The announcement this week (July 9 – 14th) that the state of California has filed for bankruptcy demonstrates one clear example of what should be increasingly obvious to everyone. It is that the system of capitalism is bankrupt. Every advanced capitalist country on the globe is technically bankrupt – it just hasn’t been fully recognised and declared everywhere yet.

Declaring bankruptcy makes sense. Filing for bankruptcy when income consistently falls below expenditure and loans are no longer rational or available, (ie the basic condition of all current nation states) is the obvious and logical solution under the economic logic of capitalism. Bankruptcy reduces, or eliminates entirely, the debts entered into by the directors of a company or in this case, the ‘officials’ of a state or country.

Of course it is not only outmoded or unrealistic enterprises that can become bankrupt. Even a basically sound relevant project can be ruined by corrupt or negligent owners or managers. It is also the case that if the basic economic structure of the business is sound a bankrupt project can be bought by others at a rock-bottom price and be back in business, immediately – or at least in a very short time.

That process already takes place on a regular, if somewhat erratic basis, in the world of business and commerce. Bankruptcies among businesses are increasing exponentially as the crisis develops. However, it rarely occurs in the realm of states and countries. California demonstrates, however, not only the possibility, but perhaps also the increasing probability of such an outcome. And from the standpoint of the working and oppressed classes, if properly handled, declaring a capitalist country bankrupt, and starting afresh is not an undesirable possibility.

The reason being that for states and countries, (unlike unrealistic or speculative profit-based businesses) the basic economic structure is always sound. The citizens of a state or country, even a sparsely populated one, are overwhelmingly productive in the economic and public service sectors of their respective communities. The only reason a state or country becomes so much in debt, that it faces bankruptcy and tries to saddle the citizens with this debt, is because those in charge (politicians and senior civil servants) have spent more than the income from the various taxes paid by the citizens.

In the absence of famines, wars or foreign occupations, states and countries are fundamentally always sound. Only under capitalism and the subsequent corruption and extravagance of the elites, groomed by the system, can states and countries be systematically ruined. It is the senior political, economic, military, state and private enterprise elite, not the ordinary people, who are the ones who have been bankrupting the various nation states of the capitalist world.

At least since 2008 it cannot have escaped anyone’s notice that corruption has occurred in Parliamentary politics (cash for questions, expense abuses, tax avoidance). The same period has witnessed senior (and lower) police corruption, newspaper phone hacking, military requisitioning malpractice, sub-prime mortgage miss-selling, interest rate manipulation and corruption in the private equity interface with government. Members of the board of the department of taxation, in the UK for example have been getting second jobs as tax-avoidance consultants. They are currently drawing salaries from our tax payments and drawing further salaries from the wealthy for helping them to avoid paying their share.

Corruption is everywhere. The recent revelations of GlaxoSmithKline the drugs company bribing Doctors to prescribe unsuitable drugs to children and Bankers (Libor) fixing are just the tip of an extensive iceberg of corruption, negligence, profiteering and incompetence which extends, not just through middle eastern elites, but also through those in Europe and the west.

Politicians claim they are running things for their populations benefit, but in fact are busily ruining states, countries and communities throughout the globe. The current austerity packages they insist are necessary, are only designed to postpone the inevitable – bankruptcy. Such measures will ruin people’s lives, the civil infrastructure and basic economic fundamentals necessary for life in modern society – all in a vain attempt to save they system they feed off.  That it if we let them.

Consider some basic facts. Over the past several decades, the levels of taxation levied on working people (the ones who can’t dodge paying taxes) has been of the following magnitude. Income tax is set at around an average of 20% of income. National Insurance is set around 12% and VAT is now currently at 20%. If we add the employers contribution to the national insurance contribution of workers, the rate of government income from this source is roughly 40%.

So, in the UK we have all contributed some 40% or so direct taxation from our wages and salaries and for many years similar substantial amounts. Also since the introduction of VAT we have paid VAT on practically everything else from what is left of our earnings after taxation. How can a country of millions not be sound on the basis of giving to its government up to half of everything its citizens have earned?

At one level the answer is simple. It shouldn’t! A state or country can only get in such an atrocious condition by consistent and persistent mismanagement over long periods of time. How that mismanagement operates through different political elites and state institutions is a complex question, but the bottom line is glaringly simple. The previous noted complexity goes for the political/managerial elites interface with the other forms of elite players in each country. Collectively they are what used to be called the ‘establishment’.

The main agreement between the economic and financial elite has been resulted in the following cosy ‘establishment’ relationship. The political and civil service elite interfere as little as possible (light or zero touch regulation/legislation) with the economic and financial elites activities. In return the economic and financial elite support the political class, by political donations, paid consultancies and future jobs.

The case of the light financial regulation which has resulted in the runaway speculation and the packaging of various spurious investment instruments (derivatives etc.) is just one of many examples which has now come to light. This particular one is part of the reason for the near bankruptcy of many countries as well as the bankruptcy of the state of California. The California state pension bill, for example, was increased from 300,000 dollars to 3.5 billion dollars, by the purchase of such unregulated financial instruments.

In yet another important area of life, the lack of political regulation of industry has also been largely responsibility for the increased incidence of obesity and type 2 diabetes among the populations of Europe and the west. The campaign to eat healthy to improve the quality of life and lessen the strain on the health service in the UK and elsewhere, has been usurped by the combined effortsof the food industry.

This industry now packages and advertises supposedly healthy foods, which in fact are not. Instead of creating healthy foods, they have in the main kept the fat, salt, sugar and bulking content of foods high and added a sprinkling of vegetable matter, fruit or nuts. They then re-focussed their packaging and advertising on the added elements.

So under capitalist food production,  trying to eat ‘healthy’ means people can still get significantly overweight! The food industry in the EEC, for example, spent 1 billion Euro’s on campaigning against legislation on clearer packaging information.

As well as taking peoples, jobs, houses, reducing their pensions and benefits, the capitalist system is simultaneously reducing ordinary people’s health and longevity – all in the pursuit of profit. In this way capitalism shows itself as not only economically bankrupt it is also morally, not to mention ecologically bankrupt.

Finally, it is worth remembering, as California demonstrates, that it is possible to declare a state or a country bankrupt. By doing this it is possible to refuse to pay the onerous and odious debts incurred by the political management who incurred them. So when things get bad enough and a government representing the interests of the bulk of the population, rather than the 1%, finally comes to power, (in whatever capitalist country) then this option should be quickly implemented.

The next day, if not the day before, the speculative financial sector should be closed down and the previous politicians banned from holding office again. That way the main people who will suffer from this drastic action will be those who caused the problem in the first place.

The above actions would make a good starting point before removing economic activity from the control of the rich and placing it in the hands of those who operate its various sectors. This would also allow decisions on what and how things should be produced and serviced to be based on decisions other than profit for the few. Radically reducing the hours of work would allow those not employed to take their place in the economic and social activity of the population.

Before all that can happen however, ordinary people’s existence will have to get sufficiently arduous for enough of them to not want to (or be able to) continue in the same old way and to start to consider alternatives to the current system. Another world is possible, but not until the present one is overthrown. In the meantime, it is the defensive struggle which face most of us, but even in these we should be pointing out –

‘capitalism is bankrupt – but our communities remain sound!’

Roy Ratcliffe (July 2012.)