The concrete roots of capitalism’s magical thinking

Most people don’t actually like capitalism. Dislike of the jobs we head to each day is quite the norm. Resentment of the power of the corporations we deal with in our daily lives crosses all social lines. Loathing of banks is nearly universal, across the political spectrum.

A sullen resignation to the continual unfairness of the world is pervasive. And yet, “there is no alternative.” Mercenary scribblers furiously tell us so. That this barrage of propaganda ceaselessly flows from the corporate media and other institutions speaks for itself as to the necessity of reinforcing this message; but it doesn’t in itself account for the widespread acceptance of “there is no alternative.”

There is the argument that if we simply ceased to cooperate, it would grind to a halt. Tempting though that argument is — and, in theory, it holds much truth — the puzzle of capitalism’s continued acceptance is a good deal more complicated.

"Nothing is nothing" photo by Darwin Bell

“Nothing is nothing” photo by Darwin Bell, San Francisco

Advanced capitalism is intertwined with so many aspects of our lives, and the capitalists who effectively rule the world possess multiple levers of power and influence to keep themselves in the saddle. There is also the not inconsiderable problem of the livelihoods of millions being entangled in destructive production and exploitation. Nor should the power of modern ideologies, such as nationalism, to provide emotional underpinning be ignored.

Except for the hopelessly cynical, humans need something to believe in, something bigger than themselves of which to be a part. The nation is the object par excellence for this; nationalism to this point in human history has proven stronger than class solidarity or any other more general identification in a common humanity. It has also superseded tribal or other local-community loyalties. Nationalism is a unifying glue holding together what Benedict Anderson calls “imagined communities” — human constructs that are mostly recent in origin.

Professor Anderson, in his classic book with that very name, Imagined Communities, offers this definition of a nation:

“It is an imagined political community — and imagined as both inherently limited and sovereign. It is imagined because the members of even the smallest nation will never know most of their fellow-members, meet them, or even hear of them, yet in the minds of each lives the image of their communion.” [page 6]

Approaching the question from a different angle, a nation might be thought of as a group with a common ethnicity, cohesive culture and shared language occupying a particular area (diasporas excepted). Most commonly, nations are organized as countries, although some countries (such as the United Kingdom) can contain multiple nations and settler countries (such as the United States) can be organized on an idea rather than an ethnicity, although culture and language are unifying factors. Some nations are colonies of or minorities within a larger nation and some nations are split among adjoining countries.

Nationalism versus solidarity

Religious belief has obviously been, and remains, a powerful force — as Christian fundamentalism in the U.S., political Islam in the Middle East and Hindu chauvinism in India attest, to cite merely three examples. Religions offer answers to life-and-death questions that other systems of thought don’t, not to mention promises of eternal life. It’s hard to top that. But religious belief has declined in most of the advanced capitalist world as science has taken hold since the Enlightenment.

To return to Imagined Communities, Professor Anderson argues that something was necessary to fill the void left by the withering of religious belief, and nationalism became the substitute as it came into being out of preceding cultural systems. He writes:

“What then was required was a secular transformation of fatality into continuity, contingency into meaning. … [F]ew things were (are) better suited to this end than an idea of nation. If nation-states are widely conceded to be ‘new’ and ‘historical,’ the nations to which they give political expression always loom out of an immemorial past, and, still more important, glide into a limitless future. It is the magic of nationalism to turn chance into destiny.” [pages 11-12]

The erasure of boundaries (for capital) through “free trade” agreements or entities like the World Trade Organization is a function of capitalist expansion. Globalization advances as competition within a given industrial sector narrows from separate sets of local corporations dominating particular countries or regions to a handful of corporations operating around the world. Yet although the largest capitalists are today transcending national borders, the largest capitalists of the 19th century were an important force in creating unified nations. What is today Germany and Italy were once a myriad of small principalities; capitalist trade required the barriers that frequent borders represent be dismantled.

The rise of books and other printed materials, and the accompanying rise of literacy along with the construction of centralized states, bureaucracies and school systems, brought about standardized languages. Often the dialect in the capital became the standard language, and a common language became a crucial building block for national consciousness. Nationalism became a necessary prop to wage modern war with the need for mass conscription, without which imperialism and colonization are impossible. Few soldiers would fight for corporate profits, but will for “national honor.”

The abject failure of the Socialist International to have any effect on the outbreak and initial enthusiasm for World War I was due not only to nationalism being more powerful than international or class solidarity among social democracy’s constituents but that social democrat leaders themselves were nationalists.

In no sense can nationalism be said to have lost its potency. It remains a durable force to divide the world’s people and block international solidarity — a devastating development when the world’s biggest capitalists are trans-national, conscious of their common interests beyond borders and relentlessly organizing chains of production that span the globe.

Democracy as consumerism rather then participation

We can freely buy whatever we like from whatever corporate behemoth we wish (assuming we are fortunate enough to have a job that provides a living wage). Untold billions of dollars are pumped into advertising campaigns designed to induce us to buy particular products and, crucially, to define this choice as “freedom.” Democracy is reduced to the ability to buy a corporate product as opposed to being defined as the ability to meaningfully participate in the decision-making processes of your society.

That crabbed definition of democracy and the ability to freely vote in elections with little meaning or choice (although the ability to vote is being eroded in the U.S., particularly for People of Color) are promoted as the epitome of political development. But how much freedom do working people in capitalist countries actually have? We have no control over our lives when on the job, which consumes most of our waking hours, nor any control over the corporate behemoths that routinely run roughshod over communities, nor legal recourse against “market forces” that enable the relentless privatization of previously public spaces and services.

I can think of my experience at Occupy Wall Street, the encampment of which was close to my place of employment. Invariably, anytime I happened to mention that I was handing out fliers or engaging others near to where I was employed while on lunch hour or after the end of my workday, the response was always concern that I would lose my job or get in trouble should my employer discover my participation. I wasn’t discovered, but the commonality of such reactions speaks for itself on the topic of democracy.

Political control in a capitalist society is hidden in a way that it was not in a country like the former Soviet Union, and the contrast in the manner of social control in capitalist versus Soviet-style societies became an invaluable tool undergirding capitalist triumphalism. Because the power held by capitalists in a capitalist society is secure through a myriad of institutions upholding their ideologies and deferring to them, bolstered by the appearance of democratic assent provided by elections, there is far more elasticity to capitalist régimes than Soviet-style régimes (which should more properly be called “post-capitalist” than “socialist” as their form congealed far short of any socialist ideal.)

The illusion of democracy

The historian Isaac Deutscher, in a series of lectures collected in his book The Unfinished Revolution: Russia 1917-1967, outlined this difference. He said of freedom in a capitalist country:

“[I]n bourgeois society it can be a formal freedom only. Prevailing property relations render it so, for the possessing classes exercise an almost monopolistic control over nearly all the means of opinion formation. … Society, being itself controlled by property, cannot effectively control the State. All the more generously is it allowed to indulge in the illusion that it does so. … In a society like the Soviet, freedom of association and character cannot have so formal and illusory a character: either it is real, or it does not exist at all. The power of property having been destroyed, only the State, that is, the bureaucracy, dominates society; and its domination is based solely on the suppression of the people’s liberty to criticize and oppose.

Capitalism could afford to enfranchise the working classes, for it could rely on its economic mechanism to keep them in subjection; the bourgeoisie maintains its social preponderance even when it exercises no [direct] political power. In post-capitalist society no automatic economic mechanism keeps the masses in subjection; it is sheer political force that does it. … Capitalism has been able to battle against its class enemies from many economic, political and cultural lines of defence, with much scope for retreat and maneouvre. A post-capitalist bureaucratic dictatorship has far less scope: its first, its political line of defence, is its last. No wonder that it holds that line with all the tenacity it can muster.” [pages 106-7]

(“Property” in the above quote refers to large enterprises and other economic entities in private hands.) The Soviet bureaucracy could maintain its privileges only through undisguised direct political force. Capitalists, in contrast, maintain their rule by virtue of owning the means of production, able to maintain power through decisive influence over a range of social institutions and thus diffusing and mystifying the roots of power.

There is no dictator, no party in permanent power, and the ruling capitalists and their political servants have conflicting interests that are debated in public. Thus the illusion of democratic accountability can be maintained, on a separate track from the pervasive advertising that reduces democratic choice to consumer selection of corporate products.

There are more flavors of cola to choose from than ever before. What more could you want?

Show your individuality by buying the same product

Marketing has become so sophisticated that consumption of corporate products is equated with individual expression. Individualism must be continually stimulated to counter the development of social solidarity, without which change in the structure of any society is impossible, yet consumerism-dependent production requires the fostering of mass taste to facilitate mass production.

Consumers are encouraged to “rebel” by decorating their smartphone or buying a copy of the latest recording by a “transgressive” musical act, a work of intellectual property owned by a corporate behemoth and carefully calculated to appeal to the widest possible demographic. Today’s cultural rebellion is tomorrow’s marketing campaign. The use of the Stooges’ “Search and Destroy” in a Nike commercial is but one example; more recently, 1960s icon Bob Dylan starred in a Super Bowl commercial for Chrysler extolling U.S. patriotism.

Photo by Istvan Takacs, Budapest.

Photo by Istvan Takacs, Budapest.

The word “revolution” has been reduced to a corporate slogan; the selling back to us of rebellion has attempted to shrivel the popular imagination to the point that the only change that can be imagined is an upgrade to a consumer product. This is no less true of the food we eat — as eating organic becomes more popular, large food corporations that have foisted on us unhealthy, over-processed foods are increasingly entering the organic field, both by creating new brands and taking over existing ones while being careful to not signal those corporate ownerships on the label.

Some of the largest multi-national corporations that spend millions of dollars to defeat genetically modified organisms (GMO) labeling initiatives own some of the best-known organic brands. Ben & Jerry’s Ice Cream may claim it is an “autonomous subsidiary” of its owner, multi-national conglomerate Unilever, but the profits it earns go to Unilever headquarters. Those profits fund a corporate parent that opposes GMO labeling, has been cited for making false health claims, has used its market power in tea to bully tea farmers in India, and promotes the World Trade Organization. Slick marketing keeps people buying the ice cream and obfuscating where the profits are going.

Yet even if a particular company stays true to a particular value, consumerism is an individualist gesture incapable of effecting change. All the more reason for it to be equated with “democracy.” In the 1970s, a frequently run public service announcement (PSA) featured a Native American man shedding a tear when a bag of garbage is thrown out of a car and lands at his feet, ending with the tag line that “People start pollution. People can stop it.” In a discussion of this PSA in his article “On the emotional terrain of neoliberalism,” Tim Jensen writes:

“Funded by beverage bottling corporations, the campaign was intended to lessen political pressure on manufacturers to stop producing non-refillable bottles and more generally be held accountable for creating the products that create litter. By placing the onus on the individual consumer, who is positioned as the cause of the problem and thus the solution’s origin, too, these corporate interests successfully deflected growing concern about pollution away from themselves. …

The PSA performs an emotional orientation focused on guilt, an emotion that is critical to our current landscape. What makes its rhetorical strategy effective is not simply the evocation of guilt in the consumer, but a specific form of guilt that is coupled with a pathway that channels the desire for atonement—one that does not put profit at risk. Asking why harmful bottles are being made in the first place and to what degree their manufacturer should be held accountable is trumped by a framework of consumer culpability, individualized responsibility, and ineffectual chores. It marshals the potential forces of transformative collective action and individuates them in an atonement strategy.”

If it is our own fault, then the system that actually compels such waste is blameless, beyond questioning.

Blow up that mountain or be out of work

Even when we are cognizant of the waste and destructiveness of capitalist production, it is not a simple matter to de-couple. Millions of jobs, and the communities where those jobs are located, are dependent on environmental destruction and unsustainable resource extraction. Faced with dismal, or no, prospects for alternative employment, the workers in such industries naturally oppose efforts to reduce the damage done — a market economy doesn’t offer new jobs for those put out of work.

The relentless competition of capitalism mandates that costs be steadily cut, so jobs are steadily lost anyway. Individualist ideology comes into play here as well: Something must be wrong with you for losing your job. And when that fails, there is always the strategy of finding scapegoats.

Scapegoating is not unique to any system, locale or time. But when a small elite commands the mass media and possesses decisive influence over educational, military, religious and other institutions, it possesses the means of shaping public opinion. The very fact of private ownership of the mass media contributes significantly to the effectiveness of the media in shaping public opinion. If several different media outlets report more or less the same thing, then those reports tend to be widely accepted.

It is surely true that the corporate owners of various publications and electronic news sources did not consult with one another, and in a capitalist formal democracy no government official tells you what to report. But the corporate plutocrats who own the mass media have a common interest in promoting a system that benefits them and thus narratives that reinforce those interests.

Most large, influential broadcast stations and print publications are owned by large corporations, and a typical small-city newspaper is owned by a prominent local businessperson if it is not owned by a large corporation. Powerful corporate interests appoint the top editors and managers of their media properties — these mass-media decision-makers are quite likely to be men and women who already see the world through the prism of dominant ideologies, and those ideologies will be reflected in the way that news stories are covered.

Battle in Seattle photo by Steve Kaiser, Seattle

Battle in Seattle photo by Steve Kaiser, Seattle

Those ideologies are also reflected in indirect ways — pressure to increase readership or viewership easily leads to pandering to perceived (and sometimes manufactured) consumer interests such as wall-to-wall coverage of celebrity gossip and exhaustive coverage of sports teams simultaneous with the shrinking of news sections.

No collusion is needed. It is enough that corporate-inspired ideologies pervade a society and that corporate ownership ensures that decision-making positions are filled with those who hold to some variant of prevailing ideologies or are inclined to “play it safe” by cautiously remaining within “acceptable” boundaries. The mass media will then simply reflect these dominant ideologies, and continual repetition through multiple mass media outlets reinforces the ideologies, making them more pervasive until the emergence of a significant countervailing pressure.

The persistence with which stories are reported is another reinforcement — stories that serve, or can be manipulated, to uphold dominant ideologies can be covered for long periods of time with small developments creating opportunities to create fresh reports at the same time that stories that are ideologically inconvenient are reported briefly, often without context, then quickly dropped.

Nor does the structure of corporate-dominated mass media exclude sometimes vigorous debate — as long as the positions being debated fall within the range of “acceptable” ideas that don’t challenge corporate orthodoxy. A system in which the mass media is believed to be independent is far more effective at suffusing a society with an ideology than the media of a closed society. Such a system is not the result of some sort of conspiracy or a conscious plan, it is simply a natural outgrowth of corporate institutions growing so powerful at the expense of all other institutions.

A network of institutional reinforcement

A web of institutions are necessary to maintain belief in a system, or to block to the extent possible, opposing narratives to the dominant belief system.

Educational institutions have been reduced to job-training facilities. University presidents and board members are increasingly prominent business leaders who seek to make educational institutions more “business-like” — pursuit of knowledge for personal intellectual enrichment is almost an after-thought. Educational initiatives at all levels are increasingly funded directly by corporate elites — instead of education being funded by the public through accountable institutions managed by education professionals, it is instead adapted to the needs of corporate-elite donors who seek to produce students grounded in technical skills without exposure to the types of courses that encourage creative or independent thinking.

Militaries in capitalist countries frequently function as enforcers of corporate prerogatives in weaker countries; militaries also underwrite corporate and university research and development, and are heavy buyers of corporate products. Politics cannot be anything but a significant corporate transmission belt because corporations provide campaign donations and give jobs to office holders when they leave office — those with money are those who get access, and thus provide the perspectives that will be heard.

The modern corporation also employs an army of lobbyists to influence politicians’ thinking. Corporate executives additionally create a network of auxiliary institutions — research centers and “think tanks” that can leverage lavish funding to disseminate class ideology through various channels. Bankrolling right-wing street movements, such as the Tea Party in the U.S. or outright fascist fronts in Europe, is another methodology for creating the appearance of popular support for anti-social tendencies.

Corporate institutions are competitors with sometimes sharply different interests — in terms of antagonisms between suppliers and buyers of raw materials and component parts; in divergence of the optimum conditions sought by different industries; and the ever present fierce fight over the sharing of profits between industrialists and financiers — yet these conflicts and antagonisms are contained within the perpetuation of the system within which they operate. As this collective power grows, it will steadily be wielded in harder forms in the absence of serious countervailing pressures in the form of mass movements.

Ideologies of individualism are not simply mechanisms to atomize society through breaking down bonds of solidarity — although that is an important reason for their propagation — they grant a license for those who have more but never enough. The cult of individuality, by reducing all social outcomes to personal behaviors independent of any social structure, provides the basis for the celebration of greed while simultaneously inculcating those who have been run over with the self-defeating idea that their individual failures account for their fate.

“Freedom” is equated with individualism — but as a specific form of individualism that is shorn of responsibility. More wealth for those at the top (regardless of the specific ideologies used to promote that goal, including demands for ever lower taxes) is advertised as good for everybody despite the shredding of social safety nets that accompanies the concentration of wealth. Those who have the most — obtained at the expense of those with far less — have no responsibility to the society that enabled them to amass such wealth.

Ongoing belief in capitalism, despite the widespread disapproval of its concrete results, rests on multiple pillars, none on their own decisive. The perceived lack of an alternative, however, is a linchpin. Cooperatives and other social forms of enterprise management, successful in significant numbers, would provide such an alternative — if people see examples of something better, “there is no alternative” would lose its force. But much organizing will be necessary to bring forward that day, for the massive force that capitalist society can bring down on alternatives hasn’t been, and won’t, be held back.

Freedom for capital, not people

Libertarianism is a philosophy of might makes right. The natural philosophy for the age of neoliberalism, as well demonstrated by the Koch brothers, but also, it would appear, a justification for the ugliest elements of United States history.

Consider the following words of Ayn Rand:

“Now, I don’t care to discuss the alleged complaints American Indians have against this country. I believe, with good reason, the most unsympathetic Hollywood portrayal of Indians and what they did to the white man. They had no right to a country merely because they were born here and then acted like savages. The white man did not conquer this country. …

Since the Indians did not have the concept of property or property rights — they didn’t have a settled society, they had predominantly nomadic tribal ‘cultures’ — they didn’t have rights to the land, and there was no reason for anyone to grant them rights that they had not conceived of and were not using. …

What were they fighting for, in opposing the white man on this continent? For their wish to continue a primitive existence; for their ‘right’ to keep part of the earth untouched — to keep everybody out so they could live like animals or cavemen. Any European who brought with him an element of civilization had the right to take over this continent, and it’s great that some of them did. The racist Indians today — those who condemn America — do not respect individual rights.”

A U.S. Air Force plane drops a white phosphorus bomb on Vietnam in 1966.

A U.S. Air Force plane drops a white phosphorus bomb on Vietnam in 1966.

The occasion for Ayn Rand’s cold-blooded, racist words was her speech to the graduating class of the U.S. Military Academy at West Point on March 6, 1974. She said the above during the question-and-answer session, but the text of the actual talk wasn’t much more humane. During her talk, among many head-slappers, the infamous philosopher of greed said:

“Something called ‘the military-industrial complex’ — which is a myth or worse — is being blamed for all of this country’s troubles. Bloody college hoodlums scream demands that R.O.T.C. units be banned from college campuses. Our defense budget is being attacked, denounced and undercut by people who claim that financial priority should be given to ecological rose gardens and to classes in esthetic self-expression for the residents of the slums.”

Civilizing them with a gun

I recall someone named Dwight Eisenhower raising concerns about a “military-industrial complex.” It seems to me he was in a position to know what he was talking about, even if he waited until the end of his career to provide a warning after devoting so much of it building up said complex.

At the time of the West Point talk, three million Vietnamese were dead due to a war nearing its conclusion. Was it valid to protest? Among other feats, the U.S. leveled major cities — 77% of the buildings in Hue, one of Vietnam’s biggest cities, were completely destroyed. Dams were blasted away, allowing salt water from the South China Sea to flood farmland, making the growing of food impossible.

In South Vietnam, 9,000 of 15,000 hamlets were damaged or destroyed, as were 25 million acres of farmland and 12 million acres of forest. Killed were 1.5 million cattle. In North Vietnam, 34 of the largest 36 cities suffered significant damage, with 15 completely razed, while 4,000 of about 5,800 communes were damaged. More than 1 million acres of farmland and 400,000 cattle were destroyed in the North. (These statistics are from Manufacturing Consent by Noam Chomsky and Edward S. Herman.)

The Vietnamese were ungrateful for this exemplary treatment, in the imperialist mind, similar to the ungrateful Native Americans who are “racist” because they have failed to appreciate the lessons in civilization they were being taught while the subjects of a genocide.

I don’t see why the above words of Ayn Rand should be considered any different than Nazi pronouncements on Jews.

Domination in the age of financialization

Although there is a temptation to think of libertarians as young conservatives who want to smoke marijuana — a picture sometimes true of libertarian followers — when libertarian leaders talk about “freedom,” what is really meant is freedom for the holders of capital to pursue profit maximization without limits. The cult of the market is a logical expression of the extreme individualism embodied in libertarianism.

One of the most influential articulators of that was Friedrich Hayek. The Austrian School economist asserted that solidarity, benevolence and a desire to work for the betterment of one’s community are “primitive instincts” and that human civilization consists of a long struggle against those ideals. “The discipline of the market” is the provider of civilization and progress, he wrote.

Thus, unregulated capitalism is “civilization” and anything else is a product of “primitive” group instincts that have survived from our prehistoric hunter/gatherer ancestors in the Hayekian worldview.

From these ideas, it is a small step to the concepts of “money equals speech” and “corporations are people” promulgated by the U.S. Supreme Court. This is an extension of “shareholder rights” to the political sphere — the more you own, the more say you have. A form of conquest and domination for the age of financialization.

If there is no community, no common interest, then why can’t someone, anyone, take whatever they want from the less strong? Give Ayn Rand credit for one thing: She stripped away all the accretions of individualist verbiage, all the rarefied theory of orthodox economics, and enunciated with unusual clarity what lies at the core of capitalist triumphalism. It hasn’t served the world very well.

“Justice” for a billionaire, none for the state he ripped off

There has been much cheering across the corporate media about the Permanent Court of Arbitration in The Hague ordering the Russian government to pay more than US$51 billion as compensation for confiscating the assets of Yukos, yet silence concerning the original theft of the company by Mikhail Khodorkovsky.

The basis of the decision by the arbitration court was that the assets of Yukos, seized for alleged non-payment of taxes, were sold for US$9 billion, well below the estimated value of the company. Conveniently left out of this picture is that Mr. Khodorkovsky purchased the assets for $159 million seven years earlier in a rigged process that he controlled. He did so as one of seven oligarchs who bought deeply unpopular former President Boris Yeltsin a second term and were handed control of the country’s vast natural resources as a reward.

This is a story that can not be separated from the fall of the Soviet Union and the looting of its assets, with a handful of newly minted oligarchs, mostly former black marketeers who became bankers, coming to control post-Soviet Russia’s economy. Estimates of the size of the assets that came to be owned by the seven biggest oligarchs (Mr. Khodorkovsky was one of them) in the late 1990s range up to one-half of the Russian economy. This at the same time that the Russian economy shrank by 45 percent and an estimated 74 million Russians lived in poverty according to the World Bank; two million had been in poverty in 1989.

Siberian mountain formation (photo by Irina Kazanskaya)

Siberian mountain formation (photo by Irina Kazanskaya)

An important factor in the failure of Mikhail Gorbachev’s perestroika was that working people saw the reforms as coming at their expense. A 1987 reform loosened job protections in exchange for enterprise councils that were to have given workers a voice in management, but the councils were largely ineffective or co-opted by managements. The law had also been intended to eliminate labor shortages. It didn’t, and a 1990 reform was stealthily passed to reduce employment and eliminate the ability of working people to defend themselves. Enterprises would now have private owners with the right to impose management and ownership shares could be sold.

Exhaustion from years of struggle also were a factor in the lack of organized resistance to the elements of capitalism that were introduced in the last years of perestroika and to the shock therapy that was imposed on Russia at the start of 1992, days after the formal dissolution of the Soviet Union and the assumption of uncontested power by President Yeltsin. Shock therapy wiped out Russians’ savings through hyperinflation and state enterprises were sold at fire-sale prices, or sometimes simply taken.

Connections allowed him to set up businesses

Mr. Khodorkovsky used his connections as an official within the Communist Youth League to found a company that imported and resold computers and other goods at huge profits and engaged in currency speculation. The proceeds were used to buy companies on the cheap and found a bank. His bank, Menatep, earned large fees by providing credit when it was in scarce supply during the post-Soviet collapse.

When President Yeltsin was up for re-election in 1996, he faced a daunting challenge as his popularity rating was well below 10 percent — tens of millions of Russians had been plunged into poverty and the economy had contracted for several years in succession. The president admitted in his memoirs that he was about to cancel the election. But he was presented with a plan by the seven oligarchs, the scheme that became known as “loans for shares.”

These seven oligarchs offered President Yeltsin a bargain: In lieu of paying taxes, they would make loans to the government so it could meet its expenses, such as actually paying its employees. In return, the government would give the oligarchs collateral in the form of shares of the big natural-resources enterprises that were soon to be privatized. (Other state enterprises had been quickly privatized upon the implementation of shock therapy.)

If the loans were repaid, the bankers would give the shares back. If not, the oligarchs would hold auctions to sell the collateral. The government had no ability to pay back these loans, but President Yeltsin issued a decree sealing the deal in August 1995.

The oligarchs used their own banks to conduct the subsequent auctions, and, through a mix of rigged terms and conveniently closed airports, won them all at prices that were small fractions of the enterprises’ reasonable market value. These enterprises represented Russia’s enormous reserves of oil, nickel, aluminum and gold, and a minority share in the dominant gas company, Gazprom.

These seven oligarchs all became billionaires through the “loans for shares” scam. The oligarchs, who owned almost the entire Russia mass media, spent 33 times the legal limit on the election and provided 800 times more television coverage of President Yeltsin than was provided to his opponents.

Mr. Khodorkovsky’s bank, Menatep, was put in charge of the auction of Yukos. It avoided competitive bidding, enabling his holding company to buy it for $159 million, only $9 million above the starting price. As long as Boris Yeltsin was president, the oligarchs could steal all they wanted. Nor did Western authorities complain about this; President Yeltsin’s bombardment and illegal disbanding of the Russian Parliament in 1993, resulting in more than 500 deaths, was celebrated as a democratic triumph. Indeed, the World Bank’s chief economist for Russia declared, “I’ve never had so much fun in my life.”

Corporate lawyers as arbitrators

The Permanent Court of Arbitration that handed down the $51 billion judgment is one of the international tribunals that hear investor-state disputes behind closed doors. As is customary with these bodies, the arbitrators are corporate lawyers appointed by governments.

In the Yukos case, each side could choose one of the three panelists who hear the case. The deciding panelist was Yves Fortier, a former chair of one of Canada’s biggest corporate law firms and of Alcan Inc., a mining company since bought by Rio Tinto, and a director of several other companies.

I see no sense in denying that politics were behind Mr. Khodorkovsky’s prison sentence and his loss of Yukos. But there can be no dispute that politics and shady dealing earned him his fortune in the first place. The gangster capitalism in which he excelled in the 1990s, cheered on by the West, was without mercy. Are there going to be outpourings of sympathy for the tens of millions of Russians immiserated so that the country’s Khodorkovskys could become billionaires? I think we already know the answer.

Economics students begin to revolt

Economics students of the world have nothing to lose but their ideological chains. A revolt appears to be brewing — an international coalition of economics students has issued a public call for the teaching of a variety of schools of thought so that the field might actually find solutions to the world’s problems.

This is a radical departure. Orthodox economics, dominated thoroughly by Chicago School ideology, exists to justify extreme inequality and class dominance, which is why its adherents, who occupy critical financial posts around the world, continue to implement ruinous policies. At universities, the teaching of economics is similarly dominated by the Chicago School.

University of Chicago

University of Chicago

Not all students are content with this state of affairs. The international coalition International Student Initiative for Pluralism in Economics has issued a manifesto taking direct aim at the extraordinarily narrow curriculum. What makes this especially noteworthy is that this coalition comprises 42 student associations in 19 countries — and has a web site in seven languages. The manifesto says:

“This lack of intellectual diversity does not only restrain education and research. It limits our ability to contend with the multidimensional challenges of the 21st century — from financial stability, to food security and climate change. The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. … [P]luralism carries the promise to bring economics back into the service of society.”

The very need to drag economics “into the real world” speaks for itself. The ideological narrowness of the field leaves students unprepared, the manifesto says:

“Where other disciplines embrace diversity and teach competing theories even when they are mutually incompatible, economics is often presented as a unified body of knowledge. … This is unheard of in other fields. … An inclusive and comprehensive economics education should promote balanced exposure to a variety of theoretical perspectives, from the commonly taught neoclassically-based approaches to the largely excluded classical, post-Keynesian, Institutional, ecological, feminist, Marxist and Austrian traditions — among others. Most economics students graduate without ever encountering such diverse perspectives in the classroom.”

Nor should economics wall itself off from other disciplines, as if the economy is independent of the rest of human activity:

“[E]conomics education should include interdisciplinary approaches and allow students to engage with other social sciences and the humanities. Economics is a social science; complex economic phenomena can seldom be understood if presented in a vacuum, removed from their sociological, political, and historical contexts. To properly discuss economic policy, students should understand the broader social impacts and moral implications of economic decisions.”

That such things need to be said, once again, speaks for itself.

How can a science call itself “sacred”?

Orthodox economists — or “neoclassical” as they are called in the field — like to present themselves as hard-headed realists who dispassionately crunch numbers. Yet consider that one of the most important Chicago School economists, Frank Knight, wrote in a leading academic economic journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.”

Under this “sacred” system, economic activity is treated as a simple exchange of freely acting, mutually benefiting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium. Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

Underlying these assumptions is a concept known as “perfect competition,” a model that assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possesses sufficient power to affect the market. The economist Robert Kuttner, in a 1985 Atlantic Monthly article, summarized the unreality of this concept:

“Perfect competition requires ‘perfect information.’ Consumers must know enough to compare products astutely; workers must be aware of alternative jobs; and capitalists of competing investment opportunities. … Moreover, perfect competition requires ‘perfect mobility of factors.’ Workers must be free to get the highest available wage, and capitalists to shift their capital to get the highest available return; otherwise identical factors of production would command different prices, and the result would be deviation from the model.”

The real world bears no resemblance to that artificial ideological construct. Rather than question their dogma, adherents instead insist government regulations get in the way, sullying what would otherwise be a pristine market. This is where “magic” comes in, as in the “magic of the market” that is routinely invoked. Because orthodox economists often treat Adam Smith’s works as sacred books, it is not inappropriate to note that Smith himself wrote that “Providence” guarantees that everyone, including the poor, has enough to eat:

“When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.”

A couple of centuries of refutation

Although Smith’s writings tend to be cherry-picked by his epigones — inconveniently, Smith acknowledged that capitalists have advantages over employees and believed that labor should be fairly compensated — he drew conclusions that long ago showed themselves unsustainable. Smith believed that capital accumulation inevitably leads to increases in employment and wages, that commercial exchange leads automatically to moral behavior, and that a free market without restrictions would restrain big merchants and manufacturers while benefiting employees and consumers.

Smith wrote in the 18th century at the dawn of the Industrial Revolution before his ideas could be put to the test; today’s orthodox economists who repeat them in the face of massive evidence to the contrary are motivated by something other than scientific rigor. Keep this mind the next time Karl Marx is dismissed as irrelevant because he wrote in the 19th century. At least Marx based his works on rigorous analysis of the actual workings of capitalism.

One of the “sacred” features of capitalism verboten to question is its alleged high levels of efficiency. Were we to examine this question from, for example, an Institutionalist perspective, we might find that is not so. Institutional economics is a school that believes economic and social behaviors are cultural phenomenon, conditioned by cultural parameters, and incorporates a focus on the deployment and concentration of power, in particular the role of institutions in shaping economic behavior.

This is one of the neglected traditions the International Student Initiative for Pluralism in Economics manifesto said should be added to economics curriculums. A leading Institutionalist economist, Marc Tool, argues that competitive market economies are inefficient because they provide no way for wants and preferences to be appraised, leaving it instead to media advertising to create demand artificially, and that markets fail to address the problems of gross income inequality. As a result, many people have their choices in life constrained

“to the point where intellect, creativity, compassion, and commitment are stunted or destroyed for those denied. We then live in a layered or tiered community suffering from elitism and privation alike. This would appear to be inefficiency of really monumental proportions.”

More idle capacity, more unemployment

Unemployment is high at the same time that plants sit idle. Total U.S. industrial capacity utilization as of January 2014 is only 78 percent, and although that is higher than the figure was in the years following the onset of the global economic downturn, there has been a persistent decline in capacity usage since the 1960s. European industrial capacity is 79 percent. Despite this unused capacity, unemployment remains high in both regions.

Another way of looking at this inefficiency is that shrinking numbers of people, in all parts of the world, who have steady employment that pays a living wage. John Bellamy Foster and Robert W. McChesney in their 2013 book The Endless Crisis calculate that the “global reserve army” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion.

The mystery surrounding orthodox economists continuing to insist on policies that have brought such ruinous results vanishes when we realize that they are promulgating ideology for the benefit of industrialists and financiers and not science on behalf of humanity. Lately is has become fashionable to advocate for a return to the Keynesian policies of the mid-20th century — even these, safely within capitalist bounds, are marginalized within the economics profession.

Keynesianism 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. Alas, we are not living in the mid-20th century. Keynesianism depended on an industrial base and the availability of new markets into which capitalism could expand. 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, as they began to do by the late 1970s. The “Keynesian consensus” was a temporary phenomenon tolerated by capitalists because their profits were rising despite the higher wages they were paying. If the world is undergoing a structural crisis of capitalism, then policies intended to stabilize capitalism can’t provide a long-term solution.

Study of the widest reasonable range of economic ideas is not simply a matter of healthy debate but necessary to finding a path to a better, more humane world.

Bringing alternative economic ideas back into the mainstream, especially those critical of capitalism, is part of a larger social struggle. The one percent’s preferred ideas that dominate did not fall out of the sky. As Karl Marx once wrote: “The ideas of the ruling class are in every epoch the ruling ideas, i.e. the class which is the ruling material force of society, is at the same time its ruling intellectual force.”

“Ruling” ideas create priesthoods, which are best left outside of economics departments and central banks.

Capitalists say the darndest things

Profits must be the only true human right if as basic a necessity as water is not. But although the modern public-relations industry has succeeded in rebranding robber barons as “captains of industry,” not even the most able army of flacks can always stop corporate executives from accidentally telling the world what they really think.

It’s no secret that some of the world’s biggest corporations are draining aquifers and reselling tap water at enormous profit. But they want to go further and make paying for water mandatory. Water is simply another “market commodity” in this view — most notoriously propagated by Nestlé S.A. Chairman Peter Brabeck-Letmathe in a six-minute video issued by his company. It’s fair to say that the apparent attempt by Nestlé to project an image of a company soberly grappling with the world’s problems through a stern rationality backfired spectacularly.

Photo by Marlon Felippe

Photo by Marlon Felippe

Mr. Brabeck-Letmathe’s body language renders as nonsense Nestlé’s post-video contention that he didn’t mean what he said. Beginning at the 2:07 mark, he is shown as saying:

“It’s a question of whether we should privatize the normal water supply for the population. And there are two different opinions on the matter. The one opinion, which I think is extreme, is represented by the NGOs [non-government organizations], who bang on declaring water a public right.”

The chairman grimaces at the very thought of water being considered a right, then lets loose a smirk, signaling unmistakable contempt for what immediately follows:

“That means that as a human being you should have a right to water. That’s an extreme solution. And the other view says that water is a foodstuff like any other and like any other foodstuff it should have a market value. Personally I believe it’s better to give foodstuff a value so that we’re all aware that is has a price and that one should take specific measures for the part of the population that has no access to this water and there are many different possibilities there.”

A right to water is “extreme”! Such an opinion may well be considered “extreme” in many corporate boardrooms, but such opinions are not free of corporate interests. If the route to increasing profits is dependent on privatizing the commons and public services, such is the belief system that will arise. Thanks to their tireless work in combating such “extreme” beliefs, the one percent are doing just fine, thank you. That the perspective of industrialists and financiers are different from the rest of us is exemplified by Mr. Brabeck-Letmathe at the video’s 5:34 mark:

“We’ve never had it so good. We’ve never had so much money. We’ve never been so healthy. … We have everything we want and still we go around as if we were still in mourning for something.”

Well, maybe things aren’t quite so rosy

Yes, stop whining just because wages are declining around the world, unemployment remains high, inequality is reaching levels not seen since the 1920s, the environment is dangerously polluted, global warming is poised to spiral out of control, the power of the biggest capitalists and their multi-national corporations has rendered democratic participation a joke, older workers are thrown out of their jobs and their pensions unilaterally cut, there are few jobs for young workers who are mired in debt, housing and education costs rise far faster than inflation, and the world’s governments join hands with capitalists in a global race to the bottom with no accountability to their electorates.

If your idea of democracy is nothing more than having more flavors of cola to choose from, then indeed you have everything you want.

In an effort to ameliorate the damage, Nestlé subsequently issued a press release claiming its chairman “thinks water is a human right.” It turns out, if we were to believe Nestlé’s spin, that he was merely “trying to raise awareness about the issue of water scarcity. … He is not in favour of privatization, but is advocating more efficient water management by individuals, industry, agriculture and governments.”

That doesn’t square with what the Nestlé chairman plainly said in his video. Nor does it acknowledge the role of Nestlé in making water more scarce. Water, in fact, is big business. Bottled water is dominated by three of the world’s biggest companies: The Coca-Cola Company (Dasani), PepsiCo Inc. (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). The world’s two largest private managers of water systems, Veolia Environment and Suez Environment, have combined revenue of US$51 billion. Much to grab, indeed.

Paying for the same thing that comes out of your tap

Companies that sell bottled water are not necessarily sending teams to remote mountain ranges. A report on AlterNet by Michael Blanding notes:

“[M]any times bottled water is tap water. Contrary to the image of water flowing from pristine mountain springs, more than a quarter of bottled water actually comes from municipal water supplies. … Both Coke and Pepsi exclusively use tap water for their source, while Nestlé uses tap water in some brands.

Of course, Coke and Pepsi tout the elaborate additional steps they take that purify the water after it comes out of the tap, with both companies filtering it multiple times to remove particulates before subjecting it to additional techniques such as ‘reverse osmosis’ and ozone treatment. Reverse osmosis, however, is hardly state of the art — essentially consisting of the same treatment applied through commercially available home tap water filters, while ozonation [a water-treatment process] can introduce additional problems such as the formation of the chemical bromate, a suspected carcinogen.”

A Natural Resources Defense Council study of more than 1,000 bottles representing 103 brands of bottled water found one-third contained levels of contamination exceeding allowable limits. Among these contaminants were synthetic chemicals, bacteria and arsenic.

It is not only bottling and repackaging tap water that is lucrative — supplying the tap water is as well if privatized. A study by Food & Water Watch found that:

  • Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
  • After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
  • Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Dozens of municipalities in France, Germany and the United States are taking back their water and sewer systems, reversing earlier privatizations. Local governments consistently discovered that privatization led to higher prices, reduced services and deteriorating working conditions for holdover employees. Corporations operating these systems were simply putting into practice what the Nestlé chairman said in his video: Water is a commodity to be bought by those willing to pay a higher price.

In one notorious case, the World Bank forced the privatization of the water system in the Bolivian city of Cochabamba in 1999. Bechtel, the company that was handed the water system as the sole bidder in a secret process, charged a sum equal to one-quarter of city residents’ average household income and imposed a contract provision banning the collection of rainwater. After massive local protests backed by a global campaign forced it to leave the city, Bechtel sued Bolivia for US$50 million in damages and lost profits although its investment is believed to have been less than $1 million and Bechtel’s revenues are six times the size of Bolivia’s gross domestic product.

Even the weather is expected to earn a profit

Other government services taken for granted, like weather forecasting, are not exceptions. Bizarre as it sounds, executives at private weather-forecasting services like AccuWeather for years have advocated that the U.S. government’s National Weather Service be barred from issuing forecasts. The Weather Service is the most reliable forecaster in the country and taxpayers spend hundreds of millions of dollars on it. Yet we are supposed to eliminate this public benefit, converting it in its entirety into a corporate subsidy, so one capitalist can make a profit!

The concept that knowledge of a coming storm should be reserved for those willing to pay was pushed by AccuWeather and a lobbying group then calling itself the Commercial Weather Services Association, with one of the U.S. Senate’s dimmest bulbs, fundamentalist Rick Santorum, promoting a bill in 2005 that would bar the National Weather Service from issuing forecasts except during unspecified emergencies.

Under the bill, the agency would continue to collect data and then give all of them to private companies. AccuWeather would issue forecasts without the burden of collecting its own data, instead getting it for free at taxpayers’ expense. As a report in Slate noted, the bill’s language said:

“Data, information, guidance, forecasts, and warnings shall be issued … through a set of data portals designed for volume access by commercial providers of products or services.”

The disingenuousness of this bill was stated bluntly at the time by Jeff Masters on his Weather Underground blog:

“Private weather industry forecasters do their own forecasting, but will usually check their forecast against what the [National Weather Service] says before sending it out. If the NWS forecast differs considerably, there will frequently be an adjustment made towards the NWS forecast, resulting in a better ‘consensus’ forecast. So, with the proposed legislation, not only would we lose the best forecasts available, but the forecasts from the private weather companies would also worsen.”

But a couple of capitalists would make a bigger profit — so what if more people would die in floods or other natural disasters? That’s the magic of the market at work.

Ethics and morality at the end of history

Strange, isn’t it, that the system supposedly representing the apex of human development — even the end of history — has no place for ethics or morality.

Perhaps this becomes inevitable when an ideology develops to the point where the economy is considered to be outside the environment. From that dubious — to put it overly modestly — vantage point, the journey to seeing the environment, and the natural resources and life it contains, as nothing more than a cow to be milked at will is not a long one. A forest counts as nothing unless it can be monetized, which often means knocking it down. Clean air? Clean water? Luxury items for those who can afford them, and thereby profits for those who can bottle it and create a market for them.

Photo by Alex Proimos

Photo by Alex Proimos

A thoughtful article in the May 2009 issue of Monthly Review caused me to think more about this. The authors of this article, “Capitalism in Wonderland,” written by Richard York, Brett Clark and John Bellamy Foster, discuss the models used by mainstream economists, which vary only on the degree to which they discount future life. Yes, that is as cold-blooded as it sounds.

Neoclassical economists base their increasingly insane conclusions that global warming is no big deal and, at worse, will cause little economic damage, on the convenient, self-serving assumption that future generations will be wealthier and therefore it will be cheaper for our descendants to clean up our messes than it would be for us.

The authors write:

“Where they primarily differ is not on their views of the science behind climate change but on their value assumptions about the propriety of shifting burdens to future generations. This lays bare the ideology embedded in orthodox neoclassical economics, a field which regularly presents itself as using objective, even naturalistic, methods for modeling the economy. However, past all of the equations and technical jargon, the dominant economic paradigm is built on a value system that prizes capital accumulation in the short-term, while de-valuing everything else in the present and everything altogether in the future.” [page 9]

From that, orthodox economists slide down a slippery slope in which some humans are valuable and others are without value. Such a mentality is exemplified by Lawrence Summers’ infamous memo, written when he was chief economist for the World Bank, in which he wrote:

“I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. … The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I’ve always though that under-populated countries in Africa are vastly UNDER-polluted.”

Summers’ attitude, although usually not expressed in such a direct way, is not out of step with his profession. The “Capitalism in Wonderland” authors lay bare the ramifications of this type of thinking:

“[H]uman life in effect is worth only what each person contributes to the economy as measured in monetary terms. So, if global warming increases mortality in Bangladesh, which it appears likely that it will, this is only reflected in economic models to the extent that the deaths of Bengalis hurt the [global] economy. Since Bangladesh is very poor, economic models … would not estimate it to be worthwhile to prevent deaths there since these losses would show up as minuscule in the measurements. … This economic ideology, of course, extends beyond just human life, such that all of the millions of species on earth are valued only to the extent they contribute to GDP. Thus, ethical concerns about the intrinsic value of human life and of the lives of other creatures are completely invisible in standard economic models. Increasing human mortality and accelerating the rate of extinctions are to most economists only problems if they undermine the ‘bottom line.’ In other respects they are invisible: as is the natural world as a whole.” [page 10]

This is the irrationality and immorality that underlies industrialists’ and financiers’ drive to allow the “market” to make all social decisions. Markets are nothing more than the aggregate interests of the largest and most powerful industrialists and financiers. They in turn, through their stranglehold on the world’s economic heights, are able to have decisive sway over governments, which are not disembodied entities somehow floating above society but rather are reflections of the relative strengths and weaknesses of social forces.

The modern corporation has a legal duty only to provide the maximum profit for its shareholders. In other words, it is expected to act to further its own interest without regard to anything else. The corporation is considered a legal person under U.S. law — one that has no biological limits nor barriers to its growth. Joel Bakan, in the introduction to his book The Corporation: The Pathological Pursuit of Profit and Power, summed up capitalism’s dominant institution this way:

“The corporation’s legally defined mandate is to pursue, relentlessly and without exception, its own self-interest, regardless of the often harmful consequences it might cause to others. As a result, I argue, the corporation is a pathological institution, a dangerous possessor of the great power it wields over people and societies.”

Even without “corporate personhood,” however, the relentless competition of capitalism would induce this behavior, and the winners of that competition are those most willing to crush all obstacles, human and environmental, while foisting the costs onto others.

Really, we can’t do better than this?

The logic of public services chips away at ideology of privatization

One should beware vampire squids bearing gifts. It would also be best to cover your ears when the siren songs of privatization are offered.

Even were Goldman Sachs not the buyer, the Danish government’s decision to sell a portion of the state-owned energy company Dong Energy A/S goes against the pattern of recent years of governments taking back control of utilities after having dropped them into the sweaty palms of investors. Shareholders expect maximum profits from investments, and utilities that provide basics like electricity and water are not excepted.

Pont Neuf in Paris

Pont Neuf in Paris

Many a local government has learned the hard way that even water is a commodity from which to squeeze a profit once privatized, with human need an afterthought. Decades of ideology have attempted to instill the idea that the private sector is always superior to government; that government can only mismanage what is in its hands.

Although attempting to flip this discredited, self-serving phantasmagoria by arguing the complete opposite would not stand up to scrutiny, either, the realm of facts and data firmly contradict the standard corporate ideology. Government after government has found that privatization was a mistake in what has become a wave of “re-municipalization” — the return of public services to public management.

Paris takes back its water

France had been a leader in privatizing water, leading to the rise of two of the world’s biggest water companies, Suez and Veolia. As recently as 2006, the private sector provided drinking water services to four-fifths of the French population. In parallel, starting in early 1990s, the European Union began issuing directives mandating that national governments implement legislation deregulating the electricity market. E.U. bureaucrats sought to separate (“unbundle”) generation, transmission and distribution of energy, supposedly to ensure price competition.

In France, according to a paper published in the March 2012 issue of Water International:

“This model was favoured by several factors, including strong fiscal centralization, the rigid character of public accounting, the creation of private water companies, and the establishment of a legal framework that protected the interests of the concessionaires.” [page 3]

The paper, “The remunicipalization of Parisian water services: new challenges for local authorities and policy implications,” written by Joyce Valdovinos, reports that a series of investigations found that there was no way to verify work that should have been long completed, a lack of transparency of technical and financial data, discrepancies between declared profits and actual profits, and the generation of extra profits by manipulating maintenance costs. When a Left coalition won the 2001 city election, it believed returning water services to public management would lead to better functioning, more transparency, greater public control, and the ability to stabilize prices.

Paris’ contracts with Suez and Veolia expired in 2010; during the preceding 25 years water prices there had doubled, after accounting for inflation, according to a paper prepared by David Hall, a University of Greenwich researcher. Professor Hall reports that the two companies had secret clauses in their contacts allowing automatic price increases. Despite the costs of taking back the water system, the city saved €35 million in the first year and was able to reduce water charges by eight percent.

About 40 other French cities intend to “re-municipalize” their water services. Higher prices and reduced services have been the norm for privatized systems, Professor Hall’s paper says:

“A report by the Cour des comptes in 1996 identified many problems with private water services in France, including lack of competition, corruption, and lack of transparency, but also price increases which it firmly concluded were linked to privatisation of water services. … The association of municipalities publishes each year price comparisons, which in 2009 showed that private water prices were on average 31% higher than in public water services.” [page 19]

Sellers’ remorse in Germany

A strong trend toward public provision of services is also under way in Germany, for many of the same reasons. A paper written by Hellmut Wollmann of Humboldt Universität zu Berlin found a similar dynamic east of the Rhine:

“Since the late 1990s, it has become more and more evident that the (high flying) neoliberal promises that (material or functional) privatization would usher in better quality of services at lower prices has not materialized. On the contrary, private service providers have often made use of the next possible opportunity to raise prices and tariffs while at the same time deteriorating the working conditions of their employees.” [page 15]

In response to that, 44 new local public utilities have been set up and more than 100 concessions for energy distribution networks and service delivery have returned to public hands in Germany since 2007, according to Professor Hall’s paper. Further, German goals of phasing out nuclear energy, increasing the use of renewable energy and cutting overall energy usage is impossible without a strong public role, he wrote:

“There is little economic incentive for the private companies to make these investments, and indeed the growing use of renewable electricity undermines the profitability of existing gas-fired power stations. As a result, municipalities and regions have to play a leading role, not only to meet the targets for renewable energy but also to secure sufficient capacity to protect against the effects of markets and the phasing-out of nuclear energy.” [page 12]

One example is the German city of Bergkamen (population about 50,000), which reversed its privatization of energy, water and other services. As a result of returning those to the public sector, the city now earns €3 million a year from the municipal companies set up to provide services, while reducing costs by as much as 30 percent.

Private versus public in the United States

Municipal-owned utilities aren’t magic wands because they can be subject to the hostility of local business leaders. Cleveland’s city-owned power company, then known as MUNY, became the object of a political tug-of-war in the 1970s in which “market forces” were unleashed to detrimental effect. Successful lobbying by the private energy corporation, CEI, that competed with MUNY caused the city government to neglect maintenance and investment in MUNY, leading to it having to buy power from CEI, which in turn provided inadequate connections that often led to outages.

Davita Silfen Glasberg, in her book The Power of Collective Purse Strings: The Effects of Bank Hegemony on Corporations and the State, argued that Cleveland’s default was the result of “control of the city’s critical capital flows by an organized banking community.” Legal maneuvering by CEI caused a city cash flow shortage because of what MUNY was forced to pay to CEI. In turn, Cleveland’s bond ratings were downgraded, rendering the city unable to sell bonds and intensifying its dependence on bank loans. As a result, Professor Glasberg wrote:

“The banking community, which had significant interests in CEI (including stock ownership, pension fund holdings, CEI deposits, voting rights on CEI stocks, loans, and interlocking directorates) refused to renew or renegotiate the city’s loans unless [Mayor Dennis] Kucinich agreed to sell MUNY to CEI. Such a sale … would have solidified the private utility’s control of the city’s electricity business. … For political reasons the financial community had cut Cleveland off. Indeed, the coffers opened once again when the business and banking communities unseated Kucinich, and [George] Voinovich took office.” [pages 139-140]

As part of the deal, MUNY’s rates rose (dampening competition with CEI), the city laid off hundreds of workers and wages of remaining city employees were cut — working people paid the price for corporate profit. Cleveland did withstand the pressure to sell its public utility. The utility, now known as Cleveland Public Power, provides low-cost electricity that saved the city an estimated $195 million between 1985 and 1995.

Absent such blatant interference, U.S. cities have often found that public utilities outperform privatized ones. In Atlanta, for example, the city signed a contract with Suez, which promised to reduce water and sewer costs. Instead, the web site Water Remunicipalisation Tracker reported, repairs were neglected, 400 jobs were lost and sewer rates increased 12 percent a year. After four years, the contract was canceled and the services returned to the public sector.

Denmark’s embrace of Goldman Sachs

The decision by Denmark’s social democratic government to sell a portion of the state-owned energy company flies in the face of considerable recent history, even without the added question of Goldman Sachs’ predatory behavior. The investment bank, which stands out even among its rapacious peers for its ability to extract money from an extraordinary assortment of human activity, is buying an 18 percent share, yet will be given a veto over strategic decisions, essentially handing it control.

In addition, according to the Financial Times, Goldman Sachs not only has the right to sell its share back to the government if the deal doesn’t go its way, but 60 percent of its share is required to be sold back at a guaranteed profit — the purchase price plus 2.25 percent annual interest. And that’s not all — Goldman is using affiliates in tax havens to own its share, leading to much speculation that it intends, like many companies, to avoid paying taxes.

Danes are heavily opposed to this deal. But rather than consider popular anger, the chief executive officer of Dong Energy is instead worried that “Denmark’s reputation as a destination for offshore investors” may be “damaged.” The move is the latest in a series of austerity measures by Denmark’s social democratic government that have included restricting eligibility for child care benefits and study grants, and increasing the retirement age.

The sale to Goldman has also caused one of the three parties in the coalition government to leave in protest, resulting in a minority government that will require support from other parties in crucial future parliamentary votes. It has also reportedly caused a rise in the polls for the conservative opposition. Replicating a pattern seen across Europe and elsewhere, social democratic governments impose austerity, and in the absence of a vigorous organized Left alternative, voters continue to alternate between the major parties or blocs.

The trend toward public provision of services is an as yet rare example of common-sense resistance to dominant capitalist ideology. Enterprises owned by the public or by a collective workforce don’t need to extract huge profits to pay swollen executive salaries or payoffs to speculators — an example that can be followed in many more businesses. With enough organization, it will.