A-Infos (en) Canada, Anarchist journal Linchpin #6 - Market Meltdown: The crash, debt and exploitation (expanded online version) BY PETRE MARIN

Unless you have been stuck in a cave somewhere over the past few weeks, you have 
no doubt heard about the financial crisis south of the border. You have also 
likely heard Canadian officials and business people claim that the Canadian 
economy is doing just fine and is immune from the US turmoil. We can hardly 
expect them to say other wise, not least during an election. But in fact there 
is more than a good chance that Canada will follow the US into a major economic 
crisis. ---- If this does happen it will not be just because financial 
deregulation has allowed the banks to risk our savings on the crisis-ridden 
financial markets. It will also not be just because investors have created new 
and high-risk ways to play the global financial casino.

It will not even be just because the US market, where most of Canada's exports 
go, will have closed shop. For sure, financial deregulation and so-called “free 
trade” shoulder a lot of the blame for this mess. But the fundamental source of 
the problem goes beyond these policies. We are about to reach the limits of the 
economic model that has been imposed on us for the past 30 years.

This model can be called the “low wage/high debt” economic model. Beginning in 
the early 1980s it has come to replace the old “high wage/high production” 
model. Under the old model, companies sought to turn big wage gains made by 
workers' struggles into profits by: a) demanding a faster pace of work (higher 
productivity) and b) by encouraging a culture of consumerism so that workers 
would use their high wages to buy the vast amount of goods being produced. This 
came to be know as the productivity deal.

At the end of the 1970s workers began to break this cycle by demanding and 
winning both higher wages and social services (a higher social wage) while 
refusing to increase the pace of work which had already reached super-human 
speeds. Thus companies found their profits under attack as the better quality of 
life for workers came to clash with the needs of bosses to make a profit.

In response governments all over the world and of all political stripes began to 
attack the wage and social services gains made by workers. In Canada this began 
with the Mulroney government and has continued to this day regardless of which 
party has been in power. And this attack has largely been successful. A recent 
study by the Canadian Centre for Policy Alternatives shows that real wages today 
(that is when inflation is taken into account) are at the same level as the 
1970s. At the same time, spending on social services has been drastically cut. 
Hence the “low-wage” part of the new economic model.

But low wages present a major problem for profits. If wages are too low than 
workers cannot afford to buy the increasing number of goods being produced. The 
misery that this means for workers is not the problem from the point of view of 
business. The problem is that if goods cannot be sold then profits are not made. 
This is a classic problem of overproduction. The low-wage model is thus 
inherently unsustainable.

One way that big business and big government have tried to get around this 
problem is by pushing through free trade policies like NAFTA and the upcoming 
Security and Prosperity Partnership (SPP) that let companies sell their goods 
all over the globe. In this way, companies can reduce their dependence on the 
wages or consumption power of their Canadian workers. However this has not 
really solved the problem of overproduction since the wages of all workers 
everywhere have been under attack. In the case of Canada, the wages of the 
American worker, our biggest export market, have been reduced even more than 
Canadian workers. At best, free trade only delays the day of reckoning.

Another strategy is to lower the price of goods consumed by one group of workers 
by reducing the wages of another group of workers. This is the true meaning of 
Wal-Mart. By super-exploiting workers in China and other countries, companies 
can lower their prices to a point where workers in Canada can afford them 
despite their lower wages. In this way the sweat and blood of workers overseas 
is used to build a thin and tattered safety net for Canadian workers. But this 
strategy is also unsustainable.

For one, super-exploited workers always resist, driving up wages. For example, 
China is brimming with workers struggles (the China Labour Bulletin reports tens 
of thousands of strikes and other workplace stoppages per year). These have 
recently forced the Chinese government to pass a new labour law that contains 
some gains for workers. Further, the prices of key goods cannot be reduced in 
this way. Goods such as houses, cars, education and others require such high 
levels of work and technology that no matter how low wages get, they will always 
costs thousands of dollars. If workers cannot afford to buy these goods in large 
quantities, profits cannot be realized and crisis follows. But this has not yet 
happened. Why?

This brings us to the second part of the “low wage/high debt” economic model. 
The availability of cheap credit has allowed workers to borrow large sums of 
money and consume way past their means. This reason, more than any other, 
explains why the low-wage economy has not yet come to a grinding halt. Low 
mortgage interest rates, zero-percent car financing, credit cards in every 
wallet and a “pay day” loan shop at every corner have allowed high levels of 
consumption to continue even as wages are reduced. For companies this is the 
best of both worlds. Low wages combined with high sales mean astronomical 
profits. For workers this has meant insecurity at work and anxiety over soaring 
debts. None of this is a problem for business as long as it continues. But you 
don't need a PhD in economics to figure out that eventually people will not be 
able to make payments on their loans with decreasing wages and rising interest 
rates.

This is precisely what is happening now in the US housing market where millions 
of Americans have had their homes taken away as they are unable to pay their 
mortgages. The fact that banks and investors turned these loans into stocks and 
gambled with them on the financial markets, losing trillions in the process, is 
a serious issue. But in the long run it is not as serious as the fact that 
millions of workers in the US are defaulting on their debts. In addition to 
housing, credit card debt in the US totals nearly 1 trillion dollars and auto 
financing debt is also in the hundreds of billions. (Globe and Mail, September 
27, B1) No taxpayer bailout, no matter how big, will solve this problem (not 
that the bailouts of Wall Street investors is meant to help anyone but rich 
investors).

In other words, the “low wage/high debt” US economy is imploding. And Canadians, 
according to a recent report by investment firm Merill Lynch, are only slightly 
less in debt as the average American. (The Hamilton Spectator, September 24) 
What are the chances that Canadians will also start defaulting on their 
mortgages, credit cards, student debts, auto financing and a myriad of other 
debts which we have been forced to take on because our wages do not stretch far 
enough? Even without increasing food and oil prices, it is very likely that what 
we are seeing in the US today is only a frightening preview of things to come.

The US also provides a sneak peek into what is likely to happen if we leave the 
solution to the same people who got us into this mess: trillion dollar bailouts 
for the rich and increased repression for the rest of us. If we self-organize 
and struggle for a better alternative, the outcome may be different, perhaps 
radically so.
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