Asset Ownership and Our System of Deepening Debt-Serfdom

By Charles Hugh Smith
January 23, 2015
Washington’s Blog, January 22, 2015

 

Debt-serfs who make the difficult and risky transition to small-scale business owners find they have simply moved to another class of serfdom.

The core dynamic of debt-serfdom is that debt-serfs must borrow money to buy essentials while the wealthy borrow to invest in productive assets.

This is not merely a random result of free-market capitalism; it is the structure of cartel-capitalism in which highly profitable goods and services must be paid for with highly profitable debt.

This need to borrow to pay for essentials is already evident in student loans, vehicles and housing.

The cost of these essentials is so high that few debt-serfs can borrow enough to pay for these essentials and then have enough borrowing power left to buy productive assets.

Those few who do attempt to buy productive assets face regulatory hurdles and costs that limit their ability to own or launch small-scale profitable enterprises.

The net result is a system in which the vast majority of productive assets are owned by the few who then have the means to exploit the many.

This core dynamic of cartel capitalism is not new, as longtime correspondent Bart D. recently observed. This was the core dynamic at the root of Ireland’s catastrophic potato famine of the 1840s: wealthy English owned the productive assets (land) and limited the opportunities for enterprises that boosted Irish self-sufficiency and competed with the assets owned by English financiers and landed gentry.

Here is Bart’s commentary:

I recently picked up a copy of a novel dealing with the topic of the Irish Potato famine of 1845-6 from a second hand book store run by charity. Author is Liam O’Flaherty and it was written in 1937. It was re-released in 2002. My edition was printed in the 1970’s, so it’s had a following over the years.

Famine

I recommend this book HIGHLY as an insight into how families, communities, governments and economics will/are functioning in impoverished situations now and in the future. I know this because I was astonished (not using that word lightly here) at the similarity in the description of life and government/business portrayed in O’Flaherty’s book in 1845 and that which I have observed closely over many years in remote Australian Aboriginal communities from 1994 to 2012.

Especially fascinating to learn that the English Government provided ‘relief’ loans to Ireland at market interest with a condition that they could not be used to do anything productive. Basically they set up a scheme to pay a small proportion of each community to build roads, but not a cent could be spent on developing alternate Irish-owned industries or businesses for fear it would upset the rich English industrialists.

The English imported cheap American corn meal which everyone was forced to buy with the English Gov. financed wages (closing the loop of giving with one hand, taking with the other and adding in a profit to boot) after the Irish had to export all their own grain and livestock to England to pay the land rents.

The model of resource ownership described in the novel–English landlords owned all the Irish peasant farmer land and set rent at a level that ensured the farmers remained a hairs breadth ahead of destitution even under the best of circumstances–will be, I think, what our own future will look like. Unfortunately.

It’s very well written and engaging for the reader, but hard to read because of its infuriating and tragic subject material. No happy endings here.

One branch of my family (Scots-Irish, County Down) immigrated to the U.S. in the late 1840s, undoubtedly as a result of the potato famine. This history of exploitation and financial tyranny is not entirely abstract to me, and neither is the current American variation of the debt-serf model.

Those of us with experience in starting and operating small enterprises know that dozens of restrictive regulations and administrative costs limit debt-serfs’ attempts to invest in small-scale productive ventures. We also know that the Federal Reserve’s free funds for financiers enables hedge funds to invest $500 million in the latest software fad, while small-scale entrepreneurs have no equivalent conduit to near-zero cost funding.

Globalized cartels eliminate local pricing power by importing cheap goods from somewhere else. In less globalized circumstances, local producers retain some pricing power (and thus some profitability) because they can produce goods without the cost of shipping from overseas.

But the power of cartels buying millions of units at a time and the low cost of container shipping means cartels can eliminate the pricing power of local small-scale producers virtually everywhere.

Even low-income regions in developing nations cannot compete with global cartels in manufactured goods and agricultural/meat produce.

This is not a random result of free enterprise; it is the direct result of central banks’ free funds for financiers that lowers the costs of borrowing and thus production for cartels.

Debt-serfs may legally start home businesses in some locales, but as soon as they become successful enough to compete with vested interests, their fixed costs are increased by regulatory and administrative rules. The resulting erosion of profitability and the lack of access to cheap credit limit their ability to expand without taking on burdensome levels of costly debt or selling their souls to vulture capitalists.

At that point, debt-serfs who make the difficult and risky transition to small-scale business owners find they have simply moved to another class of serfdom, one in which the serfs own an enterprise but cannot expand their capital. As a result, small enterprise ends up being just another version of serfdom, i.e. barely getting by or borrowing more just to survive.

Consider the evidence of the erosion of American small business: Economic Death Spiral: More American Businesses Dying Than Starting.

The net result is a system in which the vast majority of productive assets are owned by the few who then have the means to exploit the many.

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Scottish student debt skyrockets

By Joe Mount
2 December 2014
World Socialist Web Site

 

Total student debt in Scotland rose by two-thirds during the past year, according to official statistics.

Debt now stands at £430 million, up from £254 million last year. By next year, total debt will have doubled since 2006.

The rising debt levels expose the financial hardship facing students in Scotland, especially the less well-off. Students must take out ever larger loans to get by as financial support systems are eviscerated by Scottish National Party (SNP) austerity measures.

The Holyrood parliament slashed spending on non-repayable bursaries and maintenance grants covering living expenses from £101 million to £65 million during the past year, according to official figures released last month. This follows cuts to maintenance grants of one-third in 2012. The SNP will only intensify these attacks after the announcement of a further 1.7 percent overall budget cut in their draft budget for the next financial year.

The average claim fell by 35 percent this year to just £1,210, according to the Student Awards Agency for Scotland. The maximum value of the Young Students’ Bursary fell from £2,640 to £1,750. Income thresholds were lowered, cutting off assistance to more low-income students. The household income limit was reduced from £19,310 to £17,000 per year.

Scottish Education Secretary Mike Russell claimed that students in Scotland receive a “very generous” funding package because, by providing large loans, the state guarantees a minimum income of £7,500 per year. But this is just two-thirds of the official poverty level.

Although tuition is free in Scotland, miserly levels of student support mean that students must turn to loans to cover their living costs. The number of students resorting to loans rose five percent during the past year. Scotland offers the lowest levels of non-repayable grants in Western Europe. According to European Commission (EC) research, support in Scotland is on par with Slovenia, Malta and Lithuania. Iceland is the only country offering no grants whatsoever.

Poorer students are forced to borrow more to cover living expenses, borrowing £5,610 per year compared to £4,340 for the richest. This blocks working class youth from higher education. “Entry to university in Scotland appears as socially polarised as it is in England,” said the UK government’s State of the Nation report released last month. Last year, “9.7 percent of the most disadvantaged entered higher education compared to 32.5 percent of the most advantaged.”

Although more youth from low-income backgrounds attended university in Scotland after 2006, this process is reversing. The higher education participation rate for children from poor families fell 0.7 percentage points since 2011 to two-in-five, according to the Scottish Funding Council.

These developments have provoked a debate over higher education policy between rival factions of the British ruling elite. The main parties are using the soaring debt levels to attack the SNP’s zero-fee policy from the right.

Scottish Labour education spokeswoman, Kezia Dugdale, said, “Scotland is worst for the poorest students, worst for widening access and has the worst dropout rates in the UK, we need to look at different options if we’re going to maintain free tuition. It has to pass the fairness test. I can’t support free university tuition while all that is going on.”

Lucy Blackburn Hunter, the former head of higher education for the Scottish Executive, said, “Scotland is unique in having a system which assigns the highest student debt to those from the lowest income homes, due to its much lower use of student grant.”

These politicians are cynically utilising debt figures to advance their own political agenda. In 2001, Blackburn Hunter implemented the student graduate endowment scheme that charged students a £2,289 fee upon graduation as part of the Labour-Liberal Democrat coalition government in Scotland. The scheme was scrapped by the incoming SNP government in 2007.

Blackburn Hunter’s research, backed by the British government’s “Future of the UK and Scotland” research programme, is at the centre of a campaign to undermine the free tuition policy. Their central claim is that income from tuition fees would fund financial support for poorer students. This is a lie. After tuition fees were introduced in England by a series of Labour and Conservative governments, they imposed 50 percent cuts to teaching budgets and lowered student financial support.

Although student debt levels in Scotland are rising, graduate debt levels in Scotland, at an average of £20,000, remain below half of those in England. English universities charge £9,000 per year fees, the highest in Europe. Tuition comprises the bulk of the average graduate debt of £44,000.

After coming to power in Scotland in 2007, the SNP stoked regionalism by abolishing fees only for Scottish and European Union students, while retaining fees for English students. They were able to posture as left-leaning opponents of austerity and to offer minor concessions to the working class due to the Barnett formula, which provides greater levels of public spending per head than the rest of Britain. However, what remains of these social concessions looks ever-more threadbare as the SNP imposes tight budget restraints set by Westminster.

The growing financial burden for students in Scotland exposes the lies, repeated by the pseudo-left, that Scottish nationalism is progressive and that the SNP is a reformist party that will re-build the welfare state. Scottish independence would be based upon a programme for transforming the region into a low-tax haven for transnational corporations, with disastrous effects for students.

Student support was not mentioned in the White Paper on Scottish independence, which pledged only to continue providing free tuition. However, students can place no faith in the SNP’s bourgeois critics either who are all responsible for savage attacks on students.

Alan Milburn, the British government’s Social Mobility and Child Poverty “tsar” feigned criticism of the cuts, insisting that Holyrood “review the total financial support package for the most disadvantaged undergraduate and postgraduate students, particularly in relation to recent reductions in maintenance grants.”

Milburn was a minister in the Labour government of Prime Minister Tony Blair that increased tuition fees to £3,000 in 2005.

Liam McArthur, the Scottish Liberal Democrat education spokesman, said, “The SNP government’s underhand switch from grants to loans has saddled some of Scotland’s poorest students with higher levels of debt.” His party, as part of the newly-formed coalition with the Conservatives, infamously reneged on election promises and trebled tuition fees to £9,000 per year in England.

The union bureaucracy also issued toothless calls for the government to revoke the cuts. However, the unions work hand-in-glove with the government to impose them. The union bureaucracy is politically exposed by its close ties to the Labour Party, which responded to the new figures by calling for tuition fees to be charged to bring in cash.

Gordon Maloney, president of the National Union of Students (NUS) in Scotland, said, “We will be working with the Scottish parliament to push for increased grants for the poorest students, not instead of these student loan increases, but in addition.” But education minister Russell confirmed the NUS’ role in this attack on youth, stating, “We listened to the NUS when designing the new student support package to help students to access the funds needed to take up places at our universities.”

Tuition fees are a means to take education off the treasury’s hands and transform universities into privately-run, profit-making institutions in the interests of the financial elite. Workers and youth can only secure free and universal education by relying on their own strength as an internationally-united political force, organised independently of all the political representatives of the capitalist class, whether in Westminster or Holyrood.

The Federal Reserve Is at the Heart of the Debt Enslavement System that Dominates our Lives