Getting Serious about Inequality

“The tenacity of the Yankees... is a result of their theoretical backwardness and their Anglo-Saxon contempt for all theory. They are punished for this by a superstitious belief in every philosophical and economic absurdity, by religious sectarianism, and by idiotic economic experiments, out of which, however, certain bourgeois cliques profit.” Frederich Engels, letter to Sorge, London, January 6, 1892. Translation by Leonard E. Mins (1938)

One hundred and twenty-two years later, the Yankees remain bereft of theory while clinging to every outlandish scheme promising to curtail the appetite of an insatiable capitalist system. Churning on without interruption, capitalism generates greater and greater wealth for its masters while devouring everyone else in its wake. From regulatory reform to alternative life styles, from tax policies to cooperative endeavors, self-proclaimed opponents of this rapacious economic behemoth have announced newly contrived exits from its destructive path. While “...people [in the US] must become conscious of their own social interests by making blunder upon blunder...” as Engels put it in another letter to his US friend Frederich Sorge, the contented capitalists merrily continue profiting.

Engels' brutal indictment of the North American allergy to theory and the affinity for unfocussed activism was tempered by an optimism based more upon hope than reality: “The movement itself will go through many and disagreeable phases, disagreeable particularly for those who live in the country and have to suffer them. But I am firmly convinced that things are now going ahead over there... notwithstanding the fact that the Americans will learn almost exclusively in practice for the time being, and not so much from theory.”

That conviction may well seem misplaced today as many of those who claim opposition to capitalism continue to decry theory and invest instead in utopian schemes and isolate burning issues from a general critique of capitalism and its social policies.

Nothing illustrates the Engels' diagnosis more than the current public discussion of inequality and poverty. It is tempting to call the new-found interest a fad or fashion, since it seems to spring from nothing more than a sitting President's alarm. But the present-day rage to address economic inequality is far more cynical. With interim national elections on the horizon and a competitive Presidential race on its heels, Democratic Party leaders served notice on the lame-duck President that it is time again to rouse the Party base, the labor unions, the progressive single-issue organizations, internet lefties, and the deep-pockets social liberals. Hence, despite the fact that inequality and poverty are neither newly discovered nor newly arrived, the alarm goes up: inequality is with us! Poverty is on the rise!

It is true, of course. Only a few outliers would deny that income and wealth growth for most people in the US have been stagnant or declining since some time in the 1970s (Even right-wing ideologue, Representative Paul Ryan, concedes that there are 47 million US citizens living in poverty). Health care has been in crisis, with millions left without any significant health options and untold numbers dying prematurely. The education system, like the physical infrastructure, is underfunded and crumbling. Employment continues to decline as discouraged workers exit the labor market. In short, poverty, disease, declining living standards, crime-- all the attendant problems of social and political neglect-- continue unabated, increasing dramatically over the last forty years.

At the same time, a privileged minority has enjoyed increasing income and wealth, a sharp rise in that group's share of the economic pie. As the economy marched forward, the “fortunate few” marched forward as well, but at an ever accelerating pace.

Without Theory

“Data, not stultifying political or ideological rhetoric, must drive our agenda.” So says rising Democratic Party superstar, Senator Cory Booker, in a newsprint debate with Republican policy icon, Representative Paul Ryan. Sponsored by The Wall Street Journal (A Half Century of the War on Poverty, 1-25/26-14) to commemorate the fiftieth anniversary of the Lyndon Johnson-era “War on Poverty,” the two contestants demonstrate the futility of addressing poverty without a broad and deep understanding of its sources and its history-- the “how” and “why” of social theory. Representing the “respectable” Left in the US two-party political pantomime, Booker rehearses a host of liberal think tank palliatives based on education, job training, apprenticeships, de-criminalized drug use, and a bare-bones safety-net designed to shrink the number of those unlucky enough to fall below official government floors.

Solutions, for Booker, come through the tools of business and commerce: investments, cost-benefit analysis, returns on investment, cost savings etc. Rather than improving peoples' lives, the task of reducing poverty resembles an MBA project of this new generation of Democratic Party politician. He draws on suspect, often out-of-date correlations once found between education levels and future economic outcomes to sell education as a magic elixir. These long unexamined verities are now shaken by the absence of good paying jobs, the declining worth of higher degrees, and the enormous growth of student debt. Booker's feeble defense of the leaky safety-net that remains as a tarnished legacy of the New Deal and Johnson's anti-poverty legislation centers on food stamps and Medicaid, a formula to barely sustain life, but to not escape poverty. Add a dash of Moynihan-like sermon against single-motherhood and you have the anti-poverty program of the new generation of Democratic Party leaders-- truly a patchwork of “economic absurdity” worthy of Engels' contempt.

As for the Republicans, they argue for nothing, only against Democratic Party plans. Theirs is a simple contention: Forty-seven million US citizens remain in poverty. While the “War on Poverty” may have shifted the victims of poverty demographically, the poor are still with us and in great, stubborn numbers. For Representative Ryan, charity and moral suasion-- the remedies of two centuries ago-- are the only alternative to liberal interventionism and its failure.

Now liberals will recoil from these harsh conclusions. They can and will point to significant pockets of improvement, temporary declines in the poverty rate, or promising social experiments. But what they can neither explain nor address is the persistent reproduction of poverty by our economic system. For nearly forty years, measures of income and wealth inequality have grown, signally an inevitable increase in poverty. Even those ill-disposed to theory can surely see a relationship between growing inequality and increasing poverty.

Glaringly absent from Booker's program is any significant plan to redistribute income and wealth. We can attribute that absence to the near complete ownership of elected officials of both parties by the corporations and the wealthy. But on the periphery of mainstream politics, voices can be heard advocating measures both to grow the economy beyond mass impoverishment and/or to redistribute wealth through taxation.

The Krugmans, Reichs, and Stiglitzs and the like enjoy a measure of independence afforded by their academic tenure and widely celebrated intellectual stature, allowing them to somewhat sidestep fealty to corporate masters. As esteemed economists, they understand that the continued growth of inequality will ultimately bring harsh economic or social consequences. But their nostrums, like those of the political establishment, only treat the symptoms of a persistent malady that continually generates inequality, unemployment, and crises. A study of economic history demonstrates that bursts of economic growth and progressive taxation have indeed tempered, even slightly reversed inequality and the growth of poverty, but over time both return to their former trajectory.

A Dose of Theory

A new study by a French economist, Thomas Piketty, brings forward the view that the long-term tendency of capitalism is to produce and reproduce inequality. Though his book, Capital in the Twenty-first Century, is not scheduled for release in the English language until March, it has already generated serious discussion across the spectrum of the US commentariat. New York Times columnist, Thomas B. Edsell, asserts that the book “suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality.” (Capitalism vs. Democracy, 1-28-2014)

How can that be? The liberal and social democratic consensus cries out for government spending, progressive taxation, and corporate regulation as the answer to growing inequality. A gaggle of Nobel laureates embrace these tools, attesting that they are effective means to combat inequality. What does Piketty see that they do not? 

History.

Piketty is not afraid to study the history of inequality, a necessary condition for any proper socioeconomic theory. What he finds, according to Edsell, is that:

...the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.

According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression.

In other words, growing inequality is the normal for capitalism and its shrinkage the aberration. Apologists would have us believe otherwise, that capitalism does not carry a gene for inequality. Unlike his Yankee counterparts, Piketty is willing to study the economy as a system-- capitalism-- and explore its historical trajectory. Both methodological dispositions give rise to a theory of inequality, an incomplete theory, but a theory no less.

Now Piketty and his frequent collaborator Emmanuel Saez are widely acknowledged to be among the leading experts documenting inequality world wide as well as in the US. Undoubtedly this gives a high plausibility to his core claim to identify a strong correlation between capitalism's typical course and the growth of inequality.

Of course students of Marxist theory or followers of this blog should not be surprised by Piketty's findings. For over a hundred and fifty years Marxists have maintained that inequality and impoverishment are necessary products of the capitalist system. That is, the logic of capitalism necessitates growing inequality. By locating profit at the heart of the capitalist organism, Marxists understand that wealth will invariably flow to the tiny minority of the owners of capital and away from the producers. It is this process of profit generation that overwhelms all barriers, all “reforms,” to channel society's resources to the capitalist class.

Piketty's argument is a welcome antidote to the paucity of explanatory theory presented by the liberal and social democratic punditry. The controversy stirred by Piketty's argument well before its English-language availability is a sure sign that he offers something beyond the conventional.

However, his interpretation of the long-term trajectory of capitalism, especially its departure from the norm, may be incomplete. He reportedly sees the time between 1914 and 1973-- a time when he claims that the growth of inequality was uncharacteristically retarded-- as a period when the after-tax rate of return on capital lagged behind economic growth. One could quibble that this is perhaps too simple and mechanical, the era was certainly one in which many factors worked to change the “normal” course of capitalism and often buffered the growth of inequality, together constituting a tendency.

But it would be a simplification to locate these factors entirely in economic or political events while overlooking policy. For example, throughout most of the twentieth century capitalism paid an anti-Soviet levy or rent to the working class as an inoculation against the threat of socialist or Communist ideology. That factor played no small part in moderating inequality, creating the mirage of working class equality, and ensuring labor peace.

Closer examination of Piketty's interesting thesis must await publication of the book.

For a Robust Theory of Inequality

We needn't wait for Piketty, however, to find an adequate theory of inequality. Elements of Karl Marx's theory of socioeconomic development offer the key to understanding the production and reproduction of inequality in our time as well as earlier times.

There are, of course, many possible causes for the concentration of wealth. Theft, good fortune, guile, dishonesty are only a few of the ways that humans have redistributed wealth since antiquity. Such causes occur often in history, but only haphazardly. The only systemic cause of inequality is the expropriation of the labor of one by another under the protection of social norms. Marx called this process exploitation. He was the first to identify its forms and its trajectory. He was the first to explain adequately the mechanisms of expropriation. Armed with Marx's theory of exploitation, the inequalities of slavery, feudalism, and, of course, capitalism are revealed with all their specific features. Thus, the concentration of wealth produced by expropriation of the labor of slaves, serfs, and employed workers is connected to unique socially protected forms of exploitation.

Exploitation explains how inequality arises and continues. Without recognition of this mechanism embedded in capitalist economic activity, liberals and social democrats cannot explain the persistence of inequality. They will apply inadequate reformist measures to stem the tide of wealth and income concentration springing from capitalist exploitation, but the tide will not be forestalled by reforms.

It cannot be overemphasized that inequality springs from a process, a process definitive of capitalist economic relations. Outside of the Marxist orbit, commentators view inequality as a state-of-affairs, a state-of-affairs existing between various social groupings. While they authentically decry the misery generated by inequality, they are at a loss to find the proper quantitative relationship between different groups constitutive of society. Sure, some have more than others, but what is the socially just distribution of society's goods? Granted that inequalities exist, what is the optimal way to assign shares of wealth? How much and for whom? Should everyone get an equal share? Should those on the bottom get a 10% larger share? 20%? These are the questions that perplex the non-Marxists.

The best answer from the best minds of Anglo-American social philosophy is a pretty nasty and unsatisfactory principle called Pareto efficiency. Rather than solving the inequality puzzle, Pareto efficiency justifies an unequal state-of-affairs provided that it does not diminish the well-being of others, including the least advantaged. Because of the theoretical intractability of settling on exactly what constitutes a just distribution of goods and services, modern bourgeois academic philosophers attempt to establish what would be the least objectionable, but unequal state-of-affairs. Nothing demonstrates the theoretical barrenness of Anglo-American social thought than this misguided, impossible task of determining distributive justice once and for all and for all times and places. There is no idealized state-of-affairs that could answer this question. The question itself is misguided.

Rather, in our time, the task of reducing inequality, of advancing distributive justice, is to eliminate exploitation. There can be no ideal, perfect solution to the inequality issue, but there is a way of eliminating the primary cause of indefensible inequality in a capitalist society: end labor exploitation.

Liberals and social democrats have no answer to the rightist challenge that workers today are immeasurably better off under capitalism than they were two hundred years ago. It is certainly true that most workers now live longer, are healthier, and have more free time than did their counterparts two centuries earlier. Marxist theory does not challenge that point. Instead, it asserts that the logic of the capitalist system tends to impoverish working people at all times. Whether capitalism succeeds in suppressing living standards is entirely a different matter. Other factors-- labor fight back, labor shortages, the cheapening of the means of subsistence, etc.-- may buffer, even overwhelm this tendency for a time, but the tendency never disappears.

The tendency towards impoverishment flows logically from the Marxist understanding that labor under capitalism is a commodity like any other commodity. Capitalists buy and sell the labor power of workers just as they do any other factor of production or distribution. And as with any other cost, they seek to pay the lowest possible price for it. Accordingly, the capitalist system, through the cost-cutting actions of individual capitalists (or corporations), is constantly pressuring the compensation of workers downward to levels of mere maintenance-- that is, poverty. The only systemic constraint upon that pressure is the necessity of securing labor in the future.

Therefore, we find in Marxism a basis for understanding (and addressing) inequality and poverty. Thanks to a theory that identifies the two closely related afflictions with specific historically evolved mechanisms and that connects their production and reproduction to economic systems, we can avoid the muddiness and ineffectiveness of the liberal and social democratic approaches. Both mystify the causes, offer a balm instead of a cure, and fail to halt the continuing reproduction of inequality and poverty. Like quacks and faith healers, liberals and social democrats may make the patient more comfortable, but only excising the cancer of capitalism will finally end the suffering.

Zoltan Zigedy

zoltanzigedy@gmail.com

Book Review: The Brothers-- John Foster Dulles, Allen Dulles, and Their Secret World War

In a different time, a time when we escape the cultural waste excreted by decadent capitalism, a time without Fast and Furious 23 and the abominable cable television mini-series Spartacus, some creative and capable filmmaker might make a fascinating bio-pic out of the lives of the Dulles brothers, Allen and John Foster. Until then, we must make do with a new biography of the important duo (The Brothers, Times Books, 2013) written by Stephen Kinzer, and another, hopefully soon-to-be-available book on the subject by David Talbot.

Kinzer's book gives a fascinating, but unsatisfying look at the lives of two public figures who wielded an unprecedented concentration of global power. For the better part of a decade-- from 1953 to 1959-- the two brothers together shaped nearly the entire US policy toward the rest of the world. As director of the Central Intelligence Agency, brother Allen decided the US clandestine activities toward friends and foes alike. At the same time, he shaped the extent and few limits of the newly founded agency.

Brother John Foster did the same for the US's overt role in the world. As President D. D. Eisenhower's Secretary of State from 1953 until Dulles's death in 1959, he served the same goals and interests as his brother.

The unusual circumstance of such complete and convergent power sharing was neither coincidental nor the result of a ruthless power grab. In fact, it was consensual.

But who gave the necessary consent? Certainly not the electorate, since neither brother held elected office. Nor was it the tacit consent of the public given Allen Dulles's secretive role and publicly unknown activities. The consent question can only be answered by positing the existence in the US of a mechanism capable of deciding questions of ultimate leadership, a mechanism that could entrust US foreign policy to these two long-groomed brothers. While we cannot be sure of who exactly operates this mechanism and how it specifically functions, we can be sure that it exists with the same certainty that we can affirm the unseen existence of gravity.

It should be equally obvious that the work of the Dulles brothers through their eight years of common leadership coincided broadly with the “interests” of the US as defined by the privately-held, corporately organized heights of the US economy. While their policies only occasionally directly benefited individual capitalists (usually former legal clients), their actions were decidedly intent on benefiting the capitalist class as a whole.

It is through this mechanism that the interests of the capitalist class are protected and promoted. It is, in the end, the way in which a ruling class rules. In the end, it constitutes the best Marxist evidence for the existence of a ruling class.

Ruling class-deniers are compelled to explain how the Dulles brothers came to enjoy such exceptional power precisely at a time when US elites felt most threatened by the specter of Communism. They must offer an alternative account that brings two imposing figures associated with power, wealth, and anti-Communism to the pinnacle of power outside of the bourgeois democratic process.

Kinzer, a reliable foot soldier in the New York Times corporate empire, does not hide the uniqueness and oddity of the ascent of the brothers. But he would certainly have nothing to do with the forbidden idea of a ruling class in the US.

Nonetheless, his account offers revealing hints about how the Dulles brothers were vetted and selected, how one qualifies to be trusted agents for ruling class interests.

As early as 1921, the Dulles brothers participated in the creation of an important part of the mechanism of capitalist class rule: The Council on Foreign Relations and its subsequent public discussion journal, Foreign Affairs. To this day, the Council and its publication remain essential elements in crafting and debating foreign policy options congruent with the interests of capital.

Armed with Ivy League, foreign policy and clandestine service credentials, the Dulles brothers easily passed through the filters of ruling class trust. For John Foster, this brought him to the law firm of Sullivan and Cromwell, perhaps the leading legal agent for the international interests of US capital at the time. While rising to the top of the firm, the elder Foster ensured that US corporations, especially financial firms, were advanced and protected overseas. Kinzer recounts how the law firm could always call on the US military to back up its deal making. Moreover, he doesn't hide the close, welcoming relationship of Sullivan and Cromwell with fascist regimes. Even in the inter-war period, Foster was obsessed with forging unity with any enemies of Communism. Like the Council on Foreign Affairs, Sullivan and Cromwell was another component of the ruling class mechanism. Allen worked for the firm as well.

With much of the history of the ruthless, violent, and undemocratic trajectory of US foreign policy in the 1950s now widely acknowledged, Kinzer cannot mask the devious and bloody role of the brothers in orchestrating it. Instead, he does a shrewd job of softening it by focusing on only six covert plots against foreign “monsters” perceived as standing in the way of US interests. The six-- Iran's Mossadegh, Guatemala's Arbenz, Vietnam's Ho Chi Minh, Indonesia's Sukharno, Congo's Lumumba, and Cuba's Fidel-- are specifically targeted by the Dulles brothers for having the audacity to defy the US. All six cases are well-documented independently, with the Sukharno case the least well-known (Kinzer fails to fully indict the CIA in its collaboration in assassinating a million Indonesian Communists and their allies).

This spin on CIA extra-legal killings, coups, and assassination attempts feeds a simple-minded psychological explanation of the Dulles disposition to rearrange the world to suit US capital. Drawing on a bizarre interpretation of the celebrated movie, High Noon, Kinzer paints the Dulles brothers as counterparts to the cowboy hero “...reluctant to fight, but moved to do so because otherwise good people will suffer.” What makes this particular allusion so twisted is that the screenwriter, Carl Foreman, intended the film to be a less-than-veiled attack on the cowardice of those lacking the spine to confront anti-Communist blacklisting and McCarthyism. What was meant as an attack on the Cold War mentality is converted by Kinzer into an excuse for that Cold War mentality. Oddly, many right wingers see High Noon as Kinzer does. But the old loud-mouthed red-baiter, John Wayne, knew better-- he refused the lead because he smelled an anti-blacklist allegory.

Kinzer postures his account as a study of an aberration, a time when well-meaning people did some now embarrassing things because they exaggerated the Soviet threat. But none of these postures are proven by Kinzer; they are merely stated as fact. There seems no good reason to view two Cold Warriors as well-meaning when they brought the world to the brink of nuclear war and caused the deaths of literally millions. There is no compelling reason to conclude that there really was a Soviet threat to the security of the US, unless one assumes the Soviet desire for world socialism was somehow more intrinsically aggressive than the US desire for a capitalist world. But posturing the Dulles's foreign policy as an aberration is preposterous. The aggressiveness of the CIA and the US military after the reign of the brothers only intensified. Kinzer surely can't be blind to the US interventions in Vietnam, Angola, Panama, Grenada, Chile, and right up to the more recent aggressions against Afghanistan, Iraq, Libya, Yugoslavia, and Syria. The Dulles brothers provided a blue print and not an aberration.

So why does a distinguished writer for The New York Times writing for Times Books choose to write a critical, but sympathetic biography of these two ruthless Cold Warriors?

One finds the answer in the final chapter. Kinzer quotes Senator William Fulbright, an often lonely critic of the Fosters and US foreign policy, as saying that John Foster “misleads public opinion, confuses it, [and] feeds it pap.” But if Dulles fed the public “pap,” he did it through the intermediary of the US news media, including The New York Times. It is transparently obvious that the media of the Dulles era not only failed to challenge the Dulles world view but actively promoted and disseminated it. In that regard, Kinzer's employer is complicit in fanning the flames of Cold War fervor and sanctioning the violence and lawlessness that emerged from it.

To escape this unpleasant judgment on the Cold War media, Kinzer finds a convenient, handy scapegoat: the US public. Amidst splashes of psycho-babble, Kinzer explains:

Part of the answer lies in their personal backgrounds, part in the realm of psychology. The most important explanation, however, may be: they did it because they are us. If they were shortsighted, open to violence, and blind to the subtle realities of the world, it was because these qualities help define American foreign policy and the United States itself.

The Dulles brothers personified ideals and traits that many Americans shared during the 1950s, and still share... they embodied the national ethos. What they wanted, Americans wanted.

In all of this, the Dulles brothers were one with their fellow Americans. Their attitudes were rooted in the American character. They were pure products of the United States.

Now this is a shabby, dishonest piece of writing. Their “fellow Americans”-- millions of ordinary people-- were not like the Dulles brothers. They were not privileged Ivy League graduates born in the midst of the elite of the elites. Nor is it fair to the millions of US citizens who never had the opportunity to walk the path or through the doors open to the brothers to say that these citizens were “shortsighted,” “open to violence,” or “blind to subtle realities.” Certainly millions of their fellow citizens unwisely trusted these pillars of high society to not succumb to these character flaws. They were betrayed, just as they were betrayed by a compliant, cowardly media.

In his tortured finale, Kinzer persists in excusing the brothers and their Cold War enablers, the media. To his credit, he recognizes some of the great harm incurred on their watch; to his shame, he places the blame at the doorstep of the US public: “The blame, however, does not end with them. To gaze at their portraits and think, 'They did it,' would be reassuring. It would also be unfair. Americans who seek to understand the roots of their country's trouble in the world should look not at Foster and Allen's portraits but in a mirror.”

Kinzer would like us to believe that we collectively bear the blame for despicable deeds that were done behind our backs and without our consent, deeds that a compliant media, including his patron, The New York Times, were only too eager to ignore, distort, and approve.

Following Kinzer's logic, the public is responsible for the hyper-spying of the NSA so recently revealed by Snowden. The fact that it was kept from public scrutiny by the government and the media matters not. If we are indignant over authorities collecting our phone calls and other electronic communications, we should look “in a mirror” and accept the blame.

Of course this is ridiculous.

Kinzer serves a cold dish of obfuscation and blame-deflection with his book, The Brothers: John Foster Dulles, Allen Dulles, and their Secret World War. Readers should be wary of this calculated apology for imperialism and its high commanders. There is little new in Kinzer's account apart from some anecdotal hi-jinks. And much of the ugly side of US foreign policy is omitted. There is no indictment of an enthusiastically collaborative Cold War media either, only an embarrassing silence about their role.

Stephen Kinzer's patrons will be happy.

Zoltan Zigedy

zoltanzigedy@gmail.com

Cooperatives: A Cure for Capitalism?

Co-ops-- cooperative economic enterprises-- have been embraced by significant groups of people at different times and places. Their attraction precedes the heyday of industrial capitalism by offering a means to consolidate small producers and take advantage of economies of scale, shared risk, and common gain.

At the advent of the industrial era, cooperatives were one of many competing solutions offered to ameliorate the plight of the emerging proletariat. Social engineers like Robert Owen experimented with cooperative enterprises and communities.

In the era of mass socialist parties and socialist construction, cooperatives were considered as intermediate steps to make the transition from feudal agrarian production towards socialist relations of production.

Under the capitalist mode of production, co-ops have filled both employment and consumption niches deferred by large scale capitalist production. Economic activities offering insufficient profitability or growth have become targets for cooperative enterprise.

In theory, cooperatives may offer advantages to both workers and consumers. Workers are thought to benefit because the profits that are expropriated by non-workers in the capitalist mode of production are shared by the workforce in a cooperative enterprise (less the present and anticipated operating expenses and investments, of course). Many argue as well that the working conditions are necessarily improved since workplace decisions are arrived at democratically absent the lash associated with the profit-mania of alienated ownership (though little attention is paid to the consequences for productivity and competitiveness against capitalist enterprises).

Consumers are said to benefit when they collectively appropriate the retail functions normally assumed by privately owned, profit-driven outlets. Benefit comes, on this view, by purchasing from wholesale suppliers, collectively meeting the labor requirements of distribution, and enjoying the cost-savings from avoiding a product markup (little attention is paid to limitations on participation dictated by class, race, or gender; the wholesale quantity discounts enjoyed by capitalist chains are also conveniently overlooked).

A case can also be made for the cooperator's dedication to quality, safety, and health- promotion.

In reality, cooperatives in the US are largely indistinguishable from small businesses. Like small private businesses, they employ few people and rely heavily upon “sweat equity” for capitalization. Like other small businesses, US cooperatives operate on the periphery of the US economy, apart from the huge monopoly capitalist firms in manufacturing, service, and finance.

Cooperatives as a Political Program

Since the demise of the Soviet Union and Eastern European socialism, many on the US Left have rummaged for a new approach to the inequalities and injustices that accompany capitalism. Where more than a decade of anti-Communist purges had wrung nearly all vestiges of socialist sympathy from the US psyche, the fall of the ludicrously-named “Iron Curtain” found Leftists further distancing themselves from Marxian socialism. Hastily interning the idea of socialism, they reached for other answers.

It is unclear whether this retreat was actually a search for a different anti-capitalist path or, in reality, grasping an opportunity to say farewell to socialism.

In recent years, several Leftists, “neo-Marxists”, or fallen Marxists have advocated cooperatives as an anti-capitalist program. Leading advocates include the Dollars and Sense collective centered around the University of Massachusetts, Amherst, GEO (Grassroots Economic Organizing), Professor Gar Alperovitz, Labor Notes, United Steel Workers of America, and media Marxist-du-jour, Professor Richard Wolff. Some are organizing around the idea of a “New Economy” or a “Solidarity Economy”, with cooperative enterprises as a centerpiece.

Now coops are not foreign to Marxist theory. After World War I, the Italian government sought to transfer ownership of unused land from big estates, latifondi, on to peasants, especially veterans. As much as 800,000 hectares were thus passed on to poor peasants. Through this process and land seizures, the number of smallholders increased dramatically. Socialists and Communists urged the consolidation of these holdings into collectives, agricultural cooperatives. Certainly more than 150,000 hectares ended up in cooperatives. In those circumstances, the rationale was to increase the productivity, to save the costs, to enhance the efficiency of peasant agriculture in order to compete with the large private estates. Cooperatives were not seen as an alternative to socialism, but a rational step away from near feudal production relations toward socialism, a transitional stage.

Likewise, in the early years of the Soviet Union, Communists sought to improve small-scale peasant production by organizing the countryside into collective farms, producers' cooperatives. They saw cooperative arrangements as rationalizing production and, therefore, freeing millions from the tedium and grind of subsistence farming and integrating them into industrial production. Through mechanization and division of labor, they expected efficiency and productivity to grow dramatically, speeding development and paving the way for socialism.

Again, cooperative enterprises counted as an intermediary for moving towards socialist relations of production. Thus, Marxists see the organization of cooperatives as a historically useful bridge between rural backwardness and socialism.

But modern day proponents of cooperatives see them differently.

“The 'evolutionary reconstructive' approach is a form of change different not only from traditional reform, but different, too, from traditional theories of 'revolution'” says Gar Alperovitz of cooperatives and other elements of the “Solidarity Economy” (America beyond Capitalism, Dollars and Sense, Nov/Dec, 2011). Like most proponents, Alperovitz sees cooperatives as pioneering a “third way” between liberal reformism and socialist revolution. However, a minority of advocates (Bowman and Stone, “How Coops can Change the World”, D&S, Sept/Oct, 1998, for example) see cooperatives as the “best first step towards that goal [of a planned, democratic world economy]. They suggest that the correct road is through “spreading workplace democracy” and on to socialism.

Whether postured as a “third way” or a step towards socialism, it is difficult to get a clear picture of the extent and success of the cooperative movement; it is equally challenging to gather a sense of how it is suppose to function in a capitalist economy.

As for numbers, Alperovitz (“America beyond Capitalism”, D&S, Nov/Dec, 2011) muddies the waters by citing the numbers of “community development corporations” and “non-profits” (Alperovitz, 2011) as somehow strengthening the case for cooperatives. The fact that community development corporations have wrested control of neighborhoods from old-guard community and neighborhood groups and embraced developers and gentrification causes him no distress. Of course “non-profits” count as an even more dubious expression of a solidarity economy. In a city like Pittsburgh, PA, mega-non-profits remove 40% of the assessed property from the tax rolls. These non-profits not only evade taxes, but divide enormous “surpluses” among super-salaried executives. They beggar funding from tax shelter trusts and endowment funds, completing the circle of wink-and-a-nod tax evasion. Of course there are, as well, thousands of “non-profits” that pursue noble goals and operate on a shoestring.

Alperovitz alludes to credit unions as perhaps sharing the spirit of cooperation without noting the steady evolution of these once “third way” institutions towards a capitalist business model. Insurance companies also share this evolution, but they are too far down this path of transition to capitalist enterprise to be credibly cited by Alperovitz.

Alperovitz leaves us with “...11,000 other businesses that are owned in whole or part by their employees.” In this slippery total of whole or partial worker ownership are included ESOPs-- Employee Stock Ownership Programs, a touted solution to the plant closing surge that ripped through the Midwest in the 1980s. Alperovitz pressed vigorously for ESOPs in the steel industry in the 1980s as he does cooperatives today. When asked to sum up their track record, one sympathetic consultant, when pressed, said: “I don't think its been a real good record of success. Some have actually failed...” (Mike Locker, “Democracy in Steel?”, D&S, Sept/Oct, 1998). But we get no firm number for cooperatives in the US.

Another advocacy group for cooperatives gave a more candid picture of the cooperative movement in the Sept/Oct, 1998 issue of Dollars and Sense (“ESOPS and Coops”). A study by the Southern Appalachian Cooperative Organization claimed that there were 154 worker-owned cooperatives employing 6,545 members in the US. In sixty percent of the 154, all workers were owners. Median annual sales were $500,000 and 75 percent had 50 or fewer workers. Twenty-nine percent of the coops were retail, twenty-eight percent were small manufacturing, and twenty-three per cent food related businesses.

Interestingly, the same article claims that there were approximately 11,000 ESOPs in 1988 (source: National Center of Employee Ownership). If we take Alperovitz's 2011 claim seriously, there has been little growth in the ensuing thirteen years of “...businesses that are owned in whole or part by their employees...”.

From this profile, we can conclude that cooperatives in the US are essentially small businesses accounting for a tiny portion of the tens of millions of firms employing less than 50 employees. As such, they compete against the small service sector and niche manufacturing businesses that operate on the periphery of monopoly capitalism. Insofar as they pose a threat to capitalism, they only threaten the other small-scale and family owned businesses that struggle against the tide of price cutting, media marketing, and heavy promotion generated by monopoly chains and low-wage production. They share the lack of capital and leverage with their private sector counterparts. Cooperatives swim against the tide of monopolization and acquisition that have virtually destroyed the mom and pop store and the neighborhood business.

Some of the more clear-headed advocates acknowledge this reality. Betsy Bowman and Bob Stone concede the point: “...Marx argued in 1864 that capitalists' political power would counteract any gains that coops might make. This has proven true! When capitalists have felt threatened by cooperatives, they have conducted economic war against coops by smear campaigns, supplier boycotts, sabotage, and, especially, denying credit to them.” (Bowman and Stone, D&S, Sept/Oct, 1998).

Mondragon

Until recently, cooperators and their advocates had one very large arrow in their quiver.

When pressed on the apparent weakness of cooperatives as an anti-capitalist strategy, they would counter loudly: “Mondragon!”.

This large-scale network of over 100 cooperative enterprises based in Spain seemed to defy the criticisms of the cooperative alternative. With 80,000 or more worker-owners, billions of Euros in assets and 14 billion Euros in revenue last year, Mondragon was the shining star of the cooperative movement, the lodestone for the advocates of the global cooperative program.

But then in October, appliance maker Fagor Electrodomesticos, one of Mondragon's key cooperatives, closed with over a billion dollars of debt and putting 5500 people out of work. Worker-employees lost their savings invested in the firm. Mondragon's largest cooperative, the supermarket group Eroski, also owes creditors 2.5 billion Euros. Because the network is so interlocked, these setbacks pose long term threats to the entire system. As one worker, Juan Antonio Talledo, is quoted in The Wall Street Journal (“Recession Frays Ties at Spain's Co-ops”, December 26, 2013): “This is our Lehman moment.”

It is indeed a “Lehman moment”. And like the Lehman Bros banking meltdown in September of 2008, it makes a Lehman-like point. Large scale enterprises, even of the size of Mondragon and organized on a cooperative basis, are susceptible to the high winds of global capitalist crisis. Cooperative organization offers no immunity to the systemic problems that face all enterprises in a capitalist environment. That is why a cooperative solution cannot constitute a viable alternative to capitalism. That is why an island of worker-ownership surrounded by a violent sea of capitalism is unsustainable.

The failures at Mondragon have sent advocates to the wood shed (see www.geonewsletter.org). Leading theoretical light, Gar Alperovitz, has written in response to the Mondragon blues: “Mondragón's primary emphasis has been on effective and efficient competition. But what do you do when you are up against a global economic recession, on the one hand, or radical cost challenges from Chinese and other low-cost producers, on the other?”

What do you do? Shouldn't someone have thought of that before they offered a road map towards a “third way”? Are “global economic recessions” uncommon? Is low cost production new? And blaming the Chinese is simply unprincipled scapegoating.

Alperovitz goes on: “The question of interest, however - and especially to the degree we begin to face the question of what to do about larger industry - is whether trusting in open market competition is a sufficient answer to the problem of longer-term systemic design.” Clear away the verbal foliage and Alperovitz is admitting that he never anticipated that open market competition would snag Mondragon. Did he think that Fagor sold appliances outside of the market? Did he think that Mondragon somehow got a free pass in global competition?

Of course the big losers are the workers who have lost their jobs and savings. It would be mistaken to blame the earnest organizers or idealistic cooperators who sincerely sought to make a better, more socially just workplace. They gambled on a project and lost. Of course social justice should not be a gamble.

The same sympathy cannot be shown for those continuing to tout cooperatives as an alternative to capitalism. If you want to open small businesses (organized as cooperatives), be my guest! But please don't tell me and others that it's somehow a path beyond capitalism.

Comrades and friends: It's impossible to be anti-capitalist without being pro-socialist!

Zoltan Zigedy

zoltanzigedy@gmail.com

Looking Back: Five Years after the Obama Election

By 2008, the US electorate was fed up with George Bush. In fact, the US ruling class was fed up, too. Internationally, US prestige was at a low point, thanks to the Bush administration's brazen and failed military aggressions. Domestically, the bottom had fallen out of the US economy. It was time for him to go. His failings cast a shadow over the system's legitimacy.

Anyone with even a passing understanding of US history understood that “regime change” was in the cards. That is, it was the moment for the two-party juggernaut to spit out a fresh face untainted by the previous administration, vigorous, and promising a new direction. It was essential that new leadership appear different, self-confident, and representative of policies contrasting with the old regime.

We saw this before.

Franklin Roosevelt was such a figure. He came forward as a clean, untainted alternative to the failed Hoover administration. Disgust with Hoover was so great, that merely by avoiding large, looming issues, FDR was able to capture the Presidency with a virtual carte blanche to rescue the sinking capitalist economy. Yet he was, as a leading commentator of the time, Walter Lippmann, observed before Roosevelt's election, “... an amiable man with many philanthropic impulses, but he is not the dangerous enemy of anything. He is too eager to please.... Franklin D. Roosevelt is no crusader. He is no tribune of the people. He is no enemy of entrenched privilege. He is a pleasant man who, without any important qualifications for the office, would very much like to be President." All historians agree that Roosevelt was, first and foremost, practical. If policies worked or were popular, he supported them.

Over time, a myth arose that Roosevelt was a savior, a messianic figure who arose and smote the rich and powerful. Those who organized the bonus marches, the unemployment councils, the general strikes, the tenant and share cropper actions of the Depression era, like those who built the industrial unions that made up the powerful CIO, were swept under the historical rug. Acknowledging that they were the source or driving force for New Deal reforms was an inconvenient truth. That said, Roosevelt's pragmatism, his respect for new ideas in desperate times, marked him as an uncommon political leader.

The New Deal myth sustained the Democratic Party for decades, even though Party leaders began a retreat from the New Deal upon Roosevelt's death. After 1944, the “New Deal” label fell into disuse as both political Parties rallied around anti-Communism and a relatively benign social compact. Political leaders willingly conceded a modest social contract with labor for cooperation in the anti-Communist campaign and business unionism.

Anti-Communist excesses (so-called “McCarthyism”), overt and institutional racism (segregation), setbacks in foreign policy (Cuba, the U-2) tarnished the US reputation internationally and stirred discontent at home by the end of the 1950s.

Once again, a new face, representing religious diversity, youth, cosmopolitan life style, and change, emerged as an alternative. John Kennedy, like FDR, injected vigor into a two-party landscape driven by the now dominant medium of television. Again regime change was in order and the appearance of regime change was achieved. Despite the mythology of the Kennedy Camelot-- and sealed by his assassination-- Kennedy's administration was ruled by the continuation of the Cold War and lip-service to domestic discontent. While some opportunistic adjustments were forced on his administration, Kennedy largely sought to construct a more compassionate, tolerant face to US capitalism; his assassination obviously shows that this was not acceptable to many important, powerful members of the old club.

Months after the Kennedy assassination, left pundit I.F. Stone captured Kennedy's role: “ ...Kennedy, when the tinsel was stripped away, was a conventional leader, no more than an enlightened conservative, cautious as an old man for all his youth, with a basic distrust of the people and an astringent view of the evangelical as a tool of leadership.”

Less than a decade later, with the criminal implosion of the Nixon administration, the credibility of the US political system was undermined. Resignations, criminal charges and Impeachment bred an unprecedented cynicism and challenge to two-party legitimacy.

A fresh face entered from the wings: Jimmy Carter, neither a Senator nor a corporate attorney, but an obscure Southern Governor and a peanut farmer. Like Roosevelt, Carter brought a fresh, unstained image to the political game, a much-needed contrast to the sleaze of his predecessors.

I wrote in 2008 of the 1976 election: “Most citizens looked to the then forthcoming elections with a profound desire for a new course. The Democrats chose a political outsider, Governor Jimmy Carter of Georgia. Carter promised to make the government 'as good as the people.' Pundits hailed Carter as a departure from the old politics and a fresh, honest voice for change (e.g. The Miracle of Jimmy Carter, Howard Norton and Bob Slosser, 1976).”

I went on to note that Carter proved to be a prophet of false hope and absent change. He quickly turned his back on the most progressive Democratic platform since the New Deal and ushered in economic policies that were soon to be dubbed “Reaganomics.”

It was this historical backdrop that prompted me to suggest that candidate Barack Obama might well be another postured savior at a moment of crisis in the two-Party system, a carefully crafted, groomed alternative to a bumbling, embarrassing regime.

There are some striking and illuminating parallels between this election season and the Presidential election campaign of 1976... Like the eight years of the Bush administration, the eight years of Nixon/Ford produced an unparalleled collapse of support for the Republican Party. The Watergate scandal coupled with the failure of the US military in Vietnam and an economic crisis left the Republican Party wounded and regrouping.

Similar to 1976 Presidential candidate J. Carter, his presumptive 2008 counterpart, Barack Obama, is viewed as a Washington “outsider”. He has campaigned as a candidate of change. Pundits hail him as a fresh voice untainted by the vices of the establishment.

Obama must contend with similar issues: a brutal military adventure, collapsing mass living standards, and an economy exhibiting more and more of the symptoms of “stagflation.” Like Carter, his campaign is geared to appealing to the mass base of the Democratic Party: the working class, liberals, and African-Americans. His campaign strategists will likely recommend - as Carter’s advisors did - that the candidate tack to the right to garner center-right and independent votes going into the general election. Every Democratic Party Presidential candidate since has employed a similar strategy. Despite this maneuver, Carter managed to lose his huge lead in the polls and eke out a narrow victory in the November election. Nonetheless, this failed approach continues to seduce Democratic Party tacticians. (ZZ, 2008: A Reprise of 1976? Fall, 2008)

Obama represented a constant of modern US politics: political crisis or threat to legitimacy spawning a face-lift, cosmetic changes, and a re-kindling of “hope” and “change” in the form of a vigorous, youthful, well-spoken Democrat. And Obama, as an African American, had the special appeal of breaking through racial barriers and perhaps sharing some common sensibilities with diverse peoples outside of the US.

While contemporary history taught that appearance generally belied actual change, liberals and most of the US Left succumbed to the allure, putting aside their picket signs, marching shoes, and petitions to open their pocketbooks and enthusiasm to the Obama campaign.

With the November, 2008 victory under his belt, Obama's unprecedented campaign contributions from the financial sector, his lame, discredited cabinet appointees, and his blatant, shameless, scandalizing of his home-town pastor, Reverend Wright, left the adoring Left unfazed.

By fitting Obama with the mantle of progressive change, the leadership of the broad left - much of the peace movement, liberals, environmental social justice activists, etc. - surrendered their critical judgment, independence, and influence to a blind trust in a fictitious movement for change. In the history of social change in the US, every real advance was spurred by independent organization and struggle, unhampered by the niceties of bourgeois politics. From the Abolitionist movement to the Civil Rights movement, from the Populist movement to the Great Society, from the Anti-imperialist League to the Anti-Vietnam War movement, the initiative for change sprung from committed, independent activists who defied the caution and inertia of elected officials. Why have these lessons been ignored? (ZZ, Let Obama be Obama? December 29, 2008)

Yet everyone from the Hollywood liberal set to the Communist Party USA hailed Obama as the Second-coming of FDR, if not Lincoln.

Over the top, but representative of the self-delusional moment, one hopped-up “progressive” wrote in a widely disseminated 19-page homage to the election of Barack Obama: "...hundreds of millions-Black, Latino, Asian, Native-American and white, men and women, young and old, literally danced in the streets and wept with joy, celebrating an achievement of a dramatic milestone in a 400-year struggle, and anticipating a new period of hope and possibility."

Leaving aside the hyperbole (less than 130 million people voted for BOTH candidates and 400 years takes us back to well-before there was a USA), this screed correctly captured the unjustified euphoria that swept through the Left.

Seemingly, every generation of the Left surrenders to the false hope of the Democratic Party; every generation repeats the same mistake.

Tragedy? Farce?

Today, the Obama administration owns the betrayal of the EFCA promise to labor, an untenable healthcare system borrowed from Mitt Romney, 800 hundred deaths a month in the failed state of Iraq, an Afghani nation that may kick the US military out before it plans to leave, the destabilization of Libya and Syria, a broken promise on Guantanamo, widening income and wealth gaps, crumbling infrastructures, a host of unfulfilled promises, a legacy of corporate coddling, and cowardly and illegal (drone) murders. The shattering of a racial barrier-- the election of the first African American President-- has shamefully served to cover the criminal neglect and decline of the well-being of African Americans.

And everyone knows it. In 2013 alone, Obama's approval rating dropped nine points to 43%; the percentage believing that Obama is honest and straightforward has dropped ten points to 37%.

And this is the candidate embraced by the broad Left in 2008?

With three years left-- two years before the 2016 Presidential campaign begins in earnest-- Democratic Party influentials are pressing Obama to establish some kind of legacy to energize the base, to charge up the “respectable” Left and labor for future elections. As a lame-duck, he will likely make numerous gestures towards the social, life-style issues valued by the upper-middle strata-- the petty-bourgeoisie. There may even be a highly publicized, but feeble attempt to raise the minimum wage. But expect no serious changes in ruling class foreign or economic policy. Liberals have demonstrated that they will not hold elected Democrats to any promises on these questions.

Will this herd the sheep-like liberals and soft-Left back into the fold? Will they repeat again the slavish loyalty of the past? Will they drink the Kool-aid?

Or will people finally recognize the Democratic Party trap and begin to construct a movement towards independent politics, perhaps rallying around Jill Stein and the Green Party? Will there be a long overdue departure from bankrupt ideology and shameless opportunism? Will the idea of people power and the companion notion of socialism take root?

We have a new year to find out...

Zoltan Zigedy

zoltanzigedy@gmail.com

Looking Back on Five Years of Economic Turmoil: Heart Burn or Heart Attack?

When significant US economic markets went haywire in the summer and fall of 2008, a fear, even panic, struck those charged with developing and implementing economic policy. The prevailing thinking-- unbridled capitalism with near-religious confidence in market mechanisms-- appeared to be in irreversible retreat.

The housing market cooled, home values shrank, and the financial structure built around home ownership began to collapse. As the stock market fell freely from previous highs, led by the implosion of bank stocks, investors withdrew dramatically from the market. Credit froze and consumption slowed. Thus began a downward spiral of employee layoffs, reduced consumption, capital hoarding, and retarded growth, followed by more layoffs, etc. etc.

As fear set in, policy makers scrambled to find an answer to a crisis that threatened to deepen and spread to the far reaches of the global economy. With interest rates near zero, they recognized that the monetarist toolbox, in use since the Carter administration, offered no answer.

At the end of the Bush administration, bi-partisan leaders approved the injection of hundreds of billions of public dollars into the financial system with the hope of stabilizing the collapsing market value of banks, a move popularly dubbed a “bailout.”

Early in the Obama administration, Democratic Party administrators crafted another recovery program totaling about three-quarters of a trillion dollars, a program involving a mix of tax cuts, public-private infrastructure projects, and expanded direct relief. Economists generally viewed this effort as a “stimulus” program designed to trigger a burst of economic activity to jump-start a stalled economic engine. Dollar estimates of aggregate US Federal bailouts and stimuli meant to overcome the crisis rose as high as the value of one year's Gross Domestic Product in the early years after the initial free fall. The Federal Reserve continues to offer a $75 billion transfusion every month into the veins of the yet ailing US economy.

Bad Faith

The last three decades of the twentieth century brought forth a new economic consensus of not merely market primacy, but total market governance of economic life. Regulation of markets was believed to destabilize markets and not correct them. Public ownership and public services were seen as inefficient and untenable holdouts from market forces. Public and private life beyond the economic universe were subjected to markets, measured by market mechanisms, and analyzed through the lens of market-thought. Indeed, market-speak became the lingua franca unifying all of the social sciences and humanities in this era. With the fall of the Soviet Union, capital and its profit-driven processes penetrated every corner of the world. Only independent, anti-imperialist, market-wary movements like those led by Hugo Chavez, Evo Morales, and a few others gained some political success against the unprecedented global dominance of private ownership and market mechanisms.

While capitalism in its most unadorned, aggressive form enjoyed the moments of triumph, forces were at play undermining that celebration. Those forces crashed the party in 2000 in the form of a serious economic downturn, the so-called “Dot-com Recession” featuring a $5 trillion stock market value loss and the disappearance of millions of jobs. Economists marveled at how slowly the jobs were returning before the US and global economy were hit with another, more powerful blow in 2008. Clearly, the first decade of the twenty-first century will be remembered as one of economic crisis and uncertainty, a turmoil that continues to this day.

Apart from the human toll-- millions of lost jobs, poverty, homelessness, lost opportunities, destruction of personal wealth-- the crisis-ridden twenty-first century challenged the prevailing orthodoxy of unfettered markets and private ownership. Even such solid and fervent advocates of that orthodoxy as the Wall Street Journal, The Economist, and The Times were rocked by the crisis, questioning the soundness of classical economic principles. No principle is more dear and essential for the free marketeers than the idea that markets are self-correcting. While there may be short-term economic imbalances or downturns, free-market advocates believe that market movement always tends towards balance and expansion in the long run. Thus, a persistent, long term stagnation or decline is thought to be virtually impossible (with the caveat that there are no restrictions imposed on the market mechanism).

So when perhaps the greatest era of extensive global open-market economy experienced the most catastrophic economic collapse since the Great Depression, serious doubts arose about the fundamental tenets of market ideology. And during the darkest days of 2008 and 2009, a veritable ideological panic swept over pundits and experts of the Right and the “respectable” Left. Some rehabilitated an out-of-fashion economist and spoke of a “Minsky moment.” Liberals proclaimed the death of neo-liberalism (the popular term for the return to respectability of classical economics that began in the late 1970s). And still others foresaw a restoration of the interventionist economics represented by John Maynard Keynes, the economic theories that guided the capitalist economy through most of the post-war period. Even the most conservative economists conceded that market oversight, if not regulation, was both necessary and forthcoming.

Yet, change has not come forth. Despite over five years of decline and stagnation, despite a continued failure of markets to self-correct, free-market ideology continues to dominate both thinking and policy, clearly more faith-based than reality-based. In part, the resilience of open-market philosophy emanates from the shrewd manufacture of debt-fear by politicians and debt-mongering by financial institutions. By raising the shrill cry of exploding debt and impending doom, attention was diverted from the failings of the unfettered market and towards government austerity and massive debt reduction.

Diagnosis?

Clearly all the Nobel Prize-winning mathematical economic models thought to capture economic activity failed to predict and explain the 2008 crash. No amount of faith could disguise the monumental failure of raw, unregulated markets and the policies that promoted them. Two competing, sharply contrasting, and simplistic explanations came forward.

Defenders of free markets shamelessly, brazenly argue that government meddling thwarted the full and free operation of market mechanisms, thus, exacerbating what would have been a painful, but quickly resolved correction. Following the metaphor alluded to in this article’s title, heartburn was misdiagnosed, treated with radical surgery, only to create a life-threatening condition.

Of course this is self-serving nonsense.

Whatever else we may know about markets, we know this: since the process of deregulating markets began in earnest in the late 1970s, crises have only occurred more frequently, with greater amplitude, and harsher human consequences. Before that, and throughout the earlier post-war period, government intervention and regulation tended to forestall downturns, moderate their nadir, and soften the human toll. And a glimpse at an earlier period of market-friendly policy– the early years of the Great Depression-- demonstrates the folly of simply waiting for the promised correction: matters only grew worse. Then, as now, life proved to be a hard taskmaster; when market mechanisms really go awry, no one can afford to wait for self-correction.

Liberal and soft-Left opponents of an unfettered market offer a different argument. They saw the crisis as, not the absence of free markets, but the failure to oversee and regulate markets adequately. On this view, shared by nearly all liberals and most of the non-Communist Left, markets are fundamental economic mechanisms-- essential, if you will-- but best shepherded by government controls that steer markets back when they threaten to run amok.

Thus, the 2008 crisis would have been averted, they believe, if rules and regulations remained in place that were previously designed and implemented to protect the economy from market excesses; if we had not loosened the rules and regulations, we would never have experienced the disaster of 2008.

This view is bad history and even worse economics.

While liberals would like to believe that regulations and institutions spawned by the New Deal of the 1930s stabilized capitalism and tamed markets, the truth is otherwise. The massive war spending initiated sometime before the US entry into World War II solved the problems of growth and excess manpower associated with the long decade of stagnation, hesitant recovery, retreat, and further stagnation that befell the economy beginning in 1929.

Capitalism gained new momentum with post-war reconstruction. Productive forces were restored where they had been destroyed, refreshed where they were worn, and improved in the face of new challenges. This broad restructuring of capitalism produced new opportunities for both profit and growth. At the same time, the lesson of massive socialized, public, and planned military spending were not lost. New threats were conjured, new fears constructed. The hot war in Korea and the ever-expanding Cold War fueled an unprecedented US expansion. It is not inappropriate to characterize this post-war expansion as a period of “military-Keynesianism.” That is, it was an era of Keynesian policies of planned, extensive government spending married to military orders outside of the market. Insofar as it transferred a significant share of the capitalist economy to a command, extra-market sector, it marked a new stage of state-monopoly capitalism, a stage embracing some of the features of socialism.

But by the mid-1960s this “adjustment” began to lose its vitality. Profit growth, the driving force of capitalist expansion, started a persistent decline (for a graphic depiction of this trend, see the chart on page 103 of Robert Brenner's The Economics of Global Turbulence (New Left Review, May/June 1998).

The falling rate of profit coupled with raging inflation by the middle of the 1970s. The military-Keynesian solutions to capitalist crisis were spent, exhausted, proving inadequate to address a new expression of the instability of capitalism. Perhaps nothing signaled the bankruptcy of the prevailing (Keynesian) orthodoxy more than the desperate WIN campaign-- Whip Inflation Now of the Gerald Ford presidency, an impotent attempt to stem the crisis with mass will-power where intervention failed.

Contrary to the claims of liberals, social democrats and other reform-minded saviors of capitalism, the resultant shift in orthodoxy was not merely a political coup, a victory of retrograde ideology, but instead it was an unwinding of the failed Keynesian policies of the moment. Thus, the Thatcher/Reagan “revolution” was only the vehicle for a dramatic adjustment of the course of capitalism away from a spent, ineffective paradigm.

With Paul Volker assuming the chairmanship of the Federal Reserve and the beginnings of systematic deregulation, the Carter administration planted the seeds of the retreat from the old prescriptions. Volker, with his growth-choking interest rates, ensured a recession that would sweep away any will to resist belt-tightening. But it took the election of the dogma-driven Ronald Reagan to emulate the UK's Margaret Thatcher and use the occasion to eviscerate wages and benefits in order to pave the way for profit growth.

The cost of restoring life to the moribund capitalist economy was borne by the working class. Foolishly, the stolid, complacent labor leadership had banked on the continuation of the tacit Cold War contract: Labor supports the anti-Communist campaign and the corporations honor labor peace with consistent wage and benefit growth. Instead, profit growth was restored by suppressing the living standards of labor-- cutting “costs.” A vicious anti-labor offensive ensued.

While the loyal opposition insists on portraying the break with Keynesian economics as something new (commonly dubbed “neo-liberalism”), it was, in fact, a surrender to the old. The bankruptcy of bourgeois economics could offer no new, creative answer to capitalist crisis; it could only cast off a failed approach and restore profits by relentlessly squeezing the labor market.

This response could and only did succeed because of the extraordinary weakness of the labor movement. As the profit rate began to rebound, labor lacked the leadership and will to not only secure a share of productivity increases, but to even defend its previous gains.

Thus, capitalism caught a second wind by retreating from the post-war economic consensus and reneging on the implicit labor peace treaty. Profit growth returned and the system sailed on.

But the continuing advance of deregulation and privatization brought with it a return to the unbuffered anarchy of markets. The Savings and Loan crises of the 1980s and 1990s and the stock market crash of October 1987 were all harbingers of things to come and reflections of deeper instability.

With the fall of the Soviet Union and Eastern European socialism, a huge new market was delivered to the global capitalist system, a market that further energized the opportunities for capital accumulation and expanded profits. Millions of educated, newly “free” (free of security, safe working conditions, legal protection, and organization) workers joined reduced-wage and low-wage workers from the rest of the world to form a vast pool of cheap labor. From the point of view of the owners of capital, paradise had truly arrived. Thus, an immense, one-sided class war and the wage-depressing integration of millions of new workers set capitalism on a profit-restoring path to health, putting the now impotent Keynesian orthodoxy in the rear-view mirror. Few would guess that this trip would endure for less than two decades before capitalism would again encounter serious crises.

Significant economic growth in a period of weak labor necessarily produces galloping inequality. With corporate and wealthy-friendly tax policies, many government redistribution mechanisms are starved or dismantled. The flow of wealth accelerates to corporations and the super-rich and away from those who work for a living. The coffers of the investor class swell with money anxious for a meaningful, significant return on investment. As the process of capital accumulation intensifies, fewer and fewer safe, high-yield productive investment opportunities arise to absorb the vast pool of ever-expanding wealth concentrated in the hands of a small minority.

In a mature capitalism, new, riskier avenues-- typically removed from the productive sector-- emerge to offer a home for capital and promise a return. Bankers and other financial “wizards” compete ferociously to construct profit-generating devices that promise more and more. These instruments grow further and further from productive activity. Moreover, their resultant “profits” are ever further removed from real, tangible, material value. Instead, they virtually exist as “hypothetical” capital, or “counter-factual” capital, or “future-directed” capital, or “contingent” capital. Some Marxists rush to label this product of speculation as “fictitious,” but that obscures its ultimate origin in exploitative acts in the commodity-production process. It is this expansion of promissory capital that fuels round after round of speculative investment lubricated with greater and greater debt.

Metaphors abound for the end game of this process: “bubbles,” “house of cards,” etc. But the ultimate cause of crisis is the failure to satisfy the never ending search for return. That is, the cause of crisis resides in the process of accumulation intrinsic to capitalism and the inability to sustain a viable return on an ever enlarging pool of capital and promissory capital. Capitalists measure their success by how their resources are fully and effectively put to use to generate new surpluses. That is the deepest, most telling sense of “rate of profit.” It is the gauge guiding the capitalist-- an effective rate of profit based on accumulated assets. Apart from official and contrived measures of profit rates, the growth of accumulated capital, weighed against the available investment opportunities, drives future investment and determines the course of economic activity.

In 1999, the profitability of the technology sector dropped precipitously as a result of the unrealizable investment of billions of yield-seeking dollars in marginal Dot.com companies and internet services. As an answer to the problem of over-accumulation, investing in the fantasies of 20-year-old whiz kids proved to be as irrational as sane observers thought it to be. The crash followed.

And again in the heady days of 2005, buying bizarre securities packed with the flotsam and jetsam of mortgage shenanigans seemed a way of finding a home for vast sums of “unproductive” capital. After all, capital cannot remain idle; it must find a way to reproduce itself. But what to do with the earnings from reselling the demand-driven securities? More of the same? More risk? More debt? And repeat?

The portion of US corporate profits “earned” by the financial sector grew dramatically from 1990 until the 2008 crash, touching nearly 40% in the mid-2000s and demonstrating the explosion of alternative investment vehicles occupying idle capital. It is crucial to see a link, an evolutionary necessity, between the restoration of profitability, intense capital accumulation, and the tendency for profitability to be challenged by the lack of promising investment opportunities. It is not the whim of bankers or the cleverness of entrepreneurs that drives this process, but the logical imperative of capital to produce and reproduce.

Some Comments and Observations

There are other theories of crisis offered by the left. One theory, embraced by many Communist Parties, maintains that crisis emerges from over-production. Of course, in one sense, over-accumulation is a kind of overproduction, an overproduction of capital that lacks a productive investment destination. But many on the left mean something different. They argue that capitalism produces more commodities in the market place than impoverished, poorly paid workers can purchase. There are two objections to this: one theoretical, one ideological.

First, evidence shows that a slump in consumption or a spike in production does not, in fact, precede economic decline in our era. If overproduction or its cousin, under-consumption, were the cause of the 2008 downturn, data would necessarily show some prior deviation from production/consumption patterns. But there are none. Instead, the reverse was the case: the crisis itself caused a massive gap between production and consumption, exacerbating the crisis. The threat of oversupply lingers in the enormous deflationary pressure churning in the global economy. Despite the fact that consumer spending is such a large component of the US economy, the effects of its secular stagnation or decline has been largely muted by the expansion of consumer credit and the existence, though tenuous, of social welfare programs like unemployment insurance.

Second, if retarded or inadequate consumption were the cause of crises, then redistributive policies or tax policies would offer a simple solution to downturns, both to prevent them and reverse them. Thus, capitalism could go on its merry way with little fear of crisis. Certainly this is the ideological attraction of overproduction explanations of crises: they allow liberals and social democrats to tout their ability to manage capitalism through government policies.

However they cannot manage capitalism because crises are located, not in the arena of circulation (matching production and consumption), but in the profit-generating mechanism of capitalism, its veritable soul.

Because of the centrality of profit, the over-accumulation explanation has an affinity with another theory of crisis: Marx's argument for the tendency of the rate of profit to fall. In fact, it can be viewed as a contemporary version of the argument without nineteenth-century assumptions.

Happily, many commentators today have revisited the theory outlined in Volume III of Capital, finding a relevance ignored throughout most of the twentieth century. Only a handful of admirers of Marx's work kept the theory alive in that era, writers like Henryk Grossman, John Strachey, and Paul Mattick. Unfortunately, today's admirers, like the aforementioned predecessors, share the flaw of uncritically taking Marx's schema to be Holy Grail. For the most part, Marx used very occasional formalism as an expository tool and not as the axioms of a formal system. Those trained in modern economics are prone to leap on these formulae with an undergraduate zeal. They debate the tenability of a model that depicts the global economy as a collection of enterprises devouring constant capital at a greater rate than employment of labor and mechanically depressing the rate of profit. This is to confuse simplified exposition with robust explanation. Much can be learned from Marx's exposition without turning it into a scholastic exercise.

Among our left friends, it has become popular to speak of the crisis and era as one of “financialization.” This is most unhelpful. Indeed, the crisis had much to do with the financial sector; indeed, the financial sector played and is playing a greater role in the global economy, especially in the US and UK; but conjuring a new name does nothing to expose or explain the role of finance. Like “globalization” in an earlier time, the word “financialization” may be gripping, fashionable, and handy, but it otherwise hides the mechanisms at work; it’s a lazy word.

*****

There is a point to this somewhat lengthy, but sketchy journey through the history of post-war capitalism. Hopefully, the journey demonstrates or suggests strongly that past economic events were neither random nor simply politically driven. Instead, they were the product of capitalism's internal logic; they sprang from roadblocks to and adjustments of capitalism's trajectory. As directions proved barren, new directions were taken. While it is not possible to rule out further maneuvers addressing the inherent problem of over-accumulation, the problem will not go away. It will return to haunt any attempt that presumes to conquer it once and for all. And if capitalism carries this gene, then it would be wise to look to a better economic system that promises both greater stability and greater social justice. Of course, finding that alternative begins with revisiting the two-hundred-year-old idea long favored by the working class movement: socialism. Affixed to that project is the task of rebuilding the movement, the political organization needed to achieve socialism.

As things stand in today's world, there are most often only two meager options on the regular menu: one, to save and maintain capitalism with the sacrifices of working people and the other, to save and maintain capitalism with the sacrifices of working people and a token “fair share” sacrifice on the part of corporations and the rich. Neither is very nourishing.

The first option is based on the thin gruel of “trickle down” economics and the nursery-rhyme wisdom of “a rising tide raises all boats.” It is the prescription of both of the major US political parties, Japan's Abe, the European center parties, and UK Labour.

The second option promises to save capitalism as well, but through a bogus fair distribution of hardship across all classes. This is the course offered by most European left parties and even some Communist Parties.

But a system-- capitalism-- that is genetically disposed to extreme wealth distribution and persistent crisis does not make for an appetizing meal. Instead, we need to dispense with programs that promise to better manage capitalism, as Greek Communists (KKE) like to say. That is for others who are at peace with capitalism or underestimate its inevitable failings.

The only answer to the heart failure of capitalism is to change the diet and put socialism on the menu.

Zoltan Zigedy

zoltanzigedy@gmail.com