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Thursday, July 18, 2013

“Middle Class Revolution”: A New End of History?

The US is notoriously unkind to “intellectuals.” Popular culture portrays intellectuals as absent-minded, divorced from the everyday world, and obsessed with spinning useless, but harmless abstractions. They are good to keep contained in universities where they can give future cogs in the capitalist machine a taste, but not a passion for, impractical thought. Regrettably, those posing as intellectuals have gone far to earn contempt, favoring arcane, specialized languages and scholastic debates.

That's not to say that there is no room for thinkers in the US, but they are dubbed “pundits,” “experts,” “researchers” or “consultants,” words that ring with practicality and single-mindedness; they are purveyors of small, easily digested ideas and not the “big” ideas associated with intellectuals.

In the US, we are taught to distrust big ideas unless they are linked to religions. But then religion has been compartmentalized, shunted off to Sunday mornings or weddings and funerals. All the big ideas we need were decided with the ratification of the US Constitution.

We can thank corporate marketers and their masters for our continuing alienation from big ideas and taste for small ones. They prefer ideas that are easily and flashily packaged, readily digested, and quickly obsolesced. They select for us ideas that can go “viral,” grabbing the attention of not thousands, but millions. They select ideas that easily fit in a two-minute TV commentary or on 6 or 8 column inches of news print. Intellectuals didn't invent the term “sound bite.” Nor did they invent “twitter.” Corporate taste makers did. So what we get in the market place of ideas are small ideas, commodified ideas with shiny packages.

Thus, it may be hard to understand how Francis Fukuyama fits into the world of ideas. We know him for his celebrated 1992 book, The End of History and the Last Man, an ambitious intellectual tome designed to place triumphant capitalism and its attendant bourgeois democracy at the pinnacle of a long historical, dialectical process. A big idea indeed!

Of course it wasn't that difficult to conjure a motive for this rising star of the Right. On the heels of the fall of the Soviet Union and the European socialist countries, Fukuyama saw the opportunity to mark "paid” to the theoretical foundations of Marxism by co-opting the Hegelian “dialectics” that Marx was schooled in and replacing the socialist ideal with something that looked remarkably like the socio-economic system of late twentieth-century US capitalism. Moreover, since Fukuyama had discovered the “end of history,” we needn't worry about any serious future military conflagrations or rebellions because we were entering the blissful era of market justice, parliamentary democracy, and human rights.

Fukuyama's big ideas can take small credit for the pious military crusades led by the US ruling class in the Balkans, Iraq, Afghanistan, and recently in Libya and Syria, as well as the meddling in Eastern Europe, the Middle East, Latin America and Africa. Those who failed to accept the end of history soon felt the wrath of history's enforcer. At the same time, the resistance to Fukuyama's vision of history's end challenged his big idea. The intense confrontation between the US and peoples in the Middle East and Latin America shattered the idea that with the demise of the Soviet Union the world would rush to embrace the values of the US and Europe.

With the “end of history” forestalled by unforeseen events, Fukuyama knocked around the research institute/think tank/academic circuit, writing books and resisting the temptation to join the courtiers of the mass media trading in small, nasty ideas. He passed on the enormous earnings available to the likes of the O'Reilly's, Limbaugh's, or the other aristocrats of wind-baggery. Instead, he scoured the landscape to find new opportunities to float big ideas.

And now he's back with a new big idea.

Fukuyama won a think-piece in the June 28/29 weekend Wall Street Journal entitled “The Middle Class Revolution.” He argues that “All over the world, today's political turmoil has a common theme: the failure of governments to meet the rising expectations of the newly prosperous and educated.” Cognizant of the worldwide mass risings of recent years, Fukuyama chooses this moment to offer an explanation, a theoretical explanation for those risings, an explanation palatable and comforting to US elites.

He rightly understands that linking the most recent mass upsurges requires sizable ideas. While there are many similarities, there are many differences as well. Successful exposition of their common features would tell us much about the underlying processes and likely offer a glimpse into the future. In short, it would give us a theory of contemporary social change, a decidedly big idea.

Unfortunately, he gets it all wrong.

He builds his case around reflections on events in the streets of Tunisia, Egypt, Brazil, and Turkey, a mixed collection neither reflective of all of the mass activity of our time nor sharing many common features. Seduced by recent headlines and sensationalist accounts, Fukuyama finds the “middle class” as the revolutionary agent in all cases. Besides the elusiveness of the term, he offers no evidence beyond youth, cell phones, and the presence of a vaguely sensed entrepreneurial spirit to justify the assignment of this role. And he is equally slippery in explaining what constitutes a “middle class.” Instead, he considers a series of candidates: income ($6,000-30,000 year), relative income (the middle of a country’s income distribution), and relative level of consumption (greater than the subsistence level of the poor). Rejecting these, he settles on “education, occupation, and the ownership of assets,” none of which is produced as evidence regarding any of the particular countries under review. In fact, the demographics of the four “revolutions” fail to show common attributes; nor do they demonstrate a rising of the “middle class.”

When Mohamed Bouazizi, a fruit vender in Tunisia, set himself afire in December of 2010, he became the symbol for the uprisings that pundits have dubbed “the Arab Spring.” Tunisia, under Ben Ali, was one of the success stories of neo-liberalism, a poster child for corporate-friendly “competitiveness” and foreign investment. Its industrial and service economies were relatively well developed. 

While the neo-liberal regimen delivered growth, modest GDP/capita, some social benefits (education and welfare), it was rocked by the economic crisis and the scourge of high unemployment. The youth (constituting nearly half of the population) endured one of the world's highest unemployment rates: 30.7%. As in the US, Tunisian youth are relatively well educated, but denied access to meaningful employment. The relative affluence of Tunisian elites enjoying the fruits of a growing economy and the lack of opportunity for a youthful population spurred the overthrow of Ben Ali.

Egypt presents a different picture. While Sadat and Mubarak also embraced the tenets of neo-liberalism, they did so in the shadow of Nasser's legacy of anti-imperialism, public ownership and social welfare. Moreover, free market capitalism fared far worse in this country. Despite a large industrial base and due, in part, to a relatively large agricultural sector (56.5% of Egyptians live outside of urban areas), Egypt achieved a GDP/capita roughly only 2/3 of that of Tunisia. 

But Egypt shares with Tunisia an extremely youthful population with massive un- and underemployment. With little government educational expenditure, it is no surprise that Egyptians have a relatively low participation in higher education.

Egyptian professionals-- the social base for the Muslim Brotherhood-- could count as a “middle strata,” though they are a small part of the population. Most Egyptians, however, enjoy an income only marginally above poverty, marking membership in what would properly be considered the working class.

The global economic downturn only brought the plight of young Egyptians to the fore and prompted mass action and the deposing of Mubarak. The subsequent Morsi presidency brought a further disintegration of the economy and a spike in unemployment and poverty. The Muslim Brotherhood failed to attempt an exit from neo-liberalism and restored the foreign policy of Mubarak, even betraying the Syrian government to imperialism.

The people have again taken to the streets. In the words of Salah Adly, General Secretary of the Egyptian Communist Party, Egyptian Communists believe “that what happened on 30th June is a second wave of the Egyptian revolution that is stronger and deeper than the first wave in 2011. It has taken place to correct the path of the revolution and seize it back from the forces of the extreme religious right...”

The street demonstrations in Turkey, a country that has one historic foot in the Arab world and a tentative one in Europe, is more a political struggle than an explosion of economic discontent. Turkey's demographics are similar to a European country, a poorer European country like Portugal or Poland, but with a much higher percentage of youth in the population. The Islamist president Erdogan represents cultural traditions that conflict with that of more secular youth. Of course others, including workers, who have economic demands, support the demonstrations, as do unemployed youth. But they do not challenge the structures of bourgeois democracy or monopoly capitalism. Turkish Communists recognize this fact. As Kemal Okuyan, a member of the Central Committee of the Communist Party of Turkey, states “... this is an outburst of a huge social energy. It is powerful in extent and effect. But there are some Marxist criteria for defining a situation as a revolutionary crisis. We are far from that. At least for now...”

Brazil, Fukuyama's final example of a “middle class” revolution, demonstrates its own unique demographics and weaknesses. Despite showing exceptional economic growth, Brazil counts as one of the most economically unequal countries in the world. Highly urbanized, Brazil's poverty is concentrated in city neighborhoods, with all of the attendant social problems of poverty intensified. The large and growing service sector affords enough jobs to contain unemployment below crisis levels. But grinding poverty and the contrasting extreme concentration of wealth produce a persisting tinderbox.

Brazil's social democratic government has shown occasional anti-imperialist spunk, standing up to US arrogance at different times. This, along with the government's competent management of the capitalist economy, and some social welfare initiatives, has spawned national pride. At the same time, support for the government is fragile because of its inability to dent the massive economic and social inequalities suffered by working people. This contradiction between national sentiment and contempt toward the working class was brought home by the mass objection to new soccer stadia, in a soccer-crazed country, expressed by the mass demonstrations.

Clearly what all of these countries do share is a popular response to the failure of leaders, institutions, and political parties to overcome the legacy and reality of colonialism, imperialism, and global capitalism. Fukuyama hides this failing behind the mythology of middle class dissatisfaction with the level of consumerism and cultural expression: they rebel because they want to be like us in Europe and the US. One would never guess that an almost unprecedented and persistent economic calumny has shaken the social and political foundations of nearly every country over the last five years. One would never guess that all four of the countries under discussion suffer from severe economic and political problems unsolved by their past and current leaders.

In Tunisia, Ben Ali's embrace of neo-liberal fundamentalism was a bankrupt answer to youth unemployment. In Egypt, corrupted leaders brazenly counted on the accommodation with imperialism to prop up their aloof rule over an abused people. Turkey's leader, like politico-theological leaders of other persuasions, overstepped the limits of governance and opened the door to airing the many grievances of the opposition, formerly trumped by religious commitment. And Brazil's social-democratic government learned the folly of attempting to manage capitalism while promising to rectify its inequities.

From the Indignados to the Occupy movement, from the revival of the Latin American left to the Arab Spring, authentic popular up-risings have emerged from the failure of capitalism to deliver the future and security so seemingly assured before the great crisis of 2008. Millions have been failed by the institutions, parties, and leaders that they formerly trusted. It's not as though they have been dealt a bad hand, but it is as though there is no good hand to be found in the deck.

Spinning theories based on such a corrupted sociological idea as the “middle class” guarantees failure. Of course one can't blame Fukuyama entirely for buying in on one of the great intellectual frauds of our time. Everyone, from the Chamber of Commerce to the misleaders of labor, likes to remind us that we are all members of a vast collection of people located economically between the rich and the poor. Within this distorted picture there is something for everyone. We all share home ownership, a good job, vacations, family, and comforting values, so the fantasy goes. The unfortunate poor are with us because they have failed, though they deserve our compassion and, perhaps, our charity. The rich are with us because they are successful and merit our respect. This harmonious picture is only disrupted when the rich get too greedy or the poor get rebellious.

This myth serves the ruling class, their political flunkies, and labor's class collaborationists in maintaining class peace and stability. But most importantly, it obscures the real class divide between employers and employees.

The divisions that spark genuine revolution are not between some muddy notion of a middle class at odds with an equally obscure specter of government, but between the power and dominance of capitalist corporations and the diverse and largely unrepresented workers who enrich them. This sharply drawn class division accounts for the fundamentally economic, but also cultural and spiritual alienation of youth. Whether conscious or not, this division generates discontent and outrage. Expressed in many ways, the conflict between the employers and their employees stands behind the conflicts of the twenty-first century. And only its resolution in favor of the employee class – the working class-- will bring these conflicts to a close.

It's not a new idea; it's a big, but not too big of an idea; and it’s an idea that promises an escape from the failure of capitalism: Socialism.

Zoltan Zigedy

Sunday, July 7, 2013

Storm Clouds?

As the panic over the destiny of the Federal Reserve's “quantitative easing” program reaches hysterical proportions, uncommonly bizarre economic anomalies are surfacing. In the last week of June, the news that first quarter US Gross Domestic Product growth report was reduced dramatically from 2.4% to 1.8% was met by an equally dramatic, but paradoxical positive jump in equity markets. Normally, a rather staggering drop in GDP estimates would trigger stock market losses-- investor confidence would be battered. But the opposite occurred. 

What's going on?

Pundits and investors hailed the bad news because they hope that it will keep the Federal Reserve committed to the $85 billion per month bond purchasing project dubbed “quantitative easing.” They believe that the Fed would not dare to relax the program in the face of poor economic performance. And they recognize that without the Fed’s foot firmly pressing the accelerator, the capitalist economy will stagnate or slow. The Federal Reserve program is truly a life-support system for our economy, and capitalism's apologists recognize that they are in deep trouble without it. Therefore, investors welcomed the fall in GDP growth!

Even Paul Krugman, the popular voice of social democratic theory in the US, has caught the contagion of fear. In a late-June appeal in The New York Times (Et tu, Ben?) to Federal Reserve head, Ben Bernanke, Krugman calls for the Fed to keep its foot aggressively on the gas pedal. A firm advocate of an alternative policy option, fiscal stimulus (spending on infrastructure, public works, etc), Krugman holds his nose and urges the continuation of the Fed's monetary stimulus program of printing money for bond purchases.

So why can't we just all agree to get along and urge the Federal Reserve to keep printing dollars?

In the first place, the Fed's policy of dollar-printing promiscuity is losing its healing powers. The effect of the purchase of government debt-- Treasury notes-- in order to restrain bond yields and interest rates has diminished since mid-2012. Moreover, the Fed remedy has lost its magic entirely in May and June of this year, with the yield on the 10-year Treasury note rising by two-thirds, mortgage rates jumping about 27% from March to the end of June, and the US and European (except Germany) bond market experiencing a sell-off. All of these indicators demonstrate that quantitative easing, as a stimulus policy, is simply losing its punch.

The Federal Reserve sees its injection of $85 billion into the economy every month as a hedge against the dreaded deflation, a sure companion to stagnation or negative growth. They watch to see when inflation crosses their target of 2% in order to slap on the brakes to avoid an overheated economy. But there is no reason for the Fed to fret: inflation is well below their target, a clear sign that without monetary stimulus we would be in a deflationary period. Corporations are hoarding cash rather than investing: they are holding 5.6% of their total assets in cash, against a forty year average of 4.4%. It was weak business investment, in part, that caused the first quarter GDP growth revision downward by 25%.

The Chicago Federal Reserve's three-month moving average National Activity index remained in negative territory, underlining the diminishing effects of quantitative easing.

Aside from its ineffectiveness, quantitative easing poses more serious, more fundamental problems: Fed monetary promiscuity distorts markets and masks underlying economic processes. Given that a capitalist economy is an enormously complex organism made up of mutually interactive actors, commodities and processes, manipulating some of the central elements such as interest rates, the money supply, debt growth, etc. can have unforeseen and damaging repercussions in other sectors of the economy. Mechanisms fail and balances are disrupted. A therapy becomes an injury. This is a lesson that the leadership of the Peoples' Republic of China is learning from the volatility created by its shadow banking sector. Even with majority public ownership of the biggest banks, the informal private sector distorts the impact of policy decisions.

In Marxist terms, the massive Federal Reserve intervention in financial markets violates the law of value. That is, it replaces the exchange of equivalent-for-equivalent in financial markets, with exchanges determined independently of market forces by the officers of the Fed. Those exchanges must, at some point, be reconciled; but in the meantime, they distort exchange relationships in other sectors of the economy. They create a disconnect between the financial sector and the signals sent to the productive economy. They distort the rate of profit in the financial sector, channeling capital into speculation and over-reliance on cheap credit. It’s no wonder that corporations hoard cash and seek higher returns on retained capital and easily available capital.

In reality, quantitative easing invites the very conditions that led to the 2007-8 collapse.

And we are now seeing omens in the economic data.

The exuberant 2013 stock market is suffering a retreat, but even more ominously, demonstrating growing volatility. Last year, the small investor jumped back in the market, a sure sign that a bear market was in sight. Much of the volatility comes from market manipulators exploiting the amateur day-traders. Like the swaggering Vegas weekend gambler, they are ripe for the picking. One can watch the picking by following the end-of-day trading; they don't know when to get in or when to get out.

US exports are pulling back.

The post-World War II record profits reported in 2012 are threatened. Of 108 companies scheduled to report profits in the second quarter of 2013, 87 offered negative guidance to their shareholders. Falling profits, contrary to underconsumption theorists, are a better predictor of a downturn than falling consumption. Consumption generally falls as a result and as an amplifier of economic decline.

Today, US consumption hangs precariously in the balance. While savings are declining, wages are in free fall. The year ending in September 2012 experienced a wage decline of 1.1%. First quarter estimates augur a shocking decline. The consumer is simply running out of money, savings, and available credit.

And the just announced June unemployment figures actually show an increase in the more telling U6 calculation to 14.3%. That rate includes those who have dropped out of the job market and those working part-time but desiring a full-time job.

Not a promising picture.

In most of the world's capitalist countries, the labor movements and left political parties have yet to decouple their fate from that of the monopoly capital, profit-driven, market-governed system. They are like ships on turbulent waters unwilling to bring their vessels and crew to port. They are simply counting on the storm to subside. They are neither prepared for nor expecting a hurricane or a shipwreck. After five disastrous years, one would hope that left and labor leaders would began to look for alternatives to capitalism, a safe haven for their fellow passengers.

Zoltan Zigedy