THE PANIC LEAPS off the pages of the financial press. General Motors is getting ready to go under for the third and final time. In any case, “#8220;A share of General Motors stock, which fell below $2 Thursday as it warned of possible bankruptcy, is now not even enough to buy a gallon of gasoline for your Chevy. A share of General Electric, battered this week to little more than $6, would not be sufficient to buy two of the company’s compact fluorescent light bulbs…”
In the same paper, Paul Krugman opines that “#8220;(T)he Obama administration is dithering” on the banking crisis: “#8220;(S)omehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as ‘toxic waste,’ are really worth more than anyone is actually willing to pay for them…They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered untenable.” (New York Times, Friday, March 6, 2009, A1, A23)
Why untenable — and why only temporary? Economist Nouriel Roubini, in Forbes magazine, writes that the entire financial system is “#8220;effectively insolvent.” And it’s not only the banks: Just three weeks after the newspaper articles we’ve just quoted, president Obama has pronounced the final warning for the restructuring-downsizing of General Motors and the forcibly arranged marriage of Chrysler and Fiat.
While Democratic and Republican partisans are exchanging polemics for and against the Obama budget and stimulus package, the too-little-publicized underside of the restructuring of auto and related industries is a government and corporate attack on labor. The essence of Chapter 11 bankruptcy — or the threat of same — is the destruction of union contracts especially in the critical areas of pensions, health care for active workers and retirees alike, and massive wage cuts especially for new hires. In the absence of a determined labor fightback, this crisis is drastically accelerating the trend of the past three decades — the transition to a low-wage U.S. economy with massive insecurity becoming the norm for working people.
Some sophisticated expert analysts — notably Rush Limbaugh and Joe the post-Plumber, enjoying his new book-circuit career — tell us that Barack Obama is turning America into a socialist people’s republic. Much as we wish it were true, we know that a socialist transformation requires a whole lot more than a stimulus package and a centrist Democratic presidency. In any case, to defend the good name of socialism, we must point out that it emphatically does not mean pouring trillions of dollars into failed banks and mismanaged corporations.
In this issue of ATC our authors explore some aspects of what a fight for socialism-for-real would encompass — from the debate about nationalization (Jack Rasmus) and the struggle for social rights under capitalism today (Ellen Meiksins Wood), to the central importance of working-class democracy in the Russian Revolution and some lessons to be drawn from how it was won and then lost (Sarah Badcock). Obviously the contributions here represent only a fragment of the discussion that’s needed, but we welcome the initiative in The Nation and other calls for a full exploration of a socialist renewal.
Let’s begin here: When even the right wing of the free-market priesthood calls for nationalization, it tells you two things. First, it shows that the scale of the global meltdown is literally mindbending, liquidating the premises about the market as an ideal self-correcting mechanism for economic equilibrium. No wonder that both Marx and Keynes, as well as other critics of “#8220;the market,” are coming back into vogue. Secondly, it demonstrates that nationalization of banks or industries, in and of itself, is not socialism — it’s being presented as a bad-tasting prescription medicine to preserve capitalism, not destroy it.
In the current debate about whether “#8220;large-scale government action is necessary,” socialists have a point of view — emphatically, yes. In fact, the president’s “#8220;stimulus package” was probably too small by half even before the make-Obama-fail Republican saboteurs and “#8220;deficit hawk” Democrats started hacking away at it. Even worse, the administration’s bank rescue policy from the outset seemed incoherent and timid, throwing more good money after bad assets without getting control of the banks, restarting credit or even knowing where the money’s gone.
Those outrageous AIG executive bonuses are barely an air-bubble on the tip of the iceberg of the real problem. And as much as Rick Wagoner — the head of General Motors who became the first corporate CEO directly fired by the federal government — deserved to go, practically any auto worker caught up in this crisis can tell you that Wagoner was neither the problem nor the solution.
But affirming the importance of government action only answers the first question. Two more complicated ones immediately follow: Will government rescue packages, even on a larger-than-Obama’s scale, save capitalism? And in any case, is that really what we need to do?
The likely answer to the first of these is “#8220;maybe, but almost certainly not by stimulus alone.” Shovel-ready infrastructure projects and incentives for renewable energy are all to the good, in and of themselves as well as for the jobs they create. As for repairing the potholed highways that tear up our cars, tens of thousands of bridges getting ready to collapse, the water mains that are bursting on an epidemic scale, we say right on — certainly all that’s a whole lot more constructive and useful than the next generation of weapons systems of the Permanent War Economy. But all of these won’t get credit flowing again from the broken banking system, whether we’re talking about the United States or the even more daunting global crisis.
This is the weakest link of the Obama rescue program. The whole septic pile of insurance policies written on toxic “#8220;collateralized debt obligations” sinking in the swamp of foreclosed mortgages — that’s the insurance that AIG in particular is paying out — essentially amounts to underwriting an almost uncountable mass of fictitious value. These mortgage derivatives are paper assets that now serve mainly as Enron-style accounting devices to disguise what economist Roubini calls the “#8220;effective insolvency” of the banking system.
No rational purpose is served by pretending that this garbage, or the mortgages they rest upon, are worth their paper price. Put another way, their fictional value hides the reality that the “#8220;too big to fail” institutions have already failed, so that the government continues to ply them with bailout money that promptly disappears, either into the banks’ cash hoard or into unregulated hedge funds that bought “#8220;insurance” on bundled mortgages that they never owned in the first place. (For a lucid exposition of this aspect of the meltdown see James Lieber, “#8220;Who Cooked the World’s Economy?” in The Village Voice, January 28, 2009, www.villagevoice.com/2009-01-28/news/what-cooked-the-world-s-economy.)
The best thing the government could do about housing is to go beyond interest rate adjustments and piecemeal foreclosure moratorium efforts, and systematically write down the value of mortgages, principal and all, to a reasonable estimate of the home’s effective price. That would keep people in their homes and relieve them of crushing debt burdens on notoriously “#8220;underwater” properties, but at the cost of dropping the pretense that the holders of these debts are sound institutions.
The very suggestion of such a measure sends the banking executives into a frenzy — precisely because it exposes the reality of their insolvency. The choice facing government and society is between throwing additional money at the living dead, “#8220;zombie banks” as they’re called, or dealing with the situation as it really is and taking over the banks in order to properly re-capitalize them. Either one, in fact, entails some form of nationalization — but for whose benefit and what purpose?
The first choice is basically “#8220;nationalizing” the losses to save the present system, probably in the form of setting up that much-discussed government “#8220;bad bank” that removes the toxic loans from the banks’ books and relies on the banking system to resume normal lending — a risky bet in a time of global downturn.
The latter choice requires in practice nationalization of the credit system as a whole — not simply socializing the banks’ losses but also taking direct government responsibility for getting credit and production moving again. That’s not socialism either — because socialism begins with working class political power and control of production — but such a radical rupture with the tyranny of the market points in the direction of an entirely new set of social and economic priorities. It’s summed up in the popular slogan “#8220;Bail Out the People, Not the Bankers.”
For government to effectively take over the banks’ lending operations along with the calculation of their actual, not fictional assets, would require political decisions about what kind of production will be favored in the effort to pull the world economy toward recovery. Do we want to reproduce the system as we’ve known it, or is there a better way forward? Is a decent standard of living and economic security for the world’s people, in a livable environment, a luxury or a right?
It’s not exactly news that today’s global crisis involves more than declining Gross Domestic Product and mass unemployment — as serious as those are. The survival of human civilization itself is threatened in this century by catastrophic climate change, mass species extinctions including the looming collapse of ocean fisheries, and enormous disruptions of agriculture. Widening inequality translates into enormous crises of hunger and public health. Regional wars, including Israel’s destruction of Gaza, and imperial adventures carry the permanent threat of escalation to ultimate nuclear annihilation.
Simply reviving a system of industrial production and transport intensively dependent on fossil-fuel energy, with workers’ wages cut in half and benefits slashed to ribbons, may or may not be possible. That’s the best that can be hoped for from the government’s auto bailout, yet it is certainly not what’s desirable or deserved — not for those who work in those industries, and not for human survival on the only planet we’ve got. We need a different set of priorities, based on human need and on what Martin Luther King, Jr. called “#8220;a true revolution of values” — and if you hear a recording of that speech, “#8220;Beyond Vietnam: A Time to Break Silence” at the Riverside Church in April 1967, you’ll hear King’s emphasis on the word “#8220;revolution.”
Many activists are excited by the glimmers of hope in the Obama administration’s stimulus and budget proposals for things like renewable energy and conservation, and tentative steps toward universal health care. Yes, the possibilities exist — but to make them real will require a much, much bigger break from all forms of capitalist politics than Obama’s departure from the idiocies of the George W. Bush era.
There is no single-giant-leap from the massive injustices of today’s society to a utopia of equality and freedom. But there is also no intrinsic reason why clean water can’t be available to the one or two billion people on earth who don’t have it — the single leading cause of unnecessary early childhood death. There is no natural law dictating, for example, that China’s and India’s development in the course of a few decades must replicate the brutal exploitation (explored by Au Loong-Yu in this issue in regard to China’s migrant work force) and ecological degradation for centuries that went into the rise of global capitalism.
This system of capitalism and the free-market dogma it spawned have now come pretty close to running humanity into the ground. Could this system be revived, given enough time to hit bottom followed by the proper set of policy manipulations? In some form or fashion, yes. But that’s not the revival or recovery we need today or for the future.
The struggle for the recovery we need starts with working people and communities today defending their jobs, their wages and conditions, their right to health care and dignity. Those struggles need to be linked up with a vision of a new economy, democratically structured to answer to people’s needs instead of the profit imperative. If you like that idea, then welcome to the movement for socialism.
ATC 140, May/June 2009>