Financial socialism or progressive corporatism?

The American people are furious about Treasury Sec. Henry Paulson's requested $700 billion bailout of Wall Street. But it appears Congress will pass the plan in some form, as everyone believes government intervention is required to prevent the credit market seizure from causing a recession. The crisis has brought the system to a turning point.

"Gone is the faith, shared by the nation's leadership with varying degrees of enthusiasm, that the best road to prosperity is to unleash financial markets to allocate capital, take risks, enjoy profits, absorb losses. Erased is the hope that markets correct themselves when they overshoot.... Also scrapped is the notion that government's role is to get out of the way," wrote Wall Street Journalist columnist David Wessel.

"The government will be much more active in economic management (pleasing a certain sort of establishment Democrat). Government activism will provide support to corporations, banks and business and will be used to shore up the stable conditions they need to thrive (pleasing a certain sort of establishment Republican). Tax revenues from business activities will pay for progressive but business-friendly causes — investments in green technology, health care reform, infrastructure spending, education reform and scientific research," predicted David Brooks of the
New York Times, who called the emerging stage "progressive corporatism". By "progressive", Brooks did not mean the anti-capitalist, pro-people's needs sense in which the term is often used today, but was referring to the Teddy Roosevelt model of bringing activist management to control capitalism's excesses and deflect popular unrest.

The left opposes the bailout and demands the funds be redirected to human needs. For example, the National Priorities Project's handy calculator reports that Massachusetts's $19.8 billion share of the bailout would build 68,703 affordable housing units. That project would provide an alternate and effective solution to the housing problem which caused the financial crisis. The antiwar coalition United for Peace and Justice called for local actions tomorrow afternoon to "Stop the Bush Bailout".

But due to the weakness of the left, the strongest opposition to the bailout plan is coming from the free-market right, who are calling the bailout "financial socialism". Mainstream liberal Democrats such as Chuck Schumer, Barney Frank, and Barack Obama are looking for ways to attach conditions to the plan, exemplified by Obama's feeble proposals, as window dressing before they capitulate and push it through. On the other hand progressive Democrats such as Dennis Kucinich and Sherrod Brown are too few to block the bailout.

Since the left cannot stop the emergence of progressive corporatism at this time, the best option is to struggle for influence within it and transform it into financial socialism. In the current situation we should demand the Schumer/Frank/Obama liberals attach a demand for equity ownership of financial firms to the bailout. (Nationalize the banks, in short) This "Swedish model" of financial bailout allowed the Swedish state to obtain an ownership stake and board seats when Swedish banks had a crisis in the 1990's. The U.S. left would then demand that the government not return the financial shares to the private market after the crisis, but rather use them to drive towards investment in health care, green energy, public/worker control of businesses, and international cooperation, i.e. towards a highly regulated U.S. capitalism instead of another round of free market cowboy capitalism in the next business cycle.

A New Deal for the 21st Century

In the past two weeks the Fed has committed hundreds of billions of dollars to bail out Fannie Mae, Freddie Mac, and AIG, following up the March bailout of Bear Stearns. This evening, Bloomberg reported that "Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke will seek support from Congress for an agency to buy bad debt to address the deepening credit crisis," a move which could further increase taxpayer commitments to business bailouts. The rapidly developing situation carries a serious risk that the future of the U.S. economy will be mortaged to pay off the costs of the spreading financial crisis.

Robert Kuttner, liberal economist and editor of The American Prospect, sees the crisis as a historic turning point and calls for Obama to project a transformational message. On WBUR's On Point yesterday when a caller proposed "a New Deal" as a slogan, Kutter took it up, said FDR was his hero, and used it as a theme for the rest of the show. I would like to take up the slogan of a New Deal and spell out what it would mean.

Kuttner bemoaned Obama's caution, but by this afternoon his Huffington Post entry saw improvement, and approvingly quoted Obama's new campaign rhetoric on the economy. However, a campaign ad on the economy distributed by the Obama campaign today contains only a repetition of the modest proposals he made in his convention speech. Obama continues to avoid proposing anything that will cost real money.

Here are some elements of a New Deal to address the financial crisis:

• Suspension of foreclosures and restructuring of mortage debt to allow homeowners to stay in their homes on reasonable terms
• Comprehensive regulation of hedge funds, private equity, investment banks, and derivatives, so that they are fully transparent and leverage is strictly controlled.
• No more bailouts of Wall Street using taxpayer money without full compensation to the Treasury
• Businesses taken over by the government as a result of the financial crisis will remain in the public sector and be operated in the public interest, not returned to the private sector.
  

In addition, the New Deal must propose how to reconstruct the American economy in the people's interest.

• Enact a universal health care program based on a single payer model.
  
• Improve and expand K-12 education and support students' college education. Free tuition at state universities.
• Fund science and technology research to develop green technologies and improve health, not to build weapons.
  
• Fix America's infrastructure, creating hundreds of thousands of construction jobs and giving priority to green transportation. Instead of hiring construction monopolies like Bechtel, these projects should be directly managed by public sector entities like state Departments of Public Works and the like.
• Develop green energy through construction of massive wind, solar, cellulosic biomass, and tidal projects, and transmission capacity, by public entities, not subsidies to monopoly corporations. No bailouts for Detroit, but re-employ workers on new projects.
  
• No to balanced budgets. Deficit spending to reverse the economic downturn.
  

Wallerstein and his world

After the wave of decolonialization of the 1950s and 1960s gave rise to independent states in Africa and Asia, some expected the new nations to develop capitalist systems like those in Europe and North America, with national industries, capitalist and working classes, and a rising standard of living. "Dependency" theorists Samir Amin and Andre Gunder Frank sought to explain why this was not the case, locating the problem in unequal trade relations between the "core" and the "periphery" of the capitalist economic system.

Building on dependency theory in the 1970s, U.S. sociologist Immanuel Wallerstein synthesized a theoretical analysis of capitalism, "world-systems theory", which can be seen as a kind of compromise between Marx and Adam Smith. Rather than seeing capitalism as based on the extraction of surplus value in the wage labor relation, he sees the essence of capitalism as a worldwide trading system in which no state is powerful enough to dominate the capitalist economy.

Over the last ten or so years Wallerstein, now at Yale, has updated his analysis with a prediction that we are entering the terminal crisis of the capitalist system. Wallerstein thinks the capitalists are running out of labor to exploit, resources to consume, and that the cost of taxation is killing them.

"There simply isn’t enough surplus-value to go around, and give the top people significant income. The world simply can’t sustain a situation in which 30-40% of the world population is living at the income level of, say, Denmark," he said in a recent interview.

Wallerstein thinks that capitalists can only make real money when they are exploiting newly proletarianized, low wage labor recruited from rural areas. But when the rural sector of the world has largely disappeared, there will be nothing to stop the workers from driving the price of labor so high that it eliminates all profit. Similarly, when there is no more nature to exploit, the cost of resources and cleaning up pollution will increase greatly, and when workers demand increasing social services such as retirement, health care, and education, taxation will further erode profits. (The Decline of American Power, pp. 58-63)

What will replace capitalism? "It's intrinsically impossible to predict what the outcome will be.... Basically there will be people trying to create a new world-system which will replicate certain basic features of the existing system but not be a capitalist system. It would still be hierarchical and exploitative. The other direction would be to create an alternative system that is relatively democratic and relatively egalitarian."

Wallerstein writes regular analyses of world political developments which are worth reading and generally in line with left opinion. But I find some problems in his theoretical positions which I fear may make them an unreliable guide to the struggles ahead.

First, it is extremely mechanistic to posit that an economic crisis alone can cause one social system to give rise to another one. Economic crisis may weaken the ruling class, but only a political challenge by a rising class representing a new system can overthrow it and end its system. How can it be otherwise? While I share the feeling that the capitalist class is losing its unity, its grip, and that we are entering an increasingly chaotic period, there must be a political force powerful enough to replace it and erect an alternative system, or there will be no fundamental change. At this time no such force has yet coalesced.

I find it equally hard to understand Wallerstein's view that while capitalism is doomed, the nature of the two potential replacement systems can only be dimly grasped and that the outcome is unpredictable and will be determined purely by political struggle. While the future is indeed hard to see, it can only take shape from the contradictions of the present, and as a solution to those contradictions.

If a global financial meltdown shakes the foundations of capitalism, only a socialist movement will be able to replace them, or they will be reconstructed. If rival states contend for influence in a geopolitical game, only their people can redirect their policies towards a peaceful alternative. If climate change accelerates hurricanes and tsunamis, it may drive peoples to insist on some form of world government to provide an effective response. Surely only a socialist world can provide a stable replacement for the current madness, but that world can only emerge through a wide-ranging realization that the current system will continue to flounder without direction until the world's people take the necessary steps to replace it.

While Wallerstein politically aligns with progressive movements, in the last analysis he does so only as a preference- not as a result of his theory. I approve of his forecast of the end of capitalism, but not of his view on the way capitalism works, the process that will bring it down, or the forces that will give rise to the new world.

From Pilgrims to Americans

Everyone knows the story of the Pilgrims, right?   They were the humble, devout Protestants who fled oppression and in 1620 founded the first English colony in Puritan New England.   After passing through bitter hardship, they celebrated the first Thanksgiving in fellowship with the Indians.

Americans' view of the Pilgrims has passed through several stages.    For future president John Adams growing up in Quincy, Massachusetts in the 1750's, the Pilgrims were his ancestors, the bedrock of his world.   The author of the Massachusetts Constitution and Declaration of Rights recognized in the zealous, hardworking, rigid, and righteous ethos of the Pilgrim Fathers, the foundation of a democratic American society.

Nineteenth century modernists could dismiss the Pilgrims as intolerant religious fanatics.  But for Harvard historian Samuel Eliot Morison in the 1950s, there was a need to rescue them from this opprobrium.   While he reassures us that "their faith is not my faith," Morison identifies with the Pilgrims.   Their struggle to colonize a new land is the start of the American project.

But no settler state can exist without dispossessing the natives, and Puritan New England was no exception.    Though they long maintained relatively peaceful relations with the Wampanoag sachem Massasoit, the Pilgrims soon joined the other New England colonies in exterminating the Pequots in 1637, a tale movingly retold at the Pequot Museum in eastern Connecticut.  By 1675, the steady encroachment of white settlement caused King Philip's War, a New England-wide war of racial annihilation in which all Indian tribes united under the leadership of Massasoit's son Philip, and after a hard, bitter fight, were destroyed; many of the  survivors were sold into slavery in the Carribean.

While in 1957 Morison could describe the murderous Indian policies of the Pilgrims without apology and without any effort to see events from the Indian side, in 50 years times have changed.  The 2006 bestseller Mayflower by Nathaniel Philbrick presents the Native point of view and depicts King Philip's War as a tragedy.   However, it is still necessary that we believe in the mastery of the settler.  "The great mystery of this story is how America emerged from the terrible darkness of King Philip's War to become the United States.   A possible answer resides in the man who has been called America's first Indian fighter, Benjamin Church".   Church, as much the hero of Philbrick's account as judicious Plymouth governor William Bradford, is the rugged frontiersman, recruiter and leader of friendly Indians, who matches Indian methods of unconventional warfare and, by tracking and killing Philip, ends the conflict.  

American exceptionalism is with us still.   While we now respect and consider the feelings of the Others, the resilience of Bradford's Puritan faith can be read in the confident verities of George Bush, indeed of all mainstream American political culture, particularly apparent in this election year.   We will be a light among nations.  We will bring democracy to the world.  (And of course, if you do not accept our version of democracy, we will bring to you a fire the like of which you have never seen.)

As Barack Obama said on PBS this evening, "We imagine a world, not as it is, but as it should be."  The Pilgrims said the same, and acted boldly on their belief.   The Pilgrims did not die.   Their messianism is the foundation of Americanism.   Conservatives, liberals, and radicals, we are Pilgrims still.