The bankruptcy of an exploiter state – austerity and social class at the end of democracy

Posted on July 2, 2011


The state is the great fiction through which everyone endeavors to live at the expense of everyone.

Claude Frédéric Bastiat, 1848

It is the confirmation that history rhymes that we find the need to make the same observation in 2011, the year in which, much like 1848, the mass of the people in many countries are revolting with no clear purpose in mind other than being indignant.

Those places where the revolts have been the strongest have been sometimes dictatorial republics, sometimes predominantly Muslim, sometimes American protectorates, but that has not been the unifying thread between the revolts. The Republic of Greece is constitutionally a non-religious, democratic parliamentary government member of the European Union and the European Monetary Union. This affords all Greek citizens the right to reside and work in any other EU country and all Greek goods the right to travel across EU borders without tariffs. But again, these are aspects that Greece does not have in common with other revolting countries. What is common in nearly all of them is rampant youth unemployment. Whether in Tunisia, Egypt, Spain or Greece, reporters always make note of the fact that it is young people who are being deliberately excluded from economic life, and once one investigates the workings of the Greek economy in greater depth, one finds that youth unemployment is only the most visible fact of a political-economic system created to exclude and exploit an entire country. Greece has, for example, one of the highest number of lawyers per capita in the world, and pharmacists are guaranteed minimum profits on sales.

The article above describes a capitalist’s struggle against a centuries-old law that excludes him from producing beer in combination with other drinks. The pattern of such laws is one of deliberate economic exclusion, and it is unsurprising that those who attempt to enter the economy, predominantly the young, end up excluded.

Youth unemployment varies across the Euro zone from practically non-existent (Netherlands, Germany) to endemic (Spain, Greece) (source: Spiegel)

What we learn from such statistics as youth unemployment is that the “Euro zone crisis” has in fact nothing to do with the Euro, and nothing to do with monetary policy at all. No amount of inflation or deficit spending, which is what those who advocate that Greece return to its own currency propose, would fix the fundamental structural problem that these countries face: they are unable to generate capital goods.

In fact, their membership in the EU creates a “pressure release” allowing those who are excluded from the economy to relocate and seek work in relatively prosperous EU states, such as Germany. Young people who receive secondary and even tertiary higher education look for jobs abroad. For them, the EU means leaving their country simply to live.

The expression “middle class” is thrown around carelessly in our time, but it has very specific and precise meaning. When the capitalist revolution began in the 18th-19th century, there were three classes in Western society. The landlords, who owned enormous landed capital and rented out to serfs, the bourgeoisie, who owned small shops in town from which they earned their living, and everyone else, who lived at the economic mercy of the landlords. In America, land redistribution by the government created an ephemeral class of “landed bourgeoisie”, small farmers who lived from their own land, more or less successfully. As the capitalist revolution accelerated, the urban bourgeoisie began to build shops and industries at ever greater scale, and offered wage labor to oppressed serfs and unsuccessful bourgeois. This provided economic security unlike anything these classes had seen before, and soon this wage laboring class, through savings, acquired non-commercial property such as homes and financial assets such as bonds. It is these economically secure, property-owning people that were called “the middle class”. But once the middle class is no longer economically secure from working in capitalist industries, but receives its security from state privilege, it ceases being a middle class as understood traditionally. It becomes a political ruling class, pressuring the state to grant it more and more privileges. The aspiring middle class, crushed by the oppression of this new democratic ruling class, finds emigration the only viable option to live out the life they dreamed of. Eventually, the country is entirely depopulated of the middle class, leaving only exploiters behind them.

For a country such as Greece, and its democratic political body, the process of the most productive and ambitious people leaving, decade after decade, produces the ultimate crisis it faces now. Those who remain in the country must be those who benefit from the exclusionary, exploitative system, and once this system has no one left to exploit, it runs out of cash. Whatever happens next, the state is bankrupt. Then, the great dance of state bankruptcy begins.

Austerity – bankruptcy by any other name is just as bankrupt

In order to remain in power, an exploiter state makes promises to pay or provide privileges to large segments of society. This involves as much the bankers who loan the state money as the voters who elect the governments in return for pension benefits, jobs as bureaucrats, or labor-union protectionism of their current jobs. These promises to pay are a sovereign state’s liabilities. A “sovereign debt crisis” is a failure of the state to meet these liabilities, and, much as happens in a corporate or private bankruptcy, the different classes of creditors mobilize to seize assets in order to enforce payment.

But since the state is unable to pay, it must be the case that there is a much greater amount of liabilities than assets to seize. The different classes of people owed by the state must therefore be in conflict with each other. In a private bankruptcy, the bankrupt body seeks “bankruptcy protection” from its creditors to prevent such a fight. This protection is provided by the courts of the state, as the monopolistic producer of justice in its territory. But what happens when the state itself is bankrupt? The state must seek a way to preserve its own production of security, its courts, police, army and bureaucrats, from the rising mobs who are realizing the fact that the state cannot pay them. The state must seek this “protection” from the outside, from organizations tailored to this task such as the International Monetary Fund. The IMF becomes the bankruptcy judge of the state, as the only organization that can safeguard the payments to the state’s security apparatus while the fight over the bankruptcy unfolds. As the judge over this bankruptcy, the IMF is of course co-opted by international interests (local exploiters being of no consequence to itself) and will ensure that international bankers, of all holders of the state’s liabilities, are made whole, and of course that it itself is made whole.

This “judgement” handed out by the IMF is called an austerity package, and consists of nothing more than a list of defaults on promises that the state has made, as well as liquidations of assets (privatizations). The people being defaulted upon are typically the small exploiters (those remaining in the country such as pensioners, bureaucrats, and labor union workers) while the large exploiters are made whole. These small exploiters then make a last-ditch mobilization to use force against the government and compel a default of the other liabilities, those of debt payments to bankers, but since they cannot pay the state’s security apparatus, this security apparatus is mobilized against them and the riots are defeated.

One class of exploiters wins against another class, but the country has not been rescued at all. The middle class continues to live in exile, and the capitalist class continues to move capital out of the country. Because the bail out/austerity package is the outcome of a conflict between two exploiter classes, the only possible aftermath of the state’s bankruptcy is more, harsher exploitation. (Poor Greeks now find their tax burden increased in return for nothing.)

The cycle of exploitation goes on so long as the political system itself is not reformed. Some states may go to literal ruins from exploitation and depopulation, as happened to the Western Roman Empire. Only organized external groups can turn them around, and for this reason a private society must be an international community that intervenes to prevent state collapses while providing for its freedom to exist as an equal in such states. State collapse is an opportunity for freedom only if freedom is properly enacted.

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