Stop the 'Crash of 1979' Now
U.S. Labor Party Nonpartisan Action Program for 1978
by Lyndon H. LaRouche, Jr.
If a suitable combination of forces within the United States begins to move in concert with our nation's keystone allies, quickly enough, we have the correlation of forces needed to halt the present depression spiral and to establish a permanent economic boom. The present governments of Japan, France, Italy, Mexico, the Federal Republic of Germany, and others are committed to a global economic prosperity program known as the Grand Design. Both the governments of the Soviet Union and Cuba have committed themselves to global, economic, military and political agreements in collaboration with the Grand Design policies embedded in the May 1978 Schmidt-Brezhnev accords. These efforts are still moving slowly - too slowly - because most of the nations are waiting for key forces within the United States to join openly in pushing forward these Grand Design policies.
Behind closed doors, key U.S. industrial leadership and some portions of commercial banking leadership are prepared to commit themselves to such Grand Design policies on condition that a broader popular political base can be created within the USA to support such export centered economic recovery efforts. The political base exists among the top leadership and the base of the NAACP, among technologically progressive American farmers, among the top leadership of some trade unions - such as the IBT, USWA, IBEW and building trade unions - and among the majority of the rank and file and secondary leadership of m any other trade unions, including the UAW. If these sections of the general electorate, and others, are properly informed of the solutions available, the majority of the electorate can be quickly rallied to create a political juggernaut for the policies required to launch an accelerating and permanent economic recovery.
The problem is that the majority which would rally to such a policy is presently atomized, to the effect that a tiny portion of the trade union leadership, a small group of London-allied investment bankers, and a small minority of both the Republican and Democratic parties' leading circles are controlling U.S. foreign and domestic policies by default. In effect, a minority based on less than 30 percent of the general electorate, on the anglophile liberals, Buckleyites, and radicals, is plunging the majority of the population and the economy into an imminent general depression and worse.
The special nonpartisan function of the U.S. Labor Party, as so far the only consistently vocal public voice for policies in the nation's vital interests, is to present the comprehensive policy package needed to bring the atomized forces of the nation's majority together. The following policies outline the crucial elements of the comprehensive thrust which will work to the desired effect.
The general policy is based on the fact that effectively directed advances in the technology of industry, agriculture, and infrastructure enable increases in per capita output to the effect that profits and real incomes can rise parallel. This policy is also based on the corollary fact that technological stagnation infallibly causes marginal depletion of primary resources, such that the per capita outputs fall secularly, driving down both per capita real incomes and profits.
The billions of the developing sector could make a massive contribution to global wealth if two conditions were fulfilled. They must undergo rapid advancement in the technology of industry, agriculture, and infrastructure under conditions of the replacement of presently backward modes through expansion of relatively advanced modes of production. The ability to use high-technology tools efficiently depends upon a matching cultural enhancement of the labor forces to be employed. Education, the material conditions of household life. and other essential elements of social infrastructure are indispensable included means for developing a labor force adequate to advancement in the mode of production.
Under the policies proposed presently by the International Monetary Fund, World Bank, the "Brandt Commission," and like-thinking institutions, the mass of nonperforming debt of the developing (and other) nations will simply be pyramided through refinancing measures proposed, while the collapse of world trade combined with a labor-intensive policy in those nations guts the ability to pay current obligations. So, the lunatic policies of the IMF, World Bank, and "Brandt Commission" mean a pattern of spiraling debt service combined with a downward spiraling of ability to pay, and an overall effect of a collapse in primary commodity requirements as part of a general collapse of world trade.
The Grand Design policy means an accelerating expansion of world market volumes : the policies of the IMF, World Bank, and "Brandt Commission" mean a catastrophic collapse of the world economy combined with economic-genocidal effects and permanent social instability and wars throughout the developing sector. The key to the success of the Grand Design policies is the proper organization of long-term, low-interest credit. Agricultural projects cannot reach a breakeven point in less than 7 to 15 years. Capital-intensive energy projects require a comparable period from beginning of construction to self-sustaining payout. In general, long-term financing of less than 15- to 25-year maturities is economic lunacy for the developing nations' markets. Also, for related reasons, initial grace periods must match the maturities of the projects involved.
If debt service obligations rise more rapidly than new income developed. the premature accum ulations of debt service abort both world trade and continued development. Thus, a development program financed over too short a term tends to collapse financially at a point prior to the phase of maturity at which it would otherwise become a substantial income producer. If financing is gauged to practicable performance of new projects. the income generated by the projects feeds an accelerating rate of credit-worthiness of those nations for additional projects This ought to be ABC to any industrialist or commercial banker from experience in successful (and unsuccessful) investments in his own nation.
This depends upon a massive flow of relatively cheap long-term credit and cheap credit for short-term tade financing. This requires the following policies.
In the long term. the ability of capital-exporting nations to sustain long-term advances of credit to importing nations depends upon a corresponding allocable margin of above-break-even income to the exporting nations.
The present mess in the City of London illustrates the point. The United Kingdom is operating currently below the breakeven level of tangible output : it is in fact gutting the constant capital of its industrial sector and infrastructure, in the effort to keep the decaying British economy from internal collapse. The capital exports from the City of London are predominantly of a purely parasitical form London seeks to borrow cheaper from the Federal Republic of Germany (etc.) and to loan dearer. The net income of Britain, and especially of the City of London depends upon keeping this parasitical banking role London has a negative capability of capital exports and credit on the account of the internal economy of the United Kingdom itself. London demands that Germany and Japan simultaneously reduce their export earnings, while also demanding that Germany and Japan increase their loans to the City of London relending market. It is sheer economic and monetary lunacy, but the world market is for the moment ruled by precisely such lunacy.
In order to continue such an arrangement. London is forced to peg prevailing lending rates constantly higher. The inflationary forces generated by combined effects of collapsing hard-commodity production and trade drive the basic interest rates upward, in a race between interest rates and inflation nourished by high interest rates. So, the price at which London must reborrow to lend goes constantly up, inflation is thus accelerated, high interest rates drive down levels of world trade and production, inflation is pushed higher by this effect, and the London rate climbs without limit.
For the British economy there is no direct solution. The internal economy of the United Kingdom is too dilapidated to recover by means directly available to it. It is presently incapable of generating a net national surplus on production and trade accounts.
The idled margins of other industrialized economies, especially those of the United States, Japan, and the Federal Republic of Germany, do represent an available margin of increased marketable output for exports and internal retooling for exports sufficient to generate a substantial margin of world export surplus to be absorbed in net as capital-goods, high-technology imports by the billions of people of the developing nations.
This will have massive benefits for the internal economies of the Industrialized nations. By absorbing the idled portions of the nations' labor forces in employment in presently idled and expanded export-levered production, the real incomes of those nations are substantially increased while the direct and indirect costs of unemployment and underemployment are reduced The internal tax base of each nation is expanded, reducing the tax burden on a dollar-equivalent of real income produced. An export faces the following alternative. The portion of income accounted as household income is treated as such. If Citizen A merely saves the income above household consumption, or invests in something beside the creation of tangible improvements in the national interest, the full weight of tax schedules strikes that portion of the citizen's income.
This benefit on reinvestment of profits is accomplished in the following kinds of ways. We create incentives for retained earnings used to productive improvements, making this a favorable disbursement of equity earnings over distribution. The next most favored category is the immediate (same year) reinvestment of distributed equity earnings in government securities or primary issues of stock for which the proceeds of the stock-issue sale are used for productive improvements. The benefit for reinvested distributed income must be greater than for corporate and partnership retained earnings not applied to productive improvements.
The consequence of such tax policies is to concentrate newly created investable wealth into either direct productive improvements or in U.S. Treasury or National Bank bonds which, in turn, nourish the participating private bank's lendable reserves. By the participating relationship between private commercial banks and federal agencies federal institutions' limited participation for purposes such as exports and productive improvements provides a flow of cheap credit to productive and related purposes, and creates a floating, higher cost of borrowings outside those domains identified as consistent with national interest.
Effects on Labor Policy
Such two-tier approaches to fiscal and credit policies of government create a disincentive for labor-intensive forms of employment. Thus, corporate and partnership interest adapts itself to fostering development of the labor force. The corporate perception of self-interest is shaped by such incentives into precise conformity with national interest.
The included consequence and advantage of this approach is that a far greater portion of national purpose is accomplished under the influence of incentives outside the direct intervention of federal state and local government while federal government becomes both stronger. more efficient - and smaller - than present parameters prescribe The more citizens' self-government is built into fiscal and credit policies, the more we gain from the benefits of the individual intelligences of citizens. and the less we require the often muddled draconian interventions of government bureaucrats.
Consider the illustrative case of computer technology. With the advent of minicomputer an executive can carry in his pocket, a few hundred dollars, more computer power than could be purchased in office equipment costing thousands of dollars a decade ago. The poor old slide rule this author used to carry back during the 1960s is now a museum piece.
Once we overcome carried-forward misguided thinking which simply duplicates manual accounting operations and so forth on computer systems, the computer properly used enables us to slash administrative labor, freeing large sections of the educated labor force for skilled and semiskilled productive employment. If we study the trends in absolute numbers of productive operatives since 1953, and study these absolute figures as percentiles of the total labor force, we see at once the nature of the cancer of "structural decay" in the composition of the labor force, away from production and toward "services," is the reason our cities and other elements of the economy are in decay, and why basic services, such as essential medical services are secularly skyrocketing in ratio to mean household incomes.
By emphasizing tangible productive improvements in the design and management of fiscal and credit incentives (and disincentives) corporate interest will automatically adapt itself to the effect of producing an accelerating shift away from unproductive forms of "services" into basic "structural changes" in the composition of our labor force. An increasing ratio of the population will be producing useful, tangible wealth, and rising mean levels of technologically mediated social productivities. A thousand bureaucratic bills passed by Congress will only scratch the surface of this problem. One well-designed package of fiscal and credit incentives will cause the desired result to occur as if automatically.
The preceding outline serves to indicate the thrust of the policies which must be adopted as guiding policies now We must mobilize a constituency for these policies as a political alliance of industry, labor and minorities, or what we term in shorthand as a "labor-industry" alliance.
This also serves implicitly but efficiently, to expose the absurdity of what is being offered by the Brookings Institution, by the dominant forces of the Trilateral Commission, as well as by such lunatics as Blumenthal, Miller, Kissinger, Califano, et al. All the currently popular "curves" are worse than buncombe; they are the outlines of a commitment to national and global disaster.