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August 2010, Week 4

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(1) Crisis.  What Crisis?  Profits Soar!
(2) Companies Unloading Cash On Mergers

(1)
Crisis.  What Crisis?  Profits Soar!
By James Petras
Al-Jazeerah, CCUN
August 19, 2010
http://www.aljazeerah.info/Opinion%20Editorials/2010/August/19%20o/Crisis,%20What%20Crisis,%20Profits%20Soar%20By%20James%20Petras.htm
 

While progressives and leftists write about the "crises
of capitalism", manufacturers, petroleum companies,
bankers and most other major corporations on both sides
of the Atlantic and Pacific coast are chuckling all the
way to the bank.

From the first quarter of this year, corporate profits
have shot up between twenty to over a hundred percent,
(Financial Times August 10, 2010, p. 7).  In fact,
corporate profits have risen higher than they were
before the onset of the recession in 2008 (Money Morning
March 31, 2010). Contrary to progressive bloggers the
rates of profits are rising not falling, particularly
among the biggest corporations (Consensus Economics,
August 12, 2010).  The buoyancy of corporate profits is
directly a result of the deepening crises of the working
class, public and private employees and small and medium
size enterprises.

With the onset of the recession, big capital shed
millions of jobs (one out of four Americans has been
unemployed in 2010), secured give backs from the trade
union bosses, received tax exemptions, subsidies and
virtually interest free loans from local, state and
federal governments.

As the recession temporarily bottomed out, big business
doubled up production on the remaining labor force,
intensifying exploitation (more output per worker) and
lowered costs by passing onto the working class a much
larger share of health insurance and pension benefits
with the compliance of the millionaire trade union
officials. The result is that while revenues declined,
profits rose and balance sheets improved (Financial
Times August 10, 2010). Paradoxically, the CEO's used
the pretext and rhetoric of "crises" coming from
progressive journalists to keep workers from demanding a
larger share of the burgeoning profits, aided by the
ever growing pool of unemployed and underemployed
workers as possible "replacements" (scabs) in the event
of industrial action.

The current boom of profits has not benefited all
sectors of capitalism:  the windfall has accrued
overwhelmingly with the biggest corporations.  In
contrast many middle and small enterprises have suffered
high rates of bankruptcy and losses, which has made them
cheap and easy prey for buyouts for the `big fellows'
(Financial Times August 1, 2010).  The crises of middle
capital has led to the concentration and centralization
of capital and has contributed to the rising rate of
profits for the largest corporations.

The failed diagnosis of capitalist crises by the left
and progressives has been a perennial problem since the
end of World War II, when we were told capitalism was
`stagnant" and heading for a final collapse. Recent
prophets of the apocalypse saw in the 2008-2009
recession the definitive and total crash of the world
capitalist system. Blinded by Euro-American
ethnocentrism, they failed to note that Asian capital
never entered the "final crises" and Latin America had a
mild and transient version (Financial Times June 9,
2010, p. 9).  The false prophets failed to recognize
that different kinds of capitalism are more or less
susceptible to crises . and that some variants tend to
experience rapid recoveries (Asia-Latin America-
Germany) while others (US, England, Southern and Eastern
Europe) are more susceptible to anemic and precarious
recoveries.

While Exxon-Mobile reaped over 100% growth of profits in
2010 and the auto corporations recorded their biggest
profits in recent years, the workers' wages and living
standards declined and state-sector employees suffered
harsh cutbacks and massive layoffs. It is clear that the
recovery of corporate profit is based on the harshest
exploitation of labor and the biggest transfers of
public resources to the large private corporations.  The
capitalist state, with Democratic President Obama in the
lead, has transferred billions to big capital via direct
bailouts, virtual interest free loans, tax cuts and by
pressuring labor to accept lower wages and health and
pension givebacks.  The White House plan for `recovery'
has worked beyond expectations - corporate profits have
recovered; "only" the vast majority of workers have
fallen deeper into crises.

The progressives' failed predictions of capitalism's
demise are a result of their underestimation of the
extent to which the White House and Congress would
plunder the public treasury to resuscitate capital. They
underestimated the degree to which capital had been
freed to shift the entire burden of profit recovery onto
the backs of labor. In that regard, progressive rhetoric
about "labor resistance" and the "trade union movement"
reflected a lack of understanding that there has been
virtually no resistance to the roll back of social and
money wages because there is no labor organization.
What passes for it is totally ossified and at the
service of the Democratic Party's Wall Street advocates
in the White House.

What the current unequal and uneven impact of the
capitalist system tells us is that capitalists can
overcome crises only by heightening exploitation and
rolling back decades of "social gains".  The current
process of profit recovery, however, is highly
precarious because it is based on exploiting current
inventories, low interest rates and cutting labor costs
(Financial Times August 10, 2010, p 7).  It is not based
on dynamic new private investments and increased
productive capacity.  In other words, these are
"windfall gains" - not profits derived from increased
sales revenues and expanding consumer markets. How could
they be - if wages are declining and
unemployment/underemployment/and lost labor is over 22%?
Clearly, this short-term profit boom, based on political
and social advantages and privileged power, is not
sustainable. There are limits to the massive layoffs of
public employees and production gains from the
intensified exploitation of labor . something has to
give. One thing is certain: The capitalist system will
not fall or be replaced because of its internal rot or
"contradictions".


(2)
Companies Unloading Cash On Mergers
Cautious companies have been hoarding cash, but they're
now unloading that stash for acquisitions and mergers.
Marketplace's Alisa Roth looks into the benefits and
pitfalls of these business moves.
Marketplace
Friday, August 20, 2010
http://marketplace.publicradio.org/display/web/2010/08/20/companies-unloading-cash-on-mergers/


Kai Ryssdal:I saw a tweet from our Friday regular Heidi
Moore this morning that caught my eye. She was talking
about a Thomson Reuters study she'd seen that showed
there was $200 billion worth of corporate dealmaking
done this month. $200 billion in mergers and
acquisitions -- and it's August! As in, the month when
there's usually nothing going on. In fact, this is the
busiest August we've had in 11 years. Yesterday, as we
told you, Intel said it was buying McAfee, the computer
security company. This one doesn't count since it's not
a done deal, but Tuesday BHP Billiton tried to take over
a huge Canadian fertilizer company to the tune of $40
billion.

We asked Marketplace's Alisa Roth to find out why these
companies are so darn hungry.

Alisa Roth: One reason companies want to do deals is
interest rates are so low, financing them is cheap. But
a lot of companies have saved so much money, they can
pay cash. And it's cash they don't necessarily know what
else to do with.

James Brock is a professor at Miami University in Ohio.
He says buying other companies is an easy option.

    James Brock: You know, what I think it offers, I
    think it offers is this kind of romantic illusion of
    fast growth.

Emphasis on illusion. He says historically most of these
partnerships don't last -- think Daimler Chrysler, AOL
and Time Warner. One question is why companies don't
invest their savings in themselves -- hire more workers
or build new plants.

Brad Hintz is an equity analyst at Sanford Bernstein. He
says an acquisition -- if it's at the right price -- can
be the better bargain.

    Brad Hintz: When the stock market's valuation is
    low, it's actually cheaper to go out and buy whole
    companies and get their workers that way than it is
    to go out and hire workers and invest in new plant
    and equipment.

Maybe. But James Brock says there's also the potential
for companies to get carried away.

    Brock: They get all hot and excited, they've got
    lots of money. And they step up to the bar and
    unload their wallet and then the next morning is
    sort of regret.

And the more deals there are, the more potential there
is for overpaying, since companies worry about losing
out a deal to the competition.

In New York, I'm Alisa Roth for Marketplace.

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