Debt jubilee: Revolutionary change or reform to stabilize capitalism?

Debt has been a crucial lever in implementing austerity, both as an instrument and a moral cudgel. Eliminating debt, private and public, would have transformative effects — but would doing so be revolutionary or merely a reform to stabilize world capitalism?

Those are not the only two choices, of course, and the mere thought of a debt jubilee would send many a set of teeth gnashing. Debt jubilees are not a new idea; in fact they have existed since long before capitalism was born. But given the unprecedented level of debt, a jubilee today would entail unprecedented complexity.

The Australian economist Steve Keen has for several years energetically promoted the concept of a debt jubilee. His concept is to bail out people instead of banks, reasonably arguing that people would spend the money, reviving the economy. So in this formulation, radical as the concept of a jubilee is (and radical as the idea of helping working people instead of the super-wealthy is), it is conceived as a reform.

Professor Keen conceptualizes a jubilee in a form that would not cause damages to debt holders not responsible for the crisis, such as pension funds:

“Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a ‘Modern Debt Jubilee’ should take the form of ‘Quantitative Easing for the Public’: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public — but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.”

“Quantitative easing” is a government program of massive buying of assets from banks in an effort to promote increased lending and liquidity through increasing the money supply. A “quantitative easing for the public” would give money to everybody. Those with no debt would be free to spend it as they wish, and those who received more money than the size of their debt would similarly have no obligations once they wiped out their debt. Dramatic as this idea is, Professor Keen is no revolutionary; he seeks to put capitalism on a firmer footing:

“Returning capitalism to a financially robust state must involve a dramatic fall in the level of private debt — and the size of the financial sector — as well as policies that return the financial sector to a service role to the real economy.”

His reasoning is that economic recovery is impossible until private and government debt is paid down:

“The standard means of reducing debt — personal and corporate bankruptcies for some, slow repayment of debt in depressed economic conditions for others — could have us mired in deleveraging for one and a half decades, given its current rate. … That fate would in turn mean one and a half decades where the boost to demand that rising debt should provide — when it finances investment rather than speculation — will not be there. The economy will tend to grow more slowly than is needed to absorb new entrants into the workforce, innovation will slow down, and justified political unrest will rise — with potentially unjustified social consequences. … We should, therefore, find a means to reduce the private debt burden now, and reduce the length of time we spend in this damaging process of deleveraging.”

A radical idea, then, to save the system. A radical idea that is not at all revolutionary in the hands of Professor Keen. Considering the mass political movement required to force what would be an extraordinary change in the policies of the world’s central banks and finance ministries — institutions staffed by and run on behalf of financiers — would we be simply content to say, “Well, that’s it, then, we can all go home now”?

Revolutions as ‘transformations of common sense’

The U.S. activist and economist David Graeber also calls for a debt jubilee but, in contrast, conceives this as a revolutionary demand. Writing in the latest edition of The Baffler, Professor Graeber argues that world revolutions consist “above all of planetwide transformations of political common sense.”

Drawing upon the works of “world systems” theorist Immanuel Wallerstein, he argues that the revolutions of 1848 were successful even though none took power because the ideas behind it and the French Revolution widely took root. He similarly sees Russia’s October Revolution as responsible for the New Deal and European welfare states and, on less firm ground, that 1968 “changed everything” because of the personal liberations that grew out of it, including feminism.

Fear of communist revolutions, and large mass movements, did lead to the many advances of the mid-20th century. But as most of those advances have been reversed, it is more realistic to see them as simply reforms — and reforms can, and will, be taken back when movements subside. People can’t stay in the streets forever. The changes of personal liberation spawned by 1968 and beyond are not as susceptible to reversal, and, as with LGBT movements, continue to advance in some ways but, nonetheless, feminist gains in particular are under sustained assaults.

We should be careful to differentiate advances that threaten the system — such as major structural changes in the economic sphere — and those that don’t, such as same-sex marriage or women shattering glass ceilings, however much individual religious fundamentals or tradition-minded men believe themselves to be “threatened.” In no way do I wish to minimize the social gains made by women, LGBT communities, and racial and national minorities, nor ignore that social divisions are integral to the functioning of any system based on inequality and hierarchy. Such freedoms — still only partially attained and still requiring organized defense — are prerequisites for any concept of a better world to have meaning.

Economic inequality has steadily widened as class repression intensifies; objectification of women in mass media is ubiquitous, as exemplified by the pornification and coarseness of corporate-controlled mass culture; and nationalist and other xenophobias are gaining new traction under the impact of economic disintegration and the accompanying social disruptions. It seems premature to declare everything has changed, even keeping in mind that leaps in social zeitgeists are a process rather than a sudden jump.

A jubilee linked to other demands

Given the interconnectedness of struggles, is the idea of a debt jubilee in itself a “revolutionary demand,” as Professor Graeber declares it? In other words, would it actually overturn the current world system, or would it be simply a reform, albeit a welcome and thorough-going one on the scale of the New Deal? He does link the idea of a jubilee with the necessity of slowing down growth:

“We seem to be facing two insoluble problems. On the one hand, we have witnessed an endless series of global debt crises, which have grown only more and more severe since the seventies, to the point where the overall burden of debt — sovereign, municipal, corporate, personal — is obviously unsustainable. On the other, we have an ecological crisis, a galloping process of climate change that is threatening to throw the entire planet into drought, floods, chaos, starvation, and war. The two might seem unrelated. But ultimately they are the same. What is debt, after all, but the promise of future productivity? … [Producing more is] precisely what’s destroying the planet, at an ever-increasing pace.”

Thus, Professor Graeber argues:

“Why not a planetary debt cancellation, as broad as practically possible, followed by a mass reduction in working hours: a four-hour day, perhaps, or a guaranteed five-month vacation? This might not only save the planet but also … begin to change our basic conceptions of what value-creating labor might actually be. … The morality of debt and the morality of work are the most powerful ideological weapons in the hands of those running the current system. That’s why they cling to them even as they are effectively destroying everything else. It’s also why debt cancellation would make the perfect revolutionary demand.”

Such an outcome would require an extraordinarily strong global movement; in this conception a debt jubilee would be a means to an end and linked to broader structural change. For a debt jubilee to be “revolutionary” it would have to be one piece of a more comprehensive struggle. A debt jubilee by itself, in isolation, would be, as Professor Keen intends, a method of stabilizing capitalism. Indeed, he has shown that a jubilee could be brought about using standard capitalist-management tools in a different way.

Saving the current world system would be a temporary salve and nothing more; all the contradictions within it would resurface. But that system is of human creation. When new ideas gain secure social foundations, revolutions can happen — whether it is sovereignty residing in the people rather than a royal family designated by a god, or that democracy is possible only with everyone able to participate on an equal footing rather than only men of a society’s dominant ethnic or racial group, or that political democracy is an empty shell without economic democracy.

A better world can only arise from unleashed human imagination and creating unbreakable links among struggles.

Is today’s social destruction really the best humanity can do?

Millions of homes stand empty at the same time millions of people are homeless. Factories around the world are operated under capacity or are shuttered at the same time that millions of people are without work. The very people who brought down the world economy through reckless speculation continue to dictate that austerity be imposed on everybody else to pay for their bailouts.

Why are we supposed to believe this system “works”?

Long-term destruction of the environment for the sake of short-term profits. Intentional waste in packaging and in other aspects of production, and planned obsolescence. Unemployment and the destruction of productive capacity as the price to be paid to restore private profits.

Is this really the best humanity can do?

“Business cycles” — the euphemism for the alternating booms and busts of capitalism — are not a natural force of nature, ebbing and flowing like the tides. Tides are readily explained by the gravitational forces of the Moon and the Sun. Regular booms and busts (a separate phenomenon from the current structural crisis of capitalism) are explained by social forces.

Social need vs. lack of planning

Because there is no mechanism to determine social need, products of all sorts are produced until there is a glut, causing prices to fall and capitalists to reduce production through mass layoffs and shutting down facilities — destroying productive capacity until shrinking inventories create shortages that again stimulate demand. Layered over this dynamic is the deprivation created by the accumulation of capital into fewer hands, itself a contributor to instability.

The economist John G. Gurley summed up this process:

“The process of exploitation leaves purchasing power in the hands of a proletariat that enables it to purchase only an inadequate portion of the total products just turned out. The large remainder of the output must be fashioned and purchased by capitalists as part of the accumulation process. There is a continual threat, therefore, of too heavy a burden being placed on capitalist accumulation, a ‘burden’ that stems from the exploitation of labor. …

‘Underconsumption’ does not indicate that during phases of rapid accumulation and prosperity [the ‘boom’ portion of the business cycle] wages are depressed. … [T]he opposite occurs. But, while workers in these exhilaration phases are thus entitled to raise their consumption levels somewhat [because of their increased wages], it is never enough to lighten significantly the ‘burden’ on the capitalist class, which is soon made intolerable by a falling rate of profit. Thus, accumulation slows down until the previously favorable conditions for capitalists have been restored; and this involves principally the destruction of capital values and the replenishment of the reserve army of labor.”*

Regardless of a capitalist’s personality, the capitalist must accelerate this process of exploitation under the rigors of market competition. If a capitalist does not maximize his or her profits, a competitor will and put the first capitalist out of business. Expand or die is the inescapable law of capitalism.

The financial industry adds to this pressure, acting as a whip in addition to its more recognized role of parasitism. A management that does not maximize profits (which in turn maximizes stock prices), including imposing layoffs and wage cuts, will swiftly find its stock price in a nosedive, leaving the company vulnerable to an unfriendly takeover by a speculator seeking to profit from the reduced value of the company.

A speculator who gains control in such a situation will change the management, or simply sell off the company in pieces when that seems more profitable. Moreover, companies with stock traded on exchanges are legally required to maximize profits for shareholders, above all other considerations.

The entire system acts to concentrate more and more money into fewer and fewer hands as industries are consolidated into a handful of major competitors and competitive pressures force ever more reductions to overhead, especially the cost of wages. Although he wrote in the earliest day of capitalism, even Adam Smith acknowledged its inherent inequality in a passage in which he discusses the expense of a judiciary to adjudicate disputes:

“For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.”**

Accumulation vs. environment

What Smith, or even Karl Marx a century later, could not have foreseen is environmental destruction so severe that the fate of humanity, and the planet, is at stake.

Corporations privatize the profits, but socialize environmental costs — they do not pay for pollution to the air or water; toxic waste left behind after production is moved elsewhere is usually cleaned up, if it all, at government cost. Thus the polluting corporation need not shoulder these “external” costs. Taxpayers are subsidizing corporate environmental destruction in addition to shouldering the cost to their health.

In the absence of planning, each corporation makes its individual decisions, so the costs of environmental destruction — in terms of pollution, disposal of toxic wastes and emission of greenhouse gases — add up without accountability. And as production is moved around the world, the environmental costs of rapid industrialization are repeated in new locations. The ability of capital to move at will induces governments to not ask for accountability, giving more license to polluters.

The race to the bottom not only encompasses lower wages and harsher working conditions, it means environmental destruction. At the same time, technological innovation is seen as the answer to its own problem; a falsity caused not only by a fetish for technology but because it does not require an analysis of the system behind all this.

John Bellamy Foster and Brett Clark, in the latest of a series of articles in Monthly Review sounding the alarm bells on the looming environmental catastrophe, wrote:

“Capitalism’s inability to engage in social and economic planning is reflected in decades of failed environmental policy. Although there have been some relatively minor environmental improvements, all attempts at comprehensive planning and action of the kind needed to avert what the scientific community is pointing to as a sure path of destruction have been systematically repulsed by the system. Instead technological change is invoked as a deus ex machina, allowing us to proceed along the current path of production, distribution, and consumption.”***

Permanent expansion vs. a finite world

A system built on continual expansion reaches a crisis when it can no longer expand. When almost all corners of the world are incorporated into the capitalist world market, there is no route to continued profitability for capitalists other than imposing wage cuts through increased threat of unemployment and the entire program of austerity. More machinery can be introduced, but as more capital-intensive machines lead to progressively smaller increments of overhead reduction, the competitive pressures to reduce costs will soon enough target wages and benefits.

The imposition of austerity around the world is not due to a mysterious inability to grasp the human costs or an inexplicable clinging to an ideology — it is the natural progression of capitalism, in which “markets” determine social outcomes. “Markets” are the aggregate interests of the most powerful industrialists and financiers.

As living standards continue to deteriorate, and even less production will be able to be sold because working people don’t have the money to buy, a vicious circle spirals downward. As profits come under more pressure, more austerity will be the only answer — it is the only answer capitalists can give under the logic of their system.

A new year is here. Once and for all, we need to rid ourselves of the idea that if only we explain the problems to political leaders who advance the interests of industrialists and financiers they would come to understand and turn against those interests. Capitalists aren’t going to change because it isn’t in their interest to do so, nor will they tolerate change to a system they dominate.

Linking hands and building a global social movement to create a better world is what will bring change.

* John G. Gurley, “Marx and the Critique of Capitalism,” anthologized in Randy Albelda, Christopher Gunn and William Waller (eds.), Alternatives to Economic Orthodoxy, pages 292-293 [M.E. Sharpe, 1987]
** Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book V, chapter 1, part 2
*** John Bellamy Foster & Brett Clark, “Planetary Emergency,” Monthly Review, December 2012, page 8

Stagnation, not growth, is the norm for mature capitalism

Economic growth is supposedly the norm, necessitating that an explanation be found for slumps and stagnation. But are these reversed? Is stagnation is the norm with the periods of strong growth requiring explanation?

A two-decade “long depression” occurred after an 1870s bubble inflated by speculation in railroads and construction in North America and Europe burst; the Great Depression lasted more than a decade and ended only because of World War II; and stagnation had been the recent fate of the world’s advanced capitalist countries even before the economic crisis that broke out in 2007 and 2008.

There are no signs of any recovery; on the contrary unemployment remains high across North America and Europe, with consumer and governmental debt rising to unsustainable levels. This state of affairs is the new norm of capitalism, argue John Bellamy Foster and Robert W. McChesney in their newly released book, The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China.*

The authors, frequent collaborators in Monthly Review (of which Professor Foster is the editor), marshal an impressive collection of material to present an understanding of the capitalist dynamics that have brought the world to its present state of crisis and why that is the natural outcome of these dynamic forces, examining the crisis from a global perspective.

A structural crisis of capitalism is not the same as a standard “business cycle.” During the Great Depression, the U.S. economy moved through an entire cycle, but the “boom” period of the cycle merely gained back some of the dramatic losses of the early 1930s before the economy began sinking again in 1937. Periods of “epoch-making innovation,” such as that resulting from the steam engine or the automobile, have fueled growth for a time, but no such inventions are on the horizon today.

The reassertion of stagnation as normal state

Professors Foster and McChesney argue that, in the absence of such dramatic innovation, which have not occurred for several decades, stagnation is the expected norm, particularly in “mature” capitalist economies:

“The result was that the economy, despite its ordinary ups and downs, tended to sink into a normal state of long-run slow growth, rather than the robust growth assumed by orthodox economics. In essence, an economy in which decisions on [business] savings and investment are made privately tends to fall into a stagnation trap; existing demand is insufficient to absorb all of the actual and potential savings (or surplus) available, output falls, and there is no automatic mechanism that generates full recovery.” [page 12]

One way of conceptualizing that is to note that U.S. corporations are sitting on at least $2 trillion of cash — there are not enough investment opportunities to put that money, accumulated by a small number of hands, to good use. Investment decreases because demand decreases under the impact of stagnant or declining wages, and financial speculation increases.

The rise in the accumulated surplus leads to general deprivation. The “competitive capitalism” of the 19th century kept over-accumulation at bay through dramatic expansion but also through frequent bankruptcies, the authors write. In the modern era, they argue, there is a chronic buildup of excess capacity and thus stagnation, although regular business cycles continue. A lack of price competition caused by the consolidation of many industries into a small number of major competitors pushes prices higher, aggravating the erosion of living standards.

Price competition is ruinous to oligopolistic corporations, the authors argue, so they indirectly collude to prop up prices. (This requires no formal agreement when serious competitors can counted on one’s fingers.) Specific cases of price competition come in destructive forms, such as outsourcing huge amounts of production to countries with extremely low wages and sweatshop conditions. Firms compete through cutting production costs and by increasing market share through advertising and marketing techniques, rather on on retail pricing.

Thus, competition in a modern capitalist economy assumes a form drastically different than the mythological image of small firms competing on an even playing field commonly taught:

“Competition over productivity or for low-cost position remains intense, but the drastically diminished role of price competition means that the benefits of economic progress tend to be concentrated in the growing surplus of the big firms rather than disseminated more broadly by falling prices throughout the entire economy. This aggravates problems of overaccumulation. Faced with a tendency to market saturation, and hence the threat of overproduction, monopolistic corporations attempt to defend their prices and profit margins by further reducing capacity utilization. This, however, prevents the economy from clearing out its excess capacity, reinforcing stagnation tendencies. … Major corporations have considerable latitude to govern their output and investment levels, as well as their price levels, which are not externally determined by the market, but rather with an eye to their nearest oligopolistic rivals.” [page 37]

(The reference to “monopolistic corporations” in the quote above does not refer to a “pure” monopoly, but rather a handful of corporations that, as a group, act in a monopolistic manner — “monopolistic” and “oligopolistic” are used interchangeably throughout The Endless Crisis.)

“The stagnation tendency endemic to the mature, monopolistic economy, it is crucial to understand, is not due to technological stagnation, i.e., any failure at technology innovation and productivity expansion. Productivity continues to advance and technological innovations are introduced (if in a more rationalized way) as firms continue to compete for low-cost position. Yet this, in itself, turns into a major problem of the capital-rich societies at the center of the system, since the main constraint on accumulation is not that the economy is not productive enough, but rather that it is too productive.” [page 38]

Crisis is not a bolt from the blue

The current slump — ongoing stagnation following a steep downturn — is decades in the making. The Great Depression was ended by the massive spending needed to fight World War II, but the boom period of the 1950s and 1960s wound down as pent-up consumer demand was satiated, the final boosts from the automobile ran their course, the stimulus of the Vietnam War ended, and new productive capacity in Europe and Japan contributed to a global surplus. Professors Foster and McChesney demonstrate that financialization was the response to the stagnation that began to grip capitalist economies in the 1970s.

“[U]nable to find an outlet for its growing surplus in the real economy, capital (via corporations and individual investors) poured its excess surplus/savings into finance, speculating in the increase in asset prices. Financial institutions, meanwhile, on their part, found new, innovative ways to accommodate this vast inflow of money capital and to leverage the financial superstructure of the economy up to ever greater heights with added borrowing — facilitated by all sorts of exotic instruments, such as derivatives, options, securitization, etc. Some growth of finance was, of course, required as capital became more mobile globally. This, too, acted as a catalyst, promoting the runaway growth of finance on a global scale.” [page 42]

As a result, debt and financial profits increased much faster than the overall economy. Financialization rests on increasing asset prices; thus, a series of financial bubbles was necessary to keep the whole thing going. As instability increased, repeated central-bank interventions were necessary to deal with a steady outbreak of market and currency crises. The increasing power of financial institutions enabled them to induce governments to deregulate markets, encouraging ever more risky behavior.

The effect of these developments, the authors write, is a “stagnation-financialization trap,” whereby financial expansion has become the main fix for the system, which merely enables the cycle of crises to continue without dealing with the underlying structural weaknesses.

“Today’s neoliberal regime itself is best viewed as the political-policy counterpart of monopoly-finance capital. It is aimed at promoting more extreme forms of exploitation. … Neoliberal accumulation strategies, which function with the aid of a ‘predator state,’ are thus directed first and foremost at enhancing corporate profits in the face of stagnation, while providing further needed cash infusions into the financial sector. … Neoliberalism has also increased international inequalities, taking advantage of the very debt burden that peripheral economies were encouraged to take on, in order to force stringent restructuring on poorer economies.” [pages 44-45]

Thus, the system’s only answer has been attempts to re-inflate new asset bubbles. Globalization has only made this problem a global one:

“At the world level, what can be called a ‘new phase of financial imperialism,’ in the context of sluggish growth at the center of the system, constitutes the dominant reality of today’s globalization. Extremely high rates of exploitation, rooted in low wages in the export-oriented periphery, including ‘emerging economies,’ have given rise to global surpluses that can nowhere be profitably absorbed within production. The exports of such economies are dependent on the consumption of the wealthy economies, particularly the United States, with its massive current account deficit. At the same time, the vast export surpluses generated in these ‘emerging’ export economies are attracted to the highly leveraged capital markets of the global North, where such global surpluses serve to reinforce the financialization of the accumulation process centered in the rich economies.” [page 63]

International oligopoly supplants national oligopoly

The concomitant need for growth under the rigors of capitalist competition fuels corporate mergers; such combinations are necessary to buoy profits via increasing market shares when markets are mature. Because of globalization, the tendency toward oligopoly now takes place on an international scale.

This internationalization of oligopoly gives a false impression of renewed national competition, professors Foster and McChesney argue, because national firms are subsumed by international firms as part of the process of globalization. As under earlier, national scales, few corporations can survive this competition. The 500 largest corporations in the world collectively earn revenues of about 40 percent of world gross domestic product! [pages 76-77]

As ever more power accrues to the capitalists who reap the profits from these corporations, they can move production, or, as is standard in the apparel and computer industries, subcontract production to the places with the lowest wages and longest hours, thereby accumulating fantastic profits and reversing, for now, earlier downward pressures on profits.

“Corporations seek, by means of divide-and-rule strategies, to gain advantages over different local, regional, and national labor markets, benefiting from the reality that, while capital is globally mobile, labor — due to a combination of cultural, political, economic, and geographical reasons — for the most part, is not. Consequently, workers increasingly feel the crunch of worldwide job and wage competition, and giant capital enjoys widening profit margins as the world races to the bottom in wages and working conditions. …

The conflict between workers is engendered by capital through the creating of an industrial reserve army of the unemployed. This divide-and-rule strategy integrates disparate labor surpluses, ensuring a constant and growing supply of recruits to the global reserve army, which is made less recalcitrant by insecure employment and the continued threat of unemployment.” [pages 114-115]

Chinese wages, for instance, have remained at about five percent of the U.S. level since the Deng Xiaoping-led imposition of capitalism in the late 1980s because of hundreds of millions of displaced rural farm workers streaming into cities; rural incomes are still lower than average city wages.

Nonetheless, sweatshop pay and conditions are so poor in China that the pattern is workers staying for at most a few years then returning to their villages because physical survival under such conditions for much longer is impossible. That they can return is because the Chinese government has not yet succeeded in eliminating rights to the land held by villagers, a remaining vestige of the Mao era that, ironically, props up the sweatshop system. Those land rights are a social benefit that enables migrants to survive their stints working in sweatshops.

On such horrific conditions rests modern capitalism. Nor are workers, primarily in advanced capitalist countries, who have steady employment the norm, when viewed on a global scale. Using International Labour Organisation figures as a starting point, professors Foster and McChesney 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 — far less! [pages 144-146]

Failure of orthodox economic ‘theory’

The authors note that orthodox economics assumes that new industrial development will eventually employ all these people, a hope based on ideology and not on reality. The countries that industrialized in the 19th century, particularly Britain and other European countries, were far from able to absorb all their displaced farmers — each experienced massive emigration. But today’s developing countries can’t export their population; as a result, the economy can’t possibly grow fast enough to absorb all their reserve labor armies even if the global economy weren’t in a years-long slump.

China and India contain too large a reserve army of labor for wages to substantially increase there; therefore Chinese and Indian consumption will not be a path out of world economic crisis as many orthodox economists and political leaders have hoped, according to The Endless Crisis. Orthodox economics, dominated by rigid Chicago School thinking, completely failed to predict the financial meltdown and subsequent stagnation. The reason for that lies in orthodox economics existing as an ideological campaign that long ago severed itself from analyzing the real world.

“Their abstract models, geared more toward legitimizing the system than to understanding its laws of motion, have become increasingly otherworldly — constructed around such unreal assumptions such as perfect and pure competition, perfect information, perfect rationality … and the market efficiency hypothesis. … This is an economics that has gone the way of stark idealism — removed altogether from material conditions.” [page 5]

The Endless Crisis is a welcome, and very needed, departure from the usual apologetics for capitalist outcomes. Professors Foster and McChesney provide a single source for understanding the present economic impasse, laying out with devastating precision the reasons for the economic crisis, the inevitability of crisis, the inequality and instability inherent in the capitalist system, and the need to move to a more humane system. Transcending capitalism and creating a better world can only be accomplished internationally, with working people around the world linking together. The authors write:

“Never before has the conflict between private appropriation and the social needs (even survival) of humanity been so stark.” [page 63]

Past structural crises of capitalism could be overcome because there was still room to grow. But when there are no more new markets to conquer, deprivation for the many is the only way for the few to continue to accumulate in a system dedicated to that ever narrower accumulation.

* John Bellamy Foster and Robert W. McChesney, The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China [Monthly Review Press, New York, 2012]

The country that said no: Argentina’s path out of austerity

By Pete Dolack

On a daily basis, we are bombarded with messages in the corporate media that any European Union country defaulting on its debt would constitute armageddon. Greece/Ireland/Spain/choose your country must pay back the banks in full, no matter the social cost, we are told ad infinitum.

I would ask readers to contemplate the unthinkable, except for the fact that not sacrificing entire countries for the sake of investment bankers’ bonuses, speculators’ profits and corporate windfalls is not really unthinkable. Countries have done it. One that did, a decade ago, was Argentina. I hope I will not induce any sudden heart attacks, but armageddon was not the result. No fire fell from the sky.

Quite the contrary, Argentines soon were far better off by saying no to the pitiless austerity that had been imposed on them.

There are lessons to be learned, with the usual caveats that every country is different. Other countries might not do as well as did Argentina, and Argentines did suffer considerable short-term pain. But, as people in other countries today ask: Could anything have been worse than endless austerity?

As with the current economic crisis that has reached dramatic points, Argentina’s crisis had a long buildup. The military dictatorship of 1976 to 1983 laid waste to the Argentine economy while killing, torturing, “disappearing” or forcing into exile hundreds of thousands. The military had been given a free hand to launch its “dirty war,” a campaign of terror against opponents of neoliberalism augmented by two fascist groups that operated with impunity. Upon seizing power, the military handed control of the economy to a prominent industrialist and landowner, who heavily favored the largest enterprises, outlawed strikes and banned the union federation. Real wages fell by 50 percent and gross domestic product fell by double digits. The result was a dramatic increase in income inequality and a fivefold increase in foreign debt. The restoration of civilian rule and nominal democracy put an end to government terror, but not to economic policy.

Banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt.* During the same years, foreign debt continued to grow, speculators inflated a stock-market bubble, social benefits were reduced, and credit cut for small and midsize businesses. Wages were cut further, first by inflation and then by a wage freeze. Argentine exports steadily became less competitive because the peso was fixed at a one-to-one rate with the U.S. dollar; Argentina could not give a boost to its exports because the fixed exchanged rate did not allow the devaluation that capitalist competition had demanded.

In conjunction with the austerity programs, Carlos Menem, who was president for most of the 1990s, sold off state enterprises at below-market prices. This fire sale yielded US$23 billion, but the proceeds went to pay foreign debt mostly accumulated by the military dictatorship — after completing these sales, Argentina’s foreign debt had actually grown. The newly privatized companies then imposed massive layoffs and raised consumer prices.

By 1997, about 85 percent of Argentines were unable to meet their basic needs with their income; the average income was less than one-half of what was necessary to meet basic needs for a family of four and the percentage of workers who were unemployed or underemployed was about 30 percent.** Because these austerity programs were implemented by a Peronist president — traditionally seen as protectors of labor and social services —  working people became ideologically confused and therefore were slow to fight back or coalesce behind anti-austerity political movements. The military junta had also physically wiped out a generation of experienced activists.

An upsurge of unrest finally brought an end to the punishment of Argentines. In December 2001, the government ordered bank accounts frozen and limited the payment of wages and pensions so that the money could be diverted to making interest payments on foreign debt; the government would have defaulted otherwise. A ferocious and broad protest movement mushroomed as Argentines refused to cooperate, and the country went through five presidents in two weeks.

The people had no choice but to find solutions themselves, and did: They set up barter clubs and created a system of popular assemblies, creating dual government structures at the local level. Workers in factories that had been shut down simply took them over, restarting production and converting them into cooperatives. A new president, Néstor Kirchner, suspended debt payments.

These developments soon reduced unemployment from 50 percent to 17 percent and created a budget surplus. The outstanding debt, however, remained — had Argentina resumed scheduled payments in 2005, interest payment alone on the debt would have consumed 35 percent of total government spending, according to an analysis by Alan Cibils published in Z Magazine. Kirchner announced that Argentina intended to pay only 25 percent of what was owed and any group that refused negotiations would get nothing; in the end, Argentina paid 30 percent.

Those moves did not constitute a magic wand, and recovery was slow for many. But over the longer term, Argentina has done well — its gross domestic product nearly doubled from 2002 to 2011, representing the fastest growth in the Western Hemisphere, according to a report published in October 2011 by the Center for Economic and Policy Research.

The Center reports that:

• Poverty has fallen from almost half of the population in 2001 to approximately one-seventh of the population in early 2010.
• Income inequality significantly declined. In 2001, those in the 95th percentile had 32 times the income of those in the fifth percentile. By early 2010, that figure fell by nearly half, to 17.
• Unemployment has fallen by over half from its peak, to eight percent.
• Social spending rose from 10.3 to 14.2 percent of gross domestic product.
• In 2009, the government expanded the reach of its social programs, launching the “Universal Allocation per Child,” which resulted in significant reductions in infant and child mortality from 2001 to 2010, somewhat more than in similarly situated countries.

The Center’s report notes that “Argentina’s rapid growth has often been dismissed as a ‘commodity boom’ driven by high prices for its agricultural exports such as soybeans, but the data show that this is not true.” The value of Argentina’s manufacturing exports accounted for more than triple the value of its agricultural and forestry exports. Moreover, exports of agriculture, hunting, fishing and forestry products accounted for a steadily smaller percentage of Argentina’s economy during the past decade — those exports accounted for 5.0 percent of overall gross domestic product in 2002 as compared to 3.7 percent in 2010.

“The recovery is driven by consumption and investment (fixed capital formation),” which together accounted for more than 70 percent of Argentina’s growth during the past decade, the report states.

That success came despite Argentina still being shut out of international lending markets, having little direct foreign investment and continuing to be subject to hostility from the United States and the European Union. The E.U. this week filed suit in the World Trade Organization against Argentina over import restrictions, encouraged by the U.S. An arbitration board based in Washington has repeatedly awarded energy companies hundreds of millions of dollars because the enterprises suffered losses when the peso was devalued in 2002 and regulators refused them steep rate increases. Never mind that market forces were at work — it was the very same markets that these companies swear to live by that caused the fall in value of the peso while it was government intervention that had artificially propped up the peso’s value previously.

Economist Joseph Stiglitz, in a 2007 lecture, said of the arbitration rulings:

“It is clear that maintaining utility prices in dollars — while the rest of the economy was undergoing pesoification — would have been a huge windfall for the utilities. It would have represented a vast redistribution of wealth from the rest of the economy to the utilities — resulting in an unfair and inequitable outcome. It would have harmed the economy, depressing output even further.”

Critical for Argentina’s turnaround was defaulting on its debt, freeing money for investment and social services. Also a factor was eliminating the peso’s peg to the U.S. dollar. Valuing one peso as equal to one dollar was exactly as if Argentina used a common currency like the euro; Argentina’s currency was overvalued and all adjustments imposed by capitalist competition therefore had to be made internally — in other words, harsh austerity.

Once Argentina allowed the value of its peso to be set by market forces, the country not only saved the money that had been spent in foreign exchange markets to prop up the peso’s value (expensive market interventions maintain currency pegs, not government fiats), but the strong decline in the value of the peso made Argentina’s exports cheaper. It also made imports into the country much more expensive. From a consumer perspective that is a harsh burden but within the logic of capitalism in which Argentina had to operate it acted as a spur to internal production. If it is too expensive to buy from another country, the alternative is to make it yourself.

The need to restart production and put themselves back to work also induced workers in plants that had been shut down or were being asset-stripped to take them over. Community support enabled these workers to maintain their operations in the face of government hostility. The recovered enterprises became cooperatives that in turn were managed with community benefit in mind.

Argentina’s industry became more competitive and because many more Argentines were back to work, there was more domestic demand. Consumer demand is ultimately the driving force in a mature capitalist economy. According to the World Bank, household consumption accounted for 60 percent of Argentina’s gross domestic product, a typical figure. Under austerity, when unemployment sharply rises and those who retain their jobs are paid a lower wage,  the economy contracts because people don’t have money to spend.

Working people also don’t pay as much taxes when their wages decline. Corporations and the rich are paying less taxes, too — because they refuse to pay them, much preferring to lend money at interest rather than shoulder responsibility for the society that enables them to accumulate vast wealth — so governments are forced to borrow. But as less revenue comes in, more must be borrowed, and the price extracted by the corporations and the wealthy who lend is to demand more austerity to ensure they will be repaid in full, with interest. Unemployment rises more, more debt is accumulated, the economy contracts further, and round and round it goes until working people rise up to force their government to stop.

That is what happened in Argentina in 2002. That is what is needed to happen in many more countries today.

* This and the following paragraph based on Pablo Pozzi, “Popular Upheaval and Capitalist Transformation in Argentina,” Latin American Perspectives, September 2000, pages 65-70; Colin M. MacLachlan, Argentina: What Went Wrong, pages 169-171 [Praeger, 2006]
** This paragraph based on Pozzi, “Popular Upheaval,” pages 75-80

Where does profit come from?

By Pete Dolack

The question “Where does profit come from?” initially seems as if it has an easy answer, but on closer inspection is a matter of considerable controversy. Ordinarily, we are given simple answers such as “buy low, sell high” or, that favorite fallback position, “the magic of the market.” Standard answers such as these rest on a presumption that circulation of a commodity is the source of profit. That presumption has deep roots, having been articulated by Adam Smith in his classic work Wealth of Nations.

To summarize, Smith wrote that fixed capital (such as machinery and factory buildings) increases the productive power of labor but can produce nothing without circulating capital (such as money and inventory) — from these starting points he concluded that the circulation of capital not only furnishes raw materials and the wages of labor, but is the source of profit. Smith believed that capitalists and land owners have to be rewarded for risk-taking; therefore, upward redistribution of income is required to ensure they will employ the resources they own.

That portion of Smith’s writings is readily accepted as gospel, treated as incontestable dogma in the same way that religious fundamentalists cling to their particular holy book.

That is only side of Adam Smith, however. The Scottish economist also wrote that labor is the “real measure” of the value of a commodity and is entitled to be rewarded. This latter perspective is often referred to as the “labor theory of value,” which has deeper roots than theories of circulation. The origination of the idea that labor adds value is generally credited to Ibn Khaldûn, a fourteenth century diplomat and government official who later became a scholar. He wrote in The Muqaddimah that labor is the source of value, arguing that profits, even when resulting “from something other than a craft, the value of the resulting profit and acquired [capital] must include the value of the labor by which it was obtained.”

The idea of labor creating value was picked up in the seventeenth century, most influentially by John Locke. In The Second Treatise of Government, Locke wrote that what is taken from the earth through labor rightfully becomes the property of the laborer. Cultivated land is more valuable than fallow land as a result of labor, Locke wrote, and he extended his concept to acknowledge that all manufactured products are given value by labor.

Among those who accepted this concept in the following century was Adam Smith. Another who did, but who also significantly advanced the theory, was Karl Marx. The labor theory of value provides a much different way of looking at the question of profit. In his Theories of Surplus Value (an unfinished book originally intended to be the fourth volume of Capital), Marx wrote that Smith’s conclusion that capital is the source of profit contradicts other passages in Wealth of Nations in which Smith wrote that command of labor is the source of value — if the latter is so, profits must originate from the differential between what labor is paid and the value of what labor has produced.

Marx pointed out that the value of a commodity would be the same if the workers sold the commodity themselves, thereby retaining the full value of what they produced rather than having much of it taken by the capitalist. The portion taken by the capitalist therefore is the source of the capitalist’s profit and not the circulation of the commodity.

Marx’s breakthrough was making a distinction between “labor” and “labor power.” It is labor power that is a source of profit. Specifically, what labor power produces is “surplus value.” Labor power is not the same as labor: Labor is the actual activity of production, whereas labor power is the workers’ mental and physical capabilities that are sold to capitalists.

Here we might object that nature is the source of much wealth; precious metals, oil and gas, among other resources, readily come to mind as sources of wealth. Natural resources are surely sources of wealth, but labor power is necessary to extract them and to produce the commodities that are to be sold by capitalists.

Surplus value is the difference between the value of what an employee produces and what the employee is paid — the surplus value is converted into the owner’s profit. This is a complicated concept and initially seems counter-intuitive. Machinery is a part of modern production and does not machinery increase efficiency? The machine presumably costs less over its life than the worker; isn’t that why capitalists buy machines, so they can employ fewer workers and increase productivity? True on both counts. But the value of machines is consumed in production — their value is transferred to the products that are produced with them. It is the physical labor of production that produces the commodity that is sold for more than was paid for the materials used to make it. This concept is easier to understand when it is applied across the life of a commodity rather than narrowly within only the enterprise that manufactures the final product.

Any product made for sale has an “exchange value.” This value is not necessarily the same as its “use value” — the intrinsic value a product has to the user of it. If it takes eight hours for an individual to make a shirt for herself, then the shirt might be said to have a use value of eight hours of labor. Perhaps instead of wearing it herself the shirtmaker wishes to barter the shirt for a pair of shoes. If the shoes require sixteen hours to make, the shoe maker is not likely to see that as a fair exchange. But if the shoe maker needs two shirts, then the labor that went into each side of the exchange is equal (assuming the skill and intensity of work are close to equal). In this example, the pair of shoes can be said to have the value of two shirts.

In a modern capitalist economy, the shirt or shoe is sold for money — its exchange value is the amount of money paid for it. But the shirtmaker working for a wage paid by a manufacturer will receive only a portion of that value — the difference, the surplus value, is the source of profit. If the capitalist willingly paid to his employees the full value of what they produce, he wouldn’t be a capitalist — there would be no profit.

The owner of the factory is not altruistic — he intends to extract surplus value. But that owner does not keep all the surplus value — he must share it with those who help circulate the commodity. Distributors and merchants assume the cost of circulation, part of the expense of a commodity, while sharing the surplus value. The distributor has specialized skills and can circulate the commodity more efficiently than the manufacturer; because the cost of circulating the commodity is thereby reduced, there is more surplus value to be shared.

In the following hypothetical case, the surplus value is shared with the distributor and the merchant. Let’s say the factory owner pays a wage that is equal to eight dollars to each worker for each widget. The owner sells the widget to the distributor for ten dollars, the distributor sells it to the merchant for twelve dollars and the merchant sells the widget for fourteen dollars. When the worker goes to the store to buy a widget, she pays fourteen dollars although she was paid only eight dollars to make one. Thus, the widget is worth six dollars more than what the factory owner paid to the worker, not the two-dollar difference between the wage and what the factory owner received for it.

The distribution of that surplus value can change among the capitalists. These capitalists compete against each other to earn a bigger profit, at the same time they cooperate in getting the product to market. The widget manufacturer might miscalculate the demand and overproduce, causing a glut that reduces the price that can be realized. Or a giant merchant chain becomes so big that it has the power to force lower prices — the chain wishes to sell the widget for less to undercut its smaller competitors, and possesses sufficient clout by virtue of its size to negotiate a discount, forcing the manufacturer to cut its wholesale prices.

If the manufacturer does not wish to see its profits reduced, it has to reduce its costs. The primary way it can do so is to lower its labor-power costs. This can mean cuts to wages or benefits, increased workloads, layoffs or moving production somewhere else. In each of these cases, the capitalist is buoying profit levels by extracting more surplus value. More will be extracted from the workforce through suppressing pay or an intensification of work.

The above example is of course an oversimplification. The factory owner has costs other than labor power, and employees do not create the widgets solely with bare hands. (And, in reality, the employee will be paid far less than the 80 percent of the factory owner’s proceeds in our hypothetical example.) There is machinery in the manufacturing process, and raw materials (including previously manufactured components) are needed to make the widgets. If the company’s shares are traded on a stock exchange, the shareholders will be expecting a hefty cut of the profits.

Labor power is the source of surplus value because raw materials and the value of the machinery are consumed in production while labor power produces more value than is paid for it. That does not mean that machines aren’t productive nor that they don’t raise the productivity of those who work with them. They do both. The surplus value contained in the machines placed in production was realized by the manufacturer of the machine upon selling it; the machines transfer their value to the commodities produced using them. (Payments might continue to be made on the machine after it is put into service, but the payments go to the lender who financed the machine’s purchase; interest is another sharing of surplus value. Paying rent is as well.)

A commodity is produced with direct labor, machines and raw materials, but the machines and raw materials assist labor in producing the surplus value — machines make labor more productive, enabling more surplus value to be extracted from each employee. (One worker using a bulldozer can do as much as several workers with shovels. Computerization also reduces the number of employees in an office; more work is done with fewer people.) Raw materials and other commodities are bought by the capitalist so they can be sold in a new form for a higher price. Raw materials and natural resources can’t do that by themselves — labor power is the only commodity that can add the value that becomes surplus value.

Marx demonstrated this concept at the beginning of Volume III of Capital. The paragraph below is dense, and so requires commentary to unpack it. Marx himself spent three chapters covering dozens of pages to explicate this one-paragraph example, examining it from every angle, knowing that his many critics would attack him for any gap were his argument not air-tight. This blog normally avoids mathematical equations, but the one quoted below is unavoidable. The “400c” in the equation represents the cost of expenses (the “c” means “constant capital”); the “100v” represents the cost to the capitalist for wages (the “v” means “variable capital”) and the “100s” represents “surplus value.” In his example, Marx wrote:

“Let us say that the production of a certain article requires a capital in expenditure of £500: £20 for wear and tear of the instruments of labour, £380 for raw materials and £100 for labour-power. If we take the rate of surplus-value as 100 per cent, the value of the product is 400c + 100v + 100s = £600. After deducting the surplus-value of £100, there remains a commodity value of £500, and this simply replaces the capital expenditure of £500. This part of the value of the commodity, which replaces the price of the means of production consumed and the labour-power employed, simply replaces what the commodity cost the capitalist himself and is therefore the cost price of the commodity, as far as he is concerned.”

In this example, the capitalist, assuming the finished product has been sold at the market value of £600, has realized a profit of 20 percent. Because £200 was realized by the capitalist above the total £400 cost of raw materials (£380) and machine-use (£20) while only £100 was paid in wages (the “100v” in the equation), £100 in surplus value was extracted through paying the employees for only half of what they produced. It is by calculating labor-power separate from other inputs that the source of profit is discovered.

This crucial point is obscured when the cost of labor-power is subsumed in the overall expenditures; the capitalist’s profit appears to him or herself simply as the difference between the sum total of his or her costs and the sale price. Thus the profit appears to derive from the circulation (sale) of the commodity while in reality circulation is the realization of profit.

I’ve used examples based on manufacturing, but the same principle exists for white-collar office work.

It is not at all out of place to ask: Why shouldn’t the people who do the work earn the rewards? Why should bosses, shareholders and speculators accumulate so much at the expense of so many? Why should those who dedicate their lives to accumulating so much be anointed the guardians of morality and ethics when their ability to acquire money does not make them experts at anything other than greed?

But to change that, an economy would have to be based on cooperation rather then competition. Employees already cooperate with one another on the job; producing a product would be impossible otherwise. We can cooperate in managing our enterprises and with our communities just as well.

This post is adapted from an excerpt from my forthcoming book It’s Not Over. The sources used in this adaptation include Karl Marx, Capital, volume 3, pages 117-140, 392-416 [Vintage Books, 1981]; Marx, Theories of Surplus-Value, chapter 3 (“Adam Smith”), posted on the Marxist Archive web site; Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book I, chapters 1-3, and book II, chapters 1-2, posted on the Marxist Archive web site; John G. Gurley, “Marx and the Critique of Capitalism,” anthologized in Randy Albelda, Christopher Gunn and William Waller (eds.), Alternatives to Economic Orthodoxy, pages 274-276 [M.E. Sharpe, 1987]; Antonio Negri, Marx Beyond Marx: Lessons from the Grundrisse, pages 74-76 [Autonomedia, 1991]; and Tom Bottomore (ed.), A Dictionary of Marxist Thought, pages 265-266 [Harvard University Press, 1983]

Bailouts are capitalist business as usual, not “socialism”

By Pete Dolack

One of the most amusing spectacles of the farce that passes for elections in the United States is the continual shrieking from the Right that Barack Obama is a “socialist.”

The most common basis for this most preposterous claim is that Obama bailed out the banks. Setting aside that the Troubled Asset Relief Plan was signed into law by George W. Bush, one certainly does not have to be a receptacle of “tea party” talking points to have opposed the bank bailouts and the additional largesse showered on financial institutions. Indeed, it is actual socialists who are among the most energetic opponents of the bank bailouts.

To summarize government response to the financial collapse that took root in 2008, banks were given huge sums of money with no strings attached in the hopes that the banks would again lend money, without which modern capitalism can not function. When the banks decided to hang on to the money instead of lending it, central banks gave them more money at nearly zero interest rates and asked them to buy government debt that would pay considerably higher rates. The banks, after a careful review, decided they could make a profit from this arrangement.

Such policies are not different from the stratagem known as “trickle down,” a policy under which governments cut taxes on the wealthy and on corporations. Popularized by the Reagan administration in the U.S., “trickle down” is an ideology that claims that giving more and more to the wealthy is good for everybody, because the wealthy will invest their windfalls, creating jobs for everybody, and we’ll all live happily ever after.

After three decades of such policies, it would seem, were we to peruse actual life, not to have worked out. The wealthy and large corporations have more money than they can possibly spend; more wealth is poured into increasingly risky speculation because the concentration of wealth outstrips outlets for productive investment. U.S. corporations are sitting on about $2 trillion of cash because they won’t invest in new production when the demand for their products continues to erode due to declining living standards.

The difficulty of maintaining profit margins results in capitalists moving production — often to developing countries, but sometimes from one region to another within a country or across the border of a neighboring country. The mere threat of a company moving frequently results in a local government giving large sums of money to induce the threatening company to stay put.

These subsidies for corporations can get to the point that tens and hundreds of millions of dollars are paid to prevent a move of a few miles. The government of New York City, for instance, two months ago handed a deliverer of fresh food more than $100 million to not move across the Hudson River but instead stay within the city. The company’s customer base is mostly within the city, so it is fair to dispute how likely such a move would have been because the company is dependent on fast truck deliveries, something rarely possible if a driver must drive on one of the Hudson’s jammed crossings.

The New York City government goes further by paying subsidies to companies moving from one Manhattan neighborhood to another or even within the same neighborhood — Goldman Sachs was given $175 million in direct subsidies to move into its new headquarters, about eight blocks from its previous location. That sum does not include another estimated $250 million that Goldman Sachs will save because the state will issue tax-free bonds on its behalf, meaning that the company does not have to pay the interest it would have been required to had it issued bonds on its own.

Not that there is anything unique about New York’s corporate subsidies. New Jersey Governor Chris Christie, for instance, has handed out nearly $1.6 billion in giveaways in the little more than two years he has been in office. These giveaways can amount to tens or hundreds of thousands of dollars per job, usually with no strings attached.

It gets worse. A report issued on April 12 by Good Jobs First reports that sixteen states within the U.S. have programs in which businesses retain the state income taxes they deduct from their employees’ paychecks rather than sending the collected taxes to the state government. Nearly $700 million a year of taxes are siphoned off by these corporations — taxes paid to bosses to fatten corporate profits instead of being used to support schools and social services.

Highly visible subsidies such as the 2008 Troubled Asset Relief Plan that showered money on banks differs only in the level of publicity; TARP is capitalist business as usual. Capitalists, thanks to the power concentrated by their amassing of wealth and their resulting ability to decisively influence their countries’ institutions and leverage their ownership of mass media, are able to bend government policies to their benefit. They are able to bend rules in their favor, and induce governments at all levels to provide giveaways and subsidies. And if one competitor receives government largesse, the pressure of competition dictates that others must get in line for some, too.

As I have previously written, it’s not useful to see such behavior as “evil” however distasteful it is; rather these elites are simply acting in their own interest in a system that allows full scope to their acquisitive personal traits such as greed. There is no such thing as a “free market” no matter how loud its proponents proclaim its wonderments; left undisturbed, the capitalist system must lead to concentrations of wealth and that concentration’s concomitant lowering of living standards for working people. That concentration of wealth, power and privilege naturally leads to more subsidies and benefits.

When someone on the Right condemns the Troubled Asset Relief Plan or any other bailout, it is not “socialism” that has so angered them – it is capitalism as usual.

What is socialism? It can be defined as a system not simply based on capitalist relations of production having been transcended but when a full democracy has been instituted with industry and agriculture built up during capitalist stages of development brought under popular control so that production is oriented toward meeting the needs of everyone instead of for personal profit by an individual owner. A system based on political and economic democracy — and political democracy is not possible without economic democracy.

Economic democracy is impossible without production being oriented toward human, community and social need rather than private accumulation of capital. Everybody who contributes to production earns a share of the proceeds — in wages and whatever other form is appropriate — and everybody is entitled to have a say in what is produced, how it is produced and how it is distributed. These collective decisions would be made in the context of the broader community and in quantities sufficient to meet needs, and that pricing and other decisions are not made without community involvement or without input from suppliers, distributors and buyers.

Nobody is entitled to take disproportionately large shares off the top because they are in a power position. There are no power positions because enterprise managers are elected and recallable by the workforce, which collectively makes all strategic decisions. Every person who reaches retirement age is entitled to a pension that can be lived on in dignity. Disabled people who are unable to work are treated with dignity and supported with state assistance; disabled people who are able to work can do so. Quality health care, food, shelter and education are human rights. Artistic expression and all other human endeavors are encouraged, and — because nobody will have to work excessive hours except those who freely volunteer for the extra pay — everybody will have sufficient time and rest to pursue their interests and hobbies.

In such a world, there would not be extreme wealth and the power that wealth concentrates — political opinion-making would not be dominated by a numerically tiny but powerful class perpetrating its rule. Without extreme wealth, there would be no widespread poverty — masses of people would not have their living standard driven as low as possible to support the accumulation of a few. This is also a world in which all oppressions are eliminated: Racial, gender, sexual-orientation, national, religious and other discriminations would have to cease to exist in order for equality to exist.

There is nothing in the preceding four paragraphs that bares any resemblance to trillions of dollars, euros, pounds and renminbi handed over to corporations and the already wealthy while everybody else is immiserated to pay for it.

Freedom and democracy are not gifts handed down from above, and never have been — they are goals that are won through struggle and determination.

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.