Socialism Today           Socialist Party magazine

The Enron scandal

From energy trading to financial wizardry

Lubricating the political machine

Symptom of a sick system

A profound backlash against the system

Cleaning up corrupt political funding?

The Bush Budget

The Enron collapse is the biggest scandal in the history of US capitalism. Exposed are the systemic lying, cheating and theft at the heart of the 1990s bubble economy. Not just a corporate failure, Enron is a symptom of the structural rottenness of capitalism. LYNN WALSH analyses the Enron crisis and its consequences.

ACCORDING TO FORTUNE magazine in 2000, Enron was the US’s seventh-largest company, based on its claimed sales of over $100bn. Enron reported profits of over $1bn. Its stock rose to $90 a share, its total market capitalisation to $70bn. 

Fortune labelled it the country’s ‘most innovative company’; it was widely praised as the ‘business model’ for the ‘new economy’. By December 2001 the company had crashed, US capitalism’s biggest corporate bankruptcy. Its shares were only worth pennies, most of its 25,000 workers were out of a job. America’s ‘coolest company’ (so Enron claimed) was exposed as a speculative shell camouflaged by fraudulent accounting – a virtual company producing virtual profits. Preliminary investigations have revealed that Enron’s bosses had reported profits the company have never really made (at least $1bn between July 2000 and October 2001), and covered up staggering debts and losses.

During the summer of last year a number of second-line Enron executives began to raise serious allegations about the company’s methods. Vice-president Sherron Watkins wrote to Enron’s chair, Kenneth Lay: "I am incredibly nervous that we will implode in a wave of accountancy scandals". Another manager noted: "We are such a crooked company". Enron’s bosses, assisted by their prestigious lawyers and accountants, reviewed the allegations – and brushed them aside. Lay and other bosses, however, rapidly began selling off their own Enron shares, between them pocketing over $1bn. Meanwhile, in an on-line chat session, Lay told workers that the company’s shares were an "incredible bargain" urging them to "talk positively about Enron to your family and friends". On Wall Street, the stock-broking arm of Citigroup, which had made big loans to Enron and was well aware of the company’s mounting difficulties, was still urging investors to buy Enron shares.

While the boardroom rats were jumping ship with the loot, Enron workers found that their life savings were trapped in their personal (401k) pension plans, administered by Enron. Encouraged by their bosses, most of the company’s workers had invested most of their savings in Enron shares, which were worthless by the time they lost their jobs. Workers across the US have also lost out. Over 60% of Enron’s 744 million shares were owned by institutional investors, mostly pension funds and mutual funds in which many working families have invested their savings.

Lay now claims that he is broke. Appearing in front of a colonial-style mansion, with a liveried servant in the background, Lay’s wife Linda told a television reporter: "Other than the home we live in [worth $8m], everything we own is for sale… There’s nothing left". Her husband, she said was duped: "Never, never, not for one second would he have allowed anything to go on that was illegal". So what was Lay doing as chair and chief executive? Over three years from 1999, Lay received over $200m from Enron in salary and stock options. He also received over $10m in stocks from half-a-dozen other big corporations for serving as an officer or director. The Lays own at least twenty properties in Texas and Colorado, with a total value of over $30m. If they are now broke, what happened to it all?

There was no consolation for workers from the Bush administration. This was hardly surprising. In view of the millions of Enron dollars contributed to leading Republicans and the favours they have done the company, the Bush government might well be described as ‘Enron in office’. Interviewed on television, Treasury Secretary Paul O’Neill said he was not surprised by Enron’s collapse. "Companies come and go. It’s part of the genius of capitalism. People get to make good decisions or bad decisions, and they get to pay the consequences or to enjoy the fruits of their decisions. That’s the way the system works". Hang on a minute! A small gang of bosses who made ‘bad decisions’ – who organised a gigantic fraud and lied and cheated to cover it up – have walked away $1bn richer (on top of their colossal annual salaries and bonuses). Thousands of workers who had no part in the conspiracy have lost their jobs and their life savings. Millions of small investors, deceived by the company’s bogus accounts, have also lost out.

How does Enron show the ‘genius of capitalism’? This is a case of the market forces, allegedly the most efficient way of organising society, channelling billions of dollars of capital into a socially worthless, speculative operation. The ‘hidden hand’ of the market turns out to be a nexus of fraud and theft. There are clearly individual perpetrators who should be brought to book, but they are products of today’s rapacious, free-market capitalism. Enron is a company of its time; its rise and fall demonstrate the structural, systemic rottenness of the capitalist system. It is far from being an exceptional case; it is merely the biggest fraudulent collapse to date. Enronitis is a contagious disease and there is likely be an epidemic.

From energy trading to financial wizardry

ENRON WAS FORMED in 1985 through the merger of two Texan gas pipeline companies. Taking advantage of the privatisation of state and city utilities and the deregulation of energy prices, the company, under Kenneth Lay’s direction, transformed itself into an energy trader, in the US and internationally. It made use of the complex financial instruments know as derivatives, increasingly trading on the internet. These instruments ‘derive’ from the underlying value of a share, a bond, an amount of foreign currency, a barrel of oil, a unit of electricity, or whatever. For the payment of a small deposit, they give their owner the right to buy or sell the underlying assets at some time in the future at a given price. They were developed to provide a hedge against changing prices, but derivatives markets have themselves become a source of speculative risk and volatility.

During the late 1990s Enron also began to trade financial instruments based on fibre-optic cable capacity, newsprint, advertising space, and many other things. In reality, Enron had morphed into a bank, but was not subject to the same Federal oversight and reporting requirements as the traditional banks. Enron’s activities were enormously facilitated by a law, passed in 2000, to exempt energy commodity trading from government regulation and disclosure rules. Senator Phil Gramm, a leading Texas Republican, supported by Tom DeLay (known in Houston as ‘Mr Enron’), both major recipients of Enron campaign contributions, played a key role in pushing the legislation through Congress. They were no doubt well advised by Gramm’s wife, Wendy, who headed president Reagan’s Task Force for Regulatory Relief and chaired the Federal US Commodities Futures Trading Commission from 1988 to 1993. Five weeks after leaving her government job she joined the Enron board. In 2001 she was paid $1.85m in salary, expenses, share options, and dividends.

So that Enron could grow faster, increase its profits and push up its share price, the Enron bosses formed a series of partnerships between various Enron directors and outsiders, nominally independent but effectively controlled by Enron executives. These ‘special entities’, which were of doubtful legality, served a number of purposes. ‘Off-balance-sheet’ as far as Enron was concerned, they allowed huge debts arising from rapid investment to be concealed. Through creative accounting, they allowed Enron to report non-existent profits. Registered in tax havens, they facilitated almost complete avoidance of US taxes. They allowed Enron bosses to hide the huge losses they made in the late 1990s on many speculative deals (contradicting their public image). The shady partnerships, given names like Condor and Raptor, were also a source of extra profit to the Enron bosses. Even as the whole set-up was imploding last year, Andrew Fastow, who appears to have been at the centre of the web, walked away with another $30m bonus from one of these entities.

The miraculous source of Enron’s super-profits was not clear to most investors. But why worry? Stockbrokers, Bear Stearns, enthused in January 2001 that Enron "is pursuing ways to make money that have never been tried before, and so far it has proven that they can work". While the profits rolled in no one asked awkward questions. Later, a New York Times column commented that Enron "was not much of a company, but its executives made sure it was one hell of a stock". The problem was that Enron and its satellite entities could only be sustained on the basis of high prices for Enron shares, which the partnerships were using as security for their borrowings. The sharp decline in share prices that followed the puncturing of the bubble, together with the big investors’ growing doubts about Enron, began to drag down the company’s share price during 2001. Desperate attempts to ‘restructure’ the company – more creative accountancy, assisted by major Wall Street law firms and big banks – failed to prevent the collapse. All the dirt came out during the autumn. Enron was forced to ‘re-state’ its falsified profits, reveal its concealed debts, and own up to massive losses. The bosses and their accountants, Arthur Andersen, started shredding documents. Lay and Skilling claimed they were not kept informed about the partnerships; when called before a Congressional committee they exercised their fifth-amendment right to silence.

As the collapse unfolded, Lay had appealed to his Washington friends for a government bailout (after all, had not Clinton and Greenspan bailed out the insolvent hedge-fund, Long Term Capital Management, in 1998?). Bush and his buddies, however, understood that their long entanglement with Enron meant that a bailout would be politically disastrous. They calculated that Enron did not pose the level of threat to the financial system posed by the LTCM collapse. Bush claims that his refusal to rescue Enron absolves his administration of responsibility. "There’s no smoking gun", he says. But it was the many favours they had already granted Enron in return for cash that created the conditions for the scandal in the first place.

Lubricating the political machine

HOW DID ENRON get away with it for so long? In the frenzied speculative climate of the late 1990s, it was ‘anything goes’ for big business. So long as the bull market rampaged on and the profits flowed, investors, financial experts, accountants and government regulators had no inclination to question company practices. In fact, regulatory requirements were more and more relaxed.

Enron’s accountants were Arthur Andersen, one of the ‘big five’ which have a virtual monopoly of the top 500 corporate accounts. As advisors they helped establish Enron’s dubious partnerships, as auditors they put their seal of approval on Enron’s deceptive accounts. Last year, Andersen collected $27m from Enron for consulting services, $25m for audits. (It is unlikely that the document shredding was itemised on the bill.) Like other accountancy firms, Andersen is a big contributor to both the Republicans and the Democrats and has consistently opposed any tightening of accountancy standards. When two years ago the previous head of the Federal Securities and Exchange Commission, Arthur Levitt, proposed to enforce conflict-of-interest rules, separating advisory and auditing roles, he faced a barrage of high-powered lobbying including calls from ten or eleven Senators. Some threatened to cut his agency’s funding unless he backed off. "I have never been subjected to a more intensive and venal lobby campaign", he recalls. (NYT, 19 January) Like other accountants, Andersen at that time doubled its lobbying budget (to $1.6m). Levitt’s proposals were not implemented. During the last presidential election, Andersen was the fifth-largest contributor to Bush’s campaign, giving $146,000. The new head of the SEC, Harvey Pitt, is a business lawyer who has represented each of the big five at one time or anther. Needless to say, he is against any further regulation of accountants.

Greasing the wheels of the political machine was a vital ingredient of Enron’s success. Enron started in its home base, Texas, and formed a close alliance with the right-wing Texan branch of the Republicans. Enron generously supported Rick Perry, who replaced Bush as governor of Texas and quickly appointed Max Yzaguirre, former head of Enron Mexico, chief of the Texas programme, to deregulate electricity. In Washington DC virtually anybody who is anybody, Republican and Democrat, has received Enron cash. During the last twelve years, Enron spent $5.8m (£4m) on federal elections, 73% going to Republicans. It supported 71 out of 100 senators, and 188 out of 435 members of the House of Representatives. Bush himself received $826,000, until recently jovially referring to his Enron godfather as ‘Kenny Boy’. At least thirty senior Bush administration officials and ambassadors held Enron stock when they joined it last year, divesting it under government conflict-of-interest rules at $60–$70 a share. Thomas White, a former army general employed by Enron, held $50m-worth when appointed Army Secretary. Among other things he has privatised army fuel supplies.

Cash lubrication always got results. Through vice-president Dick Cheney (a Texas oil man long supported by Enron) and influence on the House Energy and Commerce Committee (53 out of 58 financed by Enron) Enron had a major influence on Bush’s energy policy. Enron bosses were no doubt delighted with Bush’s opposition to environmental protection (such as the ban on oil/gas drilling in the Alaskan wilderness) and the US refusal to sign the Kyoto treaty on global warming. If Bush’s so-called ‘economic stimulus’ bill had not been blocked in Congress, Enron would have gained over $500m in tax breaks. Bush officials have recently tried to help Enron get out of a contract to build a $3bn power station in India, which Clinton previously helped secure in return for a campaign donation. When Enron was about to crash, Clinton’s former Treasury Secretary, Robert Rubin, appealed to government officials to bail the company out. Rubin was linked to Enron through his former employer, Goldman Sachs, and his current firm, Citigroup, is one of Enron’s biggest creditors. For Enron, the two big-business parties have always been like a couple of rigged fruit machines, paying out every time, with the Republicans giving bigger prizes.

Intensified public outrage at the big-business corruption of politics may now result in the Shays-Meehan bill on campaign finance being passed by the House. Like the McCain-Feingold bill passed by the Senate last year, the measure would outlaw so-called ‘soft money’ donations to parties ($500m in the 1999 election cycle), although doubling the current $1,000 per donor limit on hard money to individual candidates (which totalled $380m in the last elections). Even Bush has felt compelled to support the measure, against the opposition of leading Republicans in Congress. If passed, however, the measure is likely to have only a limited, mainly cosmetic effect. As with previous reforms, it will not take long for lawyers and accountants to find new ways for big business to fund their political stooges.

Symptom of a sick system

SERIOUS BOURGEOIS STRATEGISTS recognise that Enron is not just a corporate crash but represents a crisis for the system. In one of his regular columns in the New York Times, economist Paul Krugman (who himself had to declare that he had been one of the many academics and journalists on Enron’s payroll) wrote: "The Enron debacle is not just the story of a company that failed: it is the story of a system that failed". By ‘system’, however, he means the politico-legal framework – the institutional superstructure – rather than the capitalist system itself, which he does not fundamentally question. "Key institutions which underpin our economic system have been corrupted", writes Krugman. Like other strategists, he sees reform as urgent to pre-empt a political reaction against the system, to curb speculative excesses, and (he hopes) to ensure that the market functions more efficiently.

This is an extremely shallow analysis. True, all the advanced capitalist countries are now infected with financial corruption and political sleaze. This is not a superficial, institutional problem, however; it arises from the processes operating within the capitalist economy. The Enron syndrome, which will become more and more contagious, is linked to the current phase of international capitalism that is dominated by greedy, parasitic finance capital. The dynamic of the economy is increasingly determined, not by the production of material goods and the provision of useful services, but the churning of money to make more money. Everything tends to be turned into a commodity, ‘commodity’ meaning a financial instrument representing a unit of electricity, or a yet-to-be produced food crop, a yet-to-be-built office block, a future currency deal, a debt or whatever – an ‘asset’ that can be traded on financial markets (increasingly an electronic transaction on the internet).

Enron exemplifies the leading ‘business model’ of the 1980s and 1990s, the period of ultra-free-market reaction, when social restraints on the operation of the capitalist market were steadily cut away. What, after all, did Enron actually produce? From the standpoint of the needs of the population, Enron served no useful purpose. Its speculative activity pushed up the price of electricity and gas for domestic consumers (demonstrated during last year’s Californian energy crisis). The business philosophy of Enron boss Jeffrey Skilling (as reported by the Wall Street Journal) was that "a company didn’t need a lot of hard assets to thrive…" He emphasised getting rid of ‘big iron’, plant and machinery, which "tied up cash that could be more profitably deployed trading". Enron formerly reported $60bn of ‘assets’, but it is estimated there is now only about $10-15bn in buildings, plant and equipment.

Although Enron was a recent creation, its bosses were far from being treated as reckless upstarts. Texas innovators readily gained support from established Wall Street banks, accountants and lawyers – who collected hundreds of millions of dollars in fees. "Without the financial grease from Wall Street", admitted the Wall Street Journal, "Enron wouldn’t have grown into the nation’s biggest energy trader and seventh largest company". In other words, Enron was the product of US capitalism in the 1990s, a ruthless, aggressive phase that represents the culmination of processes that unfolded after the end of the long post-war upswing in 1973 and were powerfully reinforced by the collapse of the Stalinist states after 1989. In its drive to restore its profitability, the capitalist class abandoned its support for social welfare (limited as it was in the US), and moved to claw back the improvements of living standards and rights previously conceded to the working class. The stupendous wealth of the Enron bosses reflects the deep chasm of inequality opened up in society by neo-liberal policies. The corruption of politicians by Enron is merely an extreme example of the general corruption of politicians and the state machine by big business.

A profound backlash against the system

"JAIL ’EM. ALL the Enron and Arthur Andersen principals and then some", called National Review columnist Larry Kudlow, who himself admitted receiving $50,000 consultancy fees from Enron. "Why? To save the system of corporate governance…" There are now more than a dozen congressional committees investigating the Enron collapse. Federal prosecutors are preparing indictments against some of the key perpetrators. But when both Republicans and Democrats are up to their necks in Enron’s dirty money, and a whole spectrum of government officials and journalists has benefited from Enron’s largesse, it is hard to believe that they will reveal all and bring those responsible to book. No doubt they will go after a handful at the centre of the conspiracy, using them as scapegoats whose trial and punishment will redeem the system.

Big-business leaders clearly fear the economic repercussions of Enron. Hundreds of major companies are now ‘re-stating’ their profits, revising down previously inflated accounts. This has already had a depressing effect on the stock market and investment. But they fear the inevitable political backlash even more, not merely electoral recoil against political corruption and financial chicanery, but a much deeper social reaction against capitalist greed and the brutality of untrammeled market forces. The New York Times commented (13 February) on the mood of political leaders: "Perhaps worst of all, some senators said, was that the Enron debacle might undermine the faith of the American people and people around the world in the capitalist system and the investments that fuel it. ‘The anger here is palpable’, said Senator John Kerry, a Democrat from Massachusetts. ‘Lives have been ruined, many lives’".

A proper investigation would mean the exposure of the role of the big banks and finance houses, corporate lawyers and accountants, the US government and its regulatory agencies – and the big-business press that conspicuously failed to report the reality behind the financial bubble. A true bill of indictment would include the whole Wall Street and Washington DC establishment, the whole leadership of the capitalist class. Particulars of the charges would, in effect, be a systematic examination of the last period of ultra-free-market capitalism. Clearly, no such proceedings will issue from Congress or the US legal establishment. It is symptomatic that the government’s senior law officer, attorney general John Ashcroft, has had to ‘recuse’ himself from the investigation because his campaign received a lot of Enron cash. In fact, Enron has given common currency to this obscure legal term, referring to a judge or official stepping down on suspicion of partiality. Having corrupted decision-making on tax cuts, energy policy and financial regulation, wrote the New York Times (22 January) commenting on the great recusal, Enron's vast contributions "now threaten to hamper the investigation into one of the biggest scandals in American history".

Full investigation and adequate charges require a truly independent commission of inquiry, made up of elected representatives of unions, and community and campaigning organisations – a tribunal, in other words, whose members have no stake in the rotten system that has thrown up the Enron scandal. In the aftermath of Enron, US capitalism would be facing an immediate, deep political crisis – if there were a party that represented working people. Such a party would spell out the real meaning of the scandal, not merely picking a few corporate scapegoats but indicting the whole rotten system. On that basis, a radical, anti-capitalist mass party could build massive support for a socialist alternative. In the absence of political representation for working people, it will take longer for all the facts about the Enron scandal and its full meaning to be assimilated by wide layers of people in the US, and internationally. Nevertheless, anger and disgust at big-business greed and corruption will deepen as the details continue to trickle out and a deep-felt reaction to the rottenness of the system will have a profound effect on political consciousness in days to come.

USA: Cleaning up corrupt political funding?

March 2002: Cleaning up corrupt political funding? Will the McCain-Feingold, Shays-Meehan reforms now before Congress make any real difference? Lynn Walsh comments:

THE ENRON SCANDAL has intensified public outrage at the overwhelming corruption of elections, Congress, and state legislatures by big-business money. Public support for reform has been building up over recent years. In the 2000 Primaries, for instance, John McCain, contending to become the Republican’s presidential candidate, won strong support for his proposals to curb unrestricted ‘soft money’ donations which amounted to $500 million during the last election cycle. Together with Russell Feingold, a Democrat, McCain introduced a bill which was passed by the Senate. However, an identical bill tabled in the House of Representatives by Christopher Shays (Republican) and Martin Meehan (Democrat) was blocked by the House Republican leaders, who command a majority in the House.

The opposition was spearheaded by ‘Mr Enron’ himself, Tom De Lay, the House majority whip from Texas. After Enron, however, Bush felt obliged to announce that he would not necessarily veto a campaign finance reform bill, and more recently has expressed support for such a measure. However, Dennis Hastert, the Republican Speaker of the House, reiterated opposition: "This is Armageddon," he proclaimed; "It is a life-and-death issue for the Republican Party". Despite this, a section of the Republicans has been swayed by the wave of public anger and it now seems likely that the Shays-Meehan bill will be passed. Agreement between the Senate McCain-Feingold bill and the House Shays-Meehan bill would make it likely that the legislation would go through.

If passed, however, Shays-Meehan will have only a cosmetic effect. The bill’s main target is so-called ‘soft money’, that is finance from big business, special interest groups, advocacy organisations, and the unions to parties rather than named candidates. ‘Soft money’ donations developed in the 1980s as a way of evading the $1,000 limit for direct donations to individual candidates (so-called ‘hard money’), a restriction that was imposed by Congress in 1975 after the Watergate scandal and the resignation of president Nixon. ‘Soft money’ donations amounted to an astronomical $500 million in the last election cycle, most of it being used for advertising campaigns which clearly supported individual candidates even if they were not named.

Shays-Meehan will outlaw soft money in federal elections, but will still allow it to be used in state elections, leaving an obvious loophole. At the same time, the $1,000 limit per individual donor for ‘hard money’ donations to individual Senate and House candidates (which totaled $380m in the 2000 elections) will be doubled. Individuals will be able to contribute $30,000 to parties. Ironically, most of the money donated by Enron has been ‘hard money’. Since 1990, Enron officials made $500,000 in thousand-dollar contributions to federal candidates. Under Shays-Meehan they could have handed out a million bucks. In any case, as with all previous ‘reforms’, lawyers and accountants will not take very long to find new ways for big business to bankroll their political stooges.

Explaining his opposition to the Shays-Meehan legislation, a spokesperson for Hastert said that the legislation would transfer political power to "special-interest groups – big labour, environmental groups and other Democratic groups – that will be more engaged than our allies. That puts us at a great disadvantage". (Washington Post, 8 February) This comment is very revealing. Who does he mean by ‘our allies’? Presumably, big business and the wealthy, who are not very ‘engaged’ in political activity, but donate huge amounts of cash to Republicans (and Democrats) to act on their behalf. If their contributions to pro-big business politicians are restricted, politics might become more influenced by ‘engaged’ forces – union activists, community groups, environmental campaigns, and others. Instead of being trapped into a choice between two big-business election machines, Republicans and Democrats, voters could have the option of supporting a campaigning organisation speaking for working people and campaigning for radical change. Big business money would no longer determine the outcome of every primary and make most election results a foregone conclusion.

Unfortunately, however, despite the comments of Hastert’s aide, big labor, together with many environmental and community groups, are still tied to the Democrats, through and through a capitalist party notwithstanding any differences with Republicans. Breaking the mould of corrupt, big-business politics requires a new mass party of the left, which will provide a voice for workers, minorities, community activists and anti-capitalist youth. Such a party will only be built through contesting elections on the basis of opposition to big-business policies and through active support for all those struggling for democratic rights and social justice. The necessary funds will have to be raised on the basis of political support and sympathy, because even where state funding is available, most of it will go to the established big-business parties.

The Bush Budget

March 2002: The Bush Budget: Higher arms spending and tax cuts for the wealthy will driving a tank through social spending, by Lynn Walsh [From ‘The Socialist’ 243: 1 March, 2002]

IN THE name of the "war against terrorism", president George W Bush is proposing a massive increase in US arms spending. If Congress accepts his proposed budget, it will be the biggest spurt in military spending since Ronald Reagan's 1980s arms build-up against the "evil empire" of the former Soviet Union.

At the same time, Bush intends to extend tax cuts for the super-rich while freezing social spending.

Next year Bush plans to give the Pentagon an extra $48 billion, a massive 14% increase. Together with another $16.9 billion in the Energy Department's budget to finance nuclear warhead production, the total military budget will grow to $396 billion.

That means fuelling the military machine with over $1 billion a day. Bush also plans to spend about $19 billion on "homeland security". Much of this will go to the Immigration and Naturalisation Service and the Border Patrol to clamp down on undocumented immigrants and non-citizens generally.

Military money

The US already accounts for 40% of world military spending, more than the 15 next-biggest states combined. Yet over the next five years Bush wants to spend an extra $120 billion.

In contrast, when UN secretary-general Kofi Annan called for an extra $50 billion to double the advanced countries' foreign aid to under-developed countries to $100 billion this year, the US government abruptly rejected the proposal.

Instead, Bush proposes a paltry $750 million increase in US foreign aid for 2003, including $552 million of military assistance to regimes favoured by the US. At the recent Tokyo conference on Afghanistan, the US pledged a mere $300 million to help reconstruct that devastated country, estimated by the UN to require $10 billion to $15 billion over the next ten years.

Bush's military plans are a bonanza for the big corporations of the military-industrial complex. Procurement - spending on weapons - will soar from $61 billion this year to $99 billion in 2007, a 30% increase over five years. Major items include the Crusader mobile howitzer (a massive field-gun), costing $475 million.

Even critics in the capitalist press ask how such weapons will counteract terrorists - the September 11 hijackers were armed with box-cutters (Stanley knives). Building and operating the missile defence programme could cost $238 billion by 2025, according to a study by the (non-party) Congressional Budget Office.

Feeble facade

THE REPUBLICAN Bush used some Democrat-sounding rhetoric in his State of the Union message, claiming to defend working families' interests. He promised increased spending on two or three social programmes, such as food stamps, family nutrition and health research.

This was flimsy camouflage for a general freeze on social spending apart from mandatory expenditures such as Social Security (pensions) and Medicaid (health insurance for retirees) - and deep cuts in (according to Bush) "ineffective" programmes like youth job training and environmental protection.

Non-mandatory spending will be held to a 2% increase, below government projections for inflation (2.2%). Education, public housing, highways will all be cut. Retirees won't get help with ever-rising prescription payments, and will have to make bigger "co-payments" for their health care.

Despite Bush's earlier promise not to raid the Social Security and Medicare funds, these will now be used to supplement tax revenue. The Republicans no doubt believe that as these funds slide into deficit they will be able to push through privatisation of pension funds. So far, the Democrats seem to have swallowed this blatant manoeuvre without a murmur.

Despite the social spending cuts, Bush's plans will mean a rising Federal budget deficit (a projected $80 billion in 2003). Already, the last few years' boom-time surpluses have evaporated. As the economy slows, tax revenues automatically decline. Inflated military spending will be an enormous burden.

The main source of the deficit, however, will be the gigantic tax cuts Bush is handing to the super-rich. "Almost incredibly," commented the New York Times (6 February), "President Bush wants to accelerate and make permanent previously enacted tax cuts and add new tax cuts on top".

Rich rewards

Last year, most wage earners received a tax rebate of a couple of hundred dollars - a sweetener for the masses. But the real cuts are for those with incomes over $200,000 a year, who will collect over half the total $1.3 trillion tax reduction over the next ten years. Two-thirds of the population will receive nothing at all.

Under the slogan of "security", Bush is pursuing the Republicans' extreme big-business agenda. The US's limited social safety net is being shredded just as unemployment, poverty and homelessness are again rising (and state budgets are also being slashed).

The long-term viability of Social Security and Medicare is being undermined. This is being concealed, moreover, by Enron-style, "off-balance-sheet" accounting. For the first time, this budget drops its ten-year projections into the future, obviously to conceal from people where the George W road is heading.

War on workers

IN THE name of defending the US, Bush is in effect declaring all-out war on working class living standards. The Democrats are screaming. Bush, they say, calls for "bipartisan" support for the "war against terrorism" but pushes through out-and-out partisan domestic policies.

What is their answer? Only a handful of Democrats, like Ted Kennedy in Massachusetts, publicly call for a reversal of the tax cuts. Tom Daschle, who leads the Democrat majority in the Senate, refuses to call for a reversal or even a delay of tax cuts.

While the Democrats will undoubtedly try to dilute Bush's social cuts (while swallowing the military budget whole), they are themselves too closely tied to big business to wage effective opposition to the White House.

As the Republicans' big-business arithmetic becomes clear, there will be a tide of fury among workers and middle-class people who are already beginning to taste the bitter fruits of the 1990s bubble economy.

Politically conscious workers will once again have to grapple with the task of breaking the labor unions and community and campaigning organisations away from the Democratic Party stranglehold and creating a mass party that will speak for the working majority.

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