Republicans attempt to destroy capitalism

Thursday's events were extraordinary. The Paulson administration had basically come to terms with the Democratic Congressional leadership on a bailout plan, agreeing to give up Paulson's demand for dictatorship over the economy and include funds for non-ultra-rich people to make the far larger funds for ultra-rich people more palatable. Then, at a meeting called to finalize the arrangement (or so the Paulson administration and Democrats thought), the Congressional Republicans proceeded to reject the whole framework in dramatic fashion - while John McCain sat silently by:

once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand. . . .

Thursday, in the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.

“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”

Mr. Paulson sighed. “I know. I know.”

Why would the Republicans do this? There are two explanations: because they really believe that the government shouldn't be involved so much in the economy, or because they're looking for short-term political advantage. The electoral advantages are obvious - a large majority of the country is opposed to the government bailout (55 percent vs 31 percent in favor).

But the changes that Republicans have demanded are revealing (tho completely unworkable), and they may actually believe their free market ideology. On September 18 over a hundred House Republicans wrote a letter to Paulson and Bernanke, arguing that “federal investment in such large amounts of private company stock has the appearance of a socialist and not a free market approach to managing our economy.” Representative Jeb Hensarling of Texas, speaking for many of his colleagues, referred to the bailout as “the road to socialism”. If only it were so!

This represents a stunning ignorance of the nature of both capitalism and authoritarian planned economies (which is what they actually mean when they say socialism) - an ignorance that could have disastrous consequences. Thruout the 20th century, “socialism” was the bogeyman of the American elite - but it was not a single thing. Rather, it was a polemical conflation of three things: the Soviet Union's threat to American global hegemony, the threat of workers to capitalists, and the inconvenience of government regulation and spending to capitalists' free pursuit of profits.

The first two problems were, in the end, solved thru a blood-drenched history of foreign intervention and labor repression. Both were real threats to the power of the economic elite over society and internationally. But the third issue is not a threat at all - it is a periodic necessity required by the crisis tendencies of capitalism itself.

Yet much of the right wing is incapable of analytically separating these three issues, and instead interpret the world thru this polemical slogan. Thus all government programs and interventions in the economy become “socialism”, and since socialism is the enemy of all that is true and just, it must be avoided at all costs.

This kind of thinking is what turned the crisis of 1929 into the Great Depression. For three years the Hoover administration, paralyzed by its laissez-faire ideology, refused to take the aggressive action necessary to mitigate the crisis. The result was nearly the destruction of capitalism.

We are unlikely to see a repeat of this disaster - the servants of capital in the government now have decades of experience with economic intervention to prevent the market economy from destroying itself, and agreement on the bailout now seems near. But we could be seeing the birth of a new right-wing myth of betrayal.

The right never forgave FDR for saving capitalism by using government spending to co-opt popular anger and stimulate the economy. Screaming "socialism" the whole way, they fought a bitter and mostly futile rear-guard battle against the emergence of the Fordist regime of accumulation (altho it is a tribute to their hysterical anticommunist campaigns that the United States remains the only rich country without universal government-provided or -guaranteed healthcare, itself a major drain on business). The resentment at their failure to reestablish the absolute freedom of capital combined with the major challenges to American supremacy and white privilege of the 1960s to fuel the rise of the right that we now suffer thru.

If the current crisis ushers in a new era of regulation and government spending, look for the right to cast the bailout as the moment that betrayed the promise of free markets to organize their utopia of inequality. This mythical association of market economics with individual freedom is the foundation upon which all rationalizations of inequality are based, and the rock upon which our attempts to deepen democracy and reduce social divisions have repeatedly been smashed. Of all the failures of the American left, the failure to counter this myth by spreading a realistic understanding of how capitalism works is perhaps the most fundamental.

Review: There Goes the Neighborhood

I've posted a review of There Goes the Neighborhood: Racial, Ethnic, and Class Tensions in Four Chicago Neighborhoods and Their Meaning for America (2006), by William Julius Wilson and Richard P. Taub, on Amazon. Chicago comrades might want to read it - it's not the greatest book, but you get a good idea of the diversity of the South Side as well as some classic examples of Chicago racism, and it's a fast read.

Capitalist disaster season is here once again

Five hundred years of capitalism has produced one crisis after another, an endless procession of violently deflating asset bubbles and horrific wars inextricably linked to competition over markets and resources. So it is frankly bizarre that, as the latest such crisis destroys massive amounts of wealth and threatens catastrophe to the entire world, mainstream American opinion lamely argues over whether lax regulation or the character flaws of securities traders and mortgage buyers are to blame. How many centuries marked by serious crisis every 30 years or so and punctuated by numerous smaller disasters will it take before we learn - capitalism creates devastating crisis by its very nature!

The state's role as guarantor of capitalism, as the only agency that can step in to prevent the system from destroying itself, is demonstrated anew with every crisis. What's really interesting is not this well-established phenomenon, but the cries of outrage against it. Libertarians squawk about the moral hazard of bailing out irresponsible financiers, who walk away from the disaster they created with millions of dollars apiece. This is a fascinating ideological subculture whose members actually take seriously the rationalizations used to justify the despotism and staggering inequalities required by market economies. The consistent application of their ideals would quickly destroy capitalism itself.

Liberals, meanwhile, decry the hypocrisy of a government that can come up with hundreds of billions of dollars on short notice to rescue rich people in trouble but which dismisses the everyday crisis of living poor in America as an individual problem. Don't liberals know by now? "Privatize the gains and socialize the pain" has always been the fundamental principle of free markets, and it really couldn't be any different.

The mistake of both groups is to conceptually separate the government from business. The capitalist state should be understood as fundamentally internal to the economic system, an institutional outgrowth of capitalism just as much as capital markets and commodities exchanges are. Capitalism could never function without the state to guarantee contracts, to make unprofitable investments that are necessary for commerce (especially building infrastructure and subsidizing transportation), to secure access to markets and raw materials within the system of global competition, and perhaps most important, to suppress - with violence if necessary - that discontent generated by the massive inequalities of wealth and power that markets create and to prevent the economy’s crisis tendencies from destroying the basis of accumulation. If you don’t like it, you have a problem with capitalism, not with the behavior of the government. Consider something different.

These are timeless truths for all market societies, but that doesn’t mean that capitalism always works exactly the same way. Far from it: capitalism is the most dynamic form of social organization - for both good and evil - that has ever been invented. Its periodic disasters and crises often require drastic changes to the process of accumulation, changes which then restructure the organization of society, power, and culture.

In The Condition of Postmodernity, David Harvey explains (pp. 119-197) that since World War II global capitalism has developed two separate “regimes of accumulation” - sets of rules and social relations that govern the operations of the economy. Emerging from the crisis of depression and war that nearly destroyed capitalism, the rulers of the economy had to make major concessions to save the system itself, leading to the economy-wide acceptance of Fordism. The Fordist economy was characterized by mutual restraint and cooperation on the part of both capital and labor - capital would provide stable jobs with good benefits and relatively low levels of abuse, and in exchange workers would accept the authoritarianism of the workplace and restrict their demands. The state oversaw the arrangement, maintained highly regulated domestic and international markets, and provided robust social insurance and collective services. Tied down by regulation, the finance sector retreated to unexciting tasks like taking deposits and making loans; making things rather than manipulating currency became the central focus of the economy, and large, cautious conglomerates became the most important players.

This arrangement provided high rates of growth and a stable basis for capitalist accumulation for 25 years. But in the end, the contradictions inherent in capitalism could not be overcome: the very productivity of Fordism doomed it as excess global capacity created by the full recovery of Deutschland/Germany and 日本/Japan and the industrialization of countries in Asia and Latin America ran up against the rigidities of the Fordist system. Combined with the oil shocks and the inflationary policies the USA pursued to address the emerging crisis, Fordism died a violent death. The stagflation of the 1970s, the severing of the dollar from gold, the collapse of the international system of fixed-rate currency exchanges, increasing diplomatic friction between the US and Japan - all flowed from the general crisis in the world economy.

To survive the crisis, business and the state joined forces to decimate the power of labor by attacking the unions and moving production wherever labor was highly repressed and exploited. The staid old conglomerates fared poorly, but smaller, more nimble companies forged ahead, pursuing new opportunities in technology, spectacle, and the exploitation of labor. The state’s role shifted from guaranteeing a stable and balanced (if still unequal) system to disciplining labor and tearing down the regulations inhibiting the flexibility that capital needed if it was to return to profitability. Freed at last, finance capital returned with a vengeance, and started down the path of reckless speculation that has culminated in the current crisis.

Harvey calls this new order “flexible accumulation”, and we can see its effects around the world in the neoliberal restructuring that has hit almost every country. Inequality has soared within societies as corporate executives and major investors - facing little resistance from devastated labor movements - have captured most of the increase in wealth. The government guarantee on basic human needs - education, healthcare, pensions, social insurance, public housing - has, where it existed, been eroded or eliminated. National boundaries have weakened, but in reaction to their weakening position many disadvantaged groups have turned to reactionary ideologies like religious fundamentalism and ethnic nationalism to organize resistance. Governments around the world, disciplined by the financial markets into austerity, have increasingly fallen behind on essential infrastructure investments and have failed utterly to address the impending climate crisis.

But all of that is irrelevant to capitalists - the important thing is whether they can continue making profits, and until the credit crisis there was no trouble on that score. But credit is the lifeblood of business, and unless the crisis eases up soon, even those whose business involves more than trading pieces of paper will have to seek new ways to survive. The question we confront is whether the shakeout will alter the ground rules that have sustained the neoliberal consensus, and how we might turn the situation to our advantage.