18.12.2008

Workers in the front line

Bail-out of big three stymied - for now, writes James Turley

The economic crisis continues to deepen, particularly in the country at its epicentre, the USA. On December 12, the US Senate failed to pass an emergency bail-out fund of $14 billion, billed as a “bridging loan” to keep the ‘big three’ US car makers, Chrysler, General Motors and Ford, afloat. The package needed a qualified majority of 60 votes to pass - but, despite fraught negotiations between the two main parties, Senate Republicans voted overwhelmingly against, with the final tally at 52-35 in favour.

The major sticking point, not uninterestingly, concerned the demands of the United Auto Workers union. Republicans insisted that pay rates and benefits for unionised workers be dramatically slashed; the union, for once with the support of Democrats, refused to accept this. As this point proved intractable, negotiations broke down entirely. Only 10 Republicans broke ranks to support the package, along with 40 democrats and two independents.

Massive panic in the financial markets was partially alleviated by signals from the Bush administration that it would be prepared to relax its firm opposition to using funds from the Paulson bank bail-out kitty to aid the motor companies. On December 13, however, mooted figures turned out to amount to only $5-7 billion, and even if it is approved may not be enough. Originally the three corporations were asking for $34 billion.

As an aside, one of those two independents was Bernie Sanders, who has the distinction of being the only avowedly ‘socialist’ member of Congress, and the first ever ‘socialist’ senator, although his view of socialism is of a ‘gas and water’ social democratic stripe. (You do not have to be a communist to doubt his leftist credentials, of course - centrist Democrat notable Howard Dean told NBC’s Meet the press that “Bernie can call himself anything he wants. He is basically a liberal Democrat” - May 22 2005).

Sanders’ support, in this instance, was based on a well-founded concern that to let one of the big three go to the wall would result in mass unemployment almost overnight. Though it sounds a little dramatic, it should be a matter of no surprise to an attentive Marxist - for half a century or more, rigid vertical integration (eg, one auto company owns a steel mill, several parts plants and a car factory) of monopolies has been superseded by the contracting out of various productive processes, where the latter was not already dominant anyway. (At the extreme point, Coca Cola likes to boast that the only component of its flagship drink actually manufactured by the company is corn syrup.)

In the US auto industry, this ‘hub and spokes’ model has long extended beyond the Detroit city limits or even the national borders. A vast number of concerns, great and small, make a substantial part of their turnover from supplying Motor City with components - the largest do so for more than one of the big three companies.

It is perfectly possible, then, for a Chrysler bankruptcy to knock out enough major parts concerns to break up the supply chain to GM and Ford, pulling them over the edge and, with them, practically the entire US owned domestic output in the auto industry. Estimates put the resulting increase in unemployment in the order of four to five million. Should both Chrysler and GM go, this outcome is by far the most likely. This is a situation highly vexatious to Ford, whose bottom line is in far better shape than either of its two rivals, but nevertheless has its destiny tied up with their survival.

The political fallout would be seismic. There is, of course, the symbolic importance of these companies. The name of Henry Ford is synonymous with the introduction of mass production techniques into the auto industry, as well as making cars affordable for the American middle classes with the iconic black Model T, but more broadly for the great boom that America experienced between 1918 and 1929 (hence unlucky Herbert Hoover’s campaign slogan, “A chicken in every pot and a car in every garage”). The significance of car ownership in American culture, moreover, is obvious to any viewer of imported films and TV shows.

There is also the small matter of the consequences of throwing five million people out of work in one convulsive motion. Whether their anger takes a leftist, proletarian form or a far-right one, it is a dead cert for a social explosion.

This is not, however, a shambolic repeat of the defeat of the Paulson plan first draft in Congress. That occasion, it will be recalled, saw a kind of ideological reflex on the part of hard-line Republicans scupper what they saw as an attack on the free market, as well as the honest ‘Joe Sixpack’ American taxpayer, instead of a package objectively necessary to avoid a full-scale catastrophe of the 1929 type.

In this instance, the issues are far less clear for the ruling class. Firstly, it is worth paying attention to the actual point of dispute. Republicans demanded draconian pay restraint and slashing cuts on employment benefits for workers at corporations receiving bail-out money; the Democrats, under the influence of United Auto Workers, refused to accept any such amendment acceptable to the former.

In reality, this points to a broader strategic question for the ruling class. Keynesian stimulus methods are commonly associated in the popular imagination with welfare, social provision, consumer demand management and so on; and, indeed, the post-war settlement combined all of those and found its intellectual expression in Keynesian theory.

However, the two are not inseparable; and it is very much the case that - for example - in Britain, the present use of public funds to increase confidence in the financial sector by bailing out banks has been coupled with a fairly sharp increase in attacks on working class living standards, deepening cuts to benefits and a renewed ideological offensive on ‘bogus’ claimants. In short, to adapt a recently popular epithet, it is ‘post-war social democracy for the rich’.

The underlying reality here is that concessions made to the working class have a tendency to increase its general spontaneous combativity. It is more likely to press wage and other demands; it becomes stronger and partially aware of its own strength. Workers do not have to be flying the flag for communism for the struggles to be irksome for the bourgeoisie.

The downside of such attacks, however, is precisely to either forfeit the cooperation of the labour bureaucracy (as with the UAW) or to render the unions so discredited as to be little use in restricting and containing the working class further down the line (along with the drop in consumer demand, and drop in productivity associated with paying below ‘efficiency wages’ - a flagship concept of Ford’s, of course).

Secondly, there is the broader global context of the financial crisis. The bank bail-outs earlier this year were not simply bail-outs of this or that country’s financial sector. To rescue Bear Stearns was to stabilise somewhat the international markets as a whole; Bear Stearns was involved in mind-bendingly complex interactions with other banks and financial companies worldwide. One of the biggest headaches arising from the collapse of Lehman Brothers has been simply working out who owns what toxic asset.

If the US state intervenes to rescue Ford, GM and Chrysler, it is a different matter. The overwhelming majority of the fixed capital in the US auto industry, like many other determinate industrial supply chains, is geographically concentrated in America. To bail out the industry is to do so at the expense of the Japanese, French, etc car makers.

This is likely to be very badly received in Japan, whose own Honda has had to pull out of F1 racing to cut costs. Japanese cars had made great strides into the American market over the last few decades, much to the consternation of American chauvinists - and GM. Japanese companies will cry foul at this snub to competition.

The diplomatic issues also reveal another difficulty - these businesses (barring Ford) are failing. Woolworths was not a random casualty in Britain, but had been stagnating for years. In a crisis, it is the weakest capitals which are wiped out - indeed, in some respects the ‘function’ of a classic crisis is ensure this happens, thus increasing average profitability at the expense of total capital investment. That is its place in the business cycle.

It seems likely that some kind of financial package will be granted to the big three. But American auto workers, and others, must prepare for the worst. Jobs will go, if not all of them; whether or not it is written into the terms of the bail-out, ruthless attacks on wages and conditions are highly likely over the coming period.

Now, more than ever, the lack of a mass party guided by the politics of Marxism is going to be keenly felt, as unemployment rises and ever more people are forced into destitution. It will be necessary to strengthen massively the organisations of the working class, to rebuild them from the roots up. Resistance will not be suffered lightly by the bourgeoisie, either - as ever, the question of democracy and of self-organisation against the bureaucratic state is posed.