Nowhere left to hide: VW and the crisis of the global capitalist business model

November 12, 2015
Volkswagen diesel engines have been fitted with software enabling them to flout US engine emissions standards for nitrous oxides

The US Environmental Protection Agency (EPA) revealed on September 18 that Volkswagen (VW) diesel engines had been fitted with software enabling them to flout US engine emissions standards for nitrous oxides. That has precipitated a crisis in one of the vital structures of world capitalism.

A perfect storm is emerging, jeopardising the entire automotive/industrial/financial complex that propelled world capitalism from the end of World War II until recently.

As the September 26 edition of the conservative British journal The Economist put it: “Systematic fraud by the world's biggest carmaker threatens to engulf the entire industry and possibly reshape it.” With at least 11 million cars affected worldwide, the costs involved could destroy VW, endanger other carmakers and imperil banks.

In the US, VW faces a possible $18 billion fine. Additionally, the company has set aside €6.5 billion to cover the costs of the countless individual court cases expected from customers.

But further pain is coming. Various countries and regional governments have offered bonuses to people who buy low emissions vehicles, especially those promising low diesel particulate levels. Those states will be looking for restitution from VW.

Why did VW attempt such outrageous fraud? The superficial answer is that they could get away with it and all the other manufacturers are similarly defrauding the standards.

The deeper reasons are found in the development of capitalism after World War II — the 30 years of manufacturing expansion followed by decades of financialisation.

Still deeper is the fact that the corporations are caught in two of the fundamental “cleft sticks” of capitalism: the general tendency for the rate of profit to decline and the impossibility of capitalism to do other than pillage the environment.

Ineffective regulation

According to the activist group Transport & Environment (T&E) — one of the whistle blowers in this saga — more than 40 million diesel cars have been sold in Europe, a sixth of all cars on the road. T&E says there are huge differences between the manufacturers' claimed engine emissions and what is really emitted.

T&E reported that “a diesel Audi A8 tested in Europe produced nitrogen oxide emissions 21.9 times over the legal limit on the road; a BMW X3 diesel was 9.9 times over the limit on the road; an Opal Zafira Tourer, 9.5 times; Citroen C4 Picasso 5.1 times.”

Yet all those vehicles passed EU laboratory tests. The variety of brand names proves that not only VW has cheated.

The Economist said car makers do not have to work hard to fake tests because “the European testing regime is out of date and open to abuse”. Tests are conducted by private consulting firms chosen by the manufacturers.

In the US, car makers do self-tests and provide the results to the EPA. However, the EPA also tests vehicles that it buys randomly — which is why VW went to the extent of installing software to detect when a test was being conducted and change the engine's performance accordingly.

All of this is against the ominous background of the World Health Organization's 2012 declaration of diesel particulate pollution as a category 1 carcinogen.

It is known that powerful governments were aware of VW's fraud for several months at the very least. That corporations and government could collude against public health on such a scale proves, yet again, that capitalists and their servants do not care if people live or die.

VW obtained its software from Bosch, the prominent car component and electronics manufacturer. The German newspaper Bild has reported that Bosch told VW that using the software would be illegal.

However, Bosch is now tight-lipped, telling the Belgian RTBF–Info news site that "in the context of trade relations with Volkswagen, we are bound to confidentiality".

Also tight-lipped are the banks. The danger is that VW's crisis will not just bring down other manufacturers and component makers — it will extend into the banking system.

Post-World War II industrial model

The decades of capitalist expansion following World War II was intertwined with mass consumption of automotive transport. It did not happen by accident. General Motors, Firestone Tires and Standard Oil of California effectively conspired to destroy electric tramlines in the US.

Having assassinated mass public transport, only cars remained. The model was extended internationally, especially to Australia.

That industrial complex essentially underpinned a large segment of the ecologically unsustainable lifestyle that the western world is now confronted with undoing. The shift in transport opened up the possibility of urban sprawl with associated property bonanzas, mass consumerism and oppressive models of family life.

Culturally, the car became associated with modernity. In far-right political circles Ayn Rand extolled the virtues of the car. Tony Abbott reiterated her thinking in his 2009 book Battlelines and based his infrastructure plans for Australia around freeways.

At the other end of the cultural landscape, Jack Kerouac extolled the virtues of individual freedom symbolised by restlessly driving across the US. These cultural constructs reflected and reinforced the power of automotive capital.

When burgeoning Japanese and German manufacturing capacity in the late 1960s and early 1970s combined with other conjunctural factors it created an international crisis of over-production and global slump.

Car manufacturers dodged the bullet by developing the “world car”. Different vehicle components are made in a range of countries — based on the lowest wages — and shifted around the world to be assembled into their final form before further shipment to the point of sale.

The merciless competitive environment has been characterised by endless restructuring, mergers, capital concentration and automation.

Internal corporate trade crisscrossing state borders requires large financial arms to manage currency transactions. The growth of these financial branches has effectively converted car companies into financial corporations using car manufacturing as the justification for money trading.

Car companies have been major contributors to the “financialisation” of capitalism since the 1970s intertwined with hedge funds and banks — and their shoddy dealings. With so much “trade” being accounted for “in-house”, tax avoidance is a breeze.

All falls down: fundamental crises

Unfortunately for the corporations, for all of the sophistication of their financial modelling, marketing and logistics, they cannot escape from one of the most basic problems of capitalism: increasing investment in the physical means of production reduces the rate of profit.

Only the labour power provided by human beings produces the surplus value embodied in each car. When sold on the market, that surplus value is turned into profit.

When the ratio increases between investment in the physical means of production — called constant capital — compared to investment in labour power provided by people, the rate of profit produced per item decreases.

Chasing lower wages around the world and massively increasing the scale of production can counter-balance this problem for a while, but not forever.

Added to this problem is the ecological crisis. The world's population is groaning under the enormity of the capitalist mode of production's disregard for ecology.

The car makers' solution to this combination of problems was simple: cheat.

They marketed the lie that they could produce ecologically sustainable vehicles. Compliant capitalist governments allowed them to get away with it for years.

That the automotive sector should come into crisis at exactly the moment when a crisis of overproduction is afflicting a vast range of commodities — iron ore, coal and even milk — must be concentrating the minds of global capital. Industrially, financially, ecologically and in terms of world peace capitalism is at an impasse.

At the very least this crisis demonstrates that there cannot be a “green capitalism”. The political/industrial/financial/social construct that is capitalism has to be dismantled and replaced if human civilisation is to survive.

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