Fascist putsch, job losses not ‘horrible’ for markets

Plus mega hack implications, Ma’s location, and left tech moves

We’re back to our regular newsletter schedule! This week we have about seven minutes of pawn shop mentality-free dissident business news. 

  1. Fascist putsch, job losses not ‘horrible’ for markets

  2. Worst hack ever poses huge risks for U.S.power

  3. Ma, Chinese business ‘embrace supervision’

  4. Rapid Round: Social media deplatforms Trumpism, Google workers unite, India suffers 

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Fascist putsch, job losses not ‘horrible’ for markets

U.S. equity markets hit all-time highs last week despite an unprecedented right-wing attempt to disrupt the transfer of executive power in Washington, D.C. Even closer to the bone: markets disregarded a major miss on jobs and the official downturn of the country’s labor market. The Dow was up 1.6%, the S&P 500 1.8%, and the Nasdaq 2.4%.

Thursday’s weekly jobless claims report was slightly better than expected, with 787,000 Americans laid off compared to 815,000 predicted and 790,000 the week before. The four week average dipped too, but is still around 375% higher than the pre-pandemic average. Friday’s monthly unemployment report, on the other hand, was a major miss: analysts expected anemic job growth at 50,000 new hires, but workers instead lost 140,000 new jobs. It was the first time since April that job losses exceeded new hires. 

The job losses disproportionately hit women workers and were concentrated in the hospitality industry. Losing primarily lower paid workers actually caused average wages to rise more than expected, which helps explain why markets were up in spite of the reports: these workers were never that important to capital markets anyways.  

Apparently democratic governance is not that important either, as all three major indexes hit records the same day fascist insurgents killed five people at the U.S. Capitol in an undisciplined attempt to seize power for President Donald Trump. CNBC entertainer Jim Cramer summarized market response well: "It was a horrible day for democracy, but was it a horrible day for capitalism?" 

Short- and intermediate-term the answer is clearly no: even had the insurgents succeeded, Trump’s business policies are not much different from Biden’s. Longer-term, the events matched our predictions from three weeks ago and do indicate serious problems for normal capitalist functioning in the United States. The powers that be have responded to recent waves of crisis with different answers for working people and for major investors: 

The economic data, market performance, and historic events of last week all reflect those decisions. If trajectories remain the same we’ll have more of the same anger and delegitimization of state institutions we saw at play on Wednesday, and when the bubble bursts things will only get worse. Stay tuned.

Worst hack ever poses huge risks for U.S.power

Last Tuesday, U.S. intelligence agencies issued a joint statement confirming their belief that a massive hack of government and corporate IT systems was the work of Russian agents. The agencies provided the public with no hard evidence to support their claims, but every expert who has looked at the breach agrees: some state-sponsored hacking group has pulled off “the worst hacking case in the history of America.” 

This may be an understatement. The hack could mean a fatal blow to the U.S. position in its current global struggle over control of advanced technology.

The hack, discovered in December, was a “supply chain hack” -- perpetrators snuck malicious code into a software update from the IT management platform Orion, produced by Texas-based SolarWinds, Inc. The platform is used by 425 of the Fortune 500, every branch of the military, and many other government agencies and large institutions. 

SolarWinds has reported to the SEC that the corrupted update went out in March, and that 18,000 of its customers had uploaded the malware into their systems. The hackers -- Russian or otherwise -- have had essentially unfettered access to the 18,000 victims’ data for nine months. 

Experts believe it could take years to discover the hack’s full extent, but already a few key government agencies appear to have been targeted, including the Administrative Office (AO) of the U.S. Courts, the Department of Energy (DOE), the Treasury, and Commerce Departments.

What do many of the targeted agencies have in common? Access to highly confidential technology information. 

There are a lot of other reasons to target these agencies, but now these hackers very likely control the tech secrets China needs to match the United States in advanced production. The United States failed to protect this critical data.

This means that while China can now buy a multi-year acceleration in its technological development, thousands of U.S. institutions may have to “burn their systems to the ground” to rid them of all the secret backdoors built into their software. 

This would not only make this the worst hack in U.S. history, but one of the most impactful acts of espionage in world history. For the United States, this may someday dwarf last week’s riots in historic significance. 

Ma, Chinese business ‘embrace supervision’

U.S. social media and business news was abuzz last week with a new question: Where is Jack Ma?

China’s richest man and the billionaire founder of internet commerce giant Alibaba, Ma has made no public appearances since an October speech in Shanghai where he mocked the country’s financial regulators for having a “pawn shop mentality.” Less than a month later the regulators cancelled the IPO for Ant Group, Alibaba’s fintech arm. Analysts expected the IPO to be the largest ever. 

Ma has a reputation as a showman, and his absence came to light when he missed the finale of his reality show, Africa’s Business Heroes. Other high-flying Chinese billionaires have disappeared for various periods of time (including permanently) after speaking out against the party. Ma is a Communist Party member and subject to party discipline, which forbids attacks on party policy outside of official channels. 

Chinese public media initially disclosed that Ma was “embracing supervision” at an undisclosed location, but later took down the report. Other sources indicate that he is lying low and unlikely to return to his former profile, with celebrity billionaire personalities increasingly unacceptable in Chinese society. Chinese social media was overwhelmingly in favor of Ma’s public withdrawal, attacking his “capitalist” sentiments.

Ma’s discipline is part of a broader effort to rein in monopoly practices and the “disorderly expansion of capital” -- the party’s top priorities for the coming year. Internet giants like Alibaba and its main competitor Tencent pose particular risks, as they have expanded into more and more realms of the economy -- retail, financial services, communications, gaming, cloud hosting, etc. China’s “dual circulation” growth strategy necessitates a strong domestic consumer economy, and state planners worry that their anticompetitive practices could hurt micro and small enterprises

Alibaba’s “pick a side” pressure tactics, for example, force merchants to choose between its platform and Tencent’s. A new antitrust investigation against the company will likely forbid the practice. 

China is also concerned about financial risk in its rapidly growing economy, which even the IMF called out last week. The IMF suggested liberal reforms, of course, but the People’s Republic is focused instead on market supervision by the state. Its central bank, the People’s Bank of China has ordered Alibaba’s Ant Group to move away from its shadow banking financial services and return to its roots as a payment processor. 

Meanwhile Americans can’t imagine a system where billionaires have to watch their behavior, where the government will sacrifice investor returns to protect consumers and small proprietors. They worry about the well-being of one rich executive while their democracy disappears before their eyes. 

Rapid Round

Tech majors silence Trump, supporters

The tech mega caps cracked down on Trump last week after the attempted far-right putsch in Washington. Twitter permanently pulled the plug on Trump's account and those of QAnon supporters, while Google, Amazon and Apple removed right-wing Twitter competitor Parler from their app stores. Facebook removed Trump videos and banned him "indefinitely.

Amazon Web Services meanwhile announced it would kick Parler off its web hosting service. Parler CEO John Matze said the site could be offline for a week. This will complicate efforts by Trump supporters to organize a return to Washington D.C. before the inauguration, and effectively ousts Trump from his virtual presidency immediately. 

"We removed these statements yesterday because we judged that their effect -- and likely their intent -- would be to provoke further violence," Facebook CEO Mark Zuckerberg said. Twitter's shares fell 4% in after hours trading over the weekend, but the tech firm and Facebook are nearly three times as valuable as they were before Trump took office.

Google workers organize union

Around 230 Google workers announced the formation of the Alphabet Workers Union (AWU) on Jan. 4, growing to more than 600 employees within the week. It's a small fraction of Alphabet's 127,000 employees and 130,000 contractors, but the AWU is playing a long game having organized in secret for a year.

As we’ve covered at Contention, Google employees have walked out in protest of the tech giant's work with the Pentagon's drone warfare program, and a $90 million payout to a former company executive accused of sexual harassment. In December, Google fired A.I. ethics researcher Timnit Gebru after she authored a paper on concerns about the company’s facial recognition software, also prompting employee protests. The National Labor Relations Board recently accused Google of unlawfully retaliating against workers who resisted the company’s work with a prominent union-busting consultant.

The AWU is affiliated with the 700,000-strong Communications Workers of America, but as a voluntary "minority union" it does not have the power to force Google to collectively bargain over pay or benefits. Organizers, however, aim to unite these previous efforts under a single banner. 

"The fear of retaliation has always been great and we've seen retaliation, so this is our chance to protect ourselves," AWU organizer Raksha Muthukumar said.

India’s economy plummets more than expected

On Thursday, India's statistics ministry predicted a worse-than-expected 7.7% drop in GDP for the fiscal year ending in March 2021. This is the most severe recession for the country since 1952, and comes amid mass demonstrations by farmers over Prime Minister Narendra Modi's plan to further privatize India's agricultural sector. 

India's economy was already decelerating prior to the pandemic. At the heart was a credit slowdown in the country's massive shadow banking sector, institutions that lend outside the regular financial system. The government has also embraced austerity during the coronavirus epidemic, reducing expenditures and limiting relief packages for the unemployed.

Modi’s agricultural reforms threaten to scale down publicly-owned depots which purchase food from farmers at generous prices.This threatens the country’s poorest populations even while high interest rates fill state and bank coffers. 

"This could have been used in India for enlarging government expenditure but was instead just added to foreign exchange reserves," Indian economist Prabhat Patnaik wrote.

Check out our upcoming column on Thursday where we’ll untangle the economic drivers behind this crisis, who benefits, and the consequences for the poor majority.


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