With capitalist crisis worsening and spreading from our shores to all other countries, an industry of analyses and nostrums has emerged. Given the near complete domination of market idolatry and neo-liberal dogma among those who are designated to do our thinking for us, it is not surprising that there is much nonsense in the air. Nonetheless, there are useful proposals emerging that show growing class awareness without in any way challenging capitalist fundamentalism. The idea that attention should be paid to the pain and suffering of working people is one such happy development. As the crisis deepens, no doubt the most advanced fighters for social justice will turn more and more to a serious critique of the capitalist system. In the meantime, those of us who have been laboring in the vineyards of Marxism-Leninism – the abolitionists of capitalism – must continue to sharpen our theory and spread the word.
What we don’t need are charlatans and poseurs. With the departure of the European socialist bloc, the world Communist movement suffered a severe crisis of confidence and direction. Time also took its toll on veteran Communists who had experienced the warts of world capitalism and drew many profound lessons from its history. Their schooling in both life and theory could have proved invaluable in post-Soviet times were they still with us. Instead, we have suffered through a period of old ideas masquerading as "new, improved" Marxism, especially since the shallow "New Thinking" of Mikhail Gorbachev.
One of the "new" old ideas that gathered traction and widespread advocacy after the fall of the Soviet Union was market socialism. It doesn’t take a great deal of thought to recognize that market socialism presupposes the soundness of the market, a mechanism that surely is needy of a defense in light of its widely noted failings over the last two years. Those who once vigorously supported this approach are strangely quiet today. Perhaps they are running for cover. Events have a way of confronting fashionable ideas with brute facts. I thought of this challenge to market socialism when I read a recent article by John Case in the on-line magazine, Political Affairs (A Dose of Socialism to Forestall Disaster – by John Case). The bizarre title suggests socialism is a tincture to be applied to a wounded capitalism.
I know little of Case’s work beyond an occasional defense of market socialism, drawing often on bourgeois economists like Joseph Stiglitz. It seems that Case finds much to praise about Fed chief Ben Bernanke and Treasury Secretary Henry Paulson, former head of financial firm Goldman Sachs, who "appear to have drawn the correct conclusions" from the financial meltdown. They have come to understand that applying "a measure of socialism" though perhaps not "enough socialism" may "stay the dragon of world-wide depression…".
I confess that I had never viewed Bernanke and Paulson as advocates of socialism. True, some of the more hare-brained writers on the Wall Street Journal editorial pages – the Disneyland of right-wing nut cases – have seen socialism lurking in everything from unemployment insurance to progressive taxation. But this self-proclaimed advocate of socialism finds kindred spirits in the hearts of two long-time priests of free markets and de-regulation. What evidence does Case adduce for this rather startling change of heart?
1."…Bernanke subsidized the bailout of Bear Stearns creditors, but not its stockholders." The operant word here is "bailout." Bernanke orchestrated a fate for this failed, worthless financial corporation that pleased all creditors and suitors but the stockholders, who subsequently received a boost on their otherwise worthless shares by the "socialist" Bernanke. This "dose of socialism" cost $29 billion "of tax-payer money to induce JP Morgan Chase to buy Bear," to quote The Wall Street Journal.
2."…Paulson effectively took control of Fannie Mae and Freddie Mac without compensation to the stockholders." Rooted in the New Deal effort to guarantee fair, reasonable mortgages for the masses, these financial giants were converted into curious private/public entities (private profit/public guarantees) as soon as Wall Street smelled massive profits. Standing behind the government guarantee against failure, the financial buzzards pillaged both with obscene executive salaries and risky financial maneuvers. On the verge of collapse, Paulson had no choice but to honor the public commitment with a bailout to the tune of $200 billion or more. Instead of restoring public ownership, Paulson chose the slippery concepts of "receivership" or "conservatorship," holding out the hope that they would one day be ripe enough to return to private pillage.
3."…the Fed seized 80 percent control of AIG… at a paltry (sic) price of $87 billion…" Actually, the Fed extended a bridge loan to AIG with warrants – should corporate rescue fail – to convert the loan to stock.
4."the government is now considering a new ‘Resolution Trust’ company over 1,000 times bigger than the one that nationalized (sic) the savings and loan assets 20 years ago…" Where Case refers to "nationalized…assets" virtually every other commentator refers to "assumed liabilities" – a rather substantial actuarial difference in meaning. The Resolution Trust was forced to saddle the taxpayer with roughly $125 billion in bad debt (roughly $200-250 billion in today’s dollars). We must remind Case that a similar "Resolution Trust" today would have to foist on the public bad debts totaling anywhere from $700 billion to a cool trillion dollars (6-7% of GDP). If this is "a dose of socialism," then Herbert Hoover, too, was a closet socialist: He created the National Credit Corporation and the Reconstruction Finance Corporation in 1932 to serve as the same bailout tool that Case hails as "a new outbreak of socialism and social democracy" in 2008.
For Bernanke and Paulson’s corporation-friendly rescue effort, Case "applaud[s] both the courage and tenacity in the forceful and essentially correct actions they have taken." Could they have taken an even more forceful and correct action? Could they have done more to help the mass of working people now suffering, and about to suffer more, for Wall Street greed? Could they have given us more than "a dose of socialism"? Writing in 1988, Marxist Victor Perlo maintained in Super Profits and Crises: Modern US Capitalism: "A major cyclical crisis would endanger the solvency of the largest U.S. banks… It would diminish their power even if they were saved from bankruptcy by the US government. Even so, the ultimate power of the financial oligarchs would remain until mass actions of workers and other progressive forces compel the nationalization of the banks and other major financial institutions, under democratic control."
To my jaundiced eye, Perlo’s vision of socialism would see the current crisis as an opportunity to fight for the democratic nationalization of privately owned major financial institutions rather than an imperative to bail them out. Democratic nationalization, quite different in class content from the pro-monopoly nationalization Bernanke and Paulson are attempting, means a new publicly owned entity would be governed in a way that mainly serves public purposes. Such an act of nationalization will allow compensation only for small and medium investors. Recipients of monopoly profit need not apply. It rules out a return to private ownership if and when profitability is restored, for the state-owned sector must not be a temporary parking place for loss-making enterprises. Such nationalization will ensure governance forms in which the public has a massive say, as well as controls from below for workers, taxpayers, consumers and all affected communities. Above all, democratic nationalization makes inroads into the class power and wealth of monopoly, and it enhances the power of all those oppressed by monopoly. It is not yet socialism or socialist revolution, for capitalist state power has not yet been broken up, but it would be a big democratic step that points the way toward socialism.
Case’s strange brew of twisted "socialism" and capitalist apologia leaves me cold. But tragically, he turns his back on the millions of people who, without their consent, are now asked to bear the brunt of the consequences of the bad faith of capitalist elites and their government and media hirelings. They have preached the gospel of markets while exploiting the markets to their own benefit. With the market theology collapsing, they shamelessly pile the rubble on the backs of working people and the poor. Case can attempt to recast public bailouts of private concerns as socialism if he likes, but this is surely a delusional distortion of the socialism of the Marxist tradition. He calls these bailouts unavoidable: "Recent history gives solid examples of how smart socialization [bailouts, ZZ] is the only corrective…" Citing the Swedish financial collapse of the 1990’s, he says: "Sweden… confronted financial collapse… by nationalizing its banks and absorbing the toxic bubble before selling the institutions back in a more carefully regulated environment, and sustained growth was the result."
Not exactly. Wikipedia offers a different account under the entry for Sweden’s largest bank, Handelsbanken:
During the extended boom of the 1980s, bank lending in Sweden had grown exceptionally fast. A large share of the lending went to speculative investments. In autumn 1990, a serious crisis emerged in Swedish banking as a result of a deep recession. Corporate loans were the primary cause of huge loan losses in the Swedish banks. The Swedish government’s costs for supporting the bank sector were an incredible SEK 66 billion. During the banking crisis, Handelsbanken was the only major Swedish bank that was not forced to discuss applying for a state guarantee. Handelsbanken was able to utilize the situation to advance its position on the Swedish banking market. For example, Handelsbanken’s share of deposits from Swedish households increased from 11% in 1990 to 17% by the end of the decade. The cash purchase of Stadshypotek in 1997 contributed to the increase in business volume.
So, in fact, Sweden’s banks irresponsibly ran aground and were similarly bailed out by the Swedish people for an "incredible" amount. Sweden’s largest bank benefited from this by capturing a commanding share of the market, resulting in its dominance of the industry. Rather than showing that bailouts are the only "corrective," his example seems to show that private financial institutions inevitably engage in speculation, resulting in failure and economic disruption. One would think this would be a powerful argument for nationalization, not an excuse for bailouts. It is not helpful to posture bailouts of rapacious corporations as some kind of incipient socialism.
If defending the bailouts is criminal, then calling them "a dose of socialism" is a first-degree felony. A casual study of the Great Depression reveals that Hoover’s response to the failure of free market ideology was remarkably similar to the current policies of the Bush administration (with bi-partisan support). The parallels are too obvious to debate: massive financial credits, in both cases, to heal and jump start a stalled economy. It didn’t work then; it will likely not work now. After Hoover, much changed for the better with the decisive pressure of a revitalized labor movement, radical citizens’ groups in the cities and countryside, and a militant left led by the Communist Party.
We need the same pressure today to ensure that the burdens of capitalist failure do not continue to be dumped on the masses. The current crisis affords us a great opportunity to bring others to the cause of socialism, but, I’m afraid, not Bernanke and Paulson. With markets failing and living standards declining, the hardships of this corrupted system will open many eyes to the promise of socialism: a world without exploitation and uncertainty. Case should decide whether he wants to join us.