Thursday, May 28, 2009

Critique of Capitalism - Part II

"In proportion as riches and rich men are honored in the State, virtue and the virtuous are dishonored." - Plato

No one can know how the present crisis will play out. It is possible that the United States will continue to benefit from an inflated currency, as money from around the world continues to shelter in what is still the safest investment haven around-U.S. Treasury bills. In that case, it is possible, if unlikely, that the Obama administration will be able to ride the tiger and keep things from falling apart utterly. But it is also possible that some unforeseen event or sequence of events might induce foreign investors to suddenly pull their money out of the United States. If that were to happen, the dollar could become worthless and we might see a replay of the Deutsche Mark in 1923, when ordinary Germans paid for loaves of bread with wheelbarrows of money. Either way, the structural contradictions in the world system are profound, and they are not going to go away any time soon.

Unlike in the 1930s, when the advanced industrialized nations essentially spent themselves out of depression, either through massive state investment in public works, coupled with a new social compact with labor (as in the United States, with the New Deal), or through a massive arms buildup and military expansionism at the direction of a corporatized (fascist) and authoritarian state (as in Germany, Italy, and Japan), the capitalist states have far fewer resources at their command this time around.

First, the state sector already accounts for a large portion of the national economies of the United States, Japan, and Europe. (The United States alone already spends half a trillion dollars per annum on war-making-and that's not counting its wars in Iraq and Afghanistan.) In the 1920s, the U.S. national debt (relative to GDP) was flat and even declined, while GDP per capita grew at an extraordinary rate, ushering in higher wages, improvements in agricultural productivity, and vast improvements in quality of life for millions of Americans, including electricity in the home, increasing availability of rail travel, and the introduction of automobiles into everyday life. During the latest economic expansion, by contrast, debts public and private soared at every level of society. The national deficit grew, banks and corporations assumed mind-boggling amounts of risk (often in the form of obscure financial instruments like derivatives), and ordinary working people piled up trillions of dollars of debt in the form of home and car loans and credit card debt. At the same time, wages and quality of life fell. It is therefore difficult to see how the United States and other nations will be able to spend their way out of the present crisis, when, even before the collapse of Lehman Brothers last year, the population was already tapped out, and government expenditures hovered near record highs.

A second factor likely to confound policymakers this time around is what might be termed the objective natural and political limits of the system. As indicated, capitalism has savaged the earth, leaving billions of people without a decent livelihood, and the ecosystem in tatters. But the social and ecological costs of "doing business" are about to grow exponentially greater. Even without a world financial crisis, we can anticipate more, and more devastating, natural disasters, which in turn will mean disruptions in agricultural production, flooding of cities and entire countries, mass starvation, increasing migration pressures, and so on. All of this will in turn exact an increasing toll on the legitimacy of the liberal nation state. The late sociologist Charles Tilley described the modern nation state as functioning like a "protection racket": the state agrees to protect us from harm (most typically, from real or imaginary threats generated by the state itself), in exchange for our consent and obedience as subjects. However, as economic, political, ecological, and hence social costs mount, the state will become less and less able to protect us from harm.

As a result, the state is at risk of losing its legitimacy in the eyes of its citizens. (Already, polls have shown a steady decline in the rate of democratic participation around the world, increasing cynicism toward government, and greater openness to extreme ideologies, whether in the form of religious fundamentalism or extreme nationalism.) This in turn will compromise the ability of state leaders to muster the broad political mandate they would otherwise need to make meaningful and urgently necessary macro-level changes in the organization of society and economy. This structural problem in part explains the recent authoritarian turn of the United States under the Bush administration. Bush's seeming indifference to the effects of U.S. actions on foreign and domestic opinion grew out of the Neocons' sense that the state no longer needed the consent of the governed, whether at home or abroad. Bush was, of course, wrong-American hegemony cannot survive long without at least the perception of legitimacy, both at home and abroad. It remains to be seen, however, whether Barack Obama will be able to return the ship of state safely to the status quo ante-i.e., to a centrist, liberal, social democratic capitalist order-in the face of a full-blown economic hurricane.

Regrettably, Obama's administration is doing everything in its power to preserve-and strengthen-corporate monopoly capitalism, in spite of that system's moral enormities and its ever-widening structural fissures. Though the political Right has taken to vilifying the president as a "socialist," Obama has in reality surrounded himself with economic advisers groomed from the most elite ranks of capitalist finance.

Nowhere is the new administration's basic ideological harmony with finance capital more evident than in its close links with current and former members of Goldman Sachs, the formerly über-bullish brokerage house. While anti-Semitic websites have had a field day depicting Obama as the public shill for a "Zionist conspiracy" run out of Goldman Sachs's plush New York offices, Sachs's extraordinary influence on government policy in fact began in earnest with President Bush's appointment of Henry Paulson, then Sachs's CEO, to the position of treasury secretary in 2006. (Paulson involved so many former and current employees in managing the financial crisis late last year that insiders began referring to the firm as "Government Sachs.") Nonetheless, the influence of Goldman Sachs has not diminished in the early hours of the Obama presidency, perhaps because Sachs was the single largest private contributor to Obama's 2008 campaign. When the president picked Timothy Geithner (a technocratic capitalist who had originally headed up the flagship of the Federal Reserve system, in New York) to be the new head of the Treasury Department, Geithner naturally chose a former lobbyist and vice president of Goldman Sachs to be his head of staff. But this was only one of the more conspicuous examples-many other former Sachs employees remain involved directly or indirectly at all levels of the Obama administration.

What makes the involvement of Goldman Sachs in cleaning up the current mess surreal is that of all the investment firms in the world, Sachs alone enjoys the dubious historical distinction of having played a key role in bidding up the world stock markets to unsupportable heights not just once, but twice. To be sure the most recent speculative bubble on Wall Street can be traced back to the decisions of lawmakers, beginning with Paul Volcker's decisions at the Fed back in the late 1970s, on through the Congress's repeal of Depression-era laws such as the Glass-Steagall Act in the late-1990s, i.e. in federal laws and monetary policies that collectively had the effect of pouring gasoline on already inflamed markets. Nonetheless, certain players were particularly key in fomenting this madness, and Goldman Sachs stands out even among the many aggressive firms on Wall Street for having promoted "irrational exuberance" ceaselessly for decades. What is doubly ironic is that the firm played much the same role in the 1920s. During the Depression, when Congress held public hearings on the "culture of greed" that had led to national calamity, Goldman Sachs's chairman was one of the first to be brought to the carpet to account for his firm's ignoble role in driving the speculative frenzy. (When similar hearings were held in the Congress in 2008, Goldman Sachs was naturally excused from having to testify.)

In March of this year, Robert Reich, the former Secretary of Labor, asked rhetorically, "could it be, given these tangled webs" between the White House Branch and Goldman Sachs, "that-innocently, unintentionally, perhaps even subconsciously-the entire bailout effort was premised on saving these companies rather than protecting the public? Or that the distinction between the two was lost, and still is?" Indeed, a few weeks after Reich penned these words, we learned that after the U.S. Treasury handed $180 billion over to the insurance giant AIG to keep it from collapsing, the company had turned around and transferred a sizable portion of the public's largesse to the firm's counter-signing parties, the banks that had helped underwrite AIG's risky credit default swap operations. Among these were some of the biggest and richest banks and investment firms in the world, including foreign institutional giants such as Deutsche Bank, Barclays of Britain, and Société Général of France. But topping the list was Goldman Sachs, which received the lion's share, $13 billion, despite the fact that it was already swimming in money ($100 billion in cash alone).

Whatever one makes of the Obama-Sachs connection, it is at least clear that President Obama and his advisers will challenge the underlying prerogatives of financial capital only with great reluctance, and as an absolute last resort. As political theorist Sheldon Wolin observes, the president's plan for rescuing the nation's banks "does not bother with the structure at all." When all is said and done, "the basic systems are going to stay in place." Ironically, however, the administration's essentially conservative handling of the crisis-its unwillingness to take on the power of the banks-may prove to be its own undoing. This spring, the liberal economist and writer Paul Krugman criticized the administration for continuing to "believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic." Citing "the failure of a whole model of banking," Krugman faulted the administration in particular for trying to preserve a model of "securitization"-i.e., the process by which banks have essentially commodified risk by carving up loans and debts and selling them as obscure instruments on the market. "I don't think the Obama administration can bring securitization back to life," Krugman wrote, "and I don't believe it should try."

What Krugman and others fear is that the administration's temporizing maneuvers may only end up creating the conditions for an even bigger economic collapse later on. Obama's administration's failure to grapple with the structural contradictions of capitalism may be sowing the seeds for an even more cataclysmic day of reckoning in the future....

credit: John Sanbonmatsu

Tuesday, May 19, 2009

Critique of Capitalism - Part I

From Zurich and Washington to Frankfurt, London, and Tokyo, everyone from bankers, economists, policy analysts, and government leaders-are trying to put capitalism back together again. But none of them has stopped to ask whether capitalism is worth saving in the first place.

Like the boy who cried wolf, socialists predicted the end of capitalism perhaps one too many times in the twentieth century to be taken seriously in the twenty-first. Yet it would be difficult to exaggerate either the profundity of the contemporary crisis, or the importance of developing a viable alternative to the existing order.

Last September, after the United States Treasury injected half a trillion dollars into the monetary system to unthaw the frozen U.S. banking system, Ben Bernanke, the chairman of the Federal Reserve, privately informed members of Congress "that the financial system had come perilously close to collapse." Only prompt action by the Treasury and Fed, he told them, had prevented "disaster" and "full-scale panic." The following month, while Iceland teetered on the brink of bankruptcy and Wall Street suffered its worst one-week stock market decline ever, Nicolas Sarkozy, the French president, candidly told reporters that the world economy had indeed been poised "on the edge of an abyss."

Since last summer, in fact, the governments of the leading industrialized countries have been engaged in an epic behind-the-scenes struggle to keep the global financial and banking system viable. So far, Germany has put up $679 billion to stabilize its banking system; Britain has spent the equivalent of one fifth of its national GDP. Meanwhile, by November of last year, the United States had either spent or assumed financial obligations totaling $7.8 trillion to stabilize the deteriorating financial sector-a staggering amount equal to half of this country's annual GDP. But even that has not been enough to stanch the blood of capitalism's hemorrhagic fever, which has raged on into the new year. In February-even as President Barack Obama (the national candidate of "hope" only months before) was bluntly warning of "catastrophe" if Congress failed to approve his $700 billion economic stimulus package-his new head of the Treasury, Timothy Geithner, announced a new plan committing the United States to an additional $2.1 trillion to stabilize the system. The Dow Jones plummeted an additional 4.6 percent on the news.

As of spring 2009, the leading capitalist states in Europe, North America, and Asia have thus either spent outright, or exposed themselves to financial risks totaling, well over $10 trillion-a figure so vast that one searches in vain for any relevant historical parallel. By comparison, the entire Marshall Plan to rebuild Europe after World War II cost a mere $9.3 billion (in constant 2005 dollars). According to the United Nations, it would cost $195 billion to eradicate most poverty-related deaths in the Third World, including deaths from malaria, from malnutrition, and from AIDS. So the amount of money committed by policymakers to save capitalism from itself is already fifty times greater than what it would take to save tens of millions of human beings from terrible daily suffering and premature death. If the wealthy nations instead invested that $10 trillion into the economies, health systems, and infrastructure of the Third World, rather than transferring it to the world's richest banks, private financial institutions, and investors, they could usher in a new epoch in the history of the species-a world community in which every human being would be guaranteed a livable life.

That the financial bailout is a colossal misdirection and waste of public resources, however, is not the most scandalous thing about it. What is truly unconscionable is that all this money is being spent to prop up capitalism itself-a mode of economic and social life that has corrupted and hollowed out our democracies, reduced great swaths of the planet's ecosystem to polluted rubble, and condemned hundreds of millions of human beings to wretchedness and exploitation.

Capitalism is rightly credited with having unleashed enormous forces of productivity and technology. But it has also reduced much of the world to ruin and squalor. After four centuries of triumph as the dominant mode of global development, capitalism has furnished for itself a world in which one out of two human beings lives on $2 per day or less, and more than one in three still lacks access to a toilet. Most children in the world never complete their education, and most will live out their lives without dependable medical care. As the world economic crisis deepens, already deplorable conditions in the Third World will only deteriorate further. Meanwhile, our planet is dying. Or rather, its flesh and blood creatures are.

In 1997, a group of European academics published a book called The Black Book of Communism, in which they documented the brutality and mass killings committed by totalitarian Communist regimes in the course of the twentieth century. Perhaps a group of academics will one day publish a Black Book of Capitalism. They should. For when a mode of life that subordinates all human and spiritual values to the pursuit of private wealth persists for centuries, there is a lengthy accounting to be made. Among the innumerable sins that have followed in capitalism's long train, we might mention, for example, the hidden indignities and daily humiliations of the working class and the poor; the strangulation of daily life by corporate bureaucracies such as the HMOs, the telecom companies, and the computer giants; the corruption of art and culture by money; the destruction of eroticism by pornography; the corruption of higher education by corporatization; the ceaseless pitching of harmful products to our children and infants; the obliteration of the natural landscape by strip malls, highways, and toxic dumps; the abuse of elderly men and women by low-paid workers in squalid for-profit institutions; the fact that millions of poor children are sold into sexual slavery, and millions of others are orphaned by AIDS; and the fact that tens of millions of women turn to prostitution to pay their bills. We might also highlight the dozens of wars and civil conflicts that are directly or indirectly rooted in the gross material disparities of the capitalist system-the bloody conflicts that simmer along from month to month, year to year, as though natural and immutable--in places like Darfur, Rwanda, Congo, Afghanistan, Vietnam, and Iraq, where millions of wretchedly poor people die either at the hands of other wretchedly poor people, or from the bombs dropped from the automated battle platforms of the last surviving superpower.
credit: John Sanbonmatsu