Louis Proyect: The Unrepentant Marxist

July 3, 2018

Recommended Reading

Filed under: economics — louisproyect @ 7:23 pm

An excerpt from “Capitalism vs. Freedom: the Toll Road to Serfdom“:

Labor’s Loves Lost

Having reviewed the strong concentration of capital ownership, both in household fortunes as well as market consolidation, what about labor? The Right’s take on the freedom of the labor market is that it leaves us free to choose among multiple uses for our labor, protecting you from power plays by a tyrannical boss, as when Milton Friedman wrote:

The most reliable and effective protection for most workers is provided by the existence of many employers…The employers who protect a worker are those who would like to hire him. Their demand for his services makes it in the self-interest of his own employer to pay him the full value of his work. If his own employer doesn’t, someone else may be ready to do so. Competition for his services—that is the worker’s real protection.

The first serious problem with these rosy reviews of the market is that after the previous section, it must be admitted that the “many employers” the Friedmans are expecting may never arrive to the job fair. And they do quietly concede that “Two classes or workers are not protected by anyone: workers who have only one possible employer, and workers who have no possible employer,” which makes consolidation and outsourcing very relevant for freedom.

The second great problem is that, fundamentally, people are in fact not commodities. A seller of non-perishable goods can store them until market conditions are favorable. This patience is unavailable for owners of mere labor power, who stubbornly require food and water at regular intervals. The kid can’t skip eating this quarter and eat more next quarter instead. Treating labor as an asset priced by supply and demand, like toasters or toothbrushes, is a gross insult to the human spirit and indeed, is responsible for some of the gravest crimes committed against humanity in our history.

A further problem is that this traditional claim that the labor market is “free” is based on another assumption, that if you don’t find an employer you want to work for, you can just produce goods on your own. Friedman: “Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it. Hence, no exchange will take place unless both parties do benefit from it.” This would indeed grant a good deal of freedom to the man on the street, but “producing for itself” implies access to productive resources, including what we call “capital,” which as we’ve seen is so highly concentrated that a very large part of global society has essentially none. This means that since we have no “positive freedom” to use or decide on how to use the capital stock, the typical working person is also left with diminished “negative freedom,” since employers who own the concentrated capital have dramatic power over employees in the market.

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June 27, 2018

Defending Karl Marx in Foreign Affairs…What’s that about?

Filed under: economics,social democracy — louisproyect @ 10:08 pm

On June 14th, Foreign Affairs, the journal of the Council of Foreign Relations that was formed in 1918 to develop strategies for the ruling class, published an article titled “Marxist World: What Did You Expect From Capitalism?”. (The article, which is behind a paywall, can be read below) The author was Robin Varghese, the Associate Director of Engagement at the Economic Advancement Program of the Open Society Foundations and an Editor at 3 Quarks Daily. In addition to those affiliations identified by Foreign Affairs, Varghese is also the Chairman of the Board of the Brooklyn Institute for Social Research, a kind of updated version of the Learning Annex modeled after the Frankfurt School. The roost for Max Horkheimer et al was actually called the Institute for Social Research at Goethe University. The knock-off is a place where hipsters can attend classes of the sort you might take in Duke University’s literature department but at a much lower cost.

So why would Foreign Affairs, the journal where George Kennan’s blueprint for the Cold War domination titled “Containment” appeared, be publishing something favorable to Karl Marx? Let me take a stab at answering that question.

To start with, it is necessary to say a few words about George Soros’s Economic Advancement Program. The Open Society website states its goal: “Because economic systems are complex, we deploy a mix of interventions. We make private sector investments through the program’s investment vehicle, the Soros Economic Development Fund, to yield social impact, we support civil society actors advancing economic justice, we advise governments on economic policy, and we build coalitions to foment progressive change.” Basically, this is a vehicle for microfinance of the sort pioneered by the Grameen Bank. In 2009, Soros teamed up with Pierre Omidyar, the eBay billionaire who funds Intercept, and Google to serve small businesses in India. Omidyar’s website described its aim:

“With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance,” said Neal DeLaurentis, Vice President of Soros Economic Development Fund. “Long ignored by commercial capital markets, small and medium businesses are an attractive investment opportunity as well as an engine for economic growth for India.”

It is beyond the scope of this article to detail the failings of microfinance but I would advise reading this for a useful critique.

Turning now to Varghese’s article, it can easily be understood as just another in the series of articles that appeared immediately after the 2008 meltdown, crediting Karl Marx for diagnosing the contradictions of the capitalist economy but stopping short at his prescription for moving beyond it through socialist revolution. He writes:

Better than most, Marx understood the mechanisms that produce capitalism’s downsides and the problems that develop when governments do not actively combat them, as they have not for the past 40 years. As a result, Marxism, far from being outdated, is crucial for making sense of the world today.

As I pointed out in a 2016 article, this sort of testimony to Marx’s wisdom went viral a decade ago:

After 2008 there were deep worries in the financial punditocracy. You might remember that scene in China Syndrome when the first shudders took place in the nuclear reactor. Was this going to be the “Big One”? That is how Nouriel Roubini must have felt on August 11, 2011 when he told a Wall Street Journal interviewer:

Karl Marx had it right. At some point, Capitalism can self-destroy itself because you cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.

Even more shockingly, George Magnus, an economist with the UBS investment bank, advised Bloomberg News readers to Give Karl Marx a Chance to Save the World Economy just 18 days after Roubini’s interview appeared. Magnus quoted Marx’s Capital: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.” But his solutions had more to do with Keynes than Marx, such as this one: “Governments and central banks could engage in direct spending on or indirect financing of national investment or infrastructure programs.” If Karl Marx confronted a crisis as deep as the one we faced in 2008, his advice would have been to nationalize the banks not use them as tools for fiscal pump-priming.

However, Umair Haque probably spoke for most of these commentators—including Sean McElwee, I imagine—when after posing the question Was Marx Right? in the Harvard Business Review he came down squarely on the side of capitalism. After giving Marx his due (“Marx’s critiques seem, today, more resonant than we might have guessed”), Haque sides with McElwee on the “recipe” question: “Now, here’s what I’m not suggesting: that Marx’s prescriptions (you know the score: overthrow, communalize, high-five, live happily ever after) for what to do about the maladies above were desirable, good, or just. History, I’d argue, suggests they were anything but.”

Using a combination of common sense and what he has absorbed from reading Marx, Varghese describes the current epoch as one consisting of chronic stagnation even if it is producing billionaires by the wheelbarrow full:

Since the 1970s, businesses across the developed world have been cutting their wage bills not only through labor-saving technological innovations but also by pushing for regulatory changes and developing new forms of employment. These include just-in-time contracts, which shift risk to workers; noncompete clauses, which reduce bargaining power; and freelance arrangements, which exempt businesses from providing employees with benefits such as health insurance. The result has been that since the beginning of the twenty-first century, labor’s share of GDP has fallen steadily in many developed economies.

There’s not much to quibble with in the middle section of his article that describes the growing inequality in the USA and other advanced capitalist countries. It cites Thomas Piketty and Branko Milanovic who have produced outstanding work even if their analysis is not necessarily grounded in Marxist theory.

In a section titled “The Keynesian Challenge”, he sounds skeptical at first blush about the possibility of a new New Deal, a “Swedish model” or any of the other solutions proposed by the Sanders wing of the Democratic Party:

Under capitalism, Marx predicted, the demands imposed by capital accumulation and profitability would always severely limit the choices available to governments and undermine the long-term viability of any reforms. The history of the developed world since the 1970s seems to have borne out that prediction. Despite the achievements of the postwar era, governments ultimately found themselves unable to overcome the limits imposed by capitalism, as full employment, and the labor power that came with it, reduced profitability. Faced with the competing demands of capitalists, who sought to undo the postwar settlement between capital and labor, and the people, who sought to keep it, states gave in to the former. In the long run, it was the economic interests of capital that won out over the political organization of the people.

But the last three paragraphs are a dead giveaway that Varghese is for Marx’s economic analysis but not his life-long goal to “change it”. The only thing he seems bent on changing is the sort of neoliberal austerity that Sanderistas find so loathsome. However, forming revolutionary parties and overthrowing capitalism is even more loathsome apparently as indicated from the reformist pap below:

The challenge today is to identify the contours of a mixed economy that can successfully deliver what the golden age did, this time with greater gender and racial equality to boot. This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings. The normal state of capitalism is one in which, as Marx and Engels wrote in The Communist Manifesto, “all that is solid melts into air.” This dynamism means that achieving egalitarian goals will require new institutional configurations backed by new forms of politics.

As the crisis of the golden age was ramping up in the 1970s, the economist James Meade wondered what sorts of policies could save egalitarian, social democratic capitalism, recognizing that any realistic answer would have to involve moving beyond the limits of Keynesianism. His solution was to buttress the welfare state’s redistribution of income with a redistribution of capital assets, so that capital worked for everyone. Meade’s vision was not state ownership but a broad property-owning democracy in which wealth was more equally distributed because the distribution of productive capacity was more equal.

The point is not that broader capital ownership is a solution to the ills of capitalism in the present day, although it could be part of one. Rather, it is to suggest that if today’s egalitarian politicians, including Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are to succeed in their projects of taming markets and revitalizing social democracy for the twenty-first century, it will not be with the politics of the past. As Marx recognized, under capitalism there is no going back.

Let’s take apart this pile of crap that probably is first cousin to the Vivek Chibber Catalyst article that Robert Brenner objected to. It is the sort of thing you routinely hear from Jacobin, the DSA old guard, Dissent Magazine and The Nation.

To start with, let’s examine: “This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings.”

The most dynamic social arrangement? Is this guy serious? Capitalism is not primarily about markets. It is about coercion. Slavery, debt peonage, child labor, union busting and other forms of extra-market forces were midwives to capitalism and continue to this day. Books like Michele Alexander’s “The New Jim Crow” and Douglas Blackmon’s “Slavery by Another Name” offer ample evidence of how racialized capitalism retains many of the coercive features that were present in its infancy. All you need to do is go to your local grocery store and make a list of all the different imported agricultural products, especially from Mexico. A 2014 LA Times article describes anything but a “dynamic social arrangement”:

Ricardo Martinez and Eugenia Santiago were desperate.

At the labor camp for Bioparques de Occidente, they and other farmworkers slept sprawled head to toe on concrete floors. Their rooms crawled with scorpions and bedbugs. Meals were skimpy, hunger a constant. Camp bosses kept people in line with threats and, when that failed, with their fists.

Escape was tempting but risky. The compound was fenced with barbed wire and patrolled by bosses on all-terrain vehicles. If the couple got beyond the gates, local police could arrest them and bring them back. Then they would be stripped of their shoes.

Martinez, 28, and Santiago, 23, decided to chance it. Bioparques was one of Mexico’s biggest tomato exporters, a supplier for Wal-Mart and major supermarket chains. But conditions at the company’s Bioparques 4 camp had become unbearable.

They left their backpacks behind to avoid suspicion and walked out the main gate. As they approached the highway, a car screeched up. Four camp bosses jumped out. One waved a stick at them.

“You’re trying to leave,” he said, after spotting a change of clothing in a plastic bag Martinez was carrying.

“I’m just going for a walk,” Martinez said.

“Get in the car or I’ll break you,” the boss replied.

The next day, Martinez and Santiago were back at work in the tomato fields.

Varghese endorses James Meade’s solution to saving “egalitarian, social democratic capitalism”, namely to redistribute capital assets, so that capital worked for everyone. This “broad property-owning democracy” would supposedly insure that both you and the Koch brothers would have about the same amount of “capital assets”, including land, machinery, securities, etc. Fat chance of that, I’d say. I don’t have much time or motivation to plumb the profundities of Meade’s economic ideas but suffice it to say that Wikipedia describes them as based on neo-Classical assumptions such as: (1) The economy in question is a closed economy with no relationship with the outside world. (2) There is no government activity involving taxation and expenditure. (3) Perfect competition exists in the market.

Am I that surprised that someone who is paid by George Soros recommends the economic ideas of James Meade? Commentary Magazine, the leading voice of neo-Conservatism, wrote a rave review of Meade’s 1975 “The Intelligent Radical’s Guide to Economic Policy: The Mixed Economy”:

James Meade, a former president of the Royal Economic Society, has published (in England) one of those rare economics books that one can recommend to every thoughtful person who takes an interest in the fundamental problems of contemporary societies. Some enterprising publisher should bring it out also in the United States. So far as my acquaintance extends, nothing of this character, scope, and quality has been published on our side of the Atlantic.

Starting to get the picture? Varghese’s article found exactly the right outlet in Foreign Affairs.

The final paragraph makes it clear that his project is to breathe life into social democracy. Bernie Sanders and Jeremy Corbyn must succeed in taming markets and revitalizing social democracy for the twenty-first century. However, it will not be with the politics of the past. Of course, you know what the “politics of the past” is about—socialist revolution and all that other utopian nonsense.

Let me conclude with a few words about the Brooklyn Institute for Social Research. A 2012 New Yorker Magazine article looked in on a class given by its founder Ajay Singh Chaudhary, who has a Columbia University PhD, and Abby Kluchin, another Columbia PhD. For people in their shoes, the teaching jobs at the Institute are about the same as what adjuncts earn. Courses are held at night and cost a few hundred dollars. Faculty members receive eighty per cent of tuition, which amounts to more than they would make at a major university—at least if they are adjuncts.

Most of the classes are geared to the kinds of people who would find MLA conferences worth attending, such as “Jane Austen and the Problem of Other Minds” but they do have one on “Crisis and Capitalism” that sounds like the sort of thing you might have taken at the Brecht Forum but for a lot less than the $315 the Brooklyn Institute charges. The class was given by Raphaële Chappe, who used to be a Goldman Sachs Vice President in the Tax Department. So I guess she knows something about capitalism.

A while back she was interviewed by Laura Flanders in a show titled “Eat the Rich?”. Laura asked her about whether finance capital could be used to redistribute power and resources. If this sounds a bit like the microfinance and James Meade type strategies indicated above, you are on the right track. It turns out that Chappe had started what she called a Robin Hood Hedge Fund that incorporated this redistribution agenda. She explained what made it tick:

We have an algorithm, we call it the parasite. What it does is, it replicates the investments of what we consider to be insiders in Wall Street. We form a portfolio that replicates those investments, and so far we’ve gotten great returns. I think last year was 40% return, which made it the second hedge fund in the world. Of course, it’s a little bit of impertinence. We’re trying to hack it, derail it…I think that it’s just a very small dent if you think about all the types of strategies out there that hedge funds are using to make investments. We’re basically mimicking a very small segment. There are things that we cannot track, or trace. High frequency trading, for example. You have hundreds of trades happening every minute, we wouldn’t be able to do that. We do our best to hack it with the tools we have.

I wouldn’t want to discourage anybody from taking her course. After all, night school is a good way to develop social relationships in a very lonely city but if I had $315 to invest and if I was single, I’d sign up for a salsa dancing class instead.


Foreign Affairs, July/August 2018 Issue
Marxist World
What Did You Expect From Capitalism?
By Robin Varghese

After nearly every economic downturn, voices appear suggesting that Marx was right to predict that the system would eventually destroy itself. Today, however, the problem is not a sudden crisis of capitalism but its normal workings, which in recent decades have revived pathologies that the developed world seemed to have left behind.

Since 1967, median household income in the United States, adjusted for inflation, has stagnated for the bottom 60 percent of the population, even as wealth and income for the richest Americans have soared. Changes in Europe, although less stark, point in the same direction. Corporate profits are at their highest levels since the 1960s, yet corporations are increasingly choosing to save those profits rather than invest them, further hurting productivity and wages. And recently, these changes have been accompanied by a hollowing out of democracy and its replacement with technocratic rule by globalized elites.

Mainstream theorists tend to see these developments as a puzzling departure from the promises of capitalism, but they would not have surprised Marx. He predicted that capitalism’s internal logic would over time lead to rising inequality, chronic unemployment and underemployment, stagnant wages, the dominance of large, powerful firms, and the creation of an entrenched elite whose power would act as a barrier to social progress. Eventually, the combined weight of these problems would spark a general crisis, ending in revolution.

Marx believed the revolution would come in the most advanced capitalist economies. Instead, it came in less developed ones, such as Russia and China, where communism ushered in authoritarian government and economic stagnation. During the middle of the twentieth century, meanwhile, the rich countries of Western Europe and the United States learned to manage, for a time, the instability and inequality that had characterized capitalism in Marx’s day. Together, these trends discredited Marx’s ideas in the eyes of many.

Yet despite the disasters of the Soviet Union and the countries that followed its model, Marx’s theory remains one of the most perceptive critiques of capitalism ever offered. Better than most, Marx understood the mechanisms that produce capitalism’s downsides and the problems that develop when governments do not actively combat them, as they have not for the past 40 years. As a result, Marxism, far from being outdated, is crucial for making sense of the world today.

A MATERIAL WORLD

The corpus of Marx’s work and the breadth of his concerns are vast, and many of his ideas on topics such as human development, ideology, and the state have been of perennial interest since he wrote them down. What makes Marx acutely relevant today is his economic theory, which he intended, as he wrote in Capital, “to lay bare the economic law of motion of modern society.” And although Marx, like the economist David Ricardo, relied on the flawed labor theory of value for some of his economic thinking, his remarkable insights remain.

Marx believed that under capitalism, the pressure on entrepreneurs to accumulate capital under conditions of market competition would lead to outcomes that are palpably familiar today. First, he argued that improvements in labor productivity created by technological innovation would largely be captured by the owners of capital. “Even when the real wages are rising,” he wrote, they “never rise proportionally to the productive power of labor.” Put simply, workers would always receive less than what they added to output, leading to inequality and relative immiseration.

Second, Marx predicted that competition among capitalists to reduce wages would compel them to introduce labor-saving technology. Over time, this technology would eliminate jobs, creating a permanently unemployed and underemployed portion of the population. Third, Marx thought that competition would lead to greater concentration in and among industries, as larger, more profitable firms drove smaller ones out of business. Since these larger firms would, by definition, be more competitive and technologically advanced, they would enjoy ever-increasing surpluses. Yet these surpluses would also be unequally distributed, compounding the first two dynamics.

Marx made plenty of mistakes, especially when it came to politics. Because he believed that the state was a tool of the capitalist class, he underestimated the power of collective efforts to reform capitalism. In the advanced economies of the West, from 1945 to around 1975, voters showed how politics could tame markets, putting officials in power who pursued a range of social democratic policies without damaging the economy. This period, which the French call “les Trente Glorieuses” (the Glorious Thirty), saw a historically unique combination of high growth, increasing productivity, rising real wages, technological innovation, and expanding systems of social insurance in Western Europe, North America, and Japan. For a while, it seemed that Marx was wrong about the ability of capitalist economies to satisfy human needs, at least material ones.

BOOM AND BUST

The postwar boom, it appears, was not built to last. It ultimately came to an end with the stagflationary crisis of the 1970s, when the preferred economic policy of Western social democracies—Keynesian state management of demand—seemed incapable of restoring full employment and profitability without provoking high levels of inflation. In response, leaders across the West, starting with French Prime Minister Raymond Barre, British Prime Minister Margaret Thatcher, and U.S. President Ronald Reagan, enacted policies to restore profitability by curbing inflation, weakening organized labor, and accommodating unemployment.

That crisis, and the recessions that followed, was the beginning of the end for the mixed economies of the West. Believing that government interference had begun to impede economic efficiency, elites in country after country sought to unleash the forces of the market by deregulating industries and paring back the welfare state. Combined with conservative monetary policies, independent central banks, and the effects of the information revolution, these measures were able to deliver low volatility and, beginning in the 1990s, higher profits. In the United States, corporate profits after tax (adjusted for inventory valuation and capital consumption) went from an average of 4.5 percent in the 25 years before President Bill Clinton took office, in 1993, to 5.6 percent from 1993 to 2017.

This sharp divergence in fortunes has been driven by, among other things, the fact that increases in productivity no longer lead to increases in wages in most advanced economies.

Yet in advanced democracies, the long recovery since the 1970s has proved incapable of replicating the broad-based prosperity of the mid-twentieth century. It has been marked instead by unevenness, sluggishness, and inequality. This sharp divergence in fortunes has been driven by, among other things, the fact that increases in productivity no longer lead to increases in wages in most advanced economies. Indeed, a major response to the profitability crisis of the 1970s was to nullify the postwar bargain between business and organized labor, whereby management agreed to raise wages in line with productivity increases. Between 1948 and 1973, wages rose in tandem with productivity across the developed world. Since then, they have become decoupled in much of the West. This decoupling has been particularly acute in the United States, where, in the four decades since 1973, productivity increased by nearly 75 percent, while real wages rose by less than ten percent. For the bottom 60 percent of households, wages have barely moved at all.

If the postwar boom made Marx seem obsolete, recent decades have confirmed his prescience. Marx argued that the long-run tendency of capitalism was to form a system in which real wages did not keep up with increases in productivity. This insight mirrors the economist Thomas Piketty’s observation that the rate of return on capital is higher than the rate of economic growth, ensuring that the gap between those whose incomes derive from capital assets and those whose incomes derive from labor will grow over time.

Marx’s basis for the condemnation of capitalism was not that it made workers materially worse off per se. Rather, his critique was that capitalism put arbitrary limits on the productive capacity it unleashed. Capitalism was, no doubt, an upgrade over what came before. But the new software came with a bug. Although capitalism had led to previously unimaginable levels of wealth and technological progress, it was incapable of using them to meet the needs of all. This, Marx contended, was due not to material limitations but to social and political ones: namely, the fact that production is organized in the interests of the capitalist class rather than those of society as a whole. Even if individual capitalists and workers are rational, the system as a whole is irrational.

To be sure, the question of whether any democratically planned alternative to capitalism can do better remains open. Undemocratic alternatives, such as the state socialism practiced by the Soviet Union and Maoist China, clearly did not. One need not buy Marx’s thesis that communism is inevitable to accept the utility of his analysis.

Marx predicted that competition among capitalists to reduce wages would compel them to introduce labor-saving technology. Over time, this technology would eliminate jobs, creating a permanently unemployed and underemployed portion of the population. NOAH BERGER / REUTERS A Kiva robot moves inventory at an Amazon fulfillment center in Tracy, California December 1, 2014.

LAWS OF MOTION

Marx did not just predict that capitalism would lead to rising inequality and relative immiseration. Perhaps more important, he identified the structural mechanisms that would produce them. For Marx, competition between businesses would force them to pay workers less and less in relative terms as productivity rose in order to cut the costs of labor. As Western countries have embraced the market in recent decades, this tendency has begun to reassert itself.

Since the 1970s, businesses across the developed world have been cutting their wage bills not only through labor-saving technological innovations but also by pushing for regulatory changes and developing new forms of employment. These include just-in-time contracts, which shift risk to workers; noncompete clauses, which reduce bargaining power; and freelance arrangements, which exempt businesses from providing employees with benefits such as health insurance. The result has been that since the beginning of the twenty-first century, labor’s share of GDP has fallen steadily in many developed economies.

Competition also drives down labor’s share of compensation by creating segments of the labor force with an increasingly weak relationship to the productive parts of the economy—segments that Marx called “the reserve army of labor,” referring to the unemployed and underemployed. Marx thought of this reserve army as a byproduct of innovations that displaced labor. When production expanded, demand for labor would increase, drawing elements of the reserve army into new factories. This would cause wages to rise, incentivizing firms to substitute capital for labor by investing in new technologies, thus displacing workers, driving down wages, and swelling the ranks of the reserve army. As a result, wages would tend toward a “subsistence” standard of living, meaning that wage growth over the long run would be low to nonexistent. As Marx put it, competition drives businesses to cut labor costs, given the market’s “peculiarity that the battles in it are won less by recruiting than by discharging the army of workers.”

The United States has been living this reality for nearly 20 years. For five decades, the labor-force participation rate for men has been stagnant or falling, and since 2000, it has been declining for women, as well. And for more unskilled groups, such as those with less than a high school diploma, the rate of participation stands at below 50 percent and has for quite some time. Again, as Marx anticipated, technology amplifies these effects, and today, economists are once again discussing the prospect of the large-scale displacement of labor through automation. On the low end, the Organization for Economic Cooperation and Development estimates that 14 percent of jobs in member countries, approximately 60 million in total, are “highly automatable.” On the high end, the consulting company McKinsey estimates that 30 percent of the hours worked globally could be automated. These losses are expected to be concentrated among unskilled segments of the labor force.

Whether these workers can or will be reabsorbed remains an open question, and fear of automation’s potential to dislocate workers should avoid the so-called lump of labor fallacy, which assumes that there is only a fixed amount of work to be done and that once it is automated, there will be none left for humans. But the steady decline in the labor-force participation rate of working-age men over the last 50 years suggests that many dislocated workers will not be reabsorbed into the labor force if their fate is left to the market.

The same process that dislocates workers—technological change driven by competition—also produces market concentration, with larger and larger firms coming to dominate production. Marx predicted a world not of monopolies but of oligopolistic competition, in which incumbents enjoy monopolistic profits, smaller firms struggle to scrape by, and new entrants try to innovate in order to gain market share. This, too, resembles the present. Today, so-called superstar firms, which include companies such as Amazon, Apple, and FedEx, have come to dominate entire sectors, leaving new entrants attempting to break in through innovation. Large firms outcompete their opponents through innovation and network effects, but also by either buying them up or discharging their own reserve armies—that is, laying off workers.

Research by the economist David Autor and his colleagues suggests that the rise of superstar firms may indeed help explain labor’s declining share of national income across advanced economies. Because superstar firms are far more productive and efficient than their competitors, labor is a significantly lower share of their costs. Since 1982, concentration has been increasing in the six economic sectors that account for 80 percent of employment in the United States: finance, manufacturing, retail trade, services, wholesale trade, and utilities and transportation. And the more this concentration has increased, the more labor’s share of income has declined. In U.S. manufacturing, for example, labor compensation has declined from almost one-half of the value added in 1982 to about one-third in 2012. As these superstar firms have become more important to Western economies, workers have suffered across the board.

WINNERS AND LOSERS

In 1957, at the height of Western Europe’s postwar boom, the economist Ludwig Erhard (who later became chancellor of West Germany) declared that “prosperity for all and prosperity through competition are inseparably connected; the first postulate identifies the goal, the second the path that leads to it.” Marx, however, seems to have been closer to the mark with his prediction that instead of prosperity for all, competition would create winners and losers, with the winners being those who could innovate and become efficient.

Innovation can lead to the development of new economic sectors, as well as new lines of goods and services in older ones. These can in principle absorb labor, reducing the ranks of the reserve army and increasing wages. Indeed, capitalism’s ability to expand and meet people’s wants and needs amazed Marx, even as he condemned the system’s wastefulness and the deformities it engendered in individuals.

For a period, it seemed that the children of the middle class had a fair shot at swapping places with the children of the top quintile. But as inequality rises, social mobility declines.

Defenders of the current order, especially in the United States, often argue that a focus on static inequality (the distribution of resources at a given time) obscures the dynamic equality of social mobility. Marx, by contrast, assumed that classes reproduce themselves, that wealth is transferred effectively between generations, and that the children of capitalists will exploit the children of workers when their time comes. For a period, it seemed that the children of the middle class had a fair shot at swapping places with the children of the top quintile. But as inequality rises, social mobility declines. Recent research by the economists Branko Milanovic and Roy van der Weide, for instance, has found that inequality hurts the income growth of the poor but not the rich. Piketty, meanwhile, has speculated that if current trends continue, capitalism could develop into a new “patrimonial” model of accumulation, in which family wealth trumps any amount of merit.

THE KEYNESIAN CHALLENGE

Marx’s overall worldview left little room for politics to mitigate the downsides of capitalism. As he and his collaborator Friedrich Engels famously stated in The Communist Manifesto, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”

Until recently, governments in the West seemed to be defying this claim. The greatest challenge to Marx’s view came from the creation and expansion of welfare states in the West during the mid-twentieth century, often (but not only) by social democratic parties representing the working class. The intellectual architect of these developments was the economist John Maynard Keynes, who argued that economic activity was driven not by the investment decisions of capitalists but by the consumption decisions of ordinary people. If governments could use policy levers to increase overall demand, then the capitalist class would invest in production. Under the banner of Keynesianism, parties of both the center-left and the center-right achieved something that Marx thought was impossible: efficiency, equality, and full employment, all at the same time. Politics and policy had a degree of independence from economic structures, which in turn gave them an ability to reform those structures.

Marx believed in the independence of politics but thought that it lay only in the ability to choose between capitalism and another system altogether. He largely believed that it was folly to try to tame capitalist markets permanently through democratic politics. (In this, he ironically stands in agreement with the pro-capitalist economist Milton Friedman.)

Under capitalism, Marx predicted, the demands imposed by capital accumulation and profitability would always severely limit the choices available to governments and undermine the long-term viability of any reforms. The history of the developed world since the 1970s seems to have borne out that prediction. Despite the achievements of the postwar era, governments ultimately found themselves unable to overcome the limits imposed by capitalism, as full employment, and the labor power that came with it, reduced profitability. Faced with the competing demands of capitalists, who sought to undo the postwar settlement between capital and labor, and the people, who sought to keep it, states gave in to the former. In the long run, it was the economic interests of capital that won out over the political organization of the people.

MARXISM TODAY

Today, the question of whether politics can tame markets remains open. One reading of the changes in advanced economies since the 1970s is that they are the result capitalism’s natural tendency to overwhelm politics, democratic or otherwise. In this narrative, les Trente Glorieuses were a fluke. Under normal conditions, efficiency, full employment, and an egalitarian distribution of income cannot simultaneously obtain. Any arrangement in which they do is fleeting and, over the long run, a threat to market efficiency.

Yet this is not the only narrative. An alternative one would start with the recognition that the politics of capitalism’s golden age, which combined strong unions, Keynesian demand management, loose monetary policy, and capital controls, could not deliver an egalitarian form of capitalism forever. But it would not conclude that no other form of politics can ever do so.

The challenge today is to identify the contours of a mixed economy that can successfully deliver what the golden age did, this time with greater gender and racial equality to boot. This requires adopting Marx’s spirit, if not every aspect of his theories—that is, recognizing that capitalist markets, indeed capitalism itself, may be the most dynamic social arrangement ever produced by human beings. The normal state of capitalism is one in which, as Marx and Engels wrote in The Communist Manifesto, “all that is solid melts into air.” This dynamism means that achieving egalitarian goals will require new institutional configurations backed by new forms of politics.

As the crisis of the golden age was ramping up in the 1970s, the economist James Meade wondered what sorts of policies could save egalitarian, social democratic capitalism, recognizing that any realistic answer would have to involve moving beyond the limits of Keynesianism. His solution was to buttress the welfare state’s redistribution of income with a redistribution of capital assets, so that capital worked for everyone. Meade’s vision was not state ownership but a broad property-owning democracy in which wealth was more equally distributed because the distribution of productive capacity was more equal.

The point is not that broader capital ownership is a solution to the ills of capitalism in the present day, although it could be part of one. Rather, it is to suggest that if today’s egalitarian politicians, including Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are to succeed in their projects of taming markets and revitalizing social democracy for the twenty-first century, it will not be with the politics of the past. As Marx recognized, under capitalism there is no going back.

June 11, 2018

Is China Socialist?

Filed under: China,economics — louisproyect @ 9:04 pm

Donald Trump asking Xi Jinping for Karl Marx reading recommendations, especially anything on “spiritual pursuit”

Four days ago Michael Roberts posted an article titled “China workshop: challenging the misconceptions” that raised a number of interesting questions:

What are the reasons for China’s phenomenal growth in the last 40 years and can it last? What is the nature of the Chinese economy: is it capitalist or not? What explains under Xi the new emphasis on studying Marxism in China’s universities? Is China’s export and investment expansion abroad imperialist or not? How will the trade war between the US and China pan out?

The workshop invited Roberts and a number of Chinese economists to speak on these questions, all of whom—including Roberts—denied that China was capitalist. It was sponsored by the School of Oriental and African Studies at the University of London, universally referred to nowadays as SOAS ostensibly because of the stigma attached to a word like Oriental. In the first session, Professor Dic Lo, an economist at SOAS who was the moving force behind this gathering, spoke alongside one Zhu Andong,  who is the Vice Dean at the School of Marxism at Tsinghua University. School of Marxism? Jeez, if I had kids, that’s where I’d want to them to study.

Or maybe not.

Dic Lo chastised people like Martin Hart-Landsberg, Paul Burkett, David Harvey, and Minqi Li for describing China as “neoliberal capitalist”, where growth is based on the “Foxconn” model—you know, the immense factory that turns out electronic parts and that is so oppressive that there was an epidemic of suicides.

For his part, the Vice Dean of the School of Marxism concurred with Dic Lo and offered supporting evidence for the country’s anticapitalist bona fides–the official support for the study of Marxism in Chinese universities like his. Well, only last month Xi Jinping stated that Marxism is “totally correct” for China so who are we to question that? He told all party members at a big gathering celebrating the 200th anniversary of Marx’s birth to study his writings as a “way of life” and “spiritual pursuit”.

Ironically, the Vice Dean of the School of Marxism had a different take on Minqi Li at one time. In 2005, they co-authored a paper titled “Neoliberalism, Global Imbalances, and Stages of Capitalist Development” that described the U.S. and China as the two main engines of neoliberal growth. Could it be possible that such a paper might have reflected youthful radicalism that has been tamed through the inevitable process of a career path in the Chinese academy, even if the top roosts are emblazoned with the image of Karl Marx?

Dic Lo got in the face of those ultra-leftists like Martin Hart-Landsberg, throwing down the gauntlet:

All the talk from the left, said Lo, was about political repression, labour exploitation, inequality or Chinese ‘imperialism’. But then how to explain China’s phenomenal growth and success in taking over 850m people out of poverty (as defined by the World Bank) and reaching national output second only to the US. China doubles real living standards every 13 years. It now takes the US and Europe 50 years and Japan even longer. Is this just fake or illusory and if not, how can this ‘capitalist’ and ‘imperialist’ economy have bucked the trend, when the record of all other capitalist economies (advanced or ‘emerging’) can show no such success? “How can it be possible, in our times, for a late-developing nation to move up the world political-economic hierarchy to become imperialist? Can anyone on the left answer this question?”

Probably without realizing it, Lo answered his own question by asking us to “explain China’s phenomenal growth and success in taking over 850m people out of poverty.” It should be obvious that this phenomenal growth comes from the massive capitalist development along the southeastern coast in cities like Guangzhou (formerly known as Canton). By opening up such cities to foreign investment and drawing in people from the countryside through land privatization, the country became a showcase for capitalist modernization.

In fact, the country that was a counter-revolutionary dagger aimed at China enjoyed the same kind of “take-off”. I speak of Taiwan that was home to Chiang Kai-shek’s KMT that dreamt of overthrowing communism on the mainland. This chart should give you an idea of how dramatic the poverty reduction was.

It appeared in an article titled “Openness, Growth and Poverty: The Case of Taiwan” that appeared in the 2007 World Development journal. It makes one wonder whether, despite all the hostility between Taiwan and the mainland, that perhaps Deng Xiaoping consciously emulated its success. The article states:

Like many developing countries, poverty was widespread in Taiwan during the early postwar years. After the government decisively reoriented its development strategy from import substitution toward export promotion at the end of the 1950s, the exceptional economic growth has not only brought with it the well-known record of income distribution, but has also resulted in rapid poverty reduction. What Taiwan has experienced in the past four decades suggests that there is a close link between openness, economic growth and poverty reduction, and thus constitutes an ideal case for a country-specific study …

But does rapid capitalist growth, even when combined with generous social services as is the case in both China and Taiwan, serve as a benchmark for progress toward socialism? In China, there is lots of personal freedom. Unlike Iran, nobody gives a crap what clothes you wear or whether you walk down the street like a drunken sailor on shore leave. But like Iran, China will brook no challenge to the ruling party, which is closely tied to what Bernie Sanders calls the “billionaire class”. If workers want to press for higher wages and a relaxation of the killing pace at Foxconn, what happens? I recommend China Labor Bulletin to keep track of these encounters, especially the article titled “Swimming against the Tide: A short history of labour conflict in China and the government’s attempts to control it.” Among the findings:

Another report in 2009 by Hong Kong activist group Students and Scholars Against Corporate Misbehaviour (SACOM) showed that the 6,000 employees of the Tianyu Toy Company in Dongguan typically worked three hours overtime each day. During peak production times they worked four hours overtime a day and some workers complained they sometimes had to work through the night, with the longest continuous shift lasting 28 hours. Worse still, if the shift went past 9:30 pm, the company refused to pay overtime. And if employees refused to do overtime, they were fined 50 yuan. To prevent workers from walking out, the company held back a month and a half’s wages and, if workers resigned without their manager’s approval, they would lose one month’s wages.

Naturally, this kind of super-exploitation produces investment capital that can continue to build new factories that act as a magnet for the rural poor. When a peasant who earns about $100 per year loses his land due to modern day primitive accumulation, he could get a job at Tianyu Toy Company making $100 per month. Is this dramatic increase in wealth a step on the road to socialism?

Dic Lo’s articles are mostly written in non-Marxist journals and are meant to refute his neoliberal adversaries, who—compared to him—would accelerate the economic practices so that they would be line with those that prevail in India or Russia today. Basically, he is arguing from the standpoint of what used to be called a “mixed economy”.

You have to go back to Historical Materialism in 2001 for the one article he submitted to a Marxist journal, in this instance a special issue on the Asian financial crisis that began in Thailand in 1997. You can find an article in the same issue by the notorious ultra-leftist Paul Burkett titled “Crisis and Recovery in East Asia: The Limits of Capitalist Development”.

Lo’s article is titled “China After East Asian Developmentalism” and is much less technical that those written by him for a-list economics journals. In contrast to the smoking rubble of Thailand, Indonesia et al, China was barely impacted in the early 2000s. While he acknowledges that China shared some of the same “marketization” features as the Asian Tigers, it was protected from the financial superstorm by policies unique to China. Neither, however, have much to do with socialism.

The first was plain vanilla Keynsianism:

The East Asian financial and economic crisis, in conjunction with the steadily slowing down of economic growth in the domestic front, prompted the Chinese state leadership to adopt four major categories of anti-crisis policies from early 1998. The first was a range of welfare-state policies, which included raising the benefits for the retired and the unemployed, raising the pay of public-sector employees, and lengthening the paid holidays of workers. All these were aimed at reversing the trend of stagnant consumption expansion. The second category encompassed several Keynesian-type fiscal packages for expanding investment demand. These packages were financed by debt issuing on unprecedented scales. The third category encompassed policy measures to revitalise the state sector.

The revitalized state sector was embodied in the State-Owned Enterprises (SOEs) that for Michael Roberts, Dic Lo and all the other speakers at the SOAS workshop see as constituting the all-important socialist sector.

Let’s take a look at one of these socialistic SOE’s, the Anbang Insurance Group that attracted a lot of publicity this year for its bid to invest millions of dollars in a building owned by Jared Kushner. The largest shareholders are state-owned car maker Shanghai Automotive Industries Corp and Sinopec, a state-owned oil company Sinopec.

Of course, trying to figure out who exactly “owns” Anbang is not easy. Like many huge Chinese firms, they make discovery difficult as an American trade union found out when pressing charges against it for unfair labor practices as the Times reported in September 2016.

The Anbang shareholders in the Pingyang County area hold their stakes through a byzantine collection of holding companies. But according to dozens of interviews and a review of thousands of pages of Anbang filings by The New York Times, many of them have something in common: They are family members and acquaintances of Wu Xiaohui, Anbang’s chairman, a native of the county who married into the family of Deng Xiaoping, China’s paramount leader in the 1980s and ’90s.

You remember who Deng Xiaoping was, right? He was Mao Zedong’s successor who took “the capitalist road” in the first place. I guess his friends and relatives were quite happy with the NEP-type reforms since it put them in the position of buying the Waldorf Astoria and coming close to bailing out Trump’s son-in-law who will hopefully be arrested this week.

As should be obvious at this point, “state ownership” is a convenient fiction in China, especially since anybody can buy shares in such companies, including Western investors. For example, Roberts is impressed with the fact that the state-owned China General Nuclear Power Corp has begun to incorporate Western technologies, However, it is traded publicly on the Hong Kong Stock Exchange, as is the case with the largest Chinese SOE’s, and thus no different from any other capitalist firm. In the final analysis, it is the class character of those who own the means of production that determines their social role. While the number of shares available to outside investors has been relatively small, “reforms” enacted in 2015 to transform SOE’s into mixed enterprises will likely increase their numbers as indicated by the transformation of the second largest mobile carrier.

Unlike China today, Soviet Russia never had a stock exchange. The children of Soviet bureaucrats could never look forward to inheriting their daddy’s holdings like Donald Trump did from his father. That is true state ownership.

Although ownership data is difficult to come by, you can read an article co-authored by Curtis J. Milhaupt and Wentong Zheng titled “Beyond Ownership: State Capitalism and the Chinese Firm” on the Columbia University Law School website. It hones in on Ping An, another insurance company. The largest block of shares is owned by HSBC Ltd., a multinational bank that originated in Hong Kong even though most shares are owned by other SOE’s. In 2016, Mexican families sued the bank for money-laundering the drug proceeds of the Sinaloa Cartel that had killed members of their families, just the sort of outfit you’d want to help overcome the law of value, as Roberts put it.

Milhaupt and Zheng refer to the “blurred boundaries” between private and state-owned firms in China, as I have tried to establish. To get an idea of how tangled things can get, this is how they describe ZTE, China’s second-largest telecom:

According to the website of ZTE Holdings, it is one of the “national key SOEs” designated by the State Council. The third shareholder of ZTE Holdings, Zhongxing WXT (also known as Zhongxingweixiantong), is a private firm owned by a group of individuals, of whom the founder, Hou Weigui, holds the largest percentage (18%). According to the website of ZTE Holdings, it was the first firm in China to adopt a “state owned, privately managed” model in 1993. Under this so-called “ZTE model,” the majority state shareholders contractually authorize the minority private shareholders to assume sole responsibility for managing the firm, subject only to the requirement that the state shareholders be guaranteed a minimum rate of return. Under the ZTE model, therefore, a firm is an SOE from the standpoint of ownership, but a POE [privately owned] from the standpoint of management.

ZTE? Doesn’t that ring a bell?

Trump hammered it with sanctions Trump after it was discovered that they were selling their smartphones to Iran and North Korea. But lately Trump seems to be in a forgiving mood. First it was Jack Johnson, now it is ZTE.

All ZTE had to do was pay a $1 billion fine and let bygones be bygones. Those of good faith might think there was a quid pro quo since the Chinese government approved Ivanka Trump’s application for five trademark applications related to her fashion and homeware business just days before forgiving ZTE.

At the same time, according to Vanity Fair, the theme park developer MNC Lido City has partnered with the Trump Organization to land $500 million in Chinese government loans, with another $500 million from government banks. The Trump Organization will take in almost $3.7 million in licensing and consulting payments from Lido, along with another project in Bali. The company will also earn management fees, and be “eligible for additional unspecified incentives.” You see, this is not graft since Donald Trump turned over the reins of managing the Trump Organization Donny Jr. and Eric, but chose not to divest himself financially from the company.

This is how the capitalist state operates in China and the USA. Even Donald Trump understands that Xi Jinping’s Marxism is a con. After Xi tightened his control of the state in the same fashion as Modi, Erdogan, Assad and all these other scumbags, Trump mused: “He’s now president for life. President for life. No, he’s great. And look, he was able to do that. I think it’s great. Maybe we’ll have to give that a shot some day.”

 

May 11, 2018

Capitalism: a Horror Movie

Filed under: Counterpunch,economics,Film — louisproyect @ 4:46 pm

As part of its special series celebrating the 200thbirthday of Karl Marx between May 18-22, the Anthology Film Archives will be screening “Capitalism”, a 320-minute, six-part documentary that is both supremely intelligent and briskly entertaining, on May 20th at 3:45. Directed by Ilan Ziv, the founder of Icarus Films, it is like no other film I have ever seen about the horror we face in our daily lives that is much more frightening than slasher movies like Halloween or Friday the Thirteenth. After all, the idea of nuclear holocaust or global warming—just two of the threats we face from an economic system gone mad—are not something a plucky hero or heroine in a John Carpenter movie can stave off.

The film operates on two levels. It is both a history of how this system came into existence as well as a profile of the men who have put themselves at its service ideologically (Hayek) and those who either fought against its worst abuses (Keynes) or hoped to abolish it altogether (Marx).

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March 5, 2018

Millionaire leftist Bard professors removed from Alexis Tsipras’s cabinet

Filed under: Academia,bard college,economics,Greece — louisproyect @ 5:03 pm

Dimitris Papadimitriou

Rania Antonopoulos

Husband and wife Dimitris Papadimitriou and Rania Antonopoulos are big-time post-Keynesian economists at Bard College who just resigned from Alexis Tsipras’s cabinet. It seems that Antonopoulos was receiving a 1000 euro per month housing subsidy for her rental apartment in the swanky Kolonaki neighborhood in Athens even though the couple were multimillionaires. Apparently this did not sit well with ordinary working people suffering through a terrible austerity.

The right-wing press in Greece dug up the dirt on the couple and used it to scandalize Syriza since it is perceived as not serving the bourgeoisie adequately. Think of Fox News going after Obama and you’ll get what has been taking place. Neos Kosmos, a newspaper based in Melbourne, Australian with no discernible ties to the right-wing as far as I can tell, supplied the economic data on the two economists:

According to their tax records, the couple declare an annual income of more than half a million dollars, while their assets and property portfolios are valued in the millions. The Greek media report that the couple owns a luxury villa of 300 sq.m. plus 180 sq.m. supplementary space, 80 sq.m. swimming pool on the island of Syros; a 110-square-meter apartment in New York; a 31.6 sqm apartment in Glyfada, Athens; assets in stocks and bank deposits worth of more than 3,000,000 euros.

The last time I saw such opulence married to “socialist” pretensions was back in 2007 when Jared Kushner’s newspaper—the NY Observer—reported that Trotskyist chieftain Jack Barnes had just sold his West Village condo for a cool $1.87 million.

Interestingly enough, despite her wealth, Antonopoulos went out of her way to file for the housing subsidy as she indicated in a statement to the press:

According to Law 4366/2015 which entitles non-parliamentary members of the government to receive a residence subsidy, since they do not own a home in Athens, I have requested and received a significant amount as a rent subsidy. This provision of the legislator has been enjoyed since 1994 by all non-Athens deputies without any other income conditions.

Many months after its institutionalization I was informed that as a non-parliamentary member of the government I am entitled to a subsidy, and indeed by my colleagues. So I filed an application and since then I have received a total of 23,000 euros for two years.

What a little piggy. She and her husband have a joint income of $520,000 per year and still she applies for a housing subsidy as if she were a single mom working at Walmarts with 3 kids to support. Even after she got caught with her grubby fingers in the till, she  refused at first to resign as the Greek Reporter indicated on February 26th.

Dimitris Papadimitriou and Rania Antonopoulos came to Greece with ambitious plans to rescue the country from the hole that German bankers had dug. He ran the Jerome Levy Institute at Bard, a think-tank devoted to post-Keynesian wisdom, and was a Hyman Minsky scholar. Minsky is a big favorite with “progressive” economists, especially after the 2007 mortgage-backed securities meltdown. He writes all about the instability that plagues the capitalist system through chronic boom and bust cycles.

For Minskyian theory to work, it has to focus almost exclusively on the financial sector, which of course economists like Paul Krugman tended to do. Ooh, those dirty, rotten banks. However, it misses out on the real problem facing American capitalism, namely the declining rate of profit that is a function of the system’s need to replace people with machinery—and hence reduce the amount of surplus value that can be wrung from their muscles. Anwar Shaikh, who happened to have been on the staff of Jerome Levy Institute at one point, just came out with a massive study of this process. Papadimitriou’s dissertation at the New School was about the measurement of the rate of surplus value in Greece. I guess studying it helped him to extract it later on in life.

Needless to say, bourgeois economists, like the inner cadre at Jerome Levy Institute, step gingerly around the question of capitalism itself since they are far too wedded to the system on a material basis and understand as well that Keynesianism still has plenty of purchase in elite circles. Who wants to hear from an annoying Marxist, especially when his or her ideas clash with owning mansions, yachts, and million-dollar paintings. In other words, like all of the people serving on the Bard College Board of Trustees.

Bard College and its president-for-life Leon Botstein embody a culture in which people like Dimitris Papadimitriou and Rania Antonopoulos can flourish. Back in 1995, I came into contact with a union organizer from Local 100 of the Restaurant Workers Union named Brook Bitterman who was trying to apply pressure on Jerome Levy to come to terms with the workers Bitterman represented at Smith and Wollensky, one of Levy’s businesses. I gave Bitterman a copy of the Bard College alumni directory that he used for a direct mail campaign to get the mostly pinko graduates to demand justice for the workers as enunciated in a letter the union sent to Dimitris Papadimitriou:

Dear Dr. Papadimitriou

We are writing to express our concern about what we perceive to be a striking contradiction between the goals and work of the Jerome Levy Institute of Economics and the private business affairs of its founder and chief supporter, Leon Levy, who also serves as a Trustee of Bard College.

Over the past several years, the Jerome Levy Institute – Bard College’s first post-graduate institution – has become a respected outlet for academics and policy analysts concerned with growing income inequality and crisis-prone financial markets. As a union of low wage, mostly immigrant and minority restaurant workers, Local 100 is very familiar with the growing inequality in the American labor market. Many of our members and their families have also seen firsthand how financial market developments, such as the leveraged buyout frenzy of the 1980s, can have a profoundly negative impact on the quality of their lives.

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Not long after this campaign began, I received a letter from the president of the Board of Governors of the Bard Alumni Association taking great umbrage at Local 100’s campaign. It stated: “Many of our trustees, overseers, advisory board members, donors, alumni/ae, faculty, administrators, parents of students and students, have business relationships — some of which may be deemed by you or others as ‘controversial’ — unrelated to their relationship with the College. It would hardly be appropriate for us to inject ourselves into those relationships. Such is the case with the alleged relationship between Leon Levy and Smith & Wollensky.”

Yeah, who the hell would want a Bard College alumnus like me poking around in the private affairs of Leon Levy or Rania Antonopoulos? Maybe that’s the reason I’ve been removed from the Bard College alumni database and no longer receive communications from the school, either in the mail or electronically.

January 1, 2018

Why did liberal Republicans go the way of the dodo?

Filed under: economics — louisproyect @ 8:40 pm

“Should any political party attempt to abolish social security, unemployment insurance and eliminate labor laws and farm programs, you would not hear of that party again in our political history.”

Crooked Timber is a group blog of left-leaning academics that I have been following for nearly 20 years. I read it mostly to get a sense of what Keynesian, social democratic, and liberal professors are thinking. Yesterday John Holbo, an Associate Professor of Philosophy at the National University of Singapore, posted an article titled “Why Does The US Lack A Major Center-Right Party?”  that grappled with the question “Why do we have the Trump-headed, extreme right-tilted thing we’ve got?” Why didn’t the Republicans adopt a center-right program? Wouldn’t “the super-wealthy wouldn’t be better off under a plausibly dominant, moderate right-wing Republican Party” especially since “Extremist chaos is kind of costly, not to mention risky.” Looking back at the party’s history, Holbo wonders why “around 1964 various elements on the right that might have gone for a moderate option tilted far-right.”

I think the answer to this question has to engage with the class and economic issues that made the GOP the party of Goldwater rather than Nelson Rockefeller and other patricians who had much more in common with FDR than they did with today’s politicians. Essentially, the sharp turn to the right has to be explained in terms of the relationship of class forces in the USA and the failure of American capitalism to provide enough crumbs off the table to sustain the social compact that FDR created.

In 1944, Thomas Dewey lost a close election to FDR whose fourth term was cut short by his death. Dewey epitomized the liberal tendencies of the GOP. As a member of the Eastern Establishment, Dewey doubled state aid to education, increased salaries for state employees and still reduced the state’s debt by over $100 million. (From Wikipedia). Four years later, running against Truman, Dewey refused to compete with the Democrat for who could be more anti-Communist. He opposed a ban on the CP on the basis that “you can’t shoot an idea with a gun” and added later on that he was not “going around looking under beds”.

In 1954, President Eisenhower, another paragon of the Eastern Establishment who even had served as President of Columbia University at one point, made a speech that warned against any attempt to undo the gains of the New Deal:

Should any political party attempt to abolish social security, unemployment insurance and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes that you can do these things. Among them are a few Texas oil millionaires, and an occasional politician or businessman from other areas. Their number is negligible and they are stupid.

Despite Richard Nixon’s well-deserved rotten reputation, he did not stray far from the Dewey/Eisenhower agenda. In 1971, he stated, “I am now a Keynesian in economics”. It was the year in which the American economy first began to show signs of anemia, a product of inflationary pressures from military spending on Vietnam and growing competition from Japan and Germany. In response to a faltering economy, Nixon carried out a program according to Keynesian principles. He proposed an expansionary budget for 1972 that would “be a budget in deficit, as will be the budget in 1971.” He also proposed an expansionary monetary policy that would be sufficient “to fuel a growing economy.”

After resigning from the presidency, he was replaced by his Vice-President Gerald Ford who Alexander Cockburn described as “our greatest President”–maybe a bit tongue in cheek but not entirely in consideration of this:

As a percentage of the federal budget, social spending crested in the Ford years. Never should it be forgotten that Jimmy Carter campaigned against Ford as the prophet of neo-liberalism, precursor of the Democratic Leadership Council, touting “zero-based budgeting”.

Nobody could possibly mistake Betty Ford with the wives of Republican presidents that followed. As Marxmailer Stewart Lawrence pointed out in a CounterPunch article, she was an outspoken defender of the Equal Rights Amendment, abortion rights, and even recreational pot-smoking. All this might have actually cost her husband his re-election and even led to the Reagan ascendancy.

However, to return to the initial point made in this article, it was not “social issues” that led to Reagan’s election but malaise over Jimmy Carter’s neoliberal economics. Promising like Trump to restore America to greatness, Reagan’s presidency was the first attempt to make the working-class pay for capitalist decline.

During the Carter years, I began to notice a move away from the New Deal consensus marked particularly by his 1979 “malaise” speech that set the tone for the Clinton and Obama administrations. To jump-start the economy, Carter pushed for deregulation of the airlines, the railroads, and trucking. Deregulation was a key part of supply-side economics, a policy that most people associate with Reagan but that was incubated in the Carter years. Lloyd Bentsen, Carter’s Secretary of the Treasury, issued a report in 1980 that “signals the start of a new era of economic thinking. The past has been dominated by economists who focused almost exclusively on the demand side of the economy … [T]he Committee recommends a comprehensive set of policies designed to enhance the productive side, the supply side of the economy.”

While Carter was pushing such neoliberal measures, Mobil Oil was running advertorials on the op-ed page of the N.Y. Times every Thursday that telegraphed the determination of big capital to organize an all-out assault on the New Deal legacy. You can read a sample of some of the 800 of these corporate messages here, including one from 1981 that proposed weakening the Clean Air Act since it impeded “the battle for industrial revitalization, economic growth, and less dependence on foreign energy”.

But the real motivation for the neoliberal turn was pressure from the completely recovered WWII economies in Europe and Japan, particularly the two axis powers that were making such headway into American markets that auto workers decided to stage rallies in which they took sledgehammers to Toyotas (racism explains why Mercedes-Benz got off the hook.) Throughout the 1980s and 90s, the rust belt became ever-widening as it turned cities like Detroit, Cleveland, Newark, Philadelphia, Youngstown, St. Louis, Buffalo, Pittsburgh and others into shells of their once-thriving, job-creating machines.

Most people on the left explain the ruthless attack on the New Deal social compact as driven by greed. To some extent, this is undeniable. People like the Koch brothers, Goldman Sachs partners, hedge fund operators, Silicon Valley magnates, energy company executives, et al, are creatures that only feel fulfilled by wealth, the more of it the better. Just 2 blocks north of my apartment, there used to be the International Center for Photography that was originally a mansion owned by Willard Straight, an investment banker who founded the New Republic in 1914 with fellow Progressive movement stalwart Walter Lippmann.

The museum was founded in the mansion in 1974 and operated there until 1999 when it was sold to Bruce Kovner, a hedge fund billionaire who despite refusing to back Trump in 2016 because of his boorishness remains one of the major funders of the policies he is carrying out. Kovner is one of the main funders of the American Enterprise Institute, whose journal publishes articles like The Upside of Income Inequality and Why Do We Underpay Our Best CEOs?.

So, what accounts for Willard Straight’s Progressivism and the new owner of his mansion defending values that are his polar opposite?

Back in 1998, I read a book by a British economist named Harry Shutt titled “The Trouble with Capitalism” who to this day remains my favorite thinker when it comes to understanding the retreat from FDR type liberalism in the USA and the erosion of social democratic norms in Europe. In straightforward prose, he describes it in terms that are reminiscent of the period that led up to WWI and WWII as capitalist competition for markets and resources led to a disastrous war. The difference today is that such wars would mean the end of the capitalist system itself since it would quickly involve nuclear weapons.

So to prop up the system, you have various mechanisms but none accomplishes what previous wars accomplished, mainly the liquidation of fixed assets through bombs and rockets and the possibility for a new round of capital accumulation.

In an interview with Red Pepper, Shutt dismisses greed as an explanation for a process that began more than 40 years ago. He says, “People are hitting on greed but greed is not a cause of things, greed is a symptom. Greed has been with us since the Garden of Eden.”

Instead, it is the stagnation of the capitalist system that has inhibited the bourgeoisie from redistributing a share of profits to the working class as was the case in the post-WWII period through tax collections that would be unheard of today. Under Eisenhower, the top marginal tax rate was 91 percent. In 2016, it was 39.6 percent. This is what allowed the massive expansion of state universities under Eisenhower’s Republican administration and LBJ’s Great Society that was funded by a tax system with a marginal tax rate of 70 percent.

When economic growth was skyrocketing after WWII, the bourgeoisie accepted such a tax “burden” but when it began to slow down in the 1970s, it was much more resistant. The corporate tax rate had to be cut in order for capital to expand but the contradictions of the capitalist system were making profitable investment more and more unrealizable. There was a declining rate of profit that was ultimately tied to the replacement of living labor by machinery as well as increased competition between various national capitalisms. Steel, auto, petrochemicals—and other mainstays of the industrial system from the 1930s to the 1970s—were no longer rewarding investors. So, they looked elsewhere especially in East Asia, where labor was cheap. When workers in the USA could no longer rely on jobs in an auto plant, they were forced to work for Walmart. All this meant lower pay and lower tax revenues.

With a decline in manufacturing, investors flocked not only to overseas opportunities but to financial speculation such as the collateralized mortgage securities that brought the system to the brink of oblivion only a decade ago. Despite the roaring stock market, this is an unstable system that could founder on the rocks very easily.

Shutt’s prescriptions for overcoming these contradictions stop short of overthrowing the capitalist system but his outlook for the future does not appear very rosy for the Bruce Kovners of the world, as the Red Pepper article indicates:

Remove debt-fuelled consumption and property speculation from the equation, and you are left with anaemic subsititues such as the internet, the service sector and green technology. The arguments of centre-left Keynesian commentators that the answer lies in re-regulating the financial sector and encouraging consumer spending, ignore the fact, says Shutt, that the demand for capital – the availability of new profitable productive activities to invest in – is in long-term decline, and consumer spending power has been exhausted.

“It is easy to say that we’ll emerge from the slump eventually, but to quote Keynes, ‘in the long run we are all dead’,” he says. “In other words there has to be a huge contraction in the meantime and the impact on livelihoods and lives is likely to be intolerable. The fundamental misconception of mainstream commentators is that people can and should be induced to consume more when they’re already ‘maxed out’ on credit. In practice it is right and necessary that they should now be forced to rebuild their personal balance sheets, which means saving rather than spending. Only once they’ve done this, probably after several years will they be able to start spending again. This pinpoints a fundamental weakness of capitalism. In order to function it requires the perpetuation of unsustainable levels of consumption in order to absorb the endlessly expanding stock of capital.”

The ultraright economic policies of the Republican Party are based on a big lie. They claim that squeezing the working class is in its best interest since it is only by putting more money in the hands of their exploiters can good jobs be created. Since a stagnant economy is not likely to be revived by their policies or even by a new round of Keynesian spending, the possibilities for liberal Republicanism are excluded at the outset just as they would be for a Bernie Sanders presidency.

The inescapable prognosis is one of declining standards of living and increasing state repression to keep the masses in line. There will also be more and more scapegoating of immigrants and other vulnerable sections of the population in order to mollify the white working class that is becoming as susceptible to con jobs as the non-unionized workforce in the South. Before long, the USA in its entirety will look like Mississippi unless the left can get its act together and challenge these bastards in the street where real politics always takes place.

 

November 7, 2017

Review: Michael Yates, “The Great Inequality”

Filed under: economics — louisproyect @ 7:50 pm

(Posted with the permission of the journal Socialism and Democracy, where it appeared in the April, 2017 edition.)

The 12 articles in this book address a topic made acute by the Great Recession of 2008. From Thomas Piketty’s Capital to Bernie Sanders’ campaign speeches, the issue has been examined from many different angles but not with the sharp Marxist focus of an economist who understands what inequality means on both a theoretical and a personal level, having grown up in a hardscrabble company town in Pennsylvania.

Written in language that ordinary workers could understand, each chapter is filled with data illustrating the ever-widening gulf between the 1% and the rest of us. Chapter two, which has the same title as the book, documents the great divide between the plutocracy and the average American in jaw-dropping detail. Using the Gini coefficient, a measure of inequality with 0 being a state of perfect equality and 1 tantamount to total inequality, Yates observes that the numbers have been moving steadily toward 1 for the past four decades. In fact, the Gini coefficient of the Roman Empire not long after the death of Jesus was more equal than the US today. With Jesus preaching that “it is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God,” one can understand why opposition to the status quo has reached a religious fervor today. As a socialist, Michael Yates tends to look askance, however, at Great Men who would be saviors of the poor and the working class. In the final analysis, it is up to those who sell their labor power to transform society and make wage slavery a thing of the past.

Globally, the numbers are damning. About 40 percent of the world’s population lives on $2 per day or less. The richest 9 percent gets about one-half of the world’s income while the bottom half gets 7 percent. The wealthiest 80 individuals own as much as the poorest half, some 3.5 billion people. While many are on the edge of starvation, a man with a billion dollars in the bank could spend $10,000 per day and would not exhaust his funds until 274 years had passed.

Beyond the book’s value as a source of powerful arguments based on hard data, it is like everything else that Yates has written – an eminently readable work that can even be described as entertaining in the fashion of a Jonathan Swift essay. Shunning the pedantry of many economists, including those on the left, and drawing upon a lifetime of experience dealing with the boss whether in a coal company town or in academia, Yates has some sharp observations rendered in anecdotal fashion.

Chief among them is an incident that occurred on a nature hike near Santa Fe, about 7000 feet above sea level. Yates and his wife ran into another group of hikers that included an older man who struck up a conversation about what brought Yates to Santa Fe. He explained that he was collecting material for a travel book written from the viewpoint of an economist – the superlative Cheap Motels and a Hot Plate: An Economist’s Travelogue. When asked what he had observed to that point, Yates replied: environmental degradation, suburban sprawl and growing inequality. This did not sit well with his interlocutor who came across like Pangloss in Voltaire’s Candide. For him, everything was getting better. People were living longer and getting healthier. As a sign of what capitalism could bestow, “Almost everyone in the country lives within an hour of a Wal-Mart Supercenter.” Eventually, the Panglossian fellow was revealed to be an economist, just like Michael, but with a difference. As a conventional member of the Dismal Science profession, he was used to covering up for the ruling class through the application of “neoclassical” theory.

While the statistics in The Great Inequality will leave you feeling angry and ready to make a revolution (if you hadn’t reached such a state long ago), the discussion of the daily assaults on the spirit and body for those who sell their labor power will push you over the edge for sure. Chapter five, aptly titled “Work is Hell,” examines factory and office existence today, suggesting that even if the Gini coefficient was 0 – in other words, pure equality – there would still be compelling reasons to abolish a system based on the private ownership of the means of production.

I was struck by the mention of a certain class of workers who might not be thought of ordinarily in terms of Engels’s Condition of the Working Class in England, namely the crews of cruise ships that take people down to the Caribbean islands. They tend to be people of color from poor countries that do the most backbreaking work. If they are injured on the job, they must pay their own way back to their homeland even if better care is available in the US. It is quite a comment on the values of Nation Magazine that it has used Holland America for its fundraising cruises with the leftist glitterati. Holland pays its largely Filipino and Indonesian crew $300 per month for a 10- to 13-hour workday, seven days a week. In addition to screwing its workers, their ships constitute an ongoing threat to the environment. In just one violation, Holland dumped 20,000 gallons of raw sewage into the waters off Juneau, Alaska.

While it is only hinted at in The Great Inequality, there are political imperatives that flow inexorably from the economic miseries it describes. At the very top of a page titled Issues, you can see a link to the section “Income and Wealth Inequality” that states: “The real median income of male workers is $783 less than it was 42 years ago; while the real median income of female workers is over $1,300 less than it was in 2007.” But in the very next sentence, you discover the Achilles Heel of the 2016 Bernie Sanders campaign: “That is unacceptable and that has got to change.”

But how has that got to change?

By endorsing Hillary Clinton, who gives speeches to Goldman-Sachs for $225,000 a pop, Sanders was talking out of both sides of his mouth. This was obvious even to those on the left who found his campaign inspirational. In an article for New Politics titled “True Confession: I’ve Lost that Bernie Feeling,” Michael Hirsch lamented that Sanders let the plutocrat off the hook.

Bernie stoked a fire under millions of Americans but couldn’t muster campaign 2.0 beyond a fund-raising bonanza (no small thing) and promises of a confection of free stuff courtesy of the state, yet with too little attention to Hillary’s and Bill Clinton’s role as abettors of the very corporate oligarchy he so despises and has otherwise sketched so well.

After a yeoman job of revealing the economic divide in the US, Yates has begun to connect the dots between politics and economics, an obligation that faces everybody who considers himself/herself a socialist. In an April 30, 2016 article for Truthout titled “Let’s Get Serious About Inequality and Socialism,” Yates makes the case for socialism – not the Swedish model that no longer exists but the classless society envisioned by Karl Marx that remains just as necessary for humanity and nature as it was in the nineteenth century.

Perhaps the reality is that many of Sanders’ leftist supporters have modest aims, believing that the most we can hope for is to take the first small steps to be like Denmark or Sweden. But those who believe that only gradual, piecemeal changes can occur are, in my view, embracing a dead-end strategy for achieving socialism. There are those of us who believe that, if we are radically prepared for it, sudden, revolutionary change could usher in the dream of a classless society – one that is egalitarian, radically democratic, with a surfeit of leisure, and with collectively provided goods and services. For us there is but one choice. Hold fast to our vision, put our shoulders to the wheel, and struggle on.

Reviews of other books by Michael Yates:

Naming the System

In and Out of the Working Class

Wisconsin Uprising: Labor Fights Back

October 30, 2017

China’s State-Owned Enterprises: a reply to Michael Roberts

Filed under: China,economics — louisproyect @ 7:29 pm

Michael Roberts

Although this article will be critical of British economist Michael Roberts, I strongly recommend his blog that features several well-researched and thoughtful articles a week, including one on China that I will be commenting on now. Despite my disagreement with his analysis, I can at least recommend it as a source of valuable statistics on the remarkable growth of the Chinese economy. Of course, we are at odds on how to characterize its class character. Roberts writes:

This brings us to the question of whether China is a capitalist state or not? I think the majority of Marxist political economists agree with mainstream economics in assuming or accepting that China is. However, I am not one of them. China is not capitalist. Commodity production for profit, based on spontaneous market relations, governs capitalism. The rate of profit determines its investment cycles and generates periodic economic crises. This does not apply in China. In China, public ownership of the means of production and state planning remain dominant and the Communist party’s power base is rooted in public ownership. So China’s economic rise has been achieved without the capitalist mode of production being dominant.

For Roberts, the main justification for describing China as “not capitalist” is the preponderance of state ownership. He refers to 102 key state enterprises worth about 7.5 trillion dollars. This includes oil companies, telecommunications, power utilities and weapons. Furthermore, the presence of CP officials as president of the board of directors of these companies means that the party controls a major part of the economy and will likely resist privatization, according to CP leader Xi Jinping whose speech at a 2016 conference sounded as if it was meant as a direct appeal to people like Michael Roberts, as reported by China.org:

China’s basic economic structure is at the core of its success; a position that Xi reaffirmed. “The mainstay status of public ownership and the leading role of the state-owned economy must not waver.”

Yet, it is precisely this that Western economists and advisors have identified as the main problem in China throughout the last 30 years. They maintain that free markets and private property must play the leading role. However, it is quite clear Xi is right on this, and the pro-capitalists are wrong. This holds important lessons for left-wing forces internationally.

The driving force of capitalism — the pursuit of profit — does not dominate China’s economy. Instead, it is the needs of economic development and the process of planned urbanization. However, the complexities, difficulties and advantages of an economy led by public ownership and state-owned enterprises, are rarely studied in the West from a positive standpoint.

Nevertheless, there are highly competent Marxist economists and thinkers in the West, and a large layer of critically-minded social scientists and brilliant creative minds in the humanities and arts. If they are given the chance, they will be more than happy to help to foster new forms of urban life and workplace democracy in China.

China has become a sort of laboratory of socio-economic formations. This embrace of experimentation can offer dramatic insights capable of confirming or refuting various economic theories. For example, in the 1980s, the emergence of township village enterprises with “fuzzy” and unclear property rights was interpreted by economists like Joseph Stiglitz as evidence refuting the theory that economic dynamism must be based on private ownership.

Similarly, if we can discover why China grew by 7 percent after 2008, at a time when the world economy was in crisis, then there is a very strong chance that this will reveal how socialist economics can surpass the dynamics towards capitalist economic crisis everywhere.

If you search Roberts’s blog for references to “state ownership”, you’ll note a significantly more critical stance when it is applied to a country not ruled by a Communist Party leader who urges his ranks to read Karl Marx. In a 2012 article titled “Irresponsible capitalism” that looks at developments in the British financial sector, you see Roberts disgusted with British state-owned banks that are no different than Goldman-Sachs as a means of further enriching the one percent:

It’s the same story with the large UK banks that are now state-owned. The 83% taxpayer-owned RBS is set to pay its chief executive Stephen Hester a bonus of £1m on top of his £1.2m salary, while the man who brought RBS to its knees, the former chief executive, Sir Reg Goodwin (knighted for his services to the banking community) is still set to pick up his huge pension entitlements (£700,000-plus a year).

Unfortunately, the same due diligence does not apply when it comes to looking under the cover of Chinese SOE’s.

Let’s take a look at one of them, the Anbang Insurance Group that attracted a lot of publicity this year for its bid to invest millions of dollars in a building owned by Jared Kushner. The largest shareholders are state-owned car maker Shanghai Automotive Industries Corp and Sinopec, a state-owned oil company Sinopec.

Of course, trying to figure out who exactly “owns” Anbang is not easy. Like many huge Chinese firms, they make discovery difficult as an American trade union found out when pressing charges against it for unfair labor practices as the Times reported in September 2016.

The Anbang shareholders in the Pingyang County area hold their stakes through a byzantine collection of holding companies. But according to dozens of interviews and a review of thousands of pages of Anbang filings by The New York Times, many of them have something in common: They are family members and acquaintances of Wu Xiaohui, Anbang’s chairman, a native of the county who married into the family of Deng Xiaoping, China’s paramount leader in the 1980s and ’90s.

You remember who Deng Xiaoping was, right? He was Mao Zedong’s successor who took “the capitalist road” in the first place. I guess his friends and relatives were quite happy with the NEP-type reforms since it put them in the position of buying the Waldorf Astoria and coming close to bailing out Trump’s son-in-law who will hopefully be arrested this week.

As should be obvious at this point, “state ownership” is a convenient fiction in China, especially since anybody can buy shares in such companies, including Western investors. For example, Roberts is impressed with the fact that the state-owned China General Nuclear Power Corp has begun to incorporate Western technologies, However, it is traded publicly on the Hong Kong Stock Exchange, as is the case with the largest Chinese SOE’s, and thus no different from any other capitalist firm. In the final analysis, it is the class character of those who own the means of production that determines their social role. While the number of shares available to outside investors has been relatively small, “reforms” enacted in 2015 to transform SOE’s into mixed enterprises will likely increase their numbers as indicated by the transformation of the second largest mobile carrier.

Unlike China today, Soviet Russia never had a stock exchange. The children of Soviet bureaucrats could never look forward to inheriting their daddy’s holdings like Donald Trump did from his father. That is true state ownership.

Although ownership data is difficult to come by, you can read an article co-authored by Curtis J. Milhaupt and Wentong Zheng titled “Beyond Ownership: State Capitalism and the Chinese Firm” on the Columbia University Law School website. It hones in on Ping An, another insurance company. The largest block of shares is owned by HSBC Ltd., a multinational bank that originated in Hong Kong even though most shares are owned by other SOE’s. In 2016, Mexican families sued the bank for money-laundering the drug proceeds of the Sinaloa Cartel that had killed members of their families, just the sort of outfit you’d want to help overcome the law of value, as Roberts put it.

Milhaupt and Zheng refer to the “blurred boundaries” between private and state-owned firms in China, as I have tried to establish. To get an idea of how tangled things can get, this is how they describe ZTE, China’s second-largest telecom:

According to the website of ZTE Holdings, it is one of the “national key SOEs” designated by the State Council. The third shareholder of ZTE Holdings, Zhongxing WXT (also known as Zhongxingweixiantong), is a private firm owned by a group of individuals, of whom the founder, Hou Weigui, holds the largest percentage (18%). According to the website of ZTE Holdings, it was the first firm in China to adopt a “state owned, privately managed” model in 1993. Under this so-called “ZTE model,” the majority state shareholders contractually authorize the minority private shareholders to assume sole responsibility for managing the firm, subject only to the requirement that the state shareholders be guaranteed a minimum rate of return. Under the ZTE model, therefore, a firm is an SOE from the standpoint of ownership, but a POE [privately owned] from the standpoint of management.

It is best to think of SOE’s in China as a chainlink in the transition to capitalism. Given the constant references to “building socialism” in the Chinese press and the nation’s origins in a powerful revolution led by the Chinese Communist Party that is still in the driver’s seat, it is understandable why some might still believe that Xi Jinping is a new Mao Zedong rather than a pioneer in the construction of capitalism.

If you put China in the context of the origins of capitalism in Europe in the 17th and 18th century, the role of SOE’s might be seen as analogous to the state monopolies that flourished under what Marx called mercantile capitalism. In 1773, the Crown took control of the East India Company and used it as a means of expanding the empire in East Asia, a key element of primitive accumulation.

Another tool of primitive accumulation was separating the peasant from his means of subsistence through the Enclosure Acts around the same time, thus making it possible for a reserve army of the unemployed to be transformed into wage slaves.

Hasn’t China had its own version of the Enclosure Acts? That’s the argument made by Richard Walker and Daniel Buck in a July-August 2007 NLR article titled “The Chinese Road” (behind a paywall, contact me for a copy). They refer to the hukou, a Mao-era law that established household registration. If you migrated to the city in search of work, you might be considered in violation of the hukou and as such not entitled to the same rights as other citizens, thus making you vulnerable to super-exploitation. Walker and Buck write:

The harshness of the hukou system recalls Britain’s Speenhamland laws. Rural migrants must pay for the right to move and are prevented from becoming rightful members of urban society; they ‘float’ through the cities, poorly housed and lacking social services. The hukou is a pernicious method of discriminating among classes of people and keeping the floating population marginalized. It functions to maintain a low-wage labour force, reduce the demand for urban infrastructure such as schools, and facilitate rapid capital accumulation. In Beijing, reforms since 1997 have at least allowed purchase of temporary residence, and today Chongqing is experimenting with dismantling the hukou altogether, allowing people to acquire permanent residence in the city in exchange for relinquishing land rights in the countryside.

Like Britain, China is “taking off” in its own version of the Industrial Revolution made possible by such harsh measures. In the same way that becoming a major exporter of textiles in the 19th century helped Britain’s workers begin to enjoy a standard of living that was the envy of the rest of Europe, China’s workers appear content with the status quo, at least according to a Pew Research Center Poll that Roberts takes as a barometer of Chinese opinion. “No matter how you measure it, no matter what questions you ask, the results always indicate that the vast majority of people are truly satisfied with the status quo.”

Of course, it helps when you jail anybody foolish enough to complain about the status quo, especially those who would like to use the Internet to connect with like-minded citizens. Under the Great Firewall, a system intended to police thought, there are 3,000 websites that the Chinese cannot access. Here are some of the most notable according to Wikipedia.

 

 

August 29, 2017

Ernest Mandel: a life for the revolution

Filed under: economics,Trotskyism — louisproyect @ 10:59 pm

January 22, 2017

Wilbur Ross: the dubious savior of the steel industry

Filed under: Donald Trump,economics,trade unions,workers — louisproyect @ 11:29 pm

161130_vod_orig_eyntk_wilburross_16x9_992
Wilbur Ross

When it comes to Trumponomics, most of the left’s attention has been riveted on the new Treasury Secretary Steve Mnuchin for obvious reasons. As CEO of OneWest, he pushed mercilessly to foreclose on homeowners whose mortgages he held, making the banker played by Lionel Barrymore in Frank Capra’s “It’s a Wonderful Life” look like a member of the Catholic Workers by comparison. Politico reported:

Two years ago, OneWest filed foreclosure papers on the Lakeland, Florida, home of Ossie Lofton, who had taken a reverse mortgage, a loan that supplies cash to elderly homeowners and doesn’t require monthly payments.

After confusion over insurance coverage, a OneWest subsidiary sent Lofton a bill for $423.30. She sent a check for $423. The bank sent another bill, for 30 cents. Lofton, 90, sent a check for 3 cents. In November 2014, the bank foreclosed.

So, this is a guy that is supposed to stop “the carnage”?

Much less attention has been paid to Wilbur Ross, the 79-year old “King of Bankruptcy” that is the new Secretary of Commerce, a department that is charged with promoting economic growth. Ross would seem to be a perfect fit for Trump’s “America First” outlook since he is credited with saving thousands of jobs in the Rust Belt, particularly in steel. His approach is to buy distressed companies and make them profitable again, saving jobs in the process. Part of his strategy is to lobby for tariffs that would protect companies like LTV (Ling-Temco-Vought) that he bought at fire sale prices in 2002. His strategy mimicked that of Steve Mnuchin who bought IndyMac in 2012 at a bargain basement price and turned it into OneWest.

As the ostensible savior of American steel, Ross earned plaudits from Leo Gerard, the USW president. NPR, a public radio station with a liberal slant a bit to the left of PBS, put Ross in the best possible light:

“With Wilbur it’s been almost 15 years now, and those mills are [still] running and some of them are the most productive in North America,” Gerard says.

By that time, ISG had become the largest steel company in America by buying up failing steel companies including Bethlehem Steel, LTV Steel and Acme Steel. Gerard says the jobs Ross saved were at the mills themselves and at the companies in supply chain.

If Trump and Ross are hoping to replicate policies that are supposed to be a radical departure from neoliberal “carnage”, it is useful to remember that George W. Bush was a major supporter of protectionism for the steel mills that Ross owned.

With Bush anxious to win over the kinds of voters that helped Trump win the presidency, he announced on Feb. 27, 2002 that tariffs would be imposed on steel imports for three years and a day. That was the same day when Ross announced a deal to take over LTV. Perfect timing, I’d say.

What NPR did not mention is the downside of the deal. After taking over LTV, he fired half the workers. His “rescue” was the same kind as Trump’s of Carrier, which also sustained a heavy loss of jobs to stay in the USA. Since Ross bought LTV in bankruptcy court, he was able to shed $7.5 billion in pension funds to the government.

In 2006 Frontline, a PBS documentary show, reported on the fate of LTV retirees, including a man named Chuck Kurilko. This was his story:

After 38 years in the mill (most of it working night shifts so he could be with his kids after school), Chuck had retired from LTV in late 2001 with a lifetime pension and guaranteed health coverage for himself and Carolyn. “It was looking great,” recalled Chuck. “The first retirement check I got was $2,700 a month. And that’s a nice pension.” Health insurance, he said, was running about $200 a month.

But the Kurilko’s retirement security didn’t last long. Through bankruptcy, LTV had sold off its productive assets and jettisoned its unwanted and underfunded liabilities, like pension and health benefits. LTV’s pensions were taken over by the Pension Benefit Guaranty Corporation (the PBGC), the federal corporation that insures private pensions. PBGC uses a reduced payout formula for retirees under 65, and retirees like Chuck were among the hardest hit. He saw his monthly pension checks slashed by $1,000, and his monthly health insurance payment skyrocket to $1,300. The bankruptcy proceedings that “saved” LTV cost the Kurilkos about $25,000 a year, a devastating turnabout in fortunes. By the time I arrived, the Kurilkos’ savings were down to about $13,000. Every month was a struggle to keep from digging the financial hole deeper.

I expected anger and dismay. What I found was more troubling. Good people that had been justifiably proud of what they’d accomplished through a lifetime of hard work — in the mill, in their community and at home — had lost control of their financial future, and with that their dignity. “We just shouldn’t have to live like this,” Carolyn kept saying, shaking her head as if it was all just a bad dream.

A couple months later, Carolyn’s nightmare got worse. She called me in early April to tell me that Chuck had died from a massive heart attack. We talked about Chuck and about his funeral, and after we talked, I began to think about how Chuck’s passing had come to represent the passing of an era when a lifetime of hard work, at most big companies, was rewarded with retirement security and with dignity. I also thought about Carolyn and the financial predicament she suddenly faced alone. But it wasn’t until later that I came to understand that Carolyn too represents a troubling national trend — the growing number of women facing severe financial difficulty in retirement.

One huge problem in retirement for women like Carolyn Kurilko is longevity. On average, women live longer than men, and nearly a third of all women who reach 65 will live to at least 90. “Chances are the husband will die and the wife will live on and on and on, and she will be the poorest she’s ever been in her whole life,” explains Notre Dame labor economist Teresa Ghilarducci.

The story of LTV and Wilbur Ross is a microcosm of the American class struggle—or the lack thereof. You have labor bureaucrats like Leo Gerard making common cause with a scumbag like Ross in the same way that UAW president Dennis Williams has gone along with deals that led to a two-tiered pay system and reduced benefits so as to “save jobs”. If there was a labor movement instead of what we have now, both Obama and Trump would have been put on the defensive.

The problem, of course, is that the bosses can exercise leverage on the workers by threatening to pick up and move to another country. The threat of runaway shops is what helped Trump get elected even if his solution a la Ross is to make an offer that workers can’t refuse.

Global competition puts pressures on workers everywhere to accept less. This is what “globalization” has accomplished. It cheapens the price of labor and commodities simultaneously. Indian steel mills supply commodities at a price far below those of their competitors in more advanced capitalist countries. Ross cashed in on globalization in 2005 himself: He sold his steel company to an Indian company Lakshmi Mittal for $4.5 billion in 2005, making 12 ½ times on his initial investment.

Mittal is now the far largest steel producer in the world. A lot of Trump’s animosity toward China has to do with its ability to produce steel even more cheaply than Mittal. Like Ross, Mittal screws workers out of their pensions and fires them when they no longer serve the bottom line.

What is happening now is a race to the bottom. Trump is incapable of reversing this trend since it is not susceptible to policy solutions. It is tantamount to King Canute commanding the tide to stop. We are in the throes of capitalism’s decay. I think Trotsky was misguided in the way he went about building a Fourth International but each time I return to his writings, I remained impressed by his ability to size up the political conditions of his epoch in a work like the Transitional Program:

All talk to the effect that historical conditions have not yet “ripened” for socialism is the product of ignorance or conscious deception. The objective prerequisites for the proletarian revolution have not only “ripened”; they have begun to get somewhat rotten. Without a socialist revolution, in the next historical period at that, a catastrophe threatens the whole culture of mankind. The turn is now to the proletariat, i.e., chiefly to its revolutionary vanguard. The historical crisis of mankind is reduced to the crisis of the revolutionary leadership.

We are not in any position today to construct such a revolutionary leadership but if there is one thing that is clear, it is the need to break with the two-party system that entrusts people like Wilbur Ross, Leo Gerard, Donald Trump and Hillary Clinton to get us out of a deathtrap they created in the first place.

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