triangleTo produce the Socialist we need a building - help us keep ours!

triangleDefend socialist councillor Kshama Sawant against lawsuits

triangleUSA: Huge 'march for our lives' protests


triangleSocialist Party congress 2018

triangleSpring Statement 2018: Tory austerity staggers on despite economic and political weakness


triangleThem & Us


triangleMay's EU speech kicks the can down the road

News and socialist analysis

News and socialist analysis



Enoch Powell's racist 'Rivers of Blood' rant 50 years on


Them & Us

Them & Us



Billions for the bosses, benefit cuts for us



1,400 beds empty as patients lay in corridors: health unions must act now



Young people need homes



For a fighting, democratic Labour Party



A socialist approach to Corbyn and a customs union


Child poverty

Child poverty to hit 5m by 2021 - strikes can stop the cuts


Equal pay

Gender pay gap figures show need for trade union action


Young people

Alienation and austerity behind London deaths - fight for socialism



Fight the Tory enemy


Northern Ireland

Northern Ireland: peace process on the brink



Right-wing Vote Leave campaign may have broken spending laws



Retail crunch: even giants not immune as 21,000 jobs disappear



End the housing crisis! We can't wait till 2022!

triangleMore News and socialist analysis articles...

Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party
Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube



Phone our national office on 020 8988 8777


Locate your nearest Socialist Party branch Text your name and postcode to 07761 818 206

Regional Socialist Party organisers:

Eastern: 0798 202 1969

East Mids: 0773 797 8057

London: 020 8988 8786

North East: 0784 114 4890

North West 07769 611 320

South East: 020 8988 8777

South West: 07759 796 478

Southern: 07833 681910

Wales: 07935 391 947

West Mids: 02476 555 620

Yorkshire: 0114 264 6551



Alphabetical listing

April 2018

March 2018

February 2018

January 2018