More for the one percent, less for the 99 percent

By Pete Dolack

Although it may appear that manufacturers and financiers have different interests, they have a symbiotic relationship. There is a continual rivalry between them, but the push and pull of that rivalry shouldn’t be mistaken for a contradiction.

To be clear about what we are discussing here, capitalists broadly divide into two basic camps: industrialists (producers and distributors of tangible goods and services) and financiers (those whose business is financial transactions). A frequent “reading” of that divide is to imagine that bankers reign unchallenged at the top, subordinating even industrialists.

It is true that the two camps have different interests that sometimes conflict. But there is no neat division between the two; the two groups partially overlap and, ultimately, neither is independent from the other. Theirs is a relationship of mutual benefit and not a case of a “real” economy hijacked by a “fictitious” financial economy. Any rivalry between them, and any rivalry among specific capitalists, is quickly set aside when it comes to ensuring the functioning of the system that enriches both camps.

As an example, let’s examine three items that surfaced in the news during the past couple of weeks.

  • Apple Inc. announced it would buy back shares of its stock and begin paying cash dividends.
  • The United States Congress approved a bill that would exempt from existing oversight rules most companies preparing to issue initial public offerings.
  • The Federal Reserve gave passing grades in its “stress tests” to almost all of the largest U.S. financial institutions, giving them green lights to hand out huge payouts to insiders.

Apple apparently reacted to mounting grumbling from within the financial industry that it is sitting on too much cash. The New York Times, on March 20, reported that Apple possesses nearly US$100 billion in cash and that, even after handing some of it to shareholders, its hoard of cash is expected to grow. Apple certainly earns a big profit: it reported net income of $26 billion on sales of $108 billion for its 2011 fiscal year, and also reported that its cash on hand had increased more than fourfold in the past five years.

In response to what is genteelly called “market pressure,” Apple will spend $45 billion during the next three years to buy back stock and to pay out dividends to shareholders. A stock buyback is when a company offers to buy stock from its shareholders at a premium to the trading price, giving a profit to those who accept the offer and leaving fewer shareholders to share in the profits for those who hold on to the stock. A stock buyback is another way to distribute profits.

The sharp-eyed reader may have noticed that none of the cash is going to, say, employees at the sweatshops who churn out Apple’s products for pennies. I touched on that issue in my Feb. 29 post on the exploitation of Chinese labor by non-Chinese multinational corporations. Chinese laborers earn, on average, about five percent of U.S. wages and endure work days of 12 or more hours six and seven days a week. A recent commentary in The Guardian noted that employees at Foxconn, Apple’s best-known sweatshop, work up to 16 hours a day while being forbidden to talk, with only a few minutes for toilet breaks. The factory came to the world’s attention after a rash of suicides by employees, so grim were the conditions.

We of course are bombarded with messages extolling the genius of the recently deceased Steven Jobs, the Apple founder who is said to have single-handedly created a desirable line of gadgets. (This post is being written on one of them.) Jobs was something of a visionary, but he had a staff of engineers to help him bring those products to tangible form, and an army of sweatshop workers to manufacture them.

Could Jobs have designed, built prototypes and assembled the finished products all by himself? I think not. It was the employees of Apple and Apple’s contractors who did those things. Why shouldn’t they get some of the rewards? Yet in the capitalist system, such a thought is beyond the pale. Profits — and all the money that originates in profits that is siphoned off by financiers — are created by paying employees much less than the value of what they produce. An infinitesimal portion, for those Foxconn sweatshop workers.

The more intense the exploitation, the bigger the profits. (I will take up this concept in more detailed fashion in future posts.) Industrialists and financiers argue over which gets the bigger piece of the pie, but they agree they should have the pie to themselves.

Dividends, of a somewhat different form, are part of the story of the second example, that of the congressional bill eliminating consumer protections in initial public offerings. In one of those wonderful Orwellian touches the U.S. Congress, in particular Republicans, are so capable of, the bill was given a title that would give it the acronym “JOBS Act.”

It would seem that the “JOBS Act” primarily will promote jobs at stock-market boiler rooms that peddle dubious stocks, unless we count the retirees who will have to go back to work when the next wave of scandals crests. The act will exempt “emerging growth” companies (that’s a euphemism for “smallish”) from financial-disclosure and corporate-governance rules for five years after an initial public offering (the conversion from a privately owned company to one that has stock traded on a stock market).

Regulations put in place after the corporate scandals of the past decade, such as the auditing requirements of the Sarbanes-Oxley Act, will not apply to “emerging growth” companies. Congress, however, has an expansive view of what falls into this category: companies with annual sales of up to $1 billion, vastly bigger than the growing small businesses the act’s supports claim to be helping.

The bubbles of the past two decades, the precursors to the current economic malaise, were inflated partly due to the lack of financial controls and oversight. So the solution put forth by capitalists, via their loyal congressional members, is to encourage a new bubble through reducing regulation. Less regulation means more short-term profits. That inflating asset bubbles is mistaken for a functioning economy speaks volumes.

And that brings us to the third of the three examples, that of the Federal Reserve allowing major financial institutions to resume business as usual. The “stress tests” administered to the 19 largest U.S. financial corporations — promoted as an examination to determine if the banks have enough reserves to withstand another economic downturn — are a public relations exercise designed to “assure” the public that the crisis is safely in the past and all is now well. Almost all passed.

We can breath a sigh of relief because those banks that passed can now shower their insiders with gigantic piles of money. The banks are now free to, here we are again, buy back stock and pay out bigger dividends. In an odd touch, JP Morgan Chase & Co. said two days before the Federal Reserve’s announcement granting permission that it would spend US$15 billion to buy back stock and raise its dividend payments sixfold. The New York Times reported that the $12 billion dedicated to the stock buybacks in 2012 alone would consume roughly two-thirds of the year’s expected earnings. JP Morgan was far from alone; almost every other big bank immediately said it would buy back stock, increase dividends or do both.

These are the same banks that were bailed out three years ago and continue to receive money from the Federal Reserve nearly interest-free. Many have operations in the European Union, where the European Central Bank is loaning money to banks at one percent interest, so that those banks can then buy the bonds that E.U. national governments are issuing at four, five or six percent interest.

Let’s summarize this process in two paragraphs: Governments borrow money from the rich and from corporations instead of taxing them, then have to pay higher interest rates on those borrowings because the rich and the corporations complain that too much is being borrowed. To ameliorate the demand for higher interest rates, the governments’ central banks are lending money nearly interest-free to the financial institutions and corporations so that they will continue to buy the governments’ loans at the higher interest rates. In exchange for continuing to buy government debt (which will earn them a nice profit because they are using the cheap money to buy the debt), the financial institutions demand that the governments cut social services, lay off workers, sell assets and impose other austerity measures.

As a result of the austerity, governments take in less revenue, so they have to borrow more from the rich and corporations, who have hoarded the country’s wealth, at the same time the governments’ central banks are giving financial institutions more cheap money and giving them the green light to hand out more money to insiders, leaving them more vulnerable to the next economic downturn, when, because they are “too big to fail,” they are confident they will receive another bailout.

Industrialists extract profits from their employees, with some of those profits going to financial institutions, in the form of interest on loans, as payouts to stockholders and as fees for services, and some of it goes there for purposes of speculation. Financiers can do nothing without pools of money, which are created in production. Financial speculators demand ever more profits and the top executives who deliver them can give themselves ever more stratospheric pay checks and bonuses. Mutual greed requires more be extracted, even though the profits are vastly beyond any reasonable need for investment or personal consumption.

The less given to employees, the more those at the top have to play with. Until we say no.

The Keynesian past is past: Nostalgia is not the future

By Pete Dolack

Human beings tend to divide on political questions into various camps; there is no surprise when so many theories contend in the debates over the causes of economic collapse and what should be done. Finance is a poorly understood subject shrouded in mystery, compounding the tendency toward multiple theories.

One common line of thought frequently heard in the United States — and among the most coherent, as it is based on reality unlike many competing theories — is that the two decades or so following World War II represent a “golden era,” and point toward high taxation on the rich, high taxation on corporations and the far higher level of unionization as enabling a relatively more egalitarian distribution of income that fueled consumption and therefore production. That was an era of high government spending on investment, helping start entire industries.

The logical conclusion of this Center-Left viewpoint is that what is necessary is a return to the conditions of the 1950s, the height of the so-called “golden age.” (Of course it was not so golden if you were a woman confined by limited options or an African-American facing officially sanctioned discrimination.) Concomitant to this viewpoint is that government has a role to play in stabilizing the capitalist system; the economists most known for advocating this are “Keynesians,” a school named for the famed British economist John Maynard Keynes.

The period from the end of World War II to the 1970s is sometimes referred to as the “Keynesian consensus,” so accepted was the Keynesian model. Keynesianism, simply put, is the belief that capitalism is unstable and requires government intervention in the economy when private enterprise is unable or unwilling to spend enough to lift it out of a slump. Keynes developed his theories during the 1930s, when the Great Depression had discredited the “laissez-faire” economics that had plunged the world into crisis. (Laissez-faire is an older name for “neoliberalism”; there is little new under the sun.)

The arguments summarized just above boil down to this: Government spending, not austerity, is the route out of economic slump. To be sure, Keynesian spending would be much better than the neoliberal austerity on offer around the world, but it also true that we’re no longer in the mid-20th century. Government spending — the New Deal, the immense effort to win World War II, the Marshall Plan and a significant state sector in European economies — did indeed lift living standards in the advanced capitalist countries of the North. Putting money in the pockets of working people by employing them does stimulate the economy.

But those more than two decades of economic boom was an anomaly that won’t be repeated, and this time Keynesian spending can’t save the day — the world capitalist system is undergoing a structural crisis in a time much different than the 1930s.

Mid-20th century Keynesianism depended on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies. A vicious circle arises: Persistent unemployment and depressed wages in developed countries and inadequate ability to consume on the part of underpaid workers in developing countries leads to continuing under-consumption, creating pressure for still lower wages by capitalists who can’t sell what they produce and seek to cut costs further because there is no incentive for them to invest in new production.

The economic collapse that began in 2008 is not the latest in a series of downturns that are regular features of the “business cycle” of boom and bust endemic to capitalism. This structural crisis is a culmination of a long sequence of events, and has its roots in the 1970s, when mounting contradictions within Keynesianism and sharpened global competition created the openings for capitalists and the governments that capitalists have decisive influence over to begin to reverse the previous decades’ gains by working people and begin to impose neoliberal policies.

Sustained organized unrest during the 1930s had caused governments such as the Roosevelt administration to fear the possibility of revolution and, in response, massively increase social spending to dampen that unrest. Unions were emboldened, strikes disrupted production, and socialist and communist parties were acquiring mass followings — this was, so far, the only time the capitalist system has been threatened with replacement in the United States.

As significant as New Deal spending was, it was the unprecedented government spending required to win World War II that pulled the West out of the Great Depression, and the United States government continued spending to rebuild Europe and Japan through the Marshall Plan, successfully expanding markets for U.S. products, which was the intent of it.

The Keynesian compromise was not necessarily what capitalists would have wanted; it was a pragmatic decision — profits could be maintained through expansion of markets and social peace bought. This equilibrium, however, could only be temporary because the new financial center of capitalism, the U.S., possessed a towering economic dominance following World War II that could not last. When markets can’t be expanded at a rate sufficiently robust to maintain or increase profit margins, capitalists cease tolerating paying increased wages.

Ironically, just at the time when the conservative Richard Nixon declared “We are all Keynesians now” is when the tide turned against that school of economic thought. The rebound of Western Europe and Japan eroded U.S. manufacturing dominance, squeezing corporate profits and intensifying competition, and U.S. manufacturers responded by moving production overseas. A steady loss of well-paying jobs became a hammer held above the heads of working people — industrialists found it easier to squeeze their employees. Neoliberal ideology, particularly in the forms of the Austrian and Chicago schools of economics, supplied the intellectual justification.

By the early 1970s, the Nixon administration believed that the Bretton Woods monetary system put in place during World War II no longer sufficiently advantaged the United States despite its currency’s centrality within the system cementing U.S. economic suzerainty. Under Bretton Woods, the value of a U.S. dollar was fixed to the price of gold, and the value of all other currencies were pegged to the dollar. Any government could exchange the dollars it held in reserve for U.S. Treasury Department gold on demand.

Rising world supplies of dollars and domestic inflation depressed the value of the dollar, causing the Treasury price of gold to be artificially low and thereby making the exchange of dollars for gold at the fixed price an excellent deal for other governments. The Nixon administration refused to adjust the value of the dollar, instead in 1971 pulling the dollar from the gold standard by refusing to continue to exchange foreign-held dollars for gold on demand. Currencies would now float on markets against each other, their values set by speculators rather than by governments, making all but the strongest countries highly vulnerable to economic pressure.

The world’s oil-producing states dramatically raised oil prices in 1973. The Nixon administration eliminated U.S. capital controls a year later, encouraged oil producers to park their new glut of dollars in U.S. banks and adopted policies to encourage the banks to lend those deposited dollars to the South. Restrictions limiting cross-border movements of capital were opposed by multi-national corporations that had moved production overseas, by speculators in the new currency-exchange markets that blossomed with the breakdown of Bretton Woods and by neoliberal ideologues, creating decisive momentum within the U.S. for the elimination of capital controls. Private banks quickly became the center of international finance in place of central banks, leading to international dominance of the U.S. and British financial systems and U.S. financial institutions.*

Margaret Thatcher in Britain and Ronald Reagan in the U.S. ascended to office determined to tighten this domination, a project that would require both deregulation and lower standards of living for working people. It is no accident that the first move of the Thatcher administration, upon taking office in 1979, was to eliminate British capital controls (further stimulating financial speculation) and later maneuvering to break the miners’ union (striking a decisive blow against working peoples’ ability to defend themselves). Similarly, when Reagan took office at the start of 1981, he deregulated U.S. banking and broke the air traffic controllers’ national strike. (The ability of Thatcher and Reagan to break such strikes was strongly augmented by the lack of solidarity from workers in other industries — their reward for their silence would be to come under attack themselves, further eroding living standards.)

Although Thatcherites provided ideological ballast for Reaganites, it would be the far larger U.S., and Reagan administration policy, that would be decisive. In the U.S., it should be noted that austerity began to be imposed near the end of the Carter administration when the then chairman of the Federal Reserve, Paul Volcker, unilaterally began to raise interest rates sky high, inducing the deep recession of the early 1980s. The Reagan administration severely tightened monetary policy to squeeze out inflation; gave huge tax cuts to the rich, thereby providing a correspondingly large boost to the financial industry (because the windfalls of the rich would inevitably be put to use in speculation); and pursued a policy of a highly valued dollar.

The extraordinarily high interest rates offered by U.S. banks attracted foreign capital, financing the Reagan administration’s deficit spending and military buildup; in turn the U.S. applied pressure on other countries to loosen their capital controls to enable this flow of funds into the U.S. At the same time, oil was paid for in dollars internationally; a combination of high oil prices and a highly valued dollar triggered the debt crisis of the 1980s. Latin American payments to service debt increased from less than a third of the value of the region’s exports in 1977 to almost two-thirds in 1982, a graphic illustration of the grip of finance capital.**

That grip strengthened to the point that the Clinton administration seemingly further deregulated financial markets on the demand of a large U.S. bank, Citigroup, that acquired an insurance company in defiance of then existing law, while a few small countries (such as Iceland) based their entire economies on financial speculation.

The economic turnaround of the 1990s rested on a stock-market bubble, particularly in technology stocks. When that bubble burst in 2000, a bubble in real estate began to inflate, expanding the numbers of people engaged in speculation as the middle class was encouraged to buy houses for short-term investment and banks pocketed windfall profits by knowingly making housing loans on unfavorable terms to lower- and middle-income people who could not afford their mortgages. When a bubble bursts — in this case, when real estate prices had gone far beyond reasonable or sustainable — corporate profits will have already been pocketed, leaving others to pay the bills.

No more bubbles to inflate, decades of Reaganite neoliberalism in the U.S. reached its logical conclusion with 2008’s freefall, taking down the global economy with it.

Having ridden a tiger they can’t control, ideologically dependent on financiers, ensnared in the global web of financial markets and lacking any fresh ideas on how to combat ongoing stagnation, the governments of the world’s advanced capitalist countries have had no answer other than to prop up the financialization that led to the collapse. Or additionally, in the case of the Obama administration, to semi-desperately give subsidies to solar energy companies in an effort to kickstart a new “green energy” industry.

The problem here is that China is already a low-cost manufacturer of such equipment because the preceding four decades has seen a steady exodus of manufacturing from high-wage countries to low-wage countries — a process that is the logical outcome of capitalist competition. The only way to bring manufacturing back to a country such as the U.S. on a large scale would be through massive reductions in wages. Indeed, the “revival” of the U.S. automobile industry is based on new autoworkers earning wages half that of workers who had been there before the industry bankruptcies.

Here’s another example. Caterpillar Inc. locked out its unionized workers at its locomotive assembly plant in Ontario when they refused to accept a 50 percent wage cut, then closed the plant in February. Caterpillar then expanded production in Indiana, at a plant it had bought shortly before the lockout. The company last year placed an online job advertisement seeking human-resources managers having “experience with providing union-free culture and union avoidance,” according to a Feb. 3 report in The Wall Street Journal.

The race to the bottom is accelerating. Government spending can no longer provide anything other a tap to the brakes, and so much debt has been accumulated because governments borrow from the rich and corporations instead of taxing them that deficit spending in the amounts of the past aren’t possible. Corporations are sitting on unprecedented piles of cash, the rich have so much they can’t even speculate with all of it, working people are being immiserated — and the only solution on offer is to give more to those at the top.

Such a state of affairs can’t last forever — nobody has yet invented a perpetual-motion machine.

* This and the preceding paragraph based in part on Michael Loriaux, Capital Ungoverned: Liberalizing Finance in Interventionist States, pages 219-222 [Cornell University Press, 1997]; Peter Gowan, The Global Gamble: Washington’s Faustian Bid for World Dominance, pages 19-26 [Verso, 1999]; and Eric Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s, pages 112-121 [Cornell University Press,1994]

** This and the preceding paragraph based in part on The Global Gamble, page 40; Capital Ungoverned, page 222; and Giovanni Arrighi, The Long Twentieth Century: Money, Power, and the Origins of Our Times, page 323 [Verso, 2002]

The long arc of mass movements

By Pete Dolack

For as long as there has been capitalism, there has been opposition to it. Opposition to it is again on the rise, although far from coalescing into any sort of cross-border, synchronized movement. Such movements have existed in the past, and it is worthwhile to adopt a long perspective by studying them.

Toward that end, an interesting book was recently re-published by Verso as part of its “Radical Thinkers” series. Anti-Systemic Movements, by Giovanni Arrighi, Terence K. Hopkins and Immanuel Wallerstein was originally written in 1989, just before the Soviet communist bloc began to collapse, and although the book is to a small extent an artifact of the Cold War era, it nonetheless — because the authors presented a long perspective — a valuable starting point for thinking about the types of movements necessary today to overcome the massive problems of the contemporary capitalist system.

The theory underlying the book is that of “world systems” analysis, which emphasizes that capitalism is a global system that changes and mutates over time and therefore must be analyzed as a single unit rather than as a collection of nation-states. Crucial to this understanding is recognizing the global division of labor that forms the basis for a division of the world’s countries into one of three broad categories: core, semi-periphery and periphery, with the latter two subordinate to the core countries and the periphery the most exploited.

If capitalism is a global system, then the response to it must be global as well. Regardless of familiarity or agreement with a “world systems” analysis, the global nature of capitalism can not be missed — manufacturing is continually moved to new locations with ever cheaper labor costs; raw materials and resources are traded around the globe on a massive scale; and capital moves to all corners of the Earth at a click of a computer button in search of new investment or for pure speculation.

Corporate globalization is a stronger phenomenon than in the past, but is not new — Karl Marx and Friedrich Engels discussed globalization in the Communist Manifesto, written in 1848. That was a year of revolts in multiple European countries and empires. Those revolts ultimately failed, ushering in a period of reaction and strengthened monarchies. Despite the immediate failure of 1848, the uprisings did have long-term effects, most importantly the rise of working class organizations to combat the power of capitalist states, a necessity more forcefully administered after the bloody crushing of the Paris Commune in 1871.

In the fifth of the five essays that comprise Anti-Systemic Movements, professors Arrighi, Hopkins and Wallerstein argued that the events of 1848 and 1968 constitute the “only two world revolutions” (authors’ emphasis). Finding strong parallels between 1848 and 1968, the authors situate 1848 as an uprising seeking to fulfill the original hopes and overcome the limitations of the French Revolution, and overturn the counter-revolutions of 1815. The uprisings in 1968, they argued, sought to fulfill the original hopes and overcome the limitations of the Russian Revolution, and overturn the counter-revolutions of 1945, when the United States firmly established its world hegemony. They wrote:

“In both cases the bubble of popular enthusiasm and radical innovation was burst within a relatively short period. In both cases, however, the political ground-rules of the world-system were profoundly changed as a result of the revolution. It was 1848 that institutionalized the old left (using this term broadly). And it was 1968 that institutionalized the new social movements. Looking forward, 1848 was in this sense the great rehearsal for the Paris Commune and the Russian Revolution. … 1968 was the rehearsal for what?”

I would argue that it was the drowning in blood of the Paris Commune, the world’s first example of a people’s movement derived from socialist inspiration taking power, that might have been the more indispensable impetus for the growth of organizations such as political parties and unions, but there is no question that 1848 was the critical precursor of the Paris Commune and working peoples’ organizations long pre-date the Commune. There is no good argument against the authors’ statement that:

“The lesson that oppressed groups learned from 1848 was that it would not be easy to transform the system, and that the likelihood that ‘spontaneous’ uprisings would in fact be able to accomplish such a transformation was rather small. … Since the states could control the masses and the powerful strata could control the states, it was clear that a serious effort of social transformation would require counter-organization — both politically and culturally.”

But let us return to the question just asked: 1968 was the rehearsal for what? In 1989, when Anti-Systemic Movements was written, it was too early to provide an answer. I believe it is still too early to provide an answer. But perhaps, in this new era of long-term systemic capitalist crisis, a new movement can arise that not only directly challenges the capitalist system but incorporates today’s social movements — struggles against racism, sexism, homophobia, nationalism & etc. – and which not only grasps, and acts on, the need for struggle to be internationalized but is capable of crossing national lines because of its inclusion of all struggles against oppression and its ability to connect these struggles.

Can the Occupy movement become the movement just described? It is far too early to say – if we are yet unable to determine the outcome of uprisings a generation ago, we are in no position to judge a movement born six months ago. That latent discontent with the capitalist status quo is widespread was confirmed by the incredible explosion of the Occupy movement; its clear message of the one percent against the 99 percent captured the social zeitgeist while placing the social debate on a class foundation in contrast to the national and race scapegoating routinely put forth by right-wing “populist” movements.

The movements that arose during the 1960s — reaching a brief zenith in places as diverse as Mexico City, Paris and Prague, and militarily expressed in the Tet Offensive, the turning point in Vietnam’s defense against United States invasion — were responses not only against capitalism but against the bureaucratization and deformation of anti-capitalist revolutions and movements. “Errors and terrors” repeated themselves in Communist states, professors Arrighi, Hopkins and Wallerstein wrote, adding that social democratic governments were engaged in colonial repression and Third World national movements were frequently disappointing.

When new social movements burst on to the world stage in the 1960s, the “old left” seemed unable to comprehend. The French Communist Party, to provide one example, still attempted to appeal to women as mothers and housewives into the 1960s, seriously moving to modernize its line only after the 1968 student uprisings. But even afterwards, the Communists fell back on strictly economic themes, throwing overboard appeals to women based on anything other than as workers, and stifled internal discussions, ultimately driving many women away.

Moreover, the example of one movement could and did provide inspiration for other movements. A good example would be the feminist movement in the United States, which grew directly out of the experience that the women in civil rights organizations, where they developed skills to organize against their own repression experienced on a society-wide level while confronting the sexism they experienced within the civil rights movements.

Professors Arrighi, Hopkins and Wallerstein argued that four changes in relations were “established” as a result of the 1968 uprisings. The military capabilities of the core countries to police the global South became limited; changes in power relations among status groups such as genders and ethnicities “have proved to be far more lasting than the movements which brought them to world attention”; spreading labor unrest has shrunk the areas offering “safe havens of labor discipline”; and dictatorships have been replaced by democratic régimes.

The third item in the above paragraph has not been true for some time; labor has not been so weak against capital since the 1920s, or perhaps earlier. The authors were writing just before the collapse of the Soviet bloc, a zone that, despite its faults, did provide alternative ideas of social organization. The bloc’s collapse pitched the Left into a crisis nowhere near a solution, opened a previously blocked swath of the world for full exploitation by capital and weakened resistance to the onslaught of neoliberal triumphalism.

And although the other gains mentioned above are real, the authors acknowledged that the actual changes for subordinate groups from the 1968 uprisings are meager:

“[S]ome material benefits did accrue to subordinate groups as a whole from the change in the balance of power [in the world social system]. But most of these benefits have accrued to only a minority within each group, leaving the majority without any gain, perhaps even with a net loss. … In all directions we are faced with the apparent paradox that a favorable change in the balance of power has brought little or no change in benefits to the majority of each subordinate group. This apparent paradox has the simple explanation that the reproduction of material welfare in a capitalist world-economy is conditional upon the political and social subordination of the actual and potential laboring masses.”

Writing in 1989, on the eve of an unforeseeable change in world affairs, the authors forecasted four developments continuing in the following two decades: the erosion of U.S. hegemony with no clear new order to replace it; a deepening struggle between labor and capital leading to pockets of rising well-being surrounded by increasing immiseration for most; new technologies undermining the abilities of states to control their civil societies; and the “demands of disadvantaged status-groups — of gender, of generation, of ethnicity, of race, of sexuality — will get ever stronger.”

By and large those four predictions did come to pass, although the pockets of relative prosperity are now being eroded. The decline in living standards among people previously privileged is beginning to expand the base of opposition to the political and economic status quo. Those so privileged within a given country tend to be well delineated; less obvious but no less important is that all working people in advanced capitalist countries are privileged in relation to people in all other countries. That latter privilege was a fruit of imperialism, even if the rewards heavily flowed to the top; but now imperialism has dialectically evolved into a relationship that erodes the living standards of working people within those countries as ever more manufacturing and services are transferred to new low-wage havens. Now all of the benefits are flowing to the top (the “one percent”) of the advanced capitalist countries, with some diversion to the very top within the developing countries to which production is transferred.

The economic crisis — a structural crisis of the capitalist system — has been long lasting and, with short-term fluctuations, is bound to deepen. And the myriad of social problems and discriminations expressed in economic struggle and in cultural forms are a long distance from being solved. Older institutions of working people, those with roots in the first half of the 20th century and even the 19th century, proved to be disappointingly incapable of understanding, never mind responding adequately to, the social movements of the 1960s and beyond. The newer institutions that began during that decade and since routinely acknowledge social issues and the legitimate demands of minorities, women, gays, lesbians and immigrants, but continue to struggle with these issues.

That straight women, lesbians and transgendered people had to create safe spaces for themselves at the Occupy Wall Street encampment in New York City by erecting a large tent for women and another large tent for women and transgendered people speaks for itself. Social struggles such as these were (and are) discussed at great length within the Occupy movement, but that they are necessary speaks to the inability of Left movements to adequately confront them. I stress here that I am not pointing a finger at the Occupy movement; rather, I am noting a symptom of how deeply racism, sexism, homophobia, nationalism, anti-Semitism and other social ills are imbedded in the capitalist society that envelops all of us.

One important reason for the Left’s inadequate responses is a belief held among many that social ills and discriminations will magically vanish when capitalism is ended. But we should all acknowledge that racism, sexism and the other social ills are woven so deeply into the fabric of society that a conscious struggle against them is necessary before, during and after any social upheaval or revolution. Only a movement that incorporates the social movements and the struggles for economic justice and democracy — an all-encompassing movement to completely overhaul society – can succeed.

If an injury to one is an injury to all, then injury to one has to be opposed by all.

Simultaneously with inter-related struggle is to have long-term goals, not simply reforms to be won in the short term, which can easily be (and often are) taken away. The authors of Anti-Systemic Movements argued that post-1968 movements have lacked a clarity that post-1848 movements possessed:

“After 1848, the world’s old left were sure that 1917 [socialist revolution] would occur. They argued about how and when and where. But the middle-range objective of popular sovereignty was clear. After 1968, the world’s antisystemic movements — the old and the new — showed rather less clarity about the middle-range objective. They have tended therefore to concentrate on short-range ones.”

By and large, that analysis remains true more than two decades later. I am not arguing that there should not be short-range goals — tangible goals that can be obtained and create a real advance are indispensable and create their own momentum during periods of movement upsurge. Any movement, especially one that confronts a global hegemonic system, must have attainable short-term victories. But to concentrate only on reforms, and not necessarily big reforms, is a short-term strategy that isn’t viable over the long term.

If the problem humanity confronts is a global system, then the long-term goal has to be replacement of that global system. Replacing this or that banker, successfully forcing a reform on this or that corporation, successfully defending a progressive law or defeating a regressive law are real, tangible accomplishments deserving of applause, but can not be other than short-term reforms lacking a stable foundation. The problems humanity faces are far larger than any group of bankers or corporations.

Reforms that lead toward much bigger changes — clearly articulated reforms that the system can not accommodate — are the path toward a real change in human existence.

Finding those reforms, and finding that path, are no easy task. But we have no choice but to find them.

It’s not the Federal Reserve, it’s the system it serves

By Pete Dolack

There are details, and then there is the big picture. Mistaking the former for the latter can send an activist down the wrong path. A good example of this are the often well-meaning people who resolutely demand that we “End the Fed.”

But the problem isn’t the Federal Reserve, it is the system that it serves. If you don’t like the Fed, what you actually don’t like is the capitalist system.

The Federal Reserve, the central bank of the United States, is surely (as its critics accurately charge) a far too secretive, unaccountable branch of government that protects the interests of financiers at the expense of everybody else. A democratically accountable Fed that promulgated policies to increase employment and toward a socially responsible financial system would be welcome reforms.

But they would be unstable reforms, tinkering at the margins and would likely not change Fed policy in dramatic ways. Moreover, increasing oversight on the Fed wouldn’t eliminate the dominance of Wall Street or the largest corporations. There is plenty of oversight of other U.S. government agencies, yet corporate interests have little trouble bending policies toward their preferred outcomes.

Going further, and abolishing the whole thing, is, to be blunt, not a serious demand. Eliminating the Fed is a pointless idea because a central bank is a necessity in an advanced capitalist country, which is why each has one. And, perversely, eliminating the central bank would actually increase the dominance of financiers and would make the booms and busts of the capitalist business cycle sharper than they already are.

Strange as it seems today, when many voices on the Right and the Left echo the demand of “End the Fed,” there was a populist component to the creation of the Fed. Populists of the late 19th century wanted a more elastic currency so that the government could extend emergency credit when the economy collapsed (as it then frequently did) rather than be handcuffed by the gold standard.* In those days, when a crash happened, the U.S. government had to turn to the biggest robber barons of the day, such as J.P. Morgan, and ask them directly for a bailout.

Banks hoarded their reserves during crashes, making the downturns worse, and could issue their own banknotes, helping to fuel bubbles. But, since we are talking about the United States, it took a consensus on Wall Street and not popular demand for a central bank to be created in 1913. Financiers had come to believe that a central bank would temper the extremes of booms and busts, thereby stabilizing the economy. Industrialists joined financiers in that consensus.

Needless to say, the capitalists and not the populists were the drivers of Fed policy from the beginning. But a central bank does, albeit in a highly inegalitarian manner, stabilize a national economy through regulating credit and alternately tightening and loosening monetary policy. Central banks in all advanced capitalist countries manage domestic money supplies and currencies, a crucial task in today’s world in which markets subject to wild swings set prices for everything. The exception is in the countries using the euro, in which national central banks don’t have a currency to manage and are subordinate to the supranational European Central Bank, which is even more unaccountable than national-level central banks.

It won’t come as a surprise that financial institutions are skilled at finding ways around central bank policies. And central banks don’t necessarily do good, either — the Fed under Alan Greenspan encouraged the 1990s stock market bubble and the real estate bubble of the 2000s, and the post-crash Fed of Ben Bernanke is focused on the non-existent phantom of inflation while ignoring the all too real problem of high unemployment. The European Central Bank is, if anything, even more guilty of that than the Fed. The Fed, typical of central banks, is an institution staffed by and ideologically dependent on the financial industry. So it is no surprise that it consistently acts in a manner that benefits the financial industry and is detrimental to working people.

The entire capitalist system acts to benefit capitalists (industrialists and financiers) to the detriment of working people. Why should we expect an arm of a capitalist government to act any different? (Contrary to popular mythology, the Fed is part of the government, the Treasury Department to be specific; its all-powerful chair and board of governors are appointed by the president and approved by the Senate.)

If the Fed were eliminated, the exact same powerful capitalist interests would continue to bend government policy to their preferred outcome and would continue to exercise the same dominance over government, social institutions and the mass media. The only difference would be that the economy would become more unstable than it already is because there would be less ability on the part of government to dampen excesses. Why would that be good?

Concomitant to “End the Fed,” for those on the Right who echo that slogan, is a yearning to return the U.S. dollar to the gold standard. Most of these people do yearn for the good old days of the 19th century, when women, minorities and working people knew their place, and paid a violent price if they didn’t. I’ll pass over the irony of working people yearning for such a time. Unfortunately for gold fetishists, there is no returning to those simple times as capitalism has evolved into a much more complicated system. Capitalism can no longer function under a gold standard and indeed outgrew it in the 1970s.

Richard Nixon, then the U.S. president, pulled the dollar off the gold standard because retaining it was no longer in the interest of the U.S. despite the dollar’s centrality in the Bretton Woods system of fixed currency rates. In that system, implemented at the end of World War II, the dollar was fixed to the price of gold and all other currencies were fixed to the dollar; governments could and did change the value of their currencies based on their particular interests. Doing so was a big deal.

Such a system is more stable than the current one of free-floating currencies that continually rise and fall in foreign-exchange markets. Today’s system is heavily skewed by speculators, and it is precisely the pressure of financial speculators that began to burst the system of fixed exchange rates — today, the size of foreign-exchange markets dwarfs the size of stock markets and those traders are not about to forgo their profits.

There is too much special interest by financiers and speculators to allow a resumption of a gold standard. Going back on the gold standard would also handcuff governments trying to stimulate economies during economic downturns because they would not be able to issue new money. The supply of money would be determined by the productivity of South African gold mines, a rather odd circumstance. Moreover, gold is a commodity the same as any other; despite the fetishes that attach to it there is nothing more intrinsic to valuing money on it than on any other commodity. Why not tie the dollar to aluminum?

Capitalism is an unstable system that will always have booms and busts, and as time goes on the busts tend to worsen. (That tendency was temporarily kept at bay after the Great Depression by significant reforms, but those reforms have been undone and the tendency has reasserted itself.) Capitalism is a system in which those who amass the capital thereby amass power, and power translates into the ability to bend the rules to preferred outcomes or to bypass the rules. Money concentrates into fewer hands and wages are squeezed to facilitate the upward flow of money. Those who succeed are the people endowed with outsized desires to acquire and the personality traits that enable those desires to be met.

Yes, those people so endowed can and do create policy for the Fed, or any central bank. But ending the Fed wouldn’t touch the ability of people so endowed to suffuse their viewpoints and favored policy outcomes throughout a capitalist society, nor would it touch their ability to leverage their outsized wealth and the power their wealth gives them to shape government policy to benefit themselves.

Getting rid of government would actually intensify the dominance of industrialists and financiers in all spheres of life. The dominance of a globalized class that maintains power through a web of institutions and scrambles to manage ceaseless instability — not a small cabal of bankers who somehow control everything, an idea rooted in Right-wing conspiracy theories that easily shade off into anti-Semitism.

If you don’t like what the Fed does, it is because you don’t like what the capitalist system does. Blaming the central bank is no more than blaming the messenger.

* This and the following paragraph are based on the book Wall Street by Doug Henwood, pages 92 to 95 [Verso, 1998]