China’s winding road toward capitalism

There is perhaps no bigger controversy among partisans of the Left than the nature of China and its economy. Is it socialist? Capitalist? State capitalist? A hybrid? That so much debate swirls around this issue is its own proof that the question doesn’t have a definitive answer, at least not yet.

What can be agreed upon is that China has experienced decades of extraordinary economic growth. But the nature of that growth, and the base upon which it has been created, are also subject to intense debate, arguments that necessarily rest on how a debater classifies the Chinese economy. An additional debate is whether China’s growth is replicable or is the product of particular conditions that can’t be duplicated elsewhere. And what should be at the forefront of any debate is how China’s working people, in the cities and in the countryside, fare under a tightly controlled system that promises to bring about a “moderately prosperous society.”

Setting out to examine China from that last perspective is a new book, The Communist Road to Capitalism: How Unrest and Containment Have Pushed China’s (R)evolution since 1949. As you might guess from the pungent title, Communist Road, authored by activist Ralf Ruckus, is not only critical of the Chinese Communist Party, but comes squarely down on the proposition that China has become a capitalist society. Despite China’s increasing integration into the world capitalist system, the increasing emphasis placed on markets and widening inequalities, the proposition that China has moved to capitalism is quite controversial for many people on the Left.

Mr. Ruckus begins his argument by suggesting that a more gradated approach to Chinese history since the 1949 revolution better captures the stages of China’s development. He presents four different ideas commonly put forth that attempt to define the nature of China’s economy. These four concepts are capitalist from 1949 to now; socialist from 1949 to now; socialist and then capitalist; and a four-stage approach of transition to socialism, socialism, transition to capitalism and capitalism. There is a fifth conception not mentioned by Mr. Ruckus — that China is not classifiable as capitalist or socialist, a perspective put forth by the Marxist economist Samir Amin. Dr. Amin, in his The Implosion of Contemporary Capitalism, argued that asking if China is socialist or capitalist “is badly posed” because it is “too general and abstract.” Dr. Amin wrote that although “the Chinese project is not capitalist does not mean that it is socialist, only that it makes it possible to advance on the long road to socialism” but added that China could also “end up with a return, pure and simple, to capitalism.”

Thus there is more than one nuanced perspective. The last of Mr. Ruckus’ four offered ideas (the four-stage approach) and Dr. Amin’s hybrid approach appear the most viable among the five theories in our struggle to understand the contours of Chinese development. It is the four-stage approach that provides the spine for Communist Road. Whether or not we are in agreement that China has become capitalist (on its own terms) or is moving toward capitalism, that China is in danger of a long-term, or even permanent, turn to full-on capitalism shouldn’t be a source of heated dispute. The collapse of the Soviet Union and its Central European satellites, and their return to capitalism on disadvantageous terms, provides proof, even for those who believe China remains a socialist country, that capitalism could be its future. Nor should it be expected that deepening entanglement with the world capitalist system doesn’t present its own dangers.

Social confrontation across four periods

Early on, in the opening pages, Mr. Ruckus states that his “main focus lies on social confrontation and the ruptures and continuities they produced in the PRC since 1949,” and he does not waver from that focus in discussing his four periods (transition to socialism, socialism, transition to capitalism and capitalism) of Chinese Communist Party (CCP) rule. The coming tale of urban and rural unrest is set early when the author writes, “[T]he actually existing socialism constructed [in the first two periods] was very different from both the preceding and the following economic, political, and social systems. Furthermore, actually existing socialism was largely distinct from the socialism desired by proletarians, peasants, and women* who had been involved in revolutionary organizing since the 1920s.” [page 7]

Continuing to set out his thesis in the opening pages, Mr. Ruckus argues that “the overall character of the system qualified as capitalist from the mid- to late-1990s onward, because the main driving force of the economy was capital accumulation and the generation of profit, and because the CCP leadership and other sections of the ‘elite’ formed a reconfigured capitalist ruling class that appropriated a large part of the wealth produced through the exploitation of workers and peasants.” These reforms were successful because “they could build on the foundations socialism had created and, second, because so-called globalization, with new industrial production clusters and supply chains … offered a historical opportunity for attracting foreign capital and for developing the PRC economy the CCP regime made use of.” [page 9]

The reference to CCP cadres as a “ruling class,” and a capitalist ruling class no less, is bound to set off significant controversy. That is perhaps a technical side issue we can sidestep here. A larger issue for the reader of Communist Road is whether the author makes his overall case effectively. The four core chapters of the book cover the four defined periods, starting with the transition to socialism. In these first years after the 1949 revolution, substantial improvements were achieved in social conditions, including life expectancy, child mortality, health care, income equality and literacy.

Shanghai (photo by dawvon)

At first, the CCP followed the model of the Soviet Union with an accumulation and industrialization strategy with similarities to “authoritarian capitalist late comers” using Taylorist and Fordist production techniques; the form of technology and work organization was seen as neutral. As with the Soviet Union of the 1920s and 1930s, the capital and labor power for industrialization could only come from internal sources. In the countryside, the peasant economy was left intact until the mid-1950s, with land reforms benefiting poor and middle peasants. There were benefits for women, too — a 1950 marriage law granted them equal rights with men, although full equality did not come as women workers tended to be relegated to “softer” work with lower pay and fewer work points.

With the onset of nationalizations in the mid-1950s, a brief political opening up, the “Hundred Flowers Campaign,” widened the spaces for criticism, but the window was soon shut when criticism was deeper than the CCP had anticipated. Nonetheless, the party retained significant sources of support as it launched the Great Leap Forward, a collectivization and industrial drive. The Leap failed, leading to acute shortages of food as a decline in the size of the rural workforce as urban industries rapidly expanded, mismanagement, poor weather and false reports filed by local authorities combined to create a disaster. Millions would die.

Conflicting currents in the Chinese Communist Party

Communist Road places the blame squarely on Mao Zedong. But perhaps the situation was not so clear-cut. Minqi Li, for example, in his book The Rise of China and the Demise of the Capitalist World Economy, flatly states “it was Deng Xiaoping and Liu Shaoqi who were responsible for the Great Leap Forward,” and quotes Liu as praising officials who reported implausible, wildly inflated crop yields as “having overthrown science.” At the same time, Mao cautioned against the “exaggeration wind” but party leaders, following the leads of Deng and Liu, who were in charge of party propaganda, continued to agitate for ideas to be “liberated.” (As an aside, Dr. Li’s research found that the peak of the death rate during the Great Leap Forward was lower than the normal death rate during the 1930s; by the 1970s, the death rate was about one-fourth what it had been in the 1930s.)

Dr. Li concludes his analysis of the Great Leap Forward by stating “a privileged bureaucratic group” had taken control of the party; now no longer a party committed to revolutionary ideals and willing to self-sacrifice but rather “one that included many careerists who were primarily concerned with personal power and enrichment.”

That is not different from Mr. Ruckus’ overall conclusion, although he asserts that Mao “was held responsible” for the Great Leap Forward and “pragmatic leaders” like Deng and Liu “instituted reforms that were supposed to deal with the fallout of the GLF.” [page 56] During the next period of upheaval, the Cultural Revolution of the mid-1960s, is, consistent with the book’s perspective, examined from the standpoint of workers and peasants by Mr. Ruckus. Separate from the struggles within the party hierarchy, he writes that the Cultural Revolution was a series of mass outbreaks for better working conditions and permanent jobs as part of a struggle against the “red bourgeoisie” (a term used by some Cultural Revolution participants) and the CCP that was “exploiting workers.”

Forbidden City, Beijing (photo by Adamantios)

Unrest continued across the 1970s, with workers demanding more egalitarian wages and bonuses, a say in decision-making and work conditions, and fewer privileges for party cadres; the experiences gained during the Cultural Revolution were put to use by grassroots organizers. This was also a period where investments in education and health care paid off — literacy, life expectancy and child mortality all continued to improve. Unrest was met with a mix of responses, including repression, concessions, co-optation and reforms.

China, as can now be seen in hindsight, was on the brink of dramatic changes as Mao and much of the revolutionary generation were approaching their deaths. Separate from that, China had opened relations with the United States in an effort to ease its isolation and gain access to technology; the split with the Soviet Union also played a role in this development. The Deng faction would win the power struggle following Mao’s death, and then use the democracy movements to defeat their party opponents before suppressing the movements, Mr. Ruckus writes. The commune system was dismantled, farmland was leased, collective structures disappeared and local governments began to rely on taxes, fees and enclosures. Wages were increased, but the “iron rice bowl” of benefits was attacked and associated with the ousted Mao-aligned Gang of Four. The right to strike was abolished, more workers became temporary hires and rules restricting migration were eased to encourage an exodus into the new special economic zones where foreign capital could set up.

Here, Mr. Ruckus is on firm ground in characterizing the period from the mid-1970s to mid-1990s as a transition to capitalism. He writes that hopes that the Deng reforms would lead to improvements were disappointed. Changing labor relations and less job security led to continuing worker unrest and student mobilizations. The death of a prominent party reformer, Hu Yaobang, sparked mass demonstrations and the Tiananmen Square occupation of 1989, by any standard a crucial turning point.

Tiananmen Square as a turning point in Chinese history

Here, perhaps more than at any other point, is where Communist Road must make its case. The Tiananmen Square occupation “ended in failure,” Mr. Ruckus writes, because “CCP leaders were determined to keep their grip on power” and because of the movement’s weaknesses, “above all, the division between students and workers. Student leaders did not want to involve the working class.” That was, in part, because of a fear that “working class involvement would necessarily lead to a harsh response from CCP leaders.” [page 109]

One of the leaders of Tiananmen, Wang Chaohua, who wrote a series of essays on the event after escaping China, said the more important mistake was to not develop a political agenda and thus “failed to propose a political agenda that could have reflected the scale of popular engagement — and thus missed the opportunity to transform the protest into a constructive political movement,” in the words of J.X. Zhang, who reviewed in New Left Review Dr. Wang’s Chinese-language collection of Tiananmen essays. Dr. Wang laments a “lack of independent political consciousness among Chinese workers” who “as a whole still partly identified their collective interests with those of the ruling party, which claimed to be ‘the vanguard of the working class.’ ”

Activist workers who did participate nonetheless would bear a heavy share of the crackdown that followed the military attack that put an end to the occupation. It is possible that thousands were killed in the military crushing of the occupation and a certainty that thousands more landed in prison. What was to come next?

“At this point,” Mr. Ruckus writes, “the PRC was just a final step away from its transition from socialism to capitalism. This step might not have happened if not for the global transformation of the Cold War confrontation between the capitalist West and the socialist East and the dialectic of economic crisis, investment relocation, and industrial development that had shifted the global manufacturing center to East Asia over the course of the 1980s and 1990s.” [page 110]

Tiananmen Square (photo by そらみみ (Soramimi))

Similarly, Naomi Klein, in The Shock Doctrine: The Rise of Disaster Capitalism, argued that as the Tiananmen Square protests were getting underway, the Chinese government “was pushing hard to deregulate wages and prices and expand the reach of the market.” She even reported that Milton Friedman, the notorious godfather of Chicago School economics, was invited to China in 1980 and again in 1988 to provide advice! Ms. Klein quotes another Tiananmen leader, Wang Hui, who said popular discontent against Deng’s economic changes that included lower wages, rising prices and “a crisis of layoffs and unemployment … were the catalyst for the 1989 social mobilization.” The violent end to the occupation, according to Professor Wang, “served to check the social upheaval brought about by this process, and the new pricing system finally took shape.”

What were the results once the Deng-led CCP was able to resume its restructuring? Mr. Ruckus doesn’t hold back from a catalog of negative changes: The use of special economic zones to draw in foreign direct investment (FDI), job security guarantees replaced with contracts, welfare provisions scrapped, privatizations, state-run companies converted to state-owned enterprises expected to maximize profits, 50 million laid off and an intensification of work. “Growing job insecurity, unemployment, low wages, the loss of welfare protection, and higher work pressure led to discontent,” he wrote. “[State-owned enterprise] workers started organizing a wave of protests against the restructuring of the state sector that would last into the 2000s. Moreover, the deterioration of living conditions in the countryside triggered peasant unrest in the mid- and late-1990s. These two cycles of struggle marked the beginning of the capitalist period in the PRC,” which the author dates from the mid-1990s. [page 114]

“Crossing the river by feeling the stones”

This transition need not be seen as either inevitable or the result of a plot by some party leaders, according to Communist Road. “This transition was not the result of a detailed master plan or blueprint but of a series of — often experimental — reform steps taken to improve the country’s economic performance, save the socialist system, and stabilize CCP rule. This is the meaning of the phrase ‘crossing the river by feeling the stones’ that Deng Xiaoping allegedly used to describe his understanding of the course of reform.” [page 115]

Restructuring of state-owned enterprises would further develop as the 1990s drew to a close and China joined the World Trade Organization in 2001. Another crucial milestone in China’s path toward capitalism Mr. Ruckus could have explored further is Jiang Zemin’s “theory of the three represents.” Only a passing reference to then-President Jiang’s allowing private capitalists to become party members in 2001 hints at this development. But this development went beyond a mere widening of party intake. The “Three Represents” reference is an official line announced in 2001 the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. Promulgated by President Jiang, it is a declaration that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously. One can of course enunciate such a program if one wishes, but such a theory has nothing in common with Marxism.

Another piece of evidence that the book could have cited but didn’t is the party’s increasing stress on the use of markets. The Communist Party leadership switched the role of the market from “basic” to “decisive” in 2013 at a key Central Committee plenum, and continuity with this course was laid down by the party at the October 2017 party congress that again stressed the “decisive role” of the market. Communist Road focuses on social movements and grassroots activities, and spends little time on party developments, and although not discussing these party declarations is perhaps consistent with the intent of the book, more reportage of party debates would have enriched the text and provided further underpinning for its central thesis.

The book does document continuing unrest across the 2000s; much of the strikes during this period were wildcat actions as organized actions were prohibited. Since Xi Jinping became party general secretary and president in 2012, the party has tightened control and increased surveillance, and although unrest and wildcat actions have not ceased, there is support for the government from the middle class, which has seen benefits from the reforms, and wages have increased.

Conceptualizing socialism beyond a narrow definition

In trying to unravel the complexities of how the Chinese economy might best be conceptualized, a basic question that should be asked is: What is socialism? Is socialism merely the absence of capitalism? Or is it something more? A definition frequently put forth by socialists (and not only them) is that state ownership of the means of production constitutes socialism, understood as a transitional stage toward communism, to use the classical formulation of Karl Marx. This was the foundation on which the Soviet Union, from the 1930s on, could proclaim itself a socialist society, updating that to referring to itself as a “developed socialist society” in the Brezhnev years as an additional developmental step.

But is that all there is? I would argue that the elimination of a bourgeois social class as the owners of the means of production and the replacement of that social relation with common or state ownership is a pre-condition of socialism, not the actual content. Nor does it have to mean state ownership of all enterprises, although it is inconceivable for a socialism to exist that doesn’t place in state hands banking and a few, large key industries. If socialism means political and economic democracy in a society where everybody has a voice in the decisions that affect them, their communities and/or the enterprises in which they work; wages and other compensation reflect contributions to the work performed; and there are no centers of power built on the accumulation of capital, then neither China nor any other country can be classified as achieving socialism.

In his writings on the Soviet Union, the Marxist historian Isaac Deutscher developed the term “post-capitalist” for the Soviet Union and its Central European satellites. This provides a neutral term that acknowledges that capitalist economic relations had been abolished without suggesting a transition to a higher state had been completed. That has long seemed to me to be a highly useful way to conceptualize the Soviet economy. It certainly wasn’t capitalist, or the United States and other Western capitalist powers wouldn’t have poured so much time, energy and money into attempting to defeat the Soviet bloc with such sustained intensity.

People’s Grand Hall in Chongqing (photo by Chen Hualin)

It is reasonable to draw some parallels with Dr. Amin’s conceptualization of China as neither capitalist nor socialist. He pointed to the communal nature of land in rural China, which is not a commodity that farmers can sell, as “absolutely prevent[ing] us from characterizing contemporary China (even today) as ‘capitalist,’ because the capitalist road is based on the transformation of land into a commodity.” Other commentators point to the fact that banking and finance remain firmly in state hands to buttress their arguments that China is not capitalist. Dr. Amin in his analysis noted that transnational capital can’t pillage China’s natural resources and China’s integration into the world system is “partial and controlled.” Land, however, is frequently taken by city or other local governments and sold to commercial interests; one estimate made in 2017 is that 4 million farmers were losing land annually. Moreover, that China is one of two countries large enough to enter the world capitalist system on its own terms (India being the other although neither the Hindu fundamentalist neoliberal BJP nor the ever rightward-moving Congress chooses to do so) doesn’t mean capitalist relations are absent from the workplace.

The analogy with the Soviet Union is not a snug fit, given that Soviet Union retained a post-capitalist, or at any rate, a non-capitalist, form of government through the early years of Mikhail Gorbachev, not beginning to introduce elements of capitalism until a series of reforms rammed through the parliament in 1990.

On balance, then, although Dr. Amin presented a learned and serious interpretation (and who was clear about the danger of a return to capitalism even while believing market openings were justified), Mr. Ruckus’ four-stage conception gives us the best understanding of the Chinese economy and where it, at least for now, is going. One more opinion popularly floated that we haven’t discussed is that China has indeed moved to capitalism, but only as a temporary expedient to develop faster, and will one day expropriate private capital and become a socialist power strong enough to fend off the capitalist powers. Given the opaqueness of the CCP, none of us outside the party are in any position to know with authority its leadership’s long-term intentions.

What we can do is analyze the actions and words of CCP leadership, which has carried out a slow progression toward capitalism. President Xi has recently begun taking steps to reign in certain Chinese capitalists and has more frequently talked about Marxism, but whether these are the opening moves of a reversal of policies or simply an assertion of party rule will not be known for some time. And even if it were true that the moves toward capitalism are intended to be a temporary expedient, becoming more deeply entangled in markets and the capitalist world system carries its own momentum, a drift not at all easy to check. There are industrial and party interests that favor the path China has been on since the 1990s, and those interests represent another social force that would resist structural moves toward socialism.

An ambivalent and contradictory path

In its summation, Communist Road acknowledges that the four-stage conception “has its limitations.” There are not clear borders between the stages nor is there a straight historical direction. “The long transition from socialism to capitalism in particular was not only gradual and intermittent but also ambivalent and contradictory,” Mr. Ruckus writes. “[M]any of those subperiods [within the stages] overlapped, as unrest from below was often vibrant and erratic and took years to develop and grow, while containment measures and reforms from above were also staggered and long-lasting.” [page 166]

A corollary is a rejection of the idea that “so-called capitalist roaders in the CCP leadership” executed a master plan. “There is no evidence for such a master plan, and blaming the transition mostly on deviant CCP leaders ignores structural factors, both domestic and global. … [I]t was the result of structural features of the form the CCP regime took in the 1950s and 1960s and of social, political, and economic dynamics that made the transition to capitalism in the following decades possible and likely (though not inevitable).” [page 173]

The book concludes with “lessons for the left” that offers “elements of a left-wing strategy.” Two necessities, the author writes, are analysis of the process of class recomposition from the perspectives of proletarians and other oppressed peoples, and forms of organizing that break down divisions among proletarians, activists and intellectuals. Open discussion of the strengths and weaknesses of movements, resistance and organization, and of socialist governments, are vital as well as that movements should be in the hands of those struggling and should represent themselves. Finally, movements must organize globally; the social struggles around the world of recent years occurred simultaneously but were “divided along North-South lines and by national markets, sexism, racism, and migration regimes. These divisions can be overcome, and it is one of the tasks of left-wing organizing to provide resources and create bridges that connect struggles.”

We must base analyses on material reality, not on what our hopes or dreams wish nor on the name of the organization presiding over a country. No single book can be the last word, and some of the conclusions of Communist Road are sure to draw some strong disagreements. Regardless of where you stand on the central questions under discussion, Ralf Ruckus has provided a strong argument, backed by ample evidence, for the thesis that China has become capitalist, as well as a useful, brisk history from below of China since 1949. Both are welcome contributions.

Is 20th century social democracy really the best we can do?

Predictions are difficult to make, especially, as the old joke goes, when they are about the future. Particularly fraught have been predictions of the demise of capitalism. Conventional wisdom would have us believe that because capitalism remains the world’s dominant economic system, predictions of the system’s demise are not only wrong, but destined to be wrong in the future.

“Conventional wisdom” here, of course, is nothing more than a display of the axiom that the intellectual ideas of a society are those of the dominant class. Certainly, both industrialists and financiers would like us to believe that nothing fundamental can change. Bourgeois ideology proclaims that through every possible channel every day.

Yet what is of human creation is not permanent; everything of human creation has an expiration date. Capitalism will be no different.

When will capitalism be transcended and what will follow? That central question has been asked for two centuries and, given the increasing intensity of economic crises, mounting inequality and looming environmental catastrophe, is as important as ever. The unending series of protests, uprisings and movements dedicated to either forcing systemic reform or outright replacement are eloquent testament to how capitalism fails most of the world’s population.

Night view of the Gate of Enlightenment in Madrid (photo by Luis García (Zaqarbal))

Nonetheless, there is no arguing that capitalism remains firmly in the saddle, with no existing social movement anywhere near strong enough today to put the system at risk. Does that mean we should regard past predictions of capitalism’s demise as mistaken or wishful thinking? Perhaps only an ambiguous answer, at least preliminary, is appropriate. For those who wish to see capitalism continue indefinitely — those who benefit and those so frightened by propaganda that anything else is literally unimaginable — there is an easy answer: Yes. For those who wish for a better world, an economic system based on human need and in harmony with the environment, the answer is no. 

Whether yes, no, maybe or let’s wait and see, an examination of why predictions of capitalism’s demise are thus far off the mark is a healthy exercise. I thus was interested in a new book wrestling with these issues, Foretelling the End of Capitalism: Intellectual Misadventures since Karl Marx by Francesco Boldizzoni. Foretelling is a curious hybrid as the author is quite critical of capitalism but also has a pessimistic outlook regarding its replacement; it is rare for a book to receive praise from a Wall Street Journal reviewer and New Left Review contributor Wolfgang Streeck. Foretelling provides a strong challenge to the thinking of critics of capitalism and those who subscribe to leading theories, particularly Marxist, of the end of capitalism.

Such a challenge is healthy, and those who are interested in a basic history of economic thought for the past 200 years would do well with this book. Whether it succeeds in its core intention, however, is a separate matter, although any conclusions will partly depend on a reader’s perspective. 

Capitalism will end, as do all products of history

We get a good sense of Professor Boldizzoni’s perspective in his introduction, where he writes that capitalism will end, or slowly turn into something new, like all products of history, although there is no guarantee it will be something better. The brutality of prior systems lives on in capitalism. The slow growth rates of a more service-oriented economy has led to more “distributional conflicts,” and the Left must find effective tools to deal with it or the “populist right” will take its place. To all but capitalism’s more fervent apologists, this can hardly be considered controversial. But we also read here a foreshadowing of pessimism with a passage declaring “this battle to ‘overthrow the system’ is lost from the start” — believing it raises false hopes and thus “does not do progressivism any service.”

Capitalism isn’t going anywhere in the near future and past predictions have not been borne out, so a hard look, if we are intellectually honest, is warranted. It is healthy to have ideas challenged, so let us engage with these ideas.

Before getting to the heart of its argument, the first four of the six chapters of Foretelling the End of Capitalism are a wide-ranging survey of thinkers from the early 19th century to the early 21st, across the full political spectrum. These are not deep excavations but do provide basic understandings. These are mostly solid introductions to the evolution of thinking on the topic of political economy and important theories that have arisen, except for weaknesses with some Marxist writers. For example, a brief discussion of fin de siècle German social democracy — Eduard Bernstein vs. Karl Kautsky vs. Rosa Luxemburg — is shallow; the author only sees the surface of Kautsky’s writings and does not grasp what lies below the surface, nor how to interpret the evolution of Kautsky’s thinking, without which it is impossible to understand why Kautsky would come to draw close to Bernstein, an outcome the book entirely misses.

That is no more than a minor point. More serious is what this reviewer considers among the most bizarre interpretations of fascism he has ever come across. Professor Boldizzoni writes that fascism, or more specifically, Nazism, was “the middle ground between the liberal and Soviet worlds.” He presents the ideas of several writers on fascism, but all but one are hopelessly confused and serve only to obfuscate. Incredibly, there is not one word from Leon Trotsky, the preeminent analyzer of Nazism during the 1930s — an inexcusable omission. Nor is the orthodox communist conception as handed down by Josef Stalin presented. Although that conception was badly mistaken with tragic circumstances, it should have been discussed, given the consequences of that line being put into action.

It is true that fascism is notoriously difficult to diagnose, but if approached from a class standpoint, it becomes understandable. At its most basic level, fascism is a dictatorship established through and maintained with terror on behalf of big business. It is a phenomenon squarely at the far right of the political spectrum; it is not an ersatz “third way” precursor. Fascist movements have a social base, which provides support and the terror squads, but which is badly misled since the fascist dictatorship operates decisively against the interest of its social base, rooted in middle class white-collar professionals and small business owners. (That is still true today; look at the profile of the Trump followers who have been arrested for participating in the January 6 attack on the U.S. capitol building.)

“In National Socialism, everything is as contradictory and as chaotic as in a nightmare,” Trotsky wrote in a vivid 1932 essay, using the intentionally misleading formal name for the Nazis. “Hitler’s party calls itself socialist, yet it leads a terroristic struggle against all socialist organizations. It calls itself a worker’s party, yet its ranks include all classes except the proletariat. It hurls lightning bolts at the heads of capitalists, yet is supported by them. … The whole world has collapsed inside the heads of the petit bourgeoisie, which has completely lost its equilibrium. This class is screaming so clamorously out of despair, fear and bitterness that it is itself deafened and loses sense of its words and gestures.”

Militarism, extreme nationalism, the creation of enemies and scapegoats, and, perhaps the most critical component, a rabid propaganda that intentionally raises panic and hate while disguising its true nature and intentions under the cover of a phony populism, are among the necessary elements. Despite national differences that result in major differences in the appearances of fascism, the class nature is consistent. Big business is invariably the supporter of fascism, no matter what a fascist movement’s rhetoric contains, and is invariably the beneficiary even though its beneficiaries will not directly control the dictatorship; it is a dictatorship for them, not by them. The massive profits pocketed by industrialists in Hitler’s Germany, Mussolini’s Italy, Pinochet’s Chile and elsewhere speak volumes, as do the draconian anti-labor laws implemented. Fascism is capitalism stripped of all democratic veneers.

Are the reasons behind capitalism’s staying power psychological?

Nonetheless, these early chapters are useful for other theorists who are discussed, including John Stuart Mill, Joseph Schumpeter, John Maynard Keynes, Jürgen Habermas and several writers of the late 20th century. The author skillfully dismantles the apologia for capitalism’s inequality offered by publicists masquerading as economists. In the final two chapters, Professor Boldizzoni explicates his core arguments. Here we find no illusions about the nature of capitalism nor misunderstandings of its social relations. Capitalism is a socio-economic system, not a type of economic activity, imposed by force; an “institutionalized social order” in which even human labor is reduced to a commodity. Capitalism is kept together through hierarchy and individualism, upholding new forms of previous master/slave and lord/serf relations.

So why have forecasts of capitalism’s demise been so far off the mark thus far? Or, perhaps, we might better phrase this question as: Why does capitalism persist despite the misery and opposition it continually spawns? Foretelling the End of Capitalism begins to answer this question by offering three factors — “cognitive distortions that affect the forecasting process,” faults in the construction of social theories and, decisively, “the faith in progress that underlies modern thought.” This is further teased out through two mistakes — overgeneralization through drawing overly broad conclusions or magnifying specific events and “black and white thinking,” an example of which is ignoring that there are “many varieties” of capitalism. Seeing the next system only in terms of the negatives of capitalism and, finally, a misunderstanding of culture underlie mistaken forecasts, the book asserts.

All this comes down to “cognitive distortions” and “theoretical flaws,” working together and in conjunction with “a more general mental disposition” common to those who attempt to predict what may happen in the future. “The entire history of social forecasting and its mistakes is intertwined with faith in progress,” Professor Boldizzoni writes. All of his reasons are psychological. There is nothing material!

A garment factory (photo by Fahad Faisal)

This is the reasoning of someone who believes the current world is the only possible world that can be, whether that belief is conscious or hidden in the unconscious. Capitalism has not fallen; therefore those who forecast its eventual end are dreamers outside reality. It is as if there are no material reasons for the continued life of capitalism, some of which have to do with the very pillars of capitalism that the author himself explicates well.

It is certainly possible to draw up a list of theoretical failings far more specific than flawed enlightenment thinking. No single or small group of developments can possibly encompass all the factors that have kept the world economic system in place. I have previously written that no serious discussion of this question, however, should exclude these factors:

  • The early pioneers of the socialist movement seriously underestimated the ability of capitalism as a system to adapt and therefore did not foresee the ability of working people to extract concessions for themselves. 
  • The early pioneers failed to understand the buoying effect that would be provided by imperialism (for the leading capitalist countries). 
  • Many of the early pioneers clung to an overly mechanical (mis)understanding of social development that led to a passive belief in an automatic unfolding of revolution that implied, incorrectly, that powerful capitalists would simply sit back and allow themselves to be overthrown. (Kautsky and Bernstein are emblematic here.)
  • Many leaders during the Soviet era continued to hold to a similar overly mechanical belief in future revolution while at the same time failing to grasp the nuances of capitalist development. 
  • An overly centralized world movement that retarded the theoretical developments needed for local conditions, blocking the creation of innovative leadership while at the same time discouraging existing local leaderships from attempting revolutions. 
  • A too narrow conception of “working class” or “working people” — a tendency to visualize only blue-collar manual workers as working people, a declining percentage of the population in increasingly technological capitalist societies. Such narrow horizons served to exclude a large proportion of wage workers, with the result that movements purporting to be organizations of working people instead divided them at the start. 

I am under no illusion that the above list exhausts the catalogue of factors. Obviously, the ability and willingness of the governments over which capitalists hold decisive sway to use violence to keep industrialists and financiers in power; the ability to disseminate propaganda in a variety of forms through an array of media, schools and institutions; and the willingness to invade, overthrow and impose military violence and sanctions against any country that challenges capitalism’s masters so as to make life there difficult are indispensable factors as to capitalism’s staying power. The last of this paragraph’s factors goes a long way in itself as to why alternatives to capitalism have faltered. 

Every attempt at constructing a post-capitalist economy has been met with overwhelming military, financial and other forms of force, putting them on a war footing. We can not know what might have been created if those countries had been allowed to peacefully develop, and this factor is indispensable if we are to seriously ponder the acceptance of “there is no alternative” propaganda. Despite the acknowledgements of bourgeois culture’s orientation toward wealth accumulation and cultural processes, Foretelling the End of Capitalism offers lectures on the weaknesses of enlightenment thinking rather than analyzing material conditions.

Culture as the glue holding together capitalism

Professor Boldizzoni puts forth the thesis that political, economic and social structures are all held together by “a powerful glue”: culture. Capitalism, he writes, is the product of a particular Western family of cultures, with hierarchy and individualism the most important factors. Behavior standards “change slowly”; it “may take several centuries” for culture to transform. He writes, “The emergence of a new system will be possible when the circumstances under which the old one was formed have eventually ceased to exist. It will reflect the changes in the material circumstances as well as in the culture sphere that are to occur over the next few centuries. The transition, however, will be so gradual that it will be barely noticeable.”

There is plenty to unpack in the preceding paragraph. That culture is a “powerful glue” keeping capitalism is indisputable, and that changes in “material circumstances” will facilitate a transition to a new system is also not in dispute. But these assertions, which certainly would not be controversial to a Marxist, are odd in light of the author’s criticisms of Karl Marx. It is unavoidable to note that those criticisms are rooted in a shallow understanding of Marx’s body of work. The author makes the common mistake of seeing Marxism as overly mechanical, teleological and offering a “perfect society,” nor does he grasp the subtlety of the “dictatorship of the proletariat,” admittedly a confusing phrase that might better be retired. (“Dictatorship of the proletariat” simply means the predominance of working people, the vast majority of people in capitalist society, without reference to any particular governmental form. All capitalist societies constitute a “dictatorship of the bourgeoisie,” the predominance of industrialists and financiers, which has taken many forms, including formal democracy and fascist.)

Meeting at the Putilov Factory (1917)

These misunderstandings are possible because Marxism’s 20th century practitioners in the Soviet bloc presented it in overly simplified terms, seeing it themselves in a mechanical manner. And that was not new. Friedrich Engels, in an 1890 letter to Joseph Bloch, lamented that he and Marx had put so much emphasis on economics. “Marx and I are ourselves partly to blame for the fact that younger writers sometimes lay more stress on the economic side than is due to it,” Engels wrote. “We had to emphasize this main principle in opposition to our adversaries, who denied it, and we have not always had the time, the place or the opportunity to allow the other elements involved in the interaction to come into their rights. … Unfortunately, however, it happens only too often that people think they have fully understood a theory and can apply it without more ado from the moment they have mastered its main principles, and those even not always correctly.”

We can conceptualize Marxist materialist philosophy like this: The flow and movement of any phenomenon or idea takes varying directions, and far from always in an expected direction. As the concept of “flow” implies, history and social development do not consist of discrete steps or stages. Philosophical, political and religious ideas (which are built on the materials of their predecessors); the prevailing culture (which include traditions shaped in the conditions of the past that have survived into the present); and local geographic factors influence not only each other but also influence economic conditions. What was a cause can become an effect, and an effect can become a cause. These forces are given concrete form within a state, the form of which (including its legal structure) is based on the material conditions of life — the economic structure is the foundation on which society is built and which therefore shapes social consciousness. 

Properly understood, Marxism is not, and has never been, a reach for utopia; its founders were scornful of the utopians of their time. Still more puzzling is Professor Boldizzoni’s bizarre aside that Swedish social democrats were “seeking the achievement of a perfect society.” That would certainly be news to them. The post-World War II Swedish model sought full employment, equality and the transfer of excess profits to the collective ownership of employees. Better than ordinary capitalism and envisioned as an evolutionary route to a future socialist society, but hardly nirvana.

How high should movements aim? 

Nordic social democracy is what the author seems to have in mind when he references “many varieties” of capitalism. Yes, there are national differences in capitalism, sometimes significant, but given the domination of the United States and its ability to dictate to the rest of the world, it is unrealistic to see that there is anything other than a single world system. And Swedish capitalism is far removed from any “perfect society” — dominated by corporate power and subject to the pressures of corporate globalization the same as other small or midsized capitalist country, Sweden today has inequality and poverty levels above the European Union average. 

Sweden’s failure to institute even the most rudimentary beginnings of an evolutionary path to a socialist economic democracy under the 1970s “Meidner plan” of forcing companies to issue stock to public agencies until the public had majority control succumbed not only to the might of local capitalists and the pressures of corporate globalization, but because of the failure of working people to organize. Without a massive movement, no project of socialism, or, if you prefer, economic democracy, can succeed.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

If we are dwelling on disagreements here, it is because these areas of dispute are central to the author’s thesis. What should be done? Professor Boldizzoni forecasts that although capitalism will be replaced, it will last for centuries to come. No mention of the environmental crisis — humanity doesn’t have one full century, never mind several, to wait! There is also the matter of the inability to achieve endless growth on a finite planet, and capitalism’s need for continual growth in a world into which it has expanded to almost every corner. (But it should be acknowledged that he has the intellectual honesty to make his own forecast and thus risk being as wrong as those he’s discussed.) He concludes by lamenting “we must come to terms with the limits of the possible” and declaring “the social democratic experience” the height of achievement. This conclusion brings into sharper relief why he is so insistent on seeing any attempt to move past capitalism as utopian.

What is the possible? A standard list of social democratic reforms, such as the “power to tax,” the power to pursue industrial policy and “monetary sovereignty,” offered as counters to European Union policy and centralization. Public ownership of infrastructure and banking is also put forth. These would be welcome reforms, but more than a century of working for reforms within capitalism rather than overcoming it has put the world in precisely the place it is today. Reforms can be won through social struggle, but once movements stand down, the reforms are taken back. Movements must aim higher.

If we believe the world can’t be better, that it can’t be meaningfully changed, that we have no choice other than tinkering around the edges as capitalism destroys the environment, then nothing will get better. Our conditions will actually get worse because there is no stasis. A better world is possible and speculating on what some basic concepts of a better world might look like is necessary if we are to get there. Giving up is not an option. Study of material conditions and the multitude of factors as to why predictions of capitalism’s demise have yet to come to pass — or, to put it in a better way, why capitalism has proven so resilient — are indispensable to achieving an understanding of our present and providing ourselves with the tools necessary to build the movement of movements, working across borders, that is the path toward any possible better world. Lamenting the weight of enlightenment thinking isn’t that route.

Foretelling the End of Capitalism is correct that there won’t be a sudden collapse of capitalism. If no social movement intervenes, capitalism has several more decades of life and would likely be followed by something worse, in a world of environmental disaster, rising seas and dwindling resources. Decades, not centuries — the present path of humanity is unsustainable. There is no substitute for a post-capitalist future, and the past need not dictate the future.

As always, the value of a book isn’t measured by whether we agree with everything in it. If Foretelling didn’t have much of interest to offer, I wouldn’t have written this essay. The question the book attempts to answer is a challenge that must be confronted because it is a question that remains all too relevant. But although the author in good faith sought to interrogate the predictions of the past to provide an understanding of today, he instead produced a cry of defeat and despair.

How the U.S. is able to dictate to the rest of the world

The United States government is able to impose its will on all the world’s countries. The rest of the world, even some of the strongest imperialist countries of the Global North, lie prostrate at the feet of the U.S. What is the source of this seemingly impregnable power? Which of course leads to the next question: How long can it last? 

The U.S. moves against any country that dares to act on a belief that its resources should be for its own people’s benefits rather than maximizing profits of multinational corporations or prioritizes the welfare of its citizens over corporate profit or simply refuses to accept dictation in how it should organize its economy. The military is frequently put to use, as are manipulation of the United Nations and the strong arms of the World Bank and International Monetary Fund (IMF). But sanctions are a frequently used tool, enforced on countries, banks and corporations that have no presence in the U.S. and conduct business entirely outside the United States. The U.S. can impose its will on national governments around the world, using multilateral institutions to force governments to act in the interest of multinational capital, even when that is opposite the interests of the country itself or that country’s peoples. And when a country persists in refusing to bend to U.S. demands, sanctions imposing misery on the general population are unilaterally imposed and the rest of the world is forced to observe them.

In short, the U.S. government possesses a power that no country has ever held, not even Britain at the height of its empire. And that government, regardless of which party or what personality is in the White House or in control of Congress, is ruthless in using this power to impose its will.

This power is most often wielded within an enveloping shell of propaganda that claims the U.S. is acting in the interest of “democracy” and maintaining the “rule of law” so that business can be conducted in the interest of a common good. So successful has this propaganda been that this domination is called the “Washington Consensus.” Just who agreed to this “consensus” other than Washington political elites and the corporate executives and financial speculators those elites represent has never been clear. “Washington diktat” would be a more accurate name.

Much speculation among Left circles exists as to when this domination will be brought to an end, with many commentators believing that the fall of the U.S. dollar is not far off and perhaps China will become the new center of a system less imperialistic. On the Right, particularly in the financial industry, such speculation is far from unknown, although there of course the downfall of the dollar is feared. In financial circles, however, there is no illusion that the end of dollar supremacy in world economics is imminent.

There are only two possible challengers to U.S. dollar hegemony: The European Union’s euro and China’s renminbi. But the EU and China are very much subordinated to the dollar, and thus not in a position to counter U.S. dictates. Let’s start here, and then we’ll move on to the mechanics of U.S. economic hegemony over the world, which rests on the dollar being the global reserve currency and the leveraging of that status to control the world’s multilateral institutions and forcing global compliance with its sanctions.

Europe “helpless” in the face of U.S. sanctions

A February 2019 paper published by the German Institute for International and Security Affairs, discussing the inability of EU countries to counteract the Trump administration’s pullout from the Joint Comprehensive Plan of Action, the multilateral nuclear deal with Iran, flatly declared the EU “helpless”: “In trying to shield EU-based individuals and entities with commercial interests from its adverse impact, European policy-makers have recently been exposed as more or less helpless.”

The legislative arm of the EU, the European Parliament, was no more bullish. In a paper published in November 2020, the Parliament wrote this about U.S. extraterritorial sanctions: “[T]his bold attempt to prescribe the conduct of EU companies and nationals without even asking for consent challenges the EU and its Member States as well as the functioning and development of transatlantic relations. The extraterritorial reach of sanctions does not only affect EU businesses but also puts into question the political independence and ultimately the sovereignty of the EU and its Member States.”

No such open worries are going to be said in public by the Chinese government. But is China better prepared than the EU? Mary Hui, a Hong Kong-based business journalist, wrote in Quartz, “China is actually far more vulnerable to US sanctions than it will let on, even if the sanctions are aimed at individuals and not banks. That’s because the primary system powering the world’s cross-border financial transactions between banks, Swift, is dominated by the US dollar.” We’ll delve into this shortly. As a result of that domination, Ms. Hui wrote, “the US has outsize control over the machinery of international transactions—or, as the Economist put it, ‘America is uniquely well positioned to use financial warfare in the service of foreign policy.’ ”

Grand Place, Brussels (photo by Wouter Hagens)

In 2017, then U.S. Treasury Secretary Steven Mnuchin threatened China with sanctions that would cut it off from the U.S. financial system if it didn’t comply with fresh United Nations Security Council sanctions imposed on North Korea in 2007; he had already threatened unilateral sanctions on any country that trades with North Korea if the United Nations didn’t apply sanctions on Pyongyang.

So neither Brussels or Beijing are in a position, at this time, to meaningfully challenge U.S. hegemony. That hegemony rests on multiple legs.

The world financial platform that the U.S. ultimately controls

The use (or, actually, abuse) of the two biggest multilateral financial institutions, the World Bank and the IMF, are well known. The U.S., as the biggest vote holder and through the rules set up for decision-making, carries a veto and thus imposes its will on any country that falls into debt and must turn to the World Bank or IMF for a loan. There also are the U.S.-controlled regional banks, such as the Asian Development Bank and Inter-American Development Bank, that impose U.S. dictates through the terms of their loans.

Also important as an institution, however, is a multilateral financial institution most haven’t heard of: The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT. Based in Brussels, SWIFT is the primary platform used by the world’s financial institutions “to securely exchange information about financial transactions, including payment instructions, among themselves.” SWIFT says it is officially a member-owned cooperative with more than 11,000 member financial institutions in more than 200 countries and territories.

That sounds like it is a truly global entity. Despite that description, the U.S. holds ultimate authority over it and what it does. U.S. government agencies, including the CIA, National Security Agency and Treasury Department, have access to the SWIFT transaction database. Payments in U.S. dollars can be seized by the U.S. government even when the transaction is between two entities outside the U.S. And here we have a key to understanding.

The skyline of Beijing (photo by Picrazy2)

Beyond the ability of U.S. intelligence agencies to acquire information is the status of the U.S. dollar as the world’s reserve currency, the foundation of the world capitalist system of which SWIFT is very much a component and thus subject to dictates the same as any other financial institution. What is a reserve currency? This succinct definition offered by the Council on Foreign Relations provides the picture:

“A reserve currency is a foreign currency that a central bank or treasury holds as part of its country’s formal foreign exchange reserves. Countries hold reserves for a number of reasons, including to weather economic shocks, pay for imports, service debts, and moderate the value of its own currency. Many countries cannot borrow money or pay for foreign goods in their own currencies—since much of international trade is done in dollars—and therefore need to hold reserves to ensure a steady supply of imports during a crisis and assure creditors that debt payments denominated in foreign currency can be made.”

The currency mostly used is the U.S. dollar, the Council explains:

“Most countries want to hold their reserves in a currency with large and open financial markets, since they want to be sure that they can access their reserves in a moment of need. Central banks often hold currency in the form of government bonds, such as U.S. Treasuries. The U.S. Treasury market remains by far the world’s largest and most liquid—the easiest to buy into and sell out of bond market[s].”

If you use dollars, the U.S. can go after you

Everybody uses the dollar because everybody else uses it. Almost two-thirds of foreign exchange reserves are held in U.S. dollars. Here’s the breakdown of the four most commonly held currencies, as of the first quarter of 2020:

  • U.S. dollar 62%
  • EU euro 20%
  • Japanese yen 4%
  • Chinese renminbi 2%

That 62 percent gives the U.S. government its power to not only impose sanctions unilaterally, but to force the rest of the world to observe them, in conjunction with the use of the dollar as the primary currency in international transactions. In some industries, it is almost the only currency used. To again turn to the Council on Foreign Relations explainer:

“In addition to accounting for the bulk of global reserves, the dollar is the currency of choice for international trade. Major commodities such as oil are primarily bought and sold using U.S. dollars. Some countries, including Saudi Arabia, still peg their currencies to the dollar. Factors that contribute to the dollar’s dominance include its stable value, the size of the U.S. economy, and the United States’ geopolitical heft. In addition, no other country has a market for its debt akin to the United States’, which totals roughly $18 trillion.

The dollar’s centrality to the system of global payments also increases the power of U.S. financial sanctions. Almost all trade done in U.S. dollars, even trade among other countries, can be subject to U.S. sanctions, because they are handled by so-called correspondent banks with accounts at the Federal Reserve. By cutting off the ability to transact in dollars, the United States can make it difficult for those it blacklists to do business.”

Sanctions imposed by the U.S. government are effectively extra-territorial because a non-U.S. bank that seeks to handle a transaction in U.S. dollars has to do so by clearing the transaction through a U.S. bank; a U.S. bank that cleared such a transaction would be in violation of the sanctions. The agency that monitors sanctions compliance, the Office of Foreign Assets Control (OFAC), insists that any transaction using the dollar comes under U.S. law and thus blocking funds “is a territorial exercise of jurisdiction” wherever it occurs, even if no U.S. entities are involved. Even offering software as a service (or for download) from United States servers is under OFAC jurisdiction.

Two further measures of dollar dominance are that about half of all cross-border bank loans and international debt securities are denominated in U.S. currency and that 88 percent of all foreign-exchange transactions in 2019 involved the dollar on one side. That forex domination has remained largely unchanged; the figure was 87 percent in April 2003.

Dollar dominance cemented at end of World War II

The roots of the dollar as the global reserve currency go back to the creation of the Bretton Woods system in 1944 (named for the New Hampshire town where representatives of Allied and other governments met to discuss the post-war monetary system as victory in World War II drew closer). The World Bank and IMF were created here. To stabilize currencies and make it more difficult for countries to reduce the value of their currencies for competitive reasons (to boost exports), all currencies were pegged to the dollar, and the dollar in turn was convertible into gold at $35 an ounce. Thus the dollar became the center of the world financial system, which cemented U.S. dominance. 

By the early 1970s, the Nixon administration believed that the Bretton Woods monetary system no longer sufficiently advantaged the United States despite its currency’s centrality within the system cementing U.S. economic suzerainty. Because of the system of fixing the value of a U.S. dollar to the price of gold, any government could exchange the dollars it held in reserve for U.S. Treasury Department gold on demand. 

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

“Imperialism is the real virus.” (photo by Paul Sableman from St. Louis)

The world’s oil-producing states dramatically raised oil prices in 1973. The Nixon administration eliminated U.S. capital controls a year later, encouraged oil producers to park their new glut of dollars in U.S. banks and adopted policies to encourage the banks to lend those deposited dollars to the South. But perhaps “encourage” is too mild a word. The economist and strong critic of imperialism Michael Hudson once wrote, “I was informed at a White House meeting that U.S. diplomats had let Saudi Arabia and other Arab countries know that they could charge as much as they wanted for their oil, but that the United States would treat it as an act of war not to keep their oil proceeds in U.S. dollar assets.”

Restrictions limiting cross-border movements of capital were opposed by multi-national corporations that had moved production overseas, by speculators in the new currency-exchange markets that blossomed with the breakdown of Bretton Woods and by neoliberal ideologues, creating decisive momentum within the U.S. for the elimination of capital controls. The ultimate result of these developments was to make the dollar even more central to world trade and thus further enhance U.S. control. Needless to say, bipartisan U.S. policy ever since has been to maintain this control.

U.S. sanctions in action: The cases of Cuba and Iran

Two examples of U.S. sanctions being applied extraterritorially are those imposed on Cuba and Iran. (There are many other examples, including that of Venezuela.) In the case of Cuba, any entity that conducts business with Cuba is barred from doing business in the U.S. or with any U.S. entity; foreign businesses that are owned by U.S. companies are strictly prohibited from doing any business with Cuba. Any company that had done business in Cuba must cease all activities there if acquired by a U.S. corporation. Several companies selling life-saving medical equipment and medicines to Cuba had to cease doing so when acquired by a U.S. corporation.

Meanwhile, U.S. embassy personnel have reportedly threatened firms in countries such as Switzerland, France, Mexico and the Dominican Republic with commercial reprisals unless they canceled sales of goods to Cuba such as soap and milk. Amazingly, an American Journal of Public Health report quoted a July 1995 written communication by the U.S. Department of Commerce in which the department said those types of sales contribute to “medical terrorism” on the part of Cubans! Well, many of us when we were, say, 5 years old might have regarded soap with terror, but presumably have long gotten over that. Perhaps Commerce employees haven’t.

The sanctions on Cuba have been repeatedly tightened over the years. Joy Gordon, writing in the Harvard International Law Journal in January 2016, provides a vivid picture of the difficulties thereby caused:

“The Torricelli Act [of 1992] provided that no ship could dock in the United States within 180 days of entering a Cuban port. This restriction made deliveries to Cuba commercially unfeasible for many European and Asian companies, as their vessels would normally deliver or take on shipments from the United States while they were in the Caribbean. The Torricelli Act also prohibited foreign subsidiaries of U.S. companies from trading with Cuba. … The Helms-Burton Act, enacted in 1996, permitted U.S. nationals to bring suit against foreign companies that were doing business in Cuba and that owned properties that had been abandoned or confiscated after the revolution. Additionally, the Helms-Burton Act prohibited third-party countries from selling goods in the United States that contained any components originating in Cuba. This significantly impacted Cuba’s major exports, particularly sugar and nickel. 

[T]he shipping restrictions in the Torricelli Act have increased costs in several ways, such as Cuba sometimes having to pay for ships carrying imports from Europe or elsewhere to return empty because they cannot stop at U.S. ports to pick up goods. Shipping companies have partially responded by dedicating particular ships for Cuba deliveries; but in most cases, they tend to designate old ships in poor condition, which then leads to higher maritime insurance costs.”

The United Nations estimates that the cost of the embargo to Cuba has been about $130 billion.

However distasteful we find the religious fundamentalist government of Iran, U.S. sanctions, which are blunt weapons, have caused much hardship on Iranians. The same restrictions on Cuba apply to Iran. The Iranian government said in September 2020 that it has lost $150 billion since the Trump administration withdrew from the 2015 nuclear deal and that it is hampered from importing food and medicines.

The Trump administration’s renewed sanctions were imposed unilaterally and against the expressed policies of all other signatories — Britain, France, Germany, China and Russia. With those governments unable to restrain Washington, businesses from around the world pulled out to avoid getting sanctioned. EU countermeasures were ineffective — small fines didn’t outweigh far larger U.S. fines, European companies are subject to U.S. sanctions and favorable judgments in European courts are unenforceable in U.S. courts.

Sascha Lohmann, author of the German Institute for International and Security Affairs paper, wrote:

“Well ahead of the deadlines set by the Trump administration and absent any enforcement action, major European and Asian companies withdrew from the otherwise lucrative Iranian market. Most not­a­bly, this included [SWIFT,] which cut off most of the more than 50 Iranian banks in early November 2018, including the Central Bank of Iran, after they again became subject to U.S. financial sanctions. …  [T]he exodus of EU-based companies has revealed an inconvenient truth to European policy-makers, namely that those companies are effectively regulated in Washington, D.C. … [T]he secretary of the Treasury can order U.S. banks to close or impose strict conditions on the opening or maintaining of correspondent or payable-through accounts on behalf of a foreign bank, thereby closing down access to dollarized transactions — the ‘Wall Street equivalent of the death penalty.’ ”

The long arm of U.S. sanctions stretches around the world

The idea that sanctions can be the “Wall Street equivalent of the death penalty” is not a figment of the imagination. Two examples of sanctions against European multinational enterprises demonstrate this.

In 2015, the French bank BNP Paribas was given a penalty of almost $9 billion for violating U.S. sanctions by processing dollar payments from Cuba, Iran and Sudan. The bank also pleaded guilty to two criminal charges. These penalties were handed down in U.S. courts and prosecuted by the U.S. Department of Justice. The chief executive officer of the bank told the court “we deeply regret the past misconduct.” The judge overseeing the case declared the bank “not only flouted U.S. foreign policy but also provided support to governments that threaten both our regional and national security,” a passage highlighted in the Department’s press release announcing the settlement.

Why would a French bank agree to these penalties and do so in such apologetic terms? And why would it accept the preposterous idea that Cuba represents any security threat to the U.S. or that a French bank is required to enforce U.S. foreign policy? As part of the settlement, Reuters reported, “regulators banned BNP for a year from conducting certain U.S. dollar transactions, a critical part of the bank’s global business.” And that gives us the clue. Had the bank not settled its case, it risked a permanent ban on access to the U.S. financial system, meaning it could not handle any deals denominated in dollars. Even the one-year ban could have triggered an exodus of clients in several major industries, including oil and gas.

Viñales Valley, Pinar del Rio province, Cuba (photo by Adam Jones adamjones.freeservers.com)

This was completely an extraterritorial application of U.S. law. An International Bar Association summary of the case noted, “the transactions in question were not illegal under French or EU law. Nor did they fall foul of France’s obligations under the World Trade Organization or the United Nations; no agreements between France and the US were violated. But as they were denominated in dollars, the deals ultimately had to pass through New York and thus came under its regulatory authority.”

It does not take direct involvement in financial transactions to run afoul of the long arm of U.S. sanctions. A Swiss company, Société Internationale de Télécommunications Aéronautiques (SITA), was forced to agree to pay $8 million to settle allegations that it provided blacklisted airlines with “software and/or services that were provided from, transited through, or originated in the United States.” Among the actions punished were that SITA used software originating in the U.S. to track lost baggage and used a global lost-baggage tracing system hosted on servers in the United States. Retrieving baggage is a service most people would not consider a high crime.

Can the EU or China create an alternative?

Dropping the widespread use of the dollar and substituting one or more other currencies, and setting up alternative financial systems, would be the logical short-term path toward ending U.S. financial hegemony. The German public broadcaster Deutsche Welle, in a 2018 report, quoted the German foreign minister, Heiko Maas, “We must increase Europe’s autonomy and sovereignty in trade, economic and financial policies. It will not be easy, but we have already begun to do it.” DW reported that the European Commission was developing a system parallel to SWIFT that would allow Iran to interface with European clearing systems with transactions based on the euro, but such a system never was put in place. In January 2021, as the new Biden administration took office, Iran dismissed it entirely, Bloomberg reported: “European governments have ‘no idea’ how to finance the conduit set up two years ago, known as Instex, and ‘have not had enough courage to maintain their economic sovereignty,’ the Central Bank of Iran said in comments on Twitter.” 

It would seem that Teheran’s dismissal is warranted. The European Parliament, in its paper on U.S. sanctions being imposed extraterritorially, could only offer liberal weak-tea ideas, such as “Encourage and assist EU businesses in bringing claims in international investor-state arbitration and in US courts; Complaints against extraterritorial measures in the [World Trade Organization].” Such prescriptions are unlikely to have anyone in Washington losing sleep.

What about China? Beijing has actually created a functioning alternative to the World Bank and IMF, the Asian Infrastructure Investment Bank. Just on the basis of the new bank representing a bad example (from Washington’s perspective), the U.S. government leaned heavily on Australia and other countries sufficiently firmly that Canberra initially declined to join the bank despite its initial interest, nor did Indonesia and South Korea, although all three did later join. There is a possibility of one-sidedness here, however, as China has by far the biggest share of the vote, 27 percent, dwarfing No. 2 India’s 7 percent, giving Beijing potential veto power. And with US$74 billion in capitalization (less than the goal of $100 billion set in 2014), it can’t realistically be a substitute for existing multilateral financial institutes.

China has also set up an alternative to SWIFT, the Cross-border Interbank Payment System (CIPS), a renminbi-denominated clearing and settlement system. CIPS says it has participants from 50 countries and regions, and processes US$19.4 billion per day. But that’s well less than one percent of the $6 trillion SWIFT handles daily. The Bank of China, the country’s central bank, is on the record of seeking an alternative to the dollar system so that it can evade any U.S. sanctions. “A good punch to the enemy will save yourself from hundreds of punches from your enemies,” a 2020 Bank of China report said. “We need to get prepared in advance, mentally and practically.” The report said if Chinese banks are deprived of access to dollar settlements, China should consider ceasing the use of the U.S. dollar as the anchor currency for its foreign exchange controls.

That is easier said than done — China holds $1.1 trillion in U.S. government debt issued by the U.S. Treasury Department. That total is second only to Japan, and Beijing’s holdings comprise 15 percent of all U.S. debt held by foreign governments. The South China Morning Post admits that China holds such large reserve assets of U.S. debt “largely due to its status as a ‘safe haven’ for investment during turbulent market conditions.” Although Beijing seeks an erosion of dollar dominance and fears that U.S. economic instability could result in another world economic downturn, its use of the safe haven is nowhere near at an end. “While it is clear that China is keen to lessen its dependence on US government debt, experts believe that Beijing is likely to continue buying US Treasuries, as there are few risk-free low cost substitutes,” the Morning Post wrote.

Coupled with the restrictions on renminbi conversion, Chinese institutions are today far from a position of challenging current global financial relations. The U.S. investment bank Morgan Stanley recently predicted that the renminbi could represent five to 10 percent of foreign-exchange reserves by 2030, up from the current two percent. Although that would mean central banks around the world would increase their holdings of the Chinese currency, it would not amount to any real threat to dollar dominance.

No empire, or system, lasts forever

The bottom line question from all of the above is this: Will this U.S. dominance come to an end? Stepping back and looking at this question in a historical way tells us that the answer can only be yes, given that there has been a sequence of cities that have been the financial center. Centuries ago, the seat of a small republic such as Venice could be the leading financial center on the strength of its trading networks. Once capitalism took hold, however, the financial center was successively located within a larger federation that possessed both a strong navy and a significant fleet of merchant ships (Amsterdam); then within a sizeable and unified country with a large enough population to maintain a powerful navy and a physical presence throughout an empire (London); and finally within a continent-spanning country that can project its economic and multi-dimensional military power around the world (New York). 

No empire, whatever its form, lasts forever. But knowledge of the sequence of capitalist centers tells us nothing of timing. Each successive new financial locus was embedded in successively larger powers able to operate militarily over larger areas and with more force. What then could replace the U.S.? The European Union has its effectiveness diluted by the many nationalisms within its sphere (and thus nationalism acts as a weakening agent for the EU whereas it is a strengthening agent for the U.S. and China). China’s economy is yet too small and retains capital controls, and its currency, the renminbi, isn’t fully convertible. U.S. Treasury bills remain the ultimate safe haven, as shown when investors poured into U.S. debt during crises such as the 2008 collapse, even when events in the U.S. are the trigger.

There are no other possible other contenders, and both the EU and China, as already discussed, are in no position to seriously challenge U.S. hegemony.

Here we have a collision of possibilities: The transcending of capitalism and transition to a new economic system or the decreasing functionality of the world capitalist system should it persist for several more decades. Given the resiliency of capitalism, and the many tools available to it (not least military power), the latter scenario can’t be ruled out although it might be unlikely. Making any prediction on the lifespan of capitalism is fraught with difficulty, not least because of the many predictions of its collapse for well over a century. But capitalism as a system requires infinite growth, quite impossible on a finite planet and all the more dire given there is almost no place on Earth remaining into which it can expand.

Although we can’t know what the expiration date of capitalism will be, it will almost certainly be sometime in the current century. But it won’t be followed by something better without a global movement of movements working across borders with a conscious aim of bringing a better world into being. In the absence of such movements, capitalism is likely to hang on for decades to come. In that scenario, what country or bloc could replace the U.S. as the center? And would we want a new center to dictate to the rest of the world? In a world of economic democracy (what we can call socialism) where all nations and societies can develop in their own way, in harmony with the environment and without the need to expand, and with production done for human need rather than corporate profit, there would no global center or hegemon and no need for one. Capitalism, however, can’t function without a center that uses financial, military and all other means to keep itself in the saddle and the rest of the world in line.

Yes, the day of U.S. dethronement will come, as will the end of capitalism. But the former is not going to happen any time soon, however much millions around the world wish that to be so, and the latter is what we should be working toward. A better world is possible; a gentler and kinder capitalism with a different center is not.

Never let a crisis go to waste: The pandemic brings more inequality

Heeding that time-honored advice to never let a crisis go to waste, the world’s industrialists and financiers have taken full advantage of the Covid-19 pandemic to accumulate more wealth. And although you already know that large numbers of people have been thrown out of work and/or are at risk of losing their home, you might not have realized how obscene the increase in inequality has become.

Not surprisingly, given that capitalism is a system with a stranglehold on almost every place on Earth, the rise in inequality is a global phenomenon. Unfortunately, capitalists have usually understood their class interests better than do the world’s working people.

When we discuss the increase in wealth the world’s richest are enjoying, we are talking literally about trillions of dollars. 

We’ll start our survey with a report issued by one of the world’s biggest banks, UBS, and Big Four accounting firm PricewaterhouseCoopers. The authors of the report, “Riding the storm: Market turbulence accelerates diverging fortunes,” can hardly contain their enthusiasm at how successful their clients have been during the pandemic. UBS and PwC “have unique insights into” billionaires’ “changing fortunes and needs” and in the report breathlessly extol “a time of exceptional, Schumpeterian creative destruction” by “billionaires [who] live in turbulent but trailblazing times.” As you can already surmise by the tone-deaf writing, the report is intended as a celebration of vast wealth inequality and is written in a style that comes as close to that of Hollywood celebrity publicists as you are likely to find produced by bankers and accountants.

(Artwork by Susana Anaya)

The report says “Some 209 billionaires have publicly committed a total of USD 7.2 billion” in donations, written within a passage told in solemn tones intended to make us gasp in awe at the selflessness of the international bourgeoisie. Yet we soon enough read that the wealth of the world’s billionaires totaled US$10.2 trillion in July 2020. For those of you scoring at home, that $7.2 billion in proposed donations represents 0.07 percent of their wealth. The average working person donates a significantly bigger portion of their income.

In just three months, from April to July 2020, the world’s billionaires added $2.2 trillion to their wealth! Technology billionaires did particularly well during the pandemic, the UBS/PwC report says, due in large part to the surge in technology stock prices. During the first seven months of 2020 alone, technology and health industry billionaires saw their wealth increase by about $150 billion. Yes, never let a crisis go to waste.

The number of the world’s billionaires, the report tells us, is 2,189. To put these numbers in some kind of perspective, there are exactly two countries in the world (the United States and China) that have a bigger gross domestic product than the wealth of those 2,189 billionaires. Or, to put it another way, their wealth is greater than the economic output of Japan, Germany and Britain, the countries with the world’s third, fourth and fifth largest GDPs and which have a combined population of 277 million.

Is there really no money for social programs?

As might be expected, billionaires in the center of the world capitalist system are no laggards among those accumulating wealth at the expense of everyone else. An Institute for Policy Studies study, “U.S. Billionaire Wealth Surges Past $1 Trillion Since Beginning of Pandemic — Total Grows to $4 Trillion,” reports the collective wealth of the 651 billionaires in the United States has increased by over $1 trillion “since roughly the beginning of the COVID-19 pandemic to a total of $4 trillion at market close on Monday, December 7, 2020. Combined, just the top 10 billionaires are now worth more than $1 trillion.” Those gains are more than the $900 billion pandemic relief package that passed Congress this week, a package held up for months by Republicans fretting over the cost. 

Wall Street has been amply taken care of in the current economic crisis, as it was in the wake of the 2008 collapse, and industrialists also have had massive amounts of subsidies and tax cuts thrown their way. For working people, crumbs. The Federal Reserve, the U.S. central bank, committed US$5.3 trillion to corporations on its own initiative in the first weeks of the pandemic, and most of the $2.5 trillion offered in last spring’s two congressional stimulus packages (the CARES Act of March 27 and the supplement of April 24) went to big business. (There was nothing unique about that as Britain, the European Union and Canada pushed through similar programs.)

The Institute for Policy Studies report notes that the $1 trillion gain by U.S. billionaires since mid-March is: 

  • More than it would cost to send a stimulus check of $3,000 to every one of the roughly 330 million people in the United States. A family of four would receive $12,000.
  • Double the two-year estimated budget gap of all state and local governments, which is forecast to be at least $500 billion. By June, state and local governments had already laid off 1.5 million workers and public services—especially education—faced steep budget cuts.
  • Only slightly less than total federal spending on Medicare ($644 billion in 2019) and Medicaid ($389 billion in fiscal year 2019), which together serve 120 million Americans.
  • Nearly four times the $267 billion total in stimulus payments made to 159 million people earlier in 2020.

During the same period, about 70 million lost employment, 12 million workers lost their health insurance due to losing their jobs, 26 million did not have enough food to eat just during a two-week period in November and 98,000 businesses closed. The Economic Policy Institute predicts that if federal aid is not forthcoming, as many as 5.3 million public-sector jobs—including those of teachers, public safety employees and health care workers—will be lost by the end of 2021.

An excuse to ramp up privatization in Canada

The pandemic is being used as an opportunity in Canada to advance corporate goals of privatization. Health care workers in Alberta walked off their jobs in a wildcat strike in November to protest Alberta Health Services’ announcement that it would be laying off 11,000 public positions so those jobs could be filled by private contractors. The Canadian news site Rabble reports:

“Alberta leads Canadian provinces and territories in its pursuit of privatization, and its October announcement that it was laying off up to 11,000 hospital workers has led to worker resistance and criticism from the province’s doctors. (One Calgary physician even set up a grassroots political organization against health-care privatization). Affected workers include those working in housekeeping, food services, laundry and laboratories. The Alberta government claims that these roles are not being eliminated, but instead transferred from public positions to ones filled by private contractors. … This past summer, Alberta Bill 30 was also criticized as opening the door to further privatization of health care. The Health Statutes Amendment Act was an omnibus bill that passed at the end of July.”

Alberta legislators also pushed through a bill that weakens rules and requirements for charter schools to operate and allowed for home schooling to go on unsupervised by public school boards. (Charter schools are designed to weaken teachers’ unions and hand schools to corporations for profit, while the supposed improvements in student outcome are mostly mythological.) Not to be outdone, Manitoba’s provincial government seeks to privatize child care, long-term care homes and liquor sales, and intends to cut public service jobs by 25 percent, Rabble reported.

Jobs losses and insecurity around the world

A University College London report, “Financial inequalities widen due to Covid-19,” called by the authors the “UK’s largest study into how adults are feeling about the lockdown,” found that more than two-thirds of Britons surveyed have suffered deteriorating finances. The report said, “Almost half (47%) of those who were finding things ‘very difficult’ financially before lockdown are now reporting things are ‘much worse’, with a further 23% saying things are ‘worse’. This figure has increased significantly from July, when 57% of the same group reported being financially worse off than before the pandemic.” The report quoted an educational leader, Cheryl Lloyd, as summarizing the situation as follows: “This report shows that the financial impact of the Covid-19 crisis is not being felt equally across the UK. This threatens to further widen existing inequalities as the pandemic continues.”

Conditions are no better across the Channel in the European Union, with disparate impacts on jobs widening inequality on the continent. The Brussels think tank Bruegel reports that, across the EU, “8% of workers educated to lower secondary level or below lost their jobs between the last quarter of 2019 and the second quarter of 2020. Over the same period, the number of jobs for workers with university degrees increased by 3%. Jobs for employees with middle-level qualifications declined by 5%. This picture of differences between low-educated and tertiary-educated workers can be seen in all EU countries and the United Kingdom.”

Those at more risk of losing their jobs are also at more risk of contracting Covid-19. “Sectors more exposed to the pandemic, including restaurants, travel, entertainment and personal services have unsurprisingly suffered more,” Bruegel reports. “But the ability to telework has greatly influenced labour market outcomes. About 70% of those who completed university studies are able to work from home, compared to about 15% of those who have not completed secondary school. Two-thirds of professionals and 85% of managers can work from home, in contrast to close to zero for workers in transportation, installation, construction and agriculture.”

And, as would be expected, conditions in the developing world are still worse. India has experienced a 26 percent decline in industrial employment, according to an India Today report. The broadcaster said:

“Ever since India went under a strict lockdown on March 25, millions of the country’s poorest workers were immediately rendered jobless and left without any income. An unresolved migrant crisis is the biggest example of the plight India’s poor are facing at the moment. Even the country’s vast middle class population encountered a sharp loss of income during the pandemic due to a wave of job losses and pay cuts. … A recent report by the Centre For Monitoring Indian Economy (CMIE) indicates that [21 million] salaried jobs were lost in the first five months of the pandemic, indicating that income levels among middle class households have fallen sharply.”

At the same time Indians across the country were undergoing difficulties, Mukesh Ambani, one of the world’s richest persons, saw his wealth increase by $30.5 billion. Another Indian billionaire, Cyrus Poonawala, added $5.6 billion to his wealth this year, India Today reported.

Even capitalists’ spokespeople profess concern

Inequality has become so extreme that even some of the staunchest upholders of the capitalism that creates this inequality profess to be concerned. (Or perhaps they are worried about people rising up to do something about it and thus advocate a little softening, at least for now.) In November, the Brookings Institution was moved to issue a report, “Windfall profits and deadly risks: How the biggest retail companies are compensating essential workers during the Covid-19 pandemic,” that discussed the big increases in profits enjoyed by giant retailers while their workforce sees only crumbs. Brookings reported:

“We find that while top retail companies’ profits have soared during the pandemic, pay for their frontline workers—in most cases—has not. In total, the top retail companies in our analysis earned on average an extra $16.9 billion in profit this year compared to last—a stunning 39% increase—while stock prices are up an average of 33%. And with few exceptions, frontline retail workers have seen little of this windfall. The 13 companies we studied raised pay for their frontline workers by an average of just $1.11 per hour since the pandemic began—a 10% increase on top of wages that are often too low to meet a family’s basic needs. On average, it has been 133 days since the retail workers in our analysis last received any hazard pay.”

For top executives and speculators who hold large numbers of shares, however, the year of the pandemic has been a bonanza. The Brookings report further stated:

“Many of the least generous companies were the most financially successful, posting huge profits. Amazon and Walmart combined earned an extra $10.9 billion in profit compared to last year, an increase of 53% and 45%, respectively. Their workers, on the other hand, have received below-average COVID-19-related compensation: an extra $1,369 ($0.95 per hour) and $900 ($0.63 per hour), respectively, over the eight-plus months of the pandemic—representing just 6% pay bumps for full-time workers that earn starting wages. Meanwhile, Amazon and Walmart’s stock prices are up 65% and 41% since the start of the pandemic, adding more than $70 billion to the wealth of Jeff Bezos, Amazon’s CEO, and $45 billion to the Walton family—the country’s richest family, who own more than half of Walmart’s shares.”

Wal-Mart spent $500 million on new stock buybacks during the third quarter of 2020 while offering no new hazard pay bonuses for its employees, the Brookings report said. Another big chain, Kroger, announced $1.2 billion in new stock buybacks, causing the stock price to rise (which is the intention), at the same time its grocery workers were given no hazard pay for six months while earning an average wage of $10 per hour. Kroger’s profits during the first six months of the pandemic, meanwhile, totaled $2 billion.

Wal-Mart is a company that pays its employees so little that they skip meals and organize food drives; receives so many government subsidies that the public pays about $1 million per store in the United States; and is estimated to avoid $1 billion per year in U.S. taxes through its use of tax loopholes. Meanwhile, the Walton family collects billions of dollars every year from dividends just for being born in the right family.

Amazon is notorious for the brutal inhuman conditions in its distribution centers and for not paying taxes. Amazon’s owner, Jeff Bezos, is one of the world’s richest people yet he organized a nationwide sweepstakes to see what cities or states would give him the biggest subsidies when he announced Amazon would create a second headquarters.

The International Monetary Fund likely isn’t having second thoughts or feeling remorse about its decades of imposing harsh austerity on developing countries, but has weighed in on the rise of inequality — whether from genuine concern or, much more likely, as a public relations gesture. (IMF papers purporting to reconsider neoliberalism are always much less than they appear.) Because lower-income people are less likely to be able to work from home during the pandemic, and thus more likely to have lost their job, the IMF said “the estimated effect from COVID-19 on the income distribution is much larger than that of past pandemics.”

Loss of work and specter of hunger hit developing world hard

Whatever the motivations of the world’s capitalist think tanks and financial institutions may be in discussing global inequality in the wake of the Covid-19 pandemic, there is no question that working people everywhere are suffering. As early as late April, the International Labour Organization issued a report, “As job losses escalate, nearly half of global workforce at risk of losing livelihoods,” predicting that half of the world’s working people are in danger of disaster. The ILO said:

“The continued sharp decline in working hours globally due to the Covid-19 outbreak means that 1.6 billion workers in the informal economy — that is nearly half of the global workforce — stand in immediate danger of having their livelihoods destroyed. … The first month of the crisis is estimated to have resulted in a drop of 60 per cent in the income of informal workers globally. This translates into a drop of 81 per cent in Africa and the Americas, 21.6 per cent in Asia and the Pacific, and 70 per cent in Europe and Central Asia. Without alternative income sources, these workers and their families will have no means to survive.”

Large numbers of the world’s peoples were already in a highly precarious condition. An estimate by John Bellamy Foster and Robert W. McChesney is that there are 2.4 billion people in their prime working ages (25-54) who are unemployed, vulnerably employed or economically inactive, compared to 1.4 billion actively employed. In other words, there are far more people in the “reserve army of labor” who are precariously or not at all employed than those with jobs, and far from all those 1.4 billion who are employed have secure work. 

Striking fast food workers were joined by university workers, students, janitors, retail workers and airport workers in an April 2018 action in Minneapolis. (photo by Fibonacci Blue)

And with loss of livelihood comes the specter of hunger. The United Nations World Food Programme, also in late April, predicted that the pandemic “will double number of people facing food crises unless swift action is taken.” The agency said, “The number of people facing acute food insecurity stands to rise to 265 million in 2020, up by 130 million from the 135 million in 2019, as a result of the economic impact of COVID-19.”

Nor does the developing world have the health care infrastructure necessary to handle the number of people falling sick from Covid-19. The United Nations Development Programme noted that developed countries have 55 hospital beds, more than 30 doctors and 81 nurses for every 10,000 people, but for the same number of people in a less developed country there are seven beds, 2.5 doctors and six nurses.

Pandemic widens education disparities

The lack of infrastructure to provide education is also acute. Because of school closures and the divide in distance learning, an estimated “86 per cent of primary school-age children in low human development countries are currently not getting an education, compared to just 20 per cent in countries with very high human development,” according to the UN Development Programme. “With schools closed, UNDP estimates that effective out of school rates could regress to levels not seen since the 1980s — the largest reversal ever … and threatening the hard work and progress of the past 30 years.”

Similar conclusions were reported by the Institute for Policy Studies’ Inequalilty.org project. In a September report, the project found that just 6 percent of children in eastern and southern Africa have access to the Internet. In Kenya, schools have been closed for six months. And that has further consequences. “One likely impact of Covid-19 is a rise in teen pregnancies, as adolescent girls are left without the safety net that schools provided,” the report said. “This gendered menace deprives young girls of the opportunity to further their education and attain their career goals. It also exposes them and their children to major health risks. According to the World Health Organization, ‘pregnancy and childbirth complications are the leading cause of death among girls aged 15–19 years globally.’ ”

The pandemic has also widened inequality in education in the developed world. VoxEU, which calls itself a provider of commentary by “leading economists,” reports that the disruption to higher education caused by the switch to online classes is much larger for lower-income students because “lower-income students were more likely to have been financially impacted by COVID-19 and were more worried about the direct health risks from the virus.” VoxEU found that “Lower-income students are 50% more likely than their more affluent peers to expect a delayed graduation due to COVID-19, a gap which disappears once accounting for the differential financial burdens or health risks imposed by COVID-19.”

Pandemic places greater burden on women 

Concomitant with the various inequality aggravations, it’s no surprise that women are being hit harder than men.

Alison Andrew, a senior research economist at the Institute for Fiscal Studies in London, said: “Mothers are more likely than fathers to have moved out of paid work since the start of lockdown. They have reduced their working hours more than fathers even if they are still working and they experience more interruptions while they work from home than fathers, particularly due to caring for children. Together these factors mean that mothers now are only doing a third of the uninterrupted paid-work hours that fathers are. A risk is that the lockdown leads to a further increase in the gender wage gap.”

The Institute, in its report on British fallout from the pandemic, “Parents, especially mothers, paying heavy price for lockdown,” found the following:

  • Mothers are 23% more likely than fathers to have lost their jobs (temporarily or permanently) during the current crisis. Of those who were in paid work prior to the lockdown, mothers are 47% more likely than fathers to have permanently lost their job or quit, and they are 14% more likely to have been furloughed. In all, among those working in February 2020, mothers are now 9 percentage points less likely to still be in paid work than fathers.
  • Mothers who are still doing paid work have reduced their paid working hours substantially and by more than fathers. Prior to the crisis, working mothers did paid work in 6.3 hours of a weekday on average; this has fallen by over one-fifth to 4.9 hours. Working fathers’ hours have also fallen, but by proportionally less, from 8.6 hours before the crisis to 7.2 hours now. 
  • Mothers are also far more likely to be interrupted during paid working hours than fathers. Almost half (47%) of mothers’ hours spent doing paid work are split between that and other activities such as childcare, compared to 30% of fathers’ paid working hours. Where focused work time is important for performance, gender differences in interruptions and multitasking risk further increasing the gender wage gap among parents.
  • In families where the father has lost his job while the mother kept hers, men and women still split housework and childcare responsibilities fairly equally. In all other types of households, mothers spend substantially more time on domestic responsibilities.

Such disparate impact means women are again falling further behind men in earnings. “Analysis of those that did produce data suggests it will take almost 200 years to close the gap,” says Dr. Wanda Wyporska, the executive director of the Equality Trust. “Undoubtedly women are bearing the brunt of this, as they did in austerity when 86% of cuts fell on women. There is a cumulative effect which consistently pushes progress back.” The general secretary of the British Trades Union Council, Frances O’Grady, said, “[O]nly one in 10 lower earners are able to work from home, and 69% of low earners are women; it is not a panacea. …Working women have led the fight against coronavirus, but millions of them are stuck in low paid and insecure jobs. We need a reckoning on how we value and reward women’s work.”

Women’s March of January 21, 2017, in Chicago (photo by Jonathan Eyler-Werve)

Then there is the specter of violence from male partners. María Noel Vaeza, United Nations Women Regional Director for the Americas and the Caribbean, in a November report, said:

“While lockdowns and stay-at-home orders may be crucial in limiting and preventing the spread of COVID-19, they also have a devastating impact on women and girls living with the risk of gender-based violence, as many of the factors that trigger or perpetuate violence against women and girls are compounded by preventive confinement measures. Emerging global data has shown an increase in calls to [violence against women and girls] helplines. … Stay-at-home measures are compounding perpetrators’ use of mechanisms of power and control to isolate victims of [violence]. Unemployment, economic instability and stress may lead offenders to feel a loss of that power, which in turn may exacerbate the frequency and severity of their abusive behaviour. At the same time, the crisis is generating additional barriers for women and girls’ access to essential life-saving services such as counselling and justice resources, and legal advice; sexual health and other crucial medical assistance; and the provision of refuge.”

Racial disparities widened by pandemic

No roundup of Covid-19 inequalities would be complete without discussion of racial disparities. The impact of the pandemic’s effect on the economy, because it impacts lower-income working people most severely, has fallen heavily on People of Color. A Center for American Progress report authored by Dania Francis and Christian E. Weller demonstrates the severity of the disparities:

“African Americans have experienced particularly large job losses in a labor market characterized by persistent racism and inequality. … Estimates based on census data show that 54.8 percent of Black workers said that they had lost incomes due to a job loss or cut in hours from late April to early June, compared with 45.8 percent of white workers. The labor market pain has created housing instability for Black families to a much larger degree than was the case for white families. Estimates based on census data show that more than one-third of African Americans who experienced job-related income losses said that they either didn’t pay their mortgage or deferred their mortgage, compared with only 16.9 percent for white families with earnings losses. Among renters, 38.3 percent of Black families with income losses didn’t pay or deferred their rent, compared with 23.1 percent of white families in a similar situation.”

Compounding this financial distress is that, with schools going to remote learning, a lack of resources impacts the education of African-American children. The Center for American Progress report said:

“The lack of reliable internet or an electronic device for remote learning also correlates with fewer hours per week of teaching time. … Unreliable internet access and a lack of consistent access to electronic devices reduces families’ time teaching children by two to three hours among Black families but only by one to two hours among white families. … While the short- and long-term impacts of coronavirus-related school closures and job losses on children’s educational outcomes cannot be measured yet, it is already clear that there are differential effects by race on access to educational resources as a result of the pandemic. In particular, the persistent and large Black-white wealth gap directly and immediately feeds into persistent educational gaps.”

Higher poverty rates also increases the mortality rate from Covid-19. Writing in City Limits, Bijan Kimiagar and Jack Mullan report:

“The pandemic has entrenched extreme inequalities in New York City. Insecurities surrounding employment, health, education and basic safety are affecting many New Yorkers today, but they are disproportionately experienced in communities with the lowest incomes. The sheer rate of COVID-related deaths is more than two times higher in zip codes with very high poverty rates (where 272 out of every 100,000 residents have died) than in zip codes with low poverty rates (125 out of 100,000). New Yorkers with the lowest incomes are feeling the impact of the pandemic on all sides—living in fear of eviction, struggling to put food on the table, and having trouble getting devices to support remote learning for their children.”

For industrialists, financiers and their publicists, the year 2020 might be a time of “exceptional creative destruction,” but for the overwhelming majority of humanity who do the actual work that is converted into the fabulous wealth of those at the top, it’s just plain old destruction. Capitalism as usual.

The political economy of Covid-19

Governments around the world are attempting to prop up a failing capitalist system by — surprise! — throwing money at wealthy individuals and corporations, especially in the financial industry. In other words, in this time of unprecedented crisis and economic difficulty, it’s business as usual.

We were here not much more than a decade ago, although the rise in unemployment has been more dramatic than during the economic collapse of 2008. That global economic crisis was a long time coming but was inevitable for anyone willing to pay attention. During the 1990s stock-market bubble, traders repeatedly said the dramatic price rises could not last, but as long as the consensus view was that the long bull market would continue they were not going to step off the ride. When the bubble did burst, new forms of speculation kept the financial industry’s party going for several more years. Credit was the lubricant for the later round, both inflating a real estate bubble and enabling consumer spending to continue in the face of declining wages, until the speculation became unsustainable.

No more bubbles to inflate, governments representing the world’s four largest economies alone committed US$16.3 trillion in 2008 and 2009 on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. Those commitments included $11 trillion for the U.S. (where money thrown at capitalists far exceeded the $700 billion in the Troubled Assets Relief Program), $4 trillion for the European Union, $750 billion for Japan and $600 billion for China. Smaller economies did that too. The Reserve Bank of Australia shoveled A$1.8 billion (US$1.5 billion at the then exchange rate) at financiers to shore up its banking system. The Reserve Bank of India did the same, handing out 60 billion rupees (US$1.3 billion).

Cherry blossoms in Washington (photo by Sarah H. from USA)

All that was simply to deal with the immediate crisis of 2008. As stagnation continued, many of the world’s most prominent central banks decided to throw new gigantic sums of money at the financial industry. Specifically, through programs known by the technical name of “quantitative easing.” What that is are central banks buying in massive amounts bonds issued by their own governments, corporate bonds and/or mortgage-backed securities. For all the talk of the world’s governments taking “unprecedented” measures to deal with the dramatic economic crash triggered by the Covid-19 pandemic, most of the money being committed is in the form of new quantitative easing.

An economic song and dance

The supposed purpose of quantitative-easing programs is to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interest rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because of the resulting distortion in demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

By any standard, we are indeed talking about massive amounts of money. Just on “quantitative easing” alone, the Federal Reserve, European Central Bank, Bank of England and Bank of Japan spent approximately US$9.36 trillion, or, if you prefer, €8.3 trillion, in the years following the 2008 collapse. Here’s a breakdown:

  • The Federal Reserve spent $4.1 trillion in three QE programs that ended in November 2014.
  • The European Central Bank spent €2.6 trillion on its QE programs, which only concluded at the end of 2018.
  • The Bank of England spent £375 billion on its QE program.
  • The Bank of Japan has spent north of ¥200 trillion; precise figures are not available. Japan’s QE has been so large and long-lasting that the Bank of Japan now owns assets valued at more than the entire country’s economy.

Think of all the social needs that could have been fixed for such sums. For example, the British think tank Policy Exchange estimated in 2015 that Britain’s needs for investment in transportation, communication and water infrastructure to be a minimum of £170 billion. That is less than half of what the Bank of England spent on its quantitative-easing scheme. The U.S. could have wiped out all student debt, fixed all the schools, rebuilt aging water and sewer systems, cleaned up contaminated industrial sites and repaired dams — all for $700 billion less than what was spent on quantitative easing.

Given this recent history — by no means an aberration in the history of these capitalist governments — it is no surprise that relief for the economic crash caused by Covid-19 has been largely directed at corporate boardrooms and the bank accounts of the wealthy.

Stimulus packages to deal with pandemic, but who gets stimulated?

The Federal Reserve, like most central banks, is “independent” of the rest of government. The reason given is to avoid “political interference,” but in reality so the elites of financial institutions can continue to do whatever they want without consequence. But as is customary, the Federal Reserve doesn’t act in a vacuum; Congress and the White House are also doing what they can to shovel gigantic sums of money at financiers and industrialists.

So far, Congress has passed two stimulus packages that were signed into law, one in late March and the second in April. A third has been passed by the House of Representatives, but the Senate has shown no inclination to take it up and there is reason to doubt House Democrats are actually serious about this last effort.

The first stimulus is the CARES (Coronavirus Aid, Relief, and Economic Security) Act, worth $2 trillion, which was signed into law on March 27. This is the act that resulted in United Statesians receiving one-time $1,200 checks from the federal government. Considering that the average monthly rent in most cities of the United States is more than that, those checks are tokens that serve to obscure where most of the money went. It wasn’t to households left without work.

The Federal Reserve (photo by Stefan Fussan)

A second stimulus bill was passed and signed into law on April 24 and is worth another $500 billion. Most of the money in this second stimulus bill was earmarked for the Paycheck Protection Program (PPP), a loan program in the CARES Act intended for small businesses that may be forgiven if firms use them to keep workers on payroll; the PPP had run out of money in two weeks. Democrats said they wanted money in this round to go to state governments struggling with suddenly shrinking tax revenue but, as is their custom, immediately capitulated when Republicans said no.

The CARES Act included $250 billion to bolster unemployment insurance, $500 billion in aid for industry and state governments, other monies going directly to specific industries and $350 billion for the PPP. Sounds nice, yes? Appearances and reality, however, diverge.

Before the second, supplemental stimulus package was passed, it had already become apparent that much of the stimulus money was going to Big Business. And that was not all, as yet more tax cuts for large corporations were included in the CARES Act. According to Democracy Now, “A congressional committee reports tax provisions in the coronavirus stimulus passed by Congress last month will overwhelmingly benefit the wealthiest Americans. Four out of five tax filers benefiting from the $70 billion temporary tax loophole are millionaires or billionaires. They’ll receive an average windfall of $1.6 million — dwarfing the $1,200 payments for working Americans.”

Manipulation of Paycheck Protection Program

Meanwhile, much of the PPP money didn’t go to mom-and-pop businesses forced to close due to the Covid-19 pandemic. At least 75 publicly traded companies received funds from the PPP, which is supposed to help small businesses. The Associated Press reports:

“The Paycheck Protection Program was supposed to infuse small businesses, which typically have less access to quick cash and credit, with $349 billion in emergency loans that could help keep workers on the job and bills paid on time. But at least 75 companies that received the aid were publicly traded, the AP found, and some had market values well over $100 million. And 25% of the companies had warned investors months ago — while the economy was humming along — that their ability to remain viable was in question. By combing through thousands of regulatory filings, the AP identified the 75 companies as recipients of a combined $300 million in low-interest, taxpayer-backed loans. Eight companies, or their subsidiaries, received the maximum $10 million possible, including a California software company that settled a Securities and Exchange Commission investigation late last year into accounting errors that overstated its revenue.”

Even the Big Business cheerleaders at the CNBC business news cable channel reported that “Hundreds of millions of dollars of Paycheck Protection Program emergency funding have been claimed by large, publicly traded companies, new research published by Morgan Stanley shows.” This report estimated that at least $243.4 million of the total $349 billion handed out in the PPP as of April 21 — by which time the PPP had already run out of money — went to publicly traded companies.

The above figures might be an underestimate; a later Washington Post report said “hundreds” of publicly traded companies have received a composite of more than $1 billion in PPP funding, although some of that money has been returned under public pressure. Eighty percent of applicants were left with nothing after funding ran out.

Published reports differ in determining the number of inappropriate recipients of PPP money because there is little accountability. One reason for that, beyond the usual wanting to shield favored donors from public scrutiny, might be that several members of Congress have themselves received PPP money. The Trump administration is refusing to provide information; it would not be a surprise to find there is something to hide there as well. Politico reports that “at least four members of Congress have reaped benefits,” and the actual total might be higher. “It’s a bipartisan group of lawmakers who have acknowledged close ties to companies that have received loans from the program — businesses that are either run by their families or employ their spouse as a senior executive,” Politico reports, naming two Democrats (Susie Lee of Nevada and Debbie Mucarsel Powell of Florida) and two Republicans (Roger Williams of Texas and Vicky Hartzler of Missouri).

Tax breaks for the one percent slipped into stimulus

One tax break inserted into the second stimulus bill only applies to companies with revenue of $25 million and another provision lets people in households earning at least $500,000 a year deduct even more of their business losses from stock market profits, The New York Times reports. These deductions will enable the recipients to reduce what they owe in capital gains taxes. Victor Fleischer, a tax law professor at the University of California, Irvine, told the Times, “Many of the tax benefits in the stimulus are ‘just shoveling money to rich people.’ ”

And given the grifters who occupy the White House, it will come as no surprise that there are special benefits for the owners of real estate. One of the goodies stuffed into the stimulus packages will allow people who own their businesses through partnerships or other similar structures to use all of the losses they claim on paper to offset taxes they might otherwise owe from other income, such as stock market profits, eliminating a cap on how much of those losses could be used. These partnerships can be very profitable, but as long as they show a loss on paper the owners can offset taxes. Jesse Drucker of The New York Times, in an interview on National Public Radio’s Fresh Air program, estimates this tax break for the wealthy will cost the government $135 billion — essentially all of which will go to the top one percent.

The Rideau Canal in Ottawa (photo by John Talbot)

This massive tax break is not specifically written for the real estate industry, but that is the industry that is likely to benefit the most as corporate real estate operations are often structured in these ways. Mr. Drucker said:

“In real estate, you can actually have, in the real world, what is quite a profitable business that generates losses on tax returns because real estate developers get to write down the value of their buildings. That turns into a deduction. And the result is that people like Jared Kushner and Donald Trump — to the degree that we have had some insight into their taxes over the last few years, we have seen that they have reported big losses on their tax returns. In many cases, it’s almost certainly the result of some of these favorable provisions that let them write down the value of their buildings. So the point is that any tax law change you make that gives people the ability to make maximum use of their losses is something that could very easily benefit real estate investors because they have so many losses. And in the case of Jared Kushner and Donald Trump, we don’t have to speculate on that. We know that in previous years, they have reported big losses, which would put them in a position to benefit from this.”

Not even the most elementary provisions to put some limits on where the money is going were inserted into these stimulus bills. For example, although there is a clause prohibiting the use of the money for stock buybacks and extra executive pay, it’s followed by another clause allowing Treasury Secretary Steve Mnuchin (the foreclosure king) to waive the prohibition. Nor are there measures to demand that corporate recipients even pay tax. Reuters reports that the PPP has given “millions of dollars in American taxpayer money to a number of firms that have avoided paying U.S. tax.” Twelve companies provided with $104 million in loans use offshore havens to cut their tax bills, seven of which paid no taxes.

Federal Reserve offers trillions of dollars

The Federal Reserve’s contribution to the wealthy goes far beyond the two stimulus bills. By the end of March, the Fed had already committed more than $3 trillion in loans and asset purchases in the wake of a rapidly collapsing economy. This included fresh commitments to a recently announced new quantitative-easing program in which the Fed had pledged to spend $700 billion to buy Treasury and mortgage-backed bonds in addition to multiple loan programs. Although most of this will come from printing money, $450 billion of this came from the $2 trillion CARES Act stimulus passed by Congress.

Following its March 23 announcement, the Fed announced another round of measures on April 9, this time committing $2.3 trillion in new loans and credits for business and local governments. The centerpiece of this round is the “Main Street Lending Program,” which makes it sound like these loans will be earmarked for small businesses, but loans will be offered to corporations with as many as 10,000 workers and revenues of up to $2.5 billion. Not exactly what we have in mind when we think of “Main Street.” The set of measures could inject $6 trillion into the financial system, but that money, if actually spent, seems mostly destined for the pockets of speculators.

With state and local governments dangerously short on revenue due to the economic crisis, and thus putting social programs in jeopardy, what does the White House want to do? The only “solution” demanded by Donald Trump is to cut the payroll tax, the source of money for Social Security. The president claims he wants a “temporary” payroll tax cut, but that has to be seen not only in light of his complete inability to say anything truthful but his and his administration’s stated desire to cut Social Security. Cutting the funding for the retirement program is a good way to undercut it, which has long been the wish of Wall Street. Even if there weren’t nefarious reasons at work, would a temporary payroll tax cut provide a jolt to the economy? Definitely no, says the Center on Budget and Policy Priorities in a May 12 commentary.

“President Trump has said he will not support any additional relief or stimulus measures in response to the human and economic crisis caused by the Covid-19 pandemic unless they include a temporary payroll tax cut,” the Center said. Stimulus packages are only effective “if they quickly deliver resources to people and businesses that most need it and so are most likely to spend rather than save any extra dollars they receive.” But the Trump plan would fail to help either. The Center said:

“Cutting the employee share of payroll taxes gives the most help (in dollar terms) to higher earners, who are less likely to need the help or to spend most or all of the extra money. Compounding the weaknesses of this approach, it does less for those with lower earnings and nothing at all for people who have lost jobs. And cutting employer payroll taxes is an ineffective way to shore up business hiring and investment. Business’ main problem now is lack of customers for their products — both because of social distancing measures and because many customers’ incomes have fallen dramatically as unemployment has risen. Businesses will not hire (or retain) more workers or invest in more equipment than they need to produce the goods and services they can actually sell.”

Already there are signs that the windfall large businesses have received from the Trump administration have been slipped into bank accounts, not into investment. Economist Jack Rasmus has calculated that the loss of income for the tens of millions of United Statesians plunged into unemployment has cost them a composite $1.3 billion in lost wages. Ridiculing the orthodox economic “theory” that the problem with recessions are “sticky wages” — in other words, wages don’t fall fast enough or far enough during downturns — Professor Rasmus notes that businesses are not investing in the wake of the wage reductions. He writes:

“They’re hoarding the $1.74 trillion in Congressional loans and grants bailouts. And hoarding the $650 billion in business tax cuts also in the bailout legislation thus far (which one hears very little about in the media, I might add). … [T]he short term cash deposits by business in just institutional money funds (only one source) has risen from $2.3 trillion before March 1, 2020 to $3.3T today. That’s a $1T rise in cash deposits by businesses, just in institutional money funds. More is being deposited in commercial banks. The long run average of business deposits in commercial banks has been around 5% (6% under Obama and 4.6% under Trump 2016-19) to 15.8% since March 1. Businesses and investors are hoarding their cash and stuffing it in their short term accounts in banks, funds, and who knows where else, on and offshore.”

Much of that hoard of cash is likely destined for stock buybacks, dividends, speculation, buying companies and boosting lobbying efforts down the road. U.S. corporations spent more than $1.1 trillion on buying back stock in 2018 and although the pace slacked a bit in 2019, more than $700 billion went toward buybacks. Stock buybacks are completely unproductive spending — they are simply corporations buying their own stock, giving those who sell a premium to the trading price and boosting profits for remaining shareholders because the profits will be shared among fewer people. Speculators love them.

Britain, EU and Canada: Lots for financiers, crumbs for working people

Capitalism is a global system, and thus using a crisis to benefit the wealthy and powerful is hardly limited to the United States, even if it is the center of the global capitalist system and thus at the forefront of propping up its winners. Tax Watch UK, which describes itself as an “investigative think tank,” discovered that among the recipients of loans under the Bank of England’s Covid Corporate Financing Facility are 13 companies with links to tax havens or that “have seen controversy regarding their financial affairs.” Those 13 companies received £4.8 billion, or almost 30 percent of the total. Tax Watch UK reports that among these is Baker Hughes, a subsidiary of General Electric, “which is embroiled in a £1 billion tax dispute over unpaid taxes going back to 2004.”

The British government, headed by the mendacious Boris Johnson, hasn’t been shy about handing out money to business. The Bank of England has committed £200 billion to quantitative easing (bond buying), £330 billion in loan guarantees for business and an unspecified amount for “short-term liquidity” for the government, among other measures. Separately, Whitehall has committed tens of billions of pounds to three separate loan programs, property tax holidays, direct grants for small firms, grants for “innovation” and other items. For working people? A total of £14.7 billion of additional funding to the National Health Service and £7 billion for increased payments under the Universal Credit scheme and other benefits. Overall, quite one-sided toward capital.

City of London expanding (Photo by Will Fox)

Similar to the United States and United Kingdom, the bulk of money committed by the European Union to shore up the economy during the Covid-19 pandemic is for quantitative easing. The EU has committed to pouring €1.35 trillion into buying private- and public-sector securities by June 2021 under its Pandemic Emergency Purchase Program.

The EU will also offer a €540 billion addition to its European Stability Mechanism, an International Monetary Fund-style loan program under which money is loaned to governments under condition that recipients implement severe austerity. (This is the program under which the EU paid off the Greek government’s debt to European banks, meaning that Greece instead owed its debts to EU institutions rather than the banks, doing nothing to lower the debt level but forcing Athens to administer punishing austerity that left Greeks destitute.) And on top of the above, the EU has thrown in another €200 billion for businesses. For working people, nothing more than relative crumbs: €37 billion “to support public investment for hospitals, [small businesses], labor markets, and stressed regions” and €100 billion to protect workers and jobs. Once again, quite one-sided in favor of capital.

Back across the Atlantic, Canada has announced multiple programs, including quantitative easing. The Bank of Canada has implemented several QE programs for buying corporate bonds, federal and provincial government bonds, mortgage bonds and commercial paper (short-term debt issued by corporations), as well as programs to provide credit and “support the stability of the Canadian financial system.” The Bank of Canada is not forthcoming about the total cost of these programs; it has committed to spending C$5.5 billion per week, with no cutoff date, on just two programs, the purchases of federal government bonds and mortgage bonds. A measure of what has been spent so far is indicated in the central bank’s balance sheet, which reveals that total assets held by it increased from $120 billion on March 11 to $498 billion on June 11. So that’s $378 billion with more to come.

What is Canada spending on working people? $116 billion for “direct aid to households and firms” and $4 billion for the health system. So a lot less, and even some of this much smaller amount will be going to businesses.

Although more direct aid for working people is being included this time around — given the crisis of neoliberalism and that the massive subsidies to the same financiers responsible for the crash of the economy in 2008 haven’t been forgotten, political leaders had no choice but to sweeten the pot a little — the overwhelming majority of the money dispensed is going to the financial industry and to large corporations. Again it must be asked: How much more useful would it have been to use this money for practical needs and direct payments to people instead of propping up a bloated and wasteful financial system? More directly, how long can the peoples of the world continue to believe that a system in crisis so frequently and requires such massive bailouts works?

The corporate origins of the anti-science “reopen” demonstrations

Many of the same extreme right operatives who created the “Tea Party” are behind the anti-science and anti-intellectual spectacles opposing measures designed to combat the Covid-19 pandemic. And with much the same agenda.

By now, that is not much of a secret, but it is nonetheless necessary to expose these roots, and to debunk the anti-science conspiracy theories they help spread. This is an astroturf operation underwritten by Betsy DeVos, her ultra-reactionary family and veteran operatives linked to them, with FreedomWorks, primary organizer of the early Tea Party protests, and the Club For Growth, a libertarian outfit dedicated to eliminating Social Security, lurking in the background.

Perhaps the most virulent outbreak was in Lansing, where armed militia members were given free reign to roam Michigan’s state capitol building, causing a legislative session to be called off. A truly dangerous precedent — will these characters be allowed to take over the capitol next time? And that these White protestors were left untouched, even allowed to hijack the functioning of government for a day, makes for a sharp contrast with the Black Lives Matter protestors being arrested and brutalized by police around the country.

A doctor in a hospital during the COVID-19 pandemic (photo by Pablo Jarrín0

To make another comparison, recall that similar armed White militia members were allowed to take over a federal sanctuary and desecrate Native American artifacts in rural Oregon in 2016. Can anybody imagine Black protestors taking over a government facility with an intention of sparking a rebellion lasting even a day without every police agency that could mobilize mowing them down in a fusillade of bullets and bombs, much less being allowed to spend weeks and allowed to come and go as they pleased?

Let’s examine the evidence. There is plenty of it, should we wish to look.

The wealthy extremists behind the astroturf campaign

Edwin Rios, writing in Mother Jones on April 17, 2020, provided this report on the Lansing demonstrations:

“The protest, known as ‘Operation Gridlock,’ featured a fair share of MAGA hats, Trump flags, at least one Confederate flag, chants of ‘Lock her up!’ in reference to [Governor Gretchen] Whitmer, and far-right groups from the Proud Boys to the Michigan Liberty Militia. They clogged up the streets outside the state Capitol and defied Whitmer’s ban on public gatherings. The whole charade was facilitated by the Michigan Conservative Coalition, a conservative political group that doubles as a front for Michigan Trump Republicans, and promoted by the Michigan Freedom Fund, a conservative group with ties to Education Secretary Betsy DeVos, a Michigan billionaire philanthropist power broker before she joined the Trump administration.”

A detailed Snopes report put together by Alex Kasprak and Bethania Palma found plenty of DeVos family money:

[T]his anti-lockdown movement was originally pushed by a small circle of fervent activists who have been protesting almost constantly since well before the onset of the pandemic. Furthermore, they have benefited from a political action infrastructure originally created to support the DeVos-funded, anti-union ‘right-to-work’ movement. These methods have apparently created the perception of widespread discontent with public health measures largely supported by the American populace and are part of a campaign playbook self-evidently resulting in an increasingly radicalized base of Trump supporters as the 2020 general election approaches.”

The article reports that the DeVos family made $14 million in political contributions to the Michigan Republican Party and other Republican groups, and also donated substantial amounts of money to the Michigan Freedom Network. The Network is in turn tightly linked to the Michigan Conservative Coalition, a group that the Snopes report characterizes as “a collection of former Tea Party-aligned groups and pro-Trump organizations whose purpose is to recruit and train an ‘army of conservative activists,’ most notably the groups Michigan Trump Republicans, Women for Trump, and the Lakes Area Tea Party. The people who run the coalition have deep ties to the Michigan GOP and to Trump campaign surrogates,” with strong links with Michigan Republican officials.

Not mentioned in these articles but nonetheless relevant is that Betsy DeVos’ brother is Erik Prince, founder of the notorious Blackwater mercenary army.

“Reopening” the economy in the corporate interest

To round out this survey, CNN reporters located two more sources of support:

“One prominent voice supporting the protests is Stephen Moore, the founder of the Club for Growth and an unofficial economic adviser to President Trump. … Moore told CNN he has been working on this organization with FreedomWorks, a conservative advocacy group that gained prominence during the Tea Party era.”

The Club For Growth is an ultra-reactionary outfit with connections to the Koch Brothers dedicated to eliminating government-run social benefits. Club for Growth founder Stephen Moore is on record with this statement: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.” In other words, it’s work until you drop, if he gets his way.

FreedomWorks is a group of corporate lobbyists formerly run by Dick Armey (a hard-line Republican Party operative who once was majority leader in the U.S. House of Representatives) that was the primary organizer of the early Tea Party protests. FreedomWorks’ predecessor organization was the Citizens for a Sound Economy, which was founded and funded by David and Charles Koch (although the surviving brother, Charles, does not currently back FreedomWorks). Sharing similar roots is Americans for Prosperity, a lavishly funded and tightly controlled pressure group founded by the Koch Brothers dedicated to promoting the family business interests and extremist political philosophies, and also heavily involved in organizing the Tea Party. Organizers of the Tea Party sought to deflect anger from corporate elites consumed by greed and arrogance who bend the country’s institutions to their benefit, and instead pin the blame on “the government,” on minorities, on immigrants and any other handy scapegoat. Sound familiar?

Yonge-Dundas Square in Toronto during the pandemic (photo by Sikander Iqbal)

It will come as no surprise those readers who pay attention that the Trump administration has a hand in these events. For several weeks, the White House has been agitating to “reopen” the country regardless of health consequences — an unusually open reminder that working people are seen as nothing more than disposable peons in the eyes of Wall Street and corporate boardrooms.

The Associated Press, as cautious a news agency as exists in the U.S., has provided further details:

“Republican political operatives are recruiting ‘extremely pro-Trump’ doctors to go on television to prescribe reviving the U.S. economy as quickly as possible, without waiting to meet safety benchmarks proposed by the federal Centers for Disease Control and Prevention to slow the spread of the new coronavirus. The plan was discussed in a May 11 conference call with a senior staffer for the Trump reelection campaign organized by CNP Action, an affiliate of the GOP-aligned Council for National Policy. A leaked recording of the hourlong call was provided to The Associated Press by the Center for Media and Democracy, a progressive watchdog group.

CNP Action is part of the Save Our Country Coalition, an alliance of conservative think tanks and political committees formed in late April to end state lockdowns implemented in response to the pandemic. Other members of the coalition include the FreedomWorks Foundation, the American Legislative Exchange Council and Tea Party Patriots.”

As always, we should member that the “freedom” promoted by these representatives of big capital means freedom for capital, not people. “Freedom” is equated with individualism — but as a specific form of individualism that is shorn of responsibility. Imposing harsher working conditions is another aspect of this individualistic “freedom,” but freedom for who? “Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists.

To this, we can now add the “freedom” to spread a deadly virus without regard to the danger imposed on others.

Debunking that Covid-19 was created in a laboratory

The complement of exposing the funders and organizers of the movement to ignore measures to provide for public health during a pandemic — how dare Governor Whitmer and other state governors seek to keep people alive! — is exposing the disinformation spread by their followers.

Contrary to conspiracy theories peddling the idea that Covid-19 is an artificial creation, possibly intentionally created for political purposes, multiple teams of scientists have determined that Covid-19 is a virus that originated in nature, and can not have been created in a laboratory. It does not help that U.S. President Donald Trump and his almost as ignorant secretary of State, Mike Pompeo, have repeatedly implied such — in the minds of Trump followers, how could scientists who have spent a lifetime studying diseases and epidemics possibly know as much as the all-knowing, all-seeing Dear Leader?

Downtown Portland, Oregon, during the pandemic (photo by Mattsjc)

Kristian Andersen, an infectious disease researcher at the Scripps Research Institute who led a team of evolutionary biologists and virologists from several countries, said Covid-19 has components that differ from those of previously known viruses and therefore had to come from an unknown virus or viruses in nature. A human-created virus would need to work with already known viruses and engineer them to have desired properties, according to Andersen.

Writing in the peer-reviewed journal Nature Medicine, Andersen and his colleagues wrote, “Genetic data irrefutably show that SARS-CoV-2 [the virus that causes Covid-19] is not derived from any previously used virus backbone” and conclude, “we do not believe that any type of laboratory-based scenario is plausible.”

A molecular epidemiologist in Switzerland, Emma Hodcroft, who is not connected to the study led by Andersen, agreed. Hodcroft, who is part of a team studying changes in coronaviruses to track how they spread, said, “We see absolutely no evidence that the virus has been engineered or purposely released.” Andersen said there were several clues that clinched the case that the virus is natural, including adaptations protecting it from an immune-system attack that doesn’t occur in viruses being worked on in laboratories.

This ongoing work has also debunked the erroneous idea that Covid-19 contains bits of HIV. There was one paper that made the HIV assertion that was not peer-reviewed and was quickly retracted after numerous scientists pointed out serious flaws in it. There are no fragments of the genetic code of HIV in the virus, European Scientist reports in an article that then debunks this conspiracy theory from other angles.

Debunking that deaths from Covid-19 are overstated

Researchers on the Our World In Data web site provide a good explanation for why Covid-19 deaths are likely under-reported, not over-reported. To summarize, the reasons that deaths are being under-reported include that many countries only report Covid-19 deaths that occur in hospitals, meaning that people who die from the disease at home may not be recorded; some countries only report deaths for which a Covid-19 test has confirmed that a patient was infected with the virus; and that the pandemic may result in increased deaths from other causes due to weakened health care systems, fewer people seeking treatment for other health risks and less available funding and treatment for other diseases.

According to the U.S. Centers for Disease Control and Prevention (CDC), the official death toll attributed to Covid-19 counts only laboratory-confirmed Covid-19-associated deaths, and 5,048 probable Covid-19-associated deaths. Not counted are deaths among infected persons who did not access diagnostic testing, tested falsely negative, or became infected after testing negative, died outside of a health care setting or for whom Covid-19 was not suspected by a health care provider as a cause of death. Official Covid-19 deaths also do not include deaths that are not directly associated with Covid-19 infection.

A study of New York City deaths from March 11 to May 2 by the CDC found there were 24,172 excess deaths. The official total of deaths associated with Covid-19, however, is 18,879 deaths. Therefore, the CDC study determined, there were 5,293 deaths that were not identified as either laboratory-confirmed or probable Covid-19-associated deaths. That is an undercounting of Covid-19 deaths as high as 22 percent.

The CDC report said, “Covid-19-associated mortality is higher in persons with underlying chronic health conditions such as heart disease and diabetes, and deaths in persons with these chronic health conditions might not be recognized as being directly attributable to Covid-19. In addition, social distancing practices, the demand on hospitals and health care providers, and public fear related to Covid-19 might lead to delays in seeking or obtaining lifesaving care.”

A separate study conducted by a team of scientists on the death rates in New York State, England, Wales, Scotland, the Netherlands and Italy found that the number of deaths attributed to Covid-19 through May 6 range from one-half to three-quarters of the total number of excess deaths. The scientists, led by Kieran Docherty of the University of Glasgow, concluded that the additional deaths “may represent unrecognized deaths due to Covid-19.”

Debunking that Covid-19 is no more fatal than the flu

The World Health Organization found that Covid-19 data to date suggests that 80% of infections are mild or asymptomatic, 15% are severe infections requiring oxygen and 5% are critical infections requiring ventilation. These fractions of severe and critical infections are higher than what is observed for influenza infection. A WHO report states:

“While the true mortality of COVID-19 will take some time to fully understand, the data we have so far indicate that the crude mortality ratio (the number of reported deaths divided by the reported cases) is between 3-4%, the infection mortality rate (the number of reported deaths divided by the number of infections) will be lower. For seasonal influenza, mortality is usually well below 0.1%. However, mortality is to a large extent determined by access to and quality of health care.”

The United States has by far the most number of cases and the most deaths from the virus, something caused in large part by the for-profit health care system of the U.S., which is designed to deliver corporate profits rather than health care, and thus produces among the worst results of any advanced capitalist country while costing by far the most. A country with a health care system with incentives so inhumane that early deaths are considered to be a “silver lining” for corporations.

Some of the claims that Covid-19 is no worse than the flu rest on a single discredited report. The discredited report, concerning two studies in Los Angeles and Santa Clara counties that purported to claim that Covid-19 death rates are similar to seasonal flus, were quickly and widely debunked. An Ars Technica article said the two studies used flawed statistical models to put the number of people with the virus at 50 to 85 times higher than was actually the case at the time, thus drastically lowering the studies’ reported death rate. The methodologies used to recruit people to this study was also flawed, including using Facebook and e-mail to ask for participants and thus far from random. Finally, the antibody test used in the two studies has a low rate of accuracy.

Need more? The Federation of American Scientists notes that between 2010 and 2019, the flu killed between 12,000 and 61,000 United Statesians during each eight-month long season (October to May). In just over four months, or about half of a flu season, Covid-19 killed over 100,000 people (as of May 28), or 785 people each day, in the U.S. alone.

Finally, Northwell Health reports that each infected person spreads Covid-19 to an average of 2.2 other people. By comparison, those with the seasonal flu infect approximately 1.3. So, yes, it is more easily transmitted than the flu.

As a final thought, it has not escaped my attention that the right-wing anti-science protestors largely did not wear face masks while demonstrating, nor did they observe social distancing. By contrast, the Black Lives Matters protests that erupted after the police murder of George Floyd overwhelmingly wear face masks. (Nor did they carry weapons.) I’ve participated in three Black Lives Matters marches at the time of writing this article, and not only can I confirm that almost everyone wears masks, but there are always a couple of people handing out masks to people who need one. That’s the difference between people who think others should die so they can get a haircut and those with a strong social conscience.

Work is inevitable but its organization is not

All human societies, from the most primitive to the most modern, have an important commonality — the need to work. Water, food, shelter and other basics of life don’t arrive as gifts. Work is required to secure them and to raise the next generation.

So fundamental is this basic principal of human life that generations of Marxist theorists have based analyses of social societies and structures on the economic base of a given society. The base-and-superstructure framework is controversial to most other schools of thought, although it ought to be obvious that capitalist organization of an economy puts strong parameters on how that capitalist country can organize itself politically and culturally. Nonetheless, can traditional Marxist understandings be stretched to wider interpretations?

Computer engineer Paul Cockshott, in his latest book, How the World Works: The Story of Human Labor From Prehistory to the Modern Era,* answers with an emphatic yes. His premise is that Western Marxism has been too dominated by “people with a training in the humanities or social studies” who have a “reluctance to use mathematical quantitative analysis.” He intends to infuse the term “mode of production” with a “much more technological interpretation.” In other words, a study of technology is a better basis for understanding the organization of labor in the various modes of production over the course of human history.

This stress on technology is a strength of the book, but also, at times, a weakness. This perspective does enable fresh thinking about subjects as disparate as why agriculture supplanted the hunting-gathering stage, the inefficiency of capitalism and the cause of the weaknesses of the Soviet Union that culminated in its collapse. How the World Works is a book full of interesting ideas — I took double the amount of notes I ordinarily take to review a book, a good measure of its content.

How the World Works takes the reader through all the basic modes of production of human history — lengthy chapters each on “pre-class society,” slave economy, peasant economy, capitalist economy and socialist economy, plus a final brief chapter on “future economy” that revolves around the impending exhaustion of fossil fuels and the decrease in available energy that post-fossil fuel societies will likely face. Crucially, the book argues that the “idea of abstract labor” applies to all economies, not only capitalist ones.

Transitions to agriculture despite the extra work

Professor Cockshott demonstrates that agriculture required more work hours than did hunting-gathering, and asks the question: Why was the transition made? He argues that hunters wiped out big game and the population of hunter-gatherers became too large for available land to support. Although agriculture required more work, more food per unit is also produced. This change came with a crucial development — there was now a surplus. Hunter-gatherers had no storage facilities and had to be mobile; what was taken was quickly eaten. These were often egalitarian societies (although not always, based on studies of isolated societies that survived into the 20th century).

With the new phenomenon of surplus, the ability and, given the cyclical nature of agriculture, the necessity, of storing food for future use enabled the rise of hierarchy and significantly deepened the subordination of women that had its roots in hunting-gatherer societies’ tendency for women to move to other settlements for marriage, putting those young women, cut off from their original community, in subordinate positions to their husbands and mothers-in-law. But although a surplus is necessary for a nonproductive elite to arise, the book argues that a surplus on its own is insufficient to develop the social stratification that would develop:

“A class society requires a surplus, but the converse does not hold. A food surplus does not necessitate an exploiting class. Establishing that seems to have required other misfortunes: war, patriarchy, and religion.” [page 45]

Authoritarian ideologies must be developed to justify unequal status, and human sacrifice fuels high social stratification. Ideologies of superior and inferior human beings justified slavery, but Professor Cockshott additionally argues that slave economies were dependent on transport and urban markets. Labor is the source of value in slave economies. The next stage, feudalism, also featured exploitation but in a different form. A lack of transport and limited circulation characterized feudalism. Lords did not have to engage in systematic trade and peasants were self-sufficient; coercion was the glue that kept this economy in place.

The shift from feudal farming to capitalist farming required that peasants “be deprived both of security of tenure and access to communal lands” [page 93]. And that brings the book to its longest chapter, the discussion of work in a capitalist economy. Here is where the author’s technological perspective more fully comes into play. The price of labor regulates product pricing and profitability, and, crucially, if workers were paid the full value of their work in a capitalist enterprise there would be no profit for the capitalist — “in a capitalist society, there will be a markup” [page 111].

Advance of mechanical energy under capitalism

Where capitalism differs from feudal and slave economies is far greater use of mechanical energy and scientific research. In contradiction to a commonly accepted theory that the use of slave labor in the Roman Empire prevented the primitive steam engine that was developed then from being introduced into production because using machines would have been much more expensive than continuing to use slave labor, Professor Cockshott argues that Hero’s turbine was vastly inefficient to be of any industrial use. Even the first steam engines of the 18th century were exponentially more powerful and could greatly expand industrial capacity. He argues that it was this new capacity that was the catalyst for industrial capitalism: “Existence of commodity relations and wage labor would not have been sufficient to generate the capitalist mode of production” [page 123].

Limitations on productive capacity were overcome with the rise of fossil fuels and in turn advances in technology arising from more efficient fossil fuels led to innovation and new products that beget more new products. In turn, the capital required to build and operate large industrial factories was beyond the reach of workers and previously independent artisans, forcing small independent producers out of business due to the scale of competition. “[T]he application of powered machines and fossil fuels allowed rising labor productivity that closed off whole branches of production from the self-employed artisan” [page 128].

An English watermill (photo by Martin Bodman)

The capitalist who innovates early reaps an increased profit, but such benefits are always temporary as competitors will soon adopt the innovation. Perpetual competition forces increased reliance on technology, although the author argues that innovation for a capitalist is only worthwhile when wages are high. An example not examined in the book that also serves as a partial explanation for why so much production has been shifted to low-wage, developing countries is the ability to pay drastically lower wages. That is an “innovation” that competition dictates be swiftly copied. The book argues that the ability of capitalists to innovate “shouldn’t be overrated,” but the continual shifting of production and the development of global supply chains is grim evidence of considerable capitalist innovation, one of course deeply negative for working people. Control of the means of production also gives capitalists control of the technology necessary to make these transformations in production possible — yet more innovation that is bad for working people.

The mathematical approach of How the World Works does serve the author well in his theory of why the wage gap between men and women persists: Professor Cockshott argues that it is because women work fewer hours then men and as a consequence are less likely then men to be the sole wage earner in a family; he believes the wage gap won’t be closed until it is equally likely that women will be the sole family wage earner as men. The level of such a wage earner can’t fall below starvation level for the basic reason that mortality rates would skyrocket; it is the ensuing shortage of workers that would occur rather than any morality that put an ultimate lower limit on wages.

That natural lower limit of course does not prevent wages from falling to deeply exploitative levels. On top of that, finance produces still more inequality — it is not only unproductive but a huge drain of money. “Since so little finance goes into increasing real production, these rents [windfall profits] can only be sustained by depressing the real living standards of much of the population” [page 196]. Concomitant to that is the ever increasing cost of housing, which is a product of inefficiency. Because housing is an asset subject to speculation, it appreciates in price and thus speculation becomes more profitable than engaging in productive activity, which in turns draws in more speculative capital, further fueling the process. Loans by banks in turn go disproportionally to real estate. Yet more exploitation.

Judging socialism by actual conditions, not ideals

The chapter on “socialist economies” is likely to be the most controversial for many readers; certainly is was for myself. The chapter opens by noting, quite correctly, that there is no uniform definition of socialism. How the World Works argues that “as social scientists, we cannot judge the real world by the standards of an ideal one. It is not the job of reality to materialize our ideals. Reality just is in all its glories, horrors, and contradictions” [page 209]. To that, there is nothing to do except agree. Material reality is what we have to go by.

Interpreting that reality, on the other hand, leaves room for debate. How the World Works shoots down various theories of why the Soviet Union and the model it imposed on Central European countries wasn’t socialist, including that is used money, you can’t have socialism in a single country and there was scarcity rather than the plenty that socialism is supposed to provide. So far so good, although these arguments are presented in a somewhat cartoonish fashion rather than in their full complexity. Having ably dispensed with these arguments, and reiterating that there was a “common understanding” that those countries were socialist, the author offers his concept of what socialism actually is, based on what did exist.

Although he writes that “What distinguishes them are the forms of property and the way in which the surplus product is determined,” he concludes that socialism is characterized by machine industry and agriculture, the same as capitalism. His definition rests on, inter alia, a mix of technical achievements such as “widespread use of electricity” and “widespread use of machinery and applied science” interspersed with social relations such as “the absence of a class of wealthy private proprietors” and “public or cooperative ownership of most of the economy” [pages 209-201].

German hydroelectric power plant

To be sure, claims that the Soviet Union was “capitalist” is ultra-left phrase-mongering that sheds little light. But is socialism simply expropriation and building industry? If so, then one would have to agree with Josef Stalin’s boast in the 1930s that socialism had been built and Nikita Khrushchev’s follow-up boast in the 1950s that the Soviet Union was in the process of building communism, the successor to socialism. But is that all there is? A fuller definition of socialism mandates that democracy be extended to economic matters and strengthened in political matters, beyond what is possible in capitalism. It would follow then that expropriating capitalists and establishing state or cooperative ownership of most of the economy is a precursor to socialism, not the actual content in itself.

An alternative theory, not discussed in the book, is that the Soviet model represented a post-capitalist economy (certainly not capitalist) in transition to socialism, a transition never completed. Perhaps this can be seen as edging toward idealism and in contradiction to the agreement above that those countries had to be judged based on their material reality, which obviously included the fact that they had to expend so much of their resources on defense against never-ending attacks from the capitalist world. But to put forth this position is not to dismiss those experiences but rather to lament what could have been. The grassroots movement in late 1960s Czechoslovakia to keep the economy in state hands but have it managed by the workers through councils and coordinating bodies in a system of democratic social accountability was the advancement to socialism that never developed because of the Warsaw Pact invasion. That invasion was a function of closed-minded ideological prescriptions that had become calcified in one particular form, which evolved in chaotic fashion in one country (the Soviet Union) that cannot be extricated from the specific absolutist cultural heritage of that country’s dominant nation (Russia).

Socialism should be not only industrial development and an end to private capital but a democratic system that grows, develops and changes with the rise in consciousness and development of a society’s members, not a rigid formula.

Fiscal imbalances through imbalanced taxation

The term “actually existing socialism” was often used for the Soviet bloc, and despite the clumsiness of the term, perhaps that is a reasonable compromise. Those countries have reverted to capitalism, and so a discussion of their economies inevitably moves toward determining the reasons for why. Professor Cockshott puts forth an original theory on this: the system of taxation. Specifically, he argues that reliance on sales taxes and taxes on enterprise revenue rather than assessing income tax on wages hid the cost of free social services, forced up the cost of machinery and thereby discouraged mechanization and made the relative cost of providing free services more expensive. As a result, managerial hoarding of labor was encouraged with concomitant overstaffing and lack of efficiency measures. This thesis is related to his belief that the Soviet use of money was a mistake; rather, people should have been paid in “labor hours.” To this last point, we will return.

Mathematics are used to explain this theory. The economy is divided into three parts — production of the means of production (or what are called producer goods), production of consumer goods and the provision of uncharged services, such as education, health care and public infrastructure. The money for the third category has to come from some revenue stream, and the need to pay for those and the necessity of the first category of producer goods constrains what is available for consumer goods. Assuming that what is available for consumer goods must be limited to the money-equivalent of the hours spent producing consumer goods, the author suggests there were three possible methods of taxation: an income tax on employees, a sales tax or VAT, or by pricing all goods at a markup or profit.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

Because there was no income tax in the Soviet Union, revenue for social services was raised from taxes on enterprise revenue, those producing for consumer goods and those producing for producer goods, and from sales taxes. Because of that, the costs of machinery is much greater, thereby making the provision of social services far more expensive that it would have been. It was “short-term populism that hampered efficiency” [page 256] and made labor cheap and machinery expensive.

Concomitantly, the author argues that Soviet workers should have been paid in labor hours rather than rubles. This would have been a fairer way of paying people and would have made any imbalances easier for all to see; money was necessary to disguise that, for example, that collective farmers were underpaid relative to their labor. In essense, the argument is that one hour of work should have been compensated by one hour of labor credit. Doing so would have immediate egalitarian effect:

“The significance of labor tokens is that they establish the obligation on all to work by abolishing unearned incomes; they make the economic relations between people transparently obvious; and they are egalitarian, ensuring that all labor is counted as equal. Is it the last point that ensured labor tokens were never developed under the bureaucratic state socialisms of the twentieth century. What ruler or manager was willing to see his work as equal to that of a mere laborer?” [page 263]

This arrangement would also eliminate black markets because the labor credits could not be circulated or transferred to someone else; they could only be used at communal stores. But “it is absolutely essential” that prices reflect the work value put into them to avoid imbalances. This would in turn make planning more responsive because deviations of sales from actual production would send a signal that production levels should be adjusted to real demand.

What caused the Soviet Union to collapse?

The foregoing were serious weaknesses in the Soviet economy, Professor Cockshott argues, in addition to the most skilled technical and professional employees becoming dissatisfied because their gains were not comparable to elites in the capitalist West. That social group’s dissatisfaction mattered because it was disproportionally represented in the Communist Party. The structural changes made by Mikhail Gorbachev had the effect of disorganizing an economy in which enterprises were strongly interlinked and enabling the rise of black-market criminals as state revenues plunged because declines in production resulted in less revenue due to the reliance on taxes on enterprises and sales taxes.

The author makes a strong case for his thesis that the taxation system underlaid Soviet economic crisis. I found much merit in it and considering it enriches our understanding of Soviet economics. But this is an instance where a heavy reliance on mathematics and technology leaves out some of what is a bigger picture. Left out is the over-centralization of the economy, the inability of central planners and the distribution system to have the knowledge necessary to ensure that raw materials and supplies were delivered properly and a rigid production quota system based on physical output. Base wages in the Soviet Union were low; workers counted on the bonus to be paid for fulfilling quotas. Managers and directors were responsible for fulfilling quotas handed down from ministries and their jobs were on the line if they didn’t. Thus both management and floor workers had incentives to hide capacity and keep quotas as low as possible, and keep extra materials and personnel on hand to “storm the plan” if they had fallen behind.

Surpluses of material somewhere meant shortages somewhere else; the difficulties in distributing sufficient supplies enhanced these tendencies. And because quantity and not quality was what mattered, shoddy products could be produced without real penalty. A full description of the Soviet economy can’t exclude these factors. Although the author dates the start of the imposition of capitalism to 1986, which should properly be dated to 1990, when General Secretary Gorbachev rammed through the legislature a series of measures that introduced elements of capitalism, including laws that ended working peoples’ limited ability to defend themselves and mechanisms to enable privatizations, that is a minor technical point. Reforms instituted from 1986 did place the burdens squarely on workers because of their one-sided implementation, and Professor Cockshott is entirely correct in writing that Gorbachev’s reforms ultimately disorganized the economy, precipitating a collapse.

Ultimately, the measure of a book isn’t whether we agree on all points; disagreement with some points of a book with such a large volume of interesting theories and analyses is inevitable. What is pertinent is stimulation of thought and the challenge of worthy ideas. A book that intends nothing less than to reveal the workings of the world from the earliest prehistory to the present day and beyond has set itself a sweeping goal. How the World Works succeeds marvelously.

* Paul Cockshott, How the World Works: The Story of Human Labor From Prehistory to the Modern Era [Monthly Review Press, New York, 2019]