Louis Proyect: The Unrepentant Marxist

January 22, 2017

Wilbur Ross: the dubious savior of the steel industry

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

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.

September 21, 2016

Michael Albert versus Karl Marx

Filed under: economics,utopian thought — louisproyect @ 5:01 pm


Michael Albert

After reading the interview Michael Albert gave to the Turkish journal Democratic Modernity and that was crossposted on ZNet today under the title “Beyond Marxism”, I had to carefully consider whether it was worth my time and effort to answer him. Quite frankly, Michael Albert’s left publishing kingdom is no longer what it once was. His South End Press had shut down in 2014 with Publishers Weekly citing Howard Zinn’s agent “we had a hassle with South End, getting back rights to 10 of Howard’s books. And we have not received payment from them for several years.”

My cyber-friend Charles Davis had recently circulated a petition with the heading “Give Charles His Money, Michael” that stated: “Charles Davis is owed $500 by Michael Albert of Znet, who administered teleSUR English’s OpEd page at the time Charles wrote two OpEds for said page. Mr. Albert was given money with which to compensate writers for that page. That money never made it to Charles Davis, a good boy who has politely and repeatedly requested that he receive it, to no avail.” Apparently the petition had the intended effect—Charles got his hard-earned money.

When ZNet was in its heyday, it was the go-to place for left analysis from Howard Zinn, Noam Chomsky, Edward Herman and others outside of a strictly Marxist framework. Albert himself had invented an ideology in partnership with economist Robin Hahnel called Participatory Economics (Parecon) that was advertised as being beyond Marxism, just like the article mentioned above. I always thought that this was chutzpah of biblical proportions but that’s not unusual on a left where megalomania rules.

While hundreds, if not thousands, of websites are devoted to spreading Marxist ideas, somehow nobody has come forward to disseminate the Thoughts of Michael Albert. His influence is questionable at best. While I am not sure how much science there is to the Alexa ratings, Counterpunch has a ranking twelve times that of ZNet, namely 7,081 to 86,631 (a ranking of 1 is awarded to the most visited website, in this case google.com). My own obscure and openly cranky blog is ranked 105,634 and I do everything I can to alienate people.

I finally decided to write this article in the same spirit as the one I wrote on 9/11 Truthers. As absurd as Parecon and controlled demolitions are, something might be gained by defending facts and logic.

Albert begins:

Crisis engulfs. We react. Out comes Marx, Lenin, Trotsky, and whoever else.

We quote, quote, quote icons. We shove our own words down the hopper of history so we can echo the Ultimate Angel. Elderly left scholars just keep muttering, Marx said it, Marx knew it, see Volume Three.

Marxologists seem to not care that normal people avoid regurgitated unexplained jargon that lacks clarity and timelyness [sic]. The listener’s anticipation of obscure, impersonal, irrelevance cripples communication.

Who is it exactly that invoked Volume Three of Capital like a radio preacher referring to biblical chapter and verse? Michael Roberts whose blog consists mainly of a review of statistics from government agencies? I know it couldn’t be me since I never read V. 3 of Capital except in dribs and drabs. Since Albert has crossposted articles I wrote for Counterpunch on several occasions, I suppose I pass muster. I am only glad that I never found myself in the position of being owed money. (Counterpunch always paid promptly.)

For Albert, there is a disjunction between word and deed within Marxism. The Marxists believe in a classless society but once in power they become a new ruling class. It always struck me that people who make this argument should not have bothered. The Who said it all, plus you could dance to their analysis:

We’ll be fighting in the streets
With our children at our feet
And the morals that they worship will be gone
And the men who spurred us on
Sit in judgment of all wrong
They decide and the shotgun sings the song

I’ll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again

The term that Albert coined for this new Marxist class formation is “coordinationism”. It is basically a function of operating an economy from the top down rather than the bottom up:

Put every Marxist text about economics in a pile. I bet that to the extent they provide a serious institutional explanation of preferred allocation mechanisms, incentives, distribution of income, and producer and consumer decision making, they advocate overwhelmingly and perhaps even exclusively, markets and or central planning, a corporate division of labor, remuneration for output, and authoritative decision making, all of which breed coordinator class rule.

Mercifully, Albert spared his readers the cure-all for all this hierarchical top-down control that he and his writing partner Robin Hahnel cooked up. Have any of you ever read their stuff on Participatory Democracy? It is not only mind-numbing; it is an exercise in what Karl Marx called writing recipes for the cookbook of the future. (Oh, my gosh! I quoted Marx. I am doomed.)

Self-managed worker councils have autonomy over how they go about rating their members. The only restriction placed on them is that the average effort rating that worker councils award their members is capped. This could be done by either giving the same cap to all workplaces or by basing it on the social benefit to social cost ratio of the workplace as explained in participatory planning on the next page. The reason for capping is to avoid the possibility of workers over-estimating each others effort ratings in return for the same favour, or what could lead to “effort rating inflation”.

Think about this. If in 1990 or so, Albert and Hahnel had gotten their hands on a time-machine like the DeLorean in “Back to the Future” and transported themselves back 70 years to the USSR and put their lofty thoughts into the hands of V.I. Lenin who then slapped his forehead and exclaimed “Why hadn’t I thought of this?”, would that have made any difference?

Unfortunately, the Parecon twins are obviously unschooled in historical materialism, which is the only methodology that would have explained how the USSR degenerated. The people who were committed to a classless society were largely killed off in the civil war. Young workers who fought with the Red Army sacrificed their lives in the hope that a new society could be built on the principles of the Paris Commune or the Soviets. For their efforts, they were bombed, shot and bayoneted by 21 invading armies. When the Soviet economy required people with the basic literacy and administrative skills to run a telephone company or a post office, the government was forced to put men and women in charge who had not joined the Red Army like factory workers and poor peasants had done. They relied on apparatchiks from the Czarist bureaucracy.

Maybe Albert would have recommended an alternative to the centralized phone company and post office that are hangovers from capitalist society. I can just see his recipe for avoiding such an essentially hierarchical mode of production—using tin cans connected by waxed string and carrier pigeons.

Around 20 years ago I wrote an article titled “Neo-Utopian Socialism”. It is worth repeating what I said about Albert and Hahnel back then:

Turning to their “Looking Forward”, we find a completely different set of politics and economic reasoning, but the utopian methodology is essentially the same. Their vision of how social transformation takes place is virtually identical to that of the 19th century utopians. In a reply to somebody’s question about social change and human nature on the Z Magazine bulletin board, Albert states:

I look at history and see even one admirable person–someone’s aunt, Che Guevara, doesn’t matter–and say that is the hard thing to explain. That is: that person’s social attitudes and behavior runs contrary to the pressures of society’s dominant institutions. If it is part of human nature to be a thug, and on top of that all the institutions are structured to promote and reward thuggishness, then any non-thuggishness becomes a kind of miracle. Hard to explain. Where did it come from, like a plant growing out of the middle of a cement floor. Yet we see it all around. To me it means that social traits are what is wired in, in fact, though these are subject to violation under pressure.

Such obsessive moralizing was characteristic of the New Left of the 1960s. Who can forget the memorable slogan “if you are not part of the solution, then you are part of the problem.” With such a moralistic approach, the hope for socialism is grounded not in the class struggle, but on the utopian prospects of good people stepping forward. Guevara is seen as moral agent rather than as an individual connected with powerful class forces in motion such as the Cuban rural proletariat backed by the Soviet socialist state.

Albert’s [and Hahnel’s] enthusiasm for the saintly Che Guevara is in direct contrast to his judgement on the demon Leon Trotsky, who becomes responsible along with Lenin for all of the evil that befell Russia after 1917. Why? It is because Trotsky advocated “one-man management”. Lenin was also guilty because he argued that “all authority in the factories be concentrated in the hands of management.”

To explain Stalinist dictatorship, they look not to historical factors such as economic isolation and military pressure, but the top-down management policies of Lenin and Trotsky. To set things straight, Albert and Hahnel provide a detailed description of counter-institutions that avoid these nasty hierarchies. This forms the whole basis of their particular schema called “participatory planning” described in “Looking Forward”:

Participatory planning in the new economy is a means by which worker and consumer councils negotiate and revise their proposals for what they will produce and consume. All parties relay their proposals to one another via ‘facilitation boards’. In light of each round’s new information, workers and consumers revise their proposals in a way that finally yields a workable match between consumption requests and production proposals.

Their idea of a feasible socialism is beyond reproach, just as any idealized schema will be. The problem is that it is doomed to meet the same fate as the schemas of the 19th century predated it. It will be besides the point. Socialism comes about through revolutionary upheavals, not as the result of action inspired by flawless plans.

There will also be a large element of the irrational in any revolution. The very real possibility of a reign of terror or even the fear of one is largely absent in the rationalist scenarios of the new utopians. Nothing can do more harm to a new socialist economy than the flight of skilled technicians and professionals. For example, there was very little that one can have done to prevent such flight in Nicaragua, no matter the willingness of a Tomas Borge to forgive Somocista torturers. This had more of an impact on Nicaraguan development plans than anything else.

The reason for the upsurge in utopian thought is in some ways similar to that of the early 19th century: The industrial working-class is not a powerful actor in world politics. Engels observed that in 1802 when Saint-Simon’s Geneva letters appeared, “the capitalist mode of production, and with it the antagonism between the bourgeoisie and the proletariat, was still very incompletely developed.”

Isn’t this similar to the problem we face today? Even though the working-class makes up a larger percentage of the world’s population than ever before, we have not seen a radicalized working-class in the advanced capitalist countries since the 1930s, an entire historical epoch. In the absence of a revolutionary working-class, utopian schemas are bound to surface. Could one imagine a work like “Looking Forward” being written during the Flint sit-down strikes? In the absence of genuine struggles, fantasy is a powerful seductive force.

Another cause of utopian thought is the collapse of the Soviet Union and its allies. Except for North Korea and Cuba, there is not a country in the world that doesn’t seem to be galloping at full speed into the capitalist sphere. As this anti-capitalist reality becomes part of history, it is tempting to create an alternative reality where none of the contradictions of “existing socialism” existed.

This is fundamentally an ahistorical approach and will yield very little useful new political guidelines about how to achieve socialism in the future. These answers will not come out of utopian fantasies, but in further analysis of the historical reasons underlying the collapse of the USSR. In-depth analysis by serious scholars such as Moshe Lewin focus on the structural problems, not on statements made by Lenin and Trotsky made on management wrenched out of context.

June 12, 2016

Behind every great fortune there is a crime

Filed under: crime,economics — louisproyect @ 8:38 pm

Reports in the NY Times, the Wall Street Journal and USA Today this week document Donald Trump’s refusal to pay debts owed to the small businesses that supplied him goods and services over the years, in some cases forcing them into bankruptcy.

In today’s NY Times, there’s an article about how Trump deceived investors into buying shares in his Atlantic City hotels at inflated prices and then used much of the capital raised for his personal luxurious tastes. It also points out how one small company nearly went under because Trump refused to pay his bills even as he was siphoning off millions from the gambling casinos that relied on companies such as Triad Building Specialties to keep going:

Beth Rosser of West Chester, Pa., is still bitter over what happened to her father, whose company Triad Building Specialties nearly collapsed when Mr. Trump took the Taj into bankruptcy. It took three years to recover any money owed for his work on the casino, she said, and her father received only 30 cents on the dollar.

“Trump crawled his way to the top on the back of little guys, one of them being my father,” said Ms. Rosser, who runs Triad today. “He had no regard for thousands of men and women who worked on those projects. He says he’ll make America great again, but his past shows the complete opposite of that.”

Titled “Donald Trump’s Business Plan Left a Trail of Unpaid Bills”, the WSJ article describes a scenario in which the capitalist state took the side of rich bastard who was very good at stiffing the same kinds of people as the Rossers.

A review of court filings from jurisdictions in 33 states, along with interviews with business people, real-estate executives and others, shows a pattern over Mr. Trump’s 40-year career of his sometimes refusing to pay what some business owners said Trump companies owed them.

A chandelier shop, a curtain maker, a lawyer and others have said Mr. Trump’s companies agreed to buy goods and services, then reneged when some or all were delivered.

Larry Walters, whose Las Vegas drapery factory supplied Mr. Trump’s hotel there eight years ago, said the developer, Trump Ruffin, wouldn’t pay for additional work it demanded beyond the original contract. When Mr. Walters then refused to turn over some fabric, sheriff’s deputies burst into his factory after Trump Ruffin sued him. Trucks took the fabric away.

Finally, there’s the USA Today article titled “USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills”

During the Atlantic City casino boom in the 1980s, Philadelphia cabinet-builder Edward Friel Jr. landed a $400,000 contract to build the bases for slot machines, registration desks, bars and other cabinets at Harrah’s at Trump Plaza.

The family cabinetry business, founded in the 1940s by Edward’s father, finished its work in 1984 and submitted its final bill to the general contractor for the Trump Organization, the resort’s builder.

Edward’s son, Paul, who was the firm’s accountant, still remembers the amount of that bill more than 30 years later: $83,600. The reason: the money never came. “That began the demise of the Edward J. Friel Company… which has been around since my grandfather,” he said.

You’ll note that in both the WSJ and USA Today article, there’s a reference to a contract that was apparently not worth the paper it was written on. It evokes the words that some attribute to Balzac in “Le Père Goriot”: “Behind every great fortune there is a crime.” The novel doesn’t actually contain this exact formulation but it seems to have achieved a lofty but apocryphal status as good as if it were written by the French royalist who certainly understood what made people like Trump tick. In fact, in many ways Trump seems to have stepped out of this Balzac novel in which a young man in tutored in the art of pursuing money and women as instruments for social climbing as Wikipedia puts it.

Now you would think that a contract legally binds you to pay what you owe. For example, what would happen after you signed a lease for an apartment in Manhattan that rents for $6000 per month and then after you moved in, you told the landlord that it was only worth $4000 per month and intended not to pay a penny more. Not only would you be evicted, it would be difficult to find a landlord willing to lease you an apartment ever again.

I say this as someone who knows a Turk who has run into the same situation as the small proprietors described in the articles above. This was a guy who went to work for a company in Turkey based on a contract that gave him 10 percent of the ownership. After more than a decade working for the company, he came to the USA to look for a new position here. After settling in to a new apartment, he discovered that the people he used to work for had no intention of living up to the contract. There is one law that favors the Donald Trumps of Turkey and another law that applies to the Turk who will not be able to shrug off what he now owes to the landlord.

The USA article describes how Trump gets away with it:

The actions in total paint a portrait of Trump’s sprawling organization frequently failing to pay small businesses and individuals, then sometimes tying them up in court and other negotiations for years. In some cases, the Trump teams financially overpower and outlast much smaller opponents, draining their resources. Some just give up the fight, or settle for less; some have ended up in bankruptcy or out of business altogether.

This is exactly the asymmetric economic warfare that the Turk is facing now. His former employer is worth hundreds of millions of dollars and would have no problem tying him up  in court with legal fees he can ill afford right now. His future is uncertain.

Over the years when I have written about economic inequality and corruption, it is mostly set within a broad social and political fabric such as, for example, how Assad’s cousin Rami Makhlouf uses his sixty percent control of the Syrian economy to screw people left and right. I can easily understand how if you have been fucked over by Makhlouf or Trump, you’d have blood in your eyes—to evoke Trump’s sexist jibe against Megan Kelly. But when you know somebody who has been such a victim, you feel doubly outraged. If I had worked for Columbia University for 21 years as I had and discovered that they decided not to pay me my six month’s severance pay, there would have been hell to pay.

Isn’t it ironic that the man running as the Republican Party candidate for president is a deadbeat who thinks a contract is a piece of paper he can wipe his ass with? The contract is supposed to be a cornerstone of capitalist property relations and here’s someone who believes in the superiority of capitalism to any other economic system now making a mockery of it.

If you Google “contract law” and capitalism, the first item to show up is an online book titled “Law for Entrepreneurs” (it doesn’t indicate who the author is.) Chapter 8 is titled “Introduction to Contract Law” and states:

Contract law did not develop according to a conscious plan, however. It was a response to changing conditions, and the judges who created it frequently resisted, preferring the imagined quieter pastoral life of their forefathers. Not until the nineteenth century, in both the United States and England, did a full-fledged law of contracts arise together with, and help create, modern capitalism.

Modern capitalism, indeed, would not be possible without contract law. So it is that in planned economies, like those of the former Soviet Union and precapitalistic China, the contract did not determine the nature of an economic transaction. That transaction was first set forth by the state’s planning authorities; only thereafter were the predetermined provisions set down in a written contract. Modern capitalism has demanded new contract regimes in Russia and China; the latter adopted its Revised Contract Law in 1999.

Contract law may be viewed economically as well as culturally. In An Economic Analysis of Law, Judge Richard A. Posner (a former University of Chicago law professor) suggests that contract law performs three significant economic functions. First, it helps maintain incentives for individuals to exchange goods and services efficiently. Second, it reduces the costs of economic transactions because its very existence means that the parties need not go to the trouble of negotiating a variety of rules and terms already spelled out. Third, the law of contracts alerts the parties to troubles that have arisen in the past, thus making it easier to plan the transactions more intelligently and avoid potential pitfalls.

Posner is one of the country’s most influential law professors, a liberal Republican ideologically. You can bet that when he teaches a class on contract law, he will stress the sanctity of the contract without which capitalism descends into anarchy.

In fact capitalism has been anarchic from the very beginning (I am using the word in its original sense as “without rules” rather than Bakunin’s political philosophy). Despite what libertarians argue, capitalists always use political power to dominate the classes below them. The less economic power you have, the less political power. In the case of Trump’s victims, they simply lack the power to influence the judge and the cops who took away the fabric of a man who made the mistake of signing a contract with Donald Trump.

In societies where the bourgeoisie has the most power over the subordinate classes and which corruption runs rampant, the pieties of contract law are especially irrelevant. While not exactly a contract, the agreed upon wage when you become an employee is about as binding as Trump’s deal with the fabric company. In Ukraine, back pay is often treated as an inconvenience by the owner of a coal mine or a steel mill and simply ignored.

When ordinary people rise up against oppression in a place like Syria or Ukraine, their fondest hope is simply to live in a “normal society” where the individual is not vulnerable to the predations of oligarchs like Rihat Akmetov who was one of Ukraine’s richest men and a close associate of the deposed pro-Russian president Viktor Yanukovych. Guess who ran Yanukovych’s campaign for president? None other than Donald Trump’s chief campaign adviser Paul Manafort, as the Guardian reported in April 2016:

For almost four decades, Donald Trump’s newly installed senior campaign adviser, Paul Manafort, has managed to juggle two different worlds: well known during US election season as a shrewd and tough political operative, he also boasts a hefty résumé as a consultant to or lobbyist for controversial foreign leaders and oligarchs with unsavory reputations.

The controversial clients Manafort has represented have paid him and his firms millions of dollars and form a who’s who of authoritarian leaders and scandal-plagued businessmen in Ukraine, Russia, the Philippines and more. On some occasions, Manafort has become involved in business deals that have sparked litigation and allegations of impropriety.

In 1985, Manafort and his first lobbying firm, Black Manafort Stone & Kelly, signed a $1m contract with a Philippine business group to promote dictator Ferdinand Marcos just a few months before his regime was overthrown and he fled the country.

In the mid-1990s, Manafort reportedly received almost $90,000 from a Lebanese-born businessman and arms merchant to advise French presidential candidate and then prime minister Edouard Balladur, a controversial payment that surfaced as part of a long running French investigation – dubbed the Karachi affair – into allegations that funds, including those Manafort received, came from an arms sale of French submarines to Pakistan and were illegally funneled into the French presidential campaign.

And in 2010, Manafort helped pro-Russian candidate Viktor Yanukovych remake his tarnished image and win a presidential election in Ukraine. The effort was arguably the high point in a decade of political and business consulting in that country involving figures such as gas tycoon Dmytro Firtash, who was separately charged in 2014 by US officials with being part of a bribery scheme in India. The US has sought to have him extradited from Austria, where he was arrested. Firtash and a billionaire Russian oligarch, Oleg Deripaska, also worked with Manafort on separate byzantine investment deals in New York and Ukraine, respectively, that have led to lawsuits.

May 30, 2016

Is America committing slow-motion suicide? A look at the decline of CUNY

Filed under: economics,Education,financial crisis — louisproyect @ 5:19 pm

Since my wife is a faculty member at Lehman College, the picture of its library in yesterday’s NY Times captured my attention:

Screen Shot 2016-05-30 at 1.12.29 PM

Lehman and other City University of New York colleges were profiled in an article titled “Dreams Stall as CUNY, New York City’s Engine of Mobility, Sputters” that like so many in the newspaper recently depicts an American in deep if not irreversible decline. Lehman’s library was a case in point:

At Lehman College in the Bronx, Robert Farrell, an associate professor in the library department, said the library’s entire book budget this academic year was $13,000, down from about $60,000 a decade ago. Because the roof has been chronically leaky, about 200 books were damaged during a rainstorm three years ago; a tarp still covers some volumes.

Mr. Farrell also said that the library has had to reduce its spending on academic journals and database subscriptions. “We can’t be a serious institution of higher learning without providing our faculty and students with access to these kinds of things,” he said.

It was just one more reminder that the ruling class of the USA has no intention of funding the public good. With respect to private enterprise, unless the same kinds of profits can be generated on American soil that can be made overseas in an epoch when capital takes wings and flies around the globe in search of higher profits, you will wait in vain for the post-WWII prosperity that both the Trump and Sanders campaign evoke. After all, capitalism does not exist to create middle-class jobs. It exists to allow men and some women to be able to buy $15 million condominiums in New York and vacation in St. Bart’s just like Gaddafi’s sons did.

The article mentions that the City University of New York was founded by Townsend Harris in 1847 as the Free Academy of New York to educate “the children of the whole people.” What a benign figure. But if you take five minutes digging into his past, you will learn that he was named the first Consul General to Japan in July, 1856 just after Commodore Perry made the Japanese an offer they couldn’t refuse. Perry commanded a fleet of four warships that arrived in Edo Bay on July 8, 1853. After the Japanese instructed him to go to Nagasaki, the designated port for foreign contact, he threatened to burn Edo to the ground unless they kowtowed to American demands to “open” up their country for trade. As it happens, the American Manifest Destiny that led to this gunboat diplomacy and the creation of a school for “the children of the whole people” went hand in hand. Slavery, colonial expansion abroad and internal expansion through the grab of Mexican and Indian land were essential to the consolidation of a modern capitalist powerhouse that needed an educated workforce to maintain its ledger books and sell its commodities.

It is questionable whether the same imperative exists today, even as neocolonialism and the oppression of Mexicans and Indians continue.

It is probably not news to people who have been following higher education issues as I have ever since I began working at Columbia University in 1991, but essentially the powers that be are “starving the beast” as Grover Norquist urged. The Times reports:

Since the 2008 recession, states have reduced spending on public higher education by 17 percent per student, while tuition has risen by 33 percent, according to a recent report by the nonpartisan Center on Budget and Policy Priorities. Arizona is spending 56 percent less, while students are paying 88 percent more. In Louisiana, students are spending 80 percent more on tuition, while state funding has been cut by 39 percent.

The article places emphasis on feuding between NYC mayor Bill De Blasio, hailed by the liberal left like Obama was in 2008, and Governor Cuomo about whom there are no illusions. Cuomo has foisted much of the funding for CUNY on the city, a burden it can ill afford. Some say that this is his way of paying back the PSC, my wife’s union, for backing his rival Zephyr Teachout in the DP primaries in the last gubernatorial election.

As a frequent visitor to the Nicaragua Network meetings in 1989, De Blasio struck me as a smooth operator but I hardly figured him as a future mayor. Despite dark reminders about his visit to Cuba and Sandinista sympathies, De Blasio has been a reliable friend of real estate interests. In yesterday’s Times, there’s an op-ed piece on the gentrification of Harlem that nails him for his failure to take them on:

Still Harlem endures as a community with high hopes, and in 2013, we felt sure we had found a champion. Bill de Blasio ran as the mayor for everyone, which we figured had to include Harlem. Black voters were crucial to his victory, and we thought we were covered and cared for. He even has a likable son, as liable to get stopped by the police as ours might.

We were wrong. The man we saw as “our mayor” may talk about housing affordability, but his vision is far from the rent control and public housing that President Franklin D. Roosevelt and Mayor Fiorello H. LaGuardia once supported, and that made New York affordable for generations. Instead, he has pushed for private development and identified unprotected, landmark-quality buildings as targets. He and the City Council have effectively swept aside contextual zoning limits, which curb development that might change the very essence of a neighborhood, in Harlem and Inwood, farther north. At best, his plan seems to be to develop at all speed and costs, optimistic that the tax revenues and good graces of the real estate barons allow for a few affordable apartments to be stuffed in later.

Corey Robin, who teaches at Brooklyn College, one of the more prestigious campuses in the CUNY system, blogged about the article:

The piece makes a brief nod to my campus, Brooklyn College, whose “rapidly deteriorating campus” has earned it the moniker “Brokelyn College.”

I can personally attest to that. On Thursday, as I left campus, I stopped in the men’s room of our wing of James Hall. One of the two urinals was out of business, covered by a plastic sheet. I sighed, and thought back to the time, about a year ago, that that urinal was so covered for about six months. The clock in my office has been stopped for over a year. Our department administrator tried to get it fixed: it worked for two days, and broke again.

He includes a picture of the desks in a classroom:

You can bet that there are no desks like that at NYU or Columbia where the students are being prepped for jobs in the financial services or those sectors of the economy that look after big business’s far-flung empire. I imagine that an MBA from either of these two schools and a minor in computer science might open doors at an accounting firm or investment bank. Art history or sociology? Forgettaboutit.

You have to understand the decline of CUNY in the context of public higher education’s nationwide crisis. Everywhere you look, schools are being denied funding adequate to their needs. This almost certainly means that it will be more and more difficult for American corporations to staff the middle-tier managerial positions for which these schools are expected to furnish. The Times article points to the difficulties a young woman is facing trying to become qualified as a public school teacher:

At City College, Anais McAllister, 22, a senior from Yonkers, said she had planned to major in English with a concentration in education, which would have allowed her to become a teacher after graduation. When some of her required education classes were canceled, she realized she would need another year — and another $6,000, at least — to graduate with the education credential.

With her scholarship expiring at the end of this academic year, and a younger brother entering trade school in the fall to obtain his plumber certification, she dropped the education concentration.

“The fact that this can happen, where your department can be cut financially where you have to think about dropping it, is ridiculous,” she said.

With her problems probably being repeated across the system, it will be difficult for public schools to operate effectively, which obviously will be of little importance to someone like Cuomo who is a major backer of charter schools.

When Corey Robin posted a link to the Times article yesterday morning on FB, the first comment to appear was this: “We’re committing slow-motion suicide as a country.” I responded as follows:

This is obviously related to the state of American capitalism that in its current phase has little interest in the kind of national development that led to all sorts of public investments such as expressways, railway systems, higher education on one hand and on the other private investment in nationally-based manufacturing (auto, steel, etc.) Bernie Sanders advocates investment in the former but really has no idea how to get the capitalist class to invest in American manufacturing when you can get Mexican auto workers to accept much lower wages. The writing is on the wall but it is not suicide–it is homicide. Andrew Cuomo, the Koch brothers, Donald Trump, Hillary Clinton, Michael Bloomberg, Barack Obama–all of them could care less if Lehman College, where my wife works, has a leaking ceiling. They are only interested in serving their own class interests. The USA needs a socialist revolution and the longer we place hopes in capitalist reform, the longer we delay confronting the tasks that are staring us in the face.

Of course in FB, you are loath to post longer comments but I’d like to now expand upon what I wrote.

On May 15th Barack Obama gave the commencement speech at Rutgers University that contained this Panglossian statement:

Point number one:  When you hear someone longing for the “good old days,” take it with a grain of salt.  (Laughter and applause.)  Take it with a grain of salt.  We live in a great nation and we are rightly proud of our history.  We are beneficiaries of the labor and the grit and the courage of generations who came before.  But I guess it’s part of human nature, especially in times of change and uncertainty, to want to look backwards and long for some imaginary past when everything worked, and the economy hummed, and all politicians were wise, and every kid was well-mannered, and America pretty much did whatever it wanted around the world.

Guess what.  It ain’t so.  (Laughter.)  The “good old days” weren’t that great.  Yes, there have been some stretches in our history where the economy grew much faster, or when government ran more smoothly.  There were moments when, immediately after World War II, for example, or the end of the Cold War, when the world bent more easily to our will.  But those are sporadic, those moments, those episodes.  In fact, by almost every measure, America is better, and the world is better, than it was 50 years ago, or 30 years ago, or even eight years ago.  (Applause.)

Although the students were likely to appreciate the president’s visit, they might have questioned his take on the “good old days” considering that the school’s tuition is now $13,000 per year, one of the most expensive public university in the country. Of course, the school has tried to generate revenue through its athletic program but it keeps running into scandals on an almost yearly basis, the latest one connected to the football coach trying to get the administration to overlook a star player’s failing grades.

The problem for Obama is that many Americans do remember “the good old days”, which were not that long ago. When I was a student at the New School in 1967 and had completed most of the credits I needed for a PhD in Philosophy, I needed a job to keep me going as I worked on my dissertation. That led to jobs as a welfare worker and 5th grade teacher in Harlem that went begging back then when AFDC and funding for public education were in ample supplies as part of the Great Society—funded to some extent by feverish war spending a la Military Keynesianism.

When those jobs became too much of a psychological toll, I began looking at the classified ads in the Sunday Times business section, which usually ran for 5 pages or so. They were in alphabetical order and I turned directly to those that started “college graduates”. There were usually about three hundred listed that read something like this: “Major insurance company seeks programmer trainees, starting salary $6000. No experience necessary.” That’s how I got my first job at Met Life in 1968. The $6000 was adequate to pay for a modest one-bedroom or studio apartment. For me that was “the good old days” even though it was inextricably linked to a brutal imperialist war that would cost the lives of millions of Vietnamese.

For most working people in the area, jobs could be landed at places like Ford Motors in Mahwah, New Jersey or the oil refineries just across the river along the New Jersey Turnpike. Those were good union jobs that paid the kind of money that would allow you to live in a suburban tract housing and send your kids to college. Those who remember those “good old days” are being wooed by both Trump and Sanders who have about as much of an idea to bring them back as I do about the origins of the universe.

None of this matters to Barack Obama or the rich bastards who are funding both the Democrats and Republicans an on equal opportunity for profit basis. Their newspapers like the NY Times and even Rupert Murdoch’s Wall Street Journal can publish hand-wringing items like the one on CUNY but in the final analysis, they have no idea how to make America “great” again.

We are living in a period that can both be described as capitalist decline and capitalist expansion. Places like Detroit go down the tubes but for the capitalist investor, it could not be any better. All you need to do is stroll around the Chelsea neighborhood in NYC and gaze at the new condominiums that are the preferred homes for Wall Street hedge fund operators or plutocrats from Brazil, Russia, India or China, the bloc of nations that are supposed to be rescuing us from neoliberalism according to imbeciles like Mike Whitney.

The truth is that we are in a new kind of “The Other America”, the 1962 book that SP leader Michael Harrington wrote about the pockets of poverty in a nation in which everybody else was prospering. The coal fields of West Virginia and California’s Central Valley came under the spotlight. Nowadays, it is getting to the point where there will be pockets of extreme wealth surrounded by oceans of poverty or near-poverty only relieved by those middle-class families that can tread water sufficiently to keep from drowning.

This is not a nation “committing suicide”. It is one in which the superrich are killing the rest of us through a slow process of attrition. There is absolutely nothing in Bernie Sanders’s economic program that can reverse this. The idea that the USA can adopt a Nordic socialist model when Northern Europe itself has been cutting back on social programs and making life hell for immigrants is—in a word—utopian. The sooner we revive the radical movement of the sixties in which Sanders was committed to genuine socialism, the better.



May 8, 2016

Karl Marx rides again

Filed under: economics,financial crisis,socialism — louisproyect @ 5:52 pm

**FILE**John Wayne appears in a scene from "True Grit," a Hal Wallis production, directed by Henry Hathaway. Wayne won his best-actor Oscar for his role in the 1969 movie. Wayne, born Marion Robert Morrison, would have turned 100 on Saturday, May 26, 2007. He died at the age of 72 of stomach cancer in June of 1979 after a career that spanned more than 170 films. (AP Photo)

(From my 2014 archives)

Seemingly three or four years late in the game, Rolling Stone weighed in on the relevance of Karl Marx. In an article titled Marx Was Right: Five Surprising Ways Karl Marx Predicted 2014, Sean McElwee told his readers that the Great Recession of 2008 confirmed Marx’s analysis of the capitalist system as “chaotic” and “crisis-prone”.

Just to make sure that nobody would accuse him of being a Commie, McElwee also points out that Marx was wrong about many things, especially failing to offer a proposal about what should replace capitalism. This lack left his writing “open to misinterpretation by madmen like Stalin in the 20th century.” Now it should be said that Marx never intended to write about the workings of socialism, not that this would have made any difference to Stalin. The horrors of the USSR have much less to do with Marx’s failure to write what he called “recipes for the cook-shops of the future” (Afterword to the 1873 edition of V. 1 of Capital) than the sheer backwardness of Czarist Russia, exacerbated by a bloody civil war.

I could not help but notice the renewal of interest in Karl Marx’s ideas just after the 2008 financial crisis began. While the Communist Manifesto is the second-best selling book in history, there was a pronounced spike in sales around that time, no doubt aided by Marx’s words that read like a prophecy: “The modern labourer, on the contrary, instead of rising with the process of industry, sinks deeper and deeper below the conditions of existence of his own class. He becomes a pauper, and pauperism develops more rapidly than population and wealth.” McElwee paraphrases Marx: “Decades of deepening inequality reduced incomes, which led more and more Americans to take on debt. When there were no subprime borrows left to scheme, the whole façade fell apart, just as Marx knew it would.”

It is interesting to note that Sean McElwee does not allow his past associations with John Stossel, the Hudson Institute and Reason Magazine to prejudice him against Karl Marx, a sure sign that history is moving in the right direction. There was a time when McElwee found rightwing ideas more useful. After graduating from King’s College in New York, a school with the dubious distinction of having Dinesh D’Souza named president in 2010, McElwee’s writings tilted rightward as evidenced by his Reason article arguing that plastic garbage floating around in the oceans was not that worrisome.

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.”

It is, of course, only natural that Marx’s books get taken off the bookshelves and dusted off during a period of profound economic crisis. For that matter, a political crisis will also have the same effect. In 1967 I took the unprecedented steps of reading the Communist Manifesto after two years of facing the draft and working in Harlem as a welfare investigator. A combination of napalm bombing of peasant villages and urban rebellions against racism and poverty convinced me that a revolution was necessary and who better to consult on that matter than Karl Marx?

I made the decision at that time to join the movement founded by Leon Trotsky since his connections to Karl Marx seemed to have more of a pedigree than those of Joseph Stalin or Mao Zedong. I failed to realize at the time that notions of pedigrees were exactly what prevented Marxism from full development.

In April 1939, just a year before his assassination, Leon Trotsky wrote Marxism in Our Time as an introduction to a new edition of Karl Marx’s V. 1 of Capital. It is of extraordinary value as a statement of the ABC’s of Marxism, as well as unwitting evidence of its unresolved contradictions.

Trotsky does not shy away from the key challenge to Marxism that I first heard in a social studies class in 1958 when the American economy was reaching new heights–what his article refers to as “the theory of increasing misery”. Our teacher said something that most of us heard in public school growing up in the USA. It goes something like this: Karl Marx was right about workers being oppressed and exploited in 1850 but he never would have dreamed about how wealthy they would become a hundred years later. Probably the first person to articulate this seemingly irrefutable point of view was Werner Sombart, the German ex-Marxist and author of Why there is no Socialism in America.

Writing in 1939, when misery was widespread throughout the capitalist world, Trotsky would seem to have had the upper hand but interestingly enough he sought to vindicate Marx’s analysis not on the basis of what existed during the depths of the Great Depression but at the height of its economic vitality: the roaring 20s. Trotsky observed that while industrial production increased by 50 per cent between 1920 and 1930, wages only rose only by 30 per cent. The workers were getting screwed in the best of times.

Like the nuclear reactor that withstood a meltdown in China Syndrome, the American economy supposedly is in recovery. Of course there are those unfortunates who cannot seem to find a job, especially in the Black community, but the stock market is at an all-time high and the housing market—according to the experts—is doing quite well. GM is showing a handsome profit even if it faces criminal charges for failing to inform owners of their cars that a faulty ignition might lead to fatal accidents.

More to the point, the NY Times of March 12, 2014 reported on economist Thomas Piketty’s new book Capital in the Twenty-First Century that would be of little assurance to anybody except the wealthy. Piketty deploys a mountain of data to prove that economic inequality will not only persist into the future but that the system itself is the primary generator, not “vampire squids” as Matt Taibbi put it. It is the very nature of the system that leads to a concentration of wealth at the top and misery at the bottom. Timesman Eduardo Porter, not a critic of capitalism after the fashion of Nouriel Roubini, puts it bluntly:

The deep concern about the distribution of income and wealth that inspired 19th-century thinkers like David Ricardo and Karl Marx was attributed to a misunderstanding of the dynamics of growth leavened with the natural pessimism that would come from living in a time of enormous wealth and deep squalor, an era that gave us “Les Misérables” and “Oliver Twist.”

Today, of course, it’s far from obvious that the 19th-century pessimists were entirely wrong.

Glancing back across history from the present-day United States, it looks as if Kuznets’s curve swerved way off target. Wages have been depressed for years. Profits account for the largest share of national income since the 1930s. The richest 10 percent of Americans take a larger slice of the economic pie than they did in 1913, at the peak of the Gilded Age.

Recently, a trend within Marxism has emerged that argues against the importance of “immiseration” altogether. To somehow link revolution with a declining standard of living is tantamount to what they call “Catastrophism”, a word in the title of a collection of essays edited by West Coast radio host Sasha Lilley: Catastrophism: The Apocalyptic Politics of Collapse and Rebirth.

Lilley’s chapter (Great Chaos Under Heaven: Catastrophism and the Left) in the collection can be read in Google books, something I highly recommend it even if I disagree with every word. Lilley is a stimulating thinker who can at least be given credit for being forthright. While she correctly discredits the notion that the capitalist system will collapse as a result of its own contradictions (Marx instead believed that cyclical crisis was endemic to the system), she goes too far in saying that crisis itself was inimical to class consciousness and political struggle and that an expanding capitalist economy was far more propitious for the left:

With the exception of the 1930s, periods of intense working class combativeness in the United States have tended to coincide with periods of economic expansion, not contraction and crisis. The two big strike waves of the early twentieth century, from 1898 to 1904 and 1916 to 1920, took place during years of growth. These were periods in which radical workers forced employers to raise wages—by 35 percent between 1890 and 1920—and, through struggle, successfully shortened the workweek by nine hours. These strikes were fueled by relative prosperity, and industrial action fell off when the economy moved downward.

Workers struck throughout the early 1960s for that matter. This was a time when the UAW, the Teamsters, and the railway unions went out on strike for substantial wage increases all the time. During the brief time I was a public school teacher in the late 60s, Albert Shanker was one of the most “militant” trade unionists in the U.S. if going out on strike is some kind of litmus test. This was the guy after all who resulted in civilization being destroyed after he got his hands on a nuclear weapon, as the Doctor told Woody Allen in Sleeper after he awoke. That’s pretty militant but I do not think that’s the sort of thing Lilley had in mind.

But the kinds of strikes that capture Marxist’s attention are not the Samuel Gompers inspired affairs for higher wages. Instead we study what happened in Flint, Michigan in 1936 and 1937 when workers occupied factories and battled the cops and National Guard. This was a strike that began to educate workers about FDR back-stabbing the CIO. Like it and so many other major class battles of the 1930s, it eventually came to naught because the Communist or Social Democratic leadership (Victor and Walter Reuther in the case of the UAW) was determined to back FDR. If the trade union movement had broken with the Democrats and launched a labor party, American politics would look a lot different today.

In the final analysis, it is politics that is key for Marxism in our time. Accepting Piketty’s findings at face value (something made easier by the “new normal” of unemployment, stagnating wages, environmental despoliation, and decaying infrastructure), the emphasis should be on strengthening the left and challenging the rich on every single issue that divides us. Nobody can predict when and if the class struggle will reach such an advanced level that workers will become revolutionary, but the best way to move forward in that direction is by exploiting every injury and insult to those who own nothing but their labor power.

Although Marx was the first to understand the laws of motion in capitalism, it was really up to Lenin to think through what strategies were most effective. Ironically, it was lessons he learned from the German Social Democracy that helped him to formulate policies for a Czarist state that on the surface had little in common with a parliamentary democracy like Germany’s.

In “What is to be Done?”, Lenin appealed to his Russian co-thinkers to learn from the Germans:

Why is there not a single political event in Germany that does not add to the authority and prestige of the Social-Democracy? Because Social-Democracy is always found to be in advance of all the others in furnishing the most revolutionary appraisal of every given event and in championing every protest against tyranny…It intervenes in every sphere and in every question of social and political life; in the matter of Wilhelm’s refusal to endorse a bourgeois progressive as city mayor (our Economists have not managed to educate the Germans to the understanding that such an act is, in fact, a compromise with liberalism!); in the matter of the law against ‘obscene’ publications and pictures; in the matter of governmental influence on the election of professors, etc., etc.

You have to wonder how our dogmatic Marxists of today can have so little appreciation for how the Russian social democracy operated. Could you imagine any of the 57 varieties of “Leninist” sects ever taking up the cause of a “bourgeois progressive” being denied the right to take office? Just recently, the Senate rejected Obama’s appointment of Debo Adegbile to a top civil rights post because he had participated in an appeal filed on behalf of Mumia Abu-Jamal. A powerful left party in the USA would have raised hell about this, even if the Democrats did not lift a finger.

In terms of the laws against “obscene” publications and pictures, and governmental interference in the election of professors, Lenin is amazingly prophetic when you think of Piss Christ and Ward Churchill. In many ways, capitalism is not just about whether the boss is enjoying a higher return on profits than a worker’s rise in wages since Marxism is not reducible to economic determinism. Capitalism constitutes an assault on our lives during every working moment of the day and the duty of a revolutionist is to find ways to get people to come out of their apolitical shell and take part in civil society in order to fight for greater freedoms now and total liberation after the final conflict.

But in order to become effective, Marxism has to learn how to avoid the “pedigree” trap alluded to above since size matters. Nothing prevents growth more than hairsplitting after all. To be taken seriously by working people, socialists have to get out of their isolation chambers and use ideas and language drawn from their nation’s own experience. This means first and foremost casting off the iconography of the Russian Revolution and especially terms like “communism” that would be totally misunderstood by the ordinary person even if they excite Slavoj Žižek.

In early 2010 the Gallup Poll discovered that 36 percent of Americans view socialism positively. Can you imagine if Gallup had used the word communism instead? That word might have registered more positively in the NYU sociology department but we are far more interested in what appeals to the average American.

As is most likely the case, Kshama Sawant was elected to City Council in Seattle by representing herself as a socialist rather than a communist and downplaying the dogmatic beliefs of her Trotskyist organization. Instead of making speeches about the need for a Leninist party, it was the need for a $15 minimum wage that won her volunteers and votes.

As a sign of how intoxicated the left can become when it loses track of what century it is in, the Socialist Workers Party of the USA—a group Leon Trotsky hailed as most faithful to his party-building conceptions—dismissed Sawant’s campaign as “reformist”:

Constrained to the narrow boundaries that typify capitalist election contests for local offices, her literature avoided important political issues that affect all workers, such as high unemployment and a woman’s right to choose abortion. It made no mention of key international issues, Syria, the place of the Cuban Revolution, the common interests of working people worldwide against the bosses or the global crisis of capitalism that is driving their attacks against us.

Considering that her bid was for City Council, it made eminent good sense for her not to make speeches about Syria and the Cuban Revolution (whatever that means in 2014, when the country seems poised to adopt the Chinese model).

Not long after the cops expelled the last Occupy protester out of the last public park, I had hopes that the movement could have come together and run candidates under the name of the Occupy Party. Unfortunately, the autonomist and anarchist prejudices of the key activists made this impossible. For the ordinary person, taking a leave of absence from their job in order to camp out in the bitter cold was never a realistic possibility to begin with.

Making every possible tie to the Occupy movement, the Sawant campaign became a small token of what may be possible if the American left puts aside its petty differences and began to come together in a common organization to defend the rights of working people for a livable wage as well as their freedom to go to a museum and see works like Piss Christ or photographs by Robert Mapplethorpe.

We have no crystal ball that would indicate when such an organization has reached the critical mass that is necessary to lead to the explosive reaction that can transform society and usher in a new civilization based on freedom and justice but we must do everything in our power to remove all obstacles in our way, especially those put there in the name of Marxism.

March 11, 2016

Boom Bust Boom

Filed under: economics,Film,financial crisis,humor — louisproyect @ 9:13 pm

If I were to mention that a new film opened today that consisted pretty much of economists discussing financial crisis, your eyes would glaze over, right? But when such a film is directed by Monty Python alum Terry Jones, that’s a horse of another color. (It is co-directed by Bill Jones who directed a documentary on fellow alum Graham Chapman and Ben Timlett who produced a six-part TV tribute to the group.)

So what you get is a wickedly funny but mind-expanding analysis of 2008 by economists both famous (Paul Krugman) and famous only to their comrades (Nathan Tankus) that is driven by the proposition that the capitalist system is inherently unstable.

To give you an idea of how deep it gets into its material, it spends 15 minutes reprising Hyman Minsky’s Financial Instability Hypothesis using his son Alan and a cartoon representation of dad going back and forth on the ramifications. As someone who has delved somewhat superficially into Minsky over the years (I prefer the more hard-core Marxists obviously) but never quite understood him, this was an amazing segment that finally allowed his ideas to sink in. Put in a nutshell, crises are cyclical affairs that grow out of stability. When a system is stable as the American economy was after WWII, it is easier for a sense of euphoria to develop that leads to speculation of the sort that makes bubbles possible. Once the bubble bursts, the system goes into crisis and a sense of impending doom. Then, once again, the system drags itself out of the abyss and new round of stability ensues–leading once again to another round of instability.

Minsky is much beloved by a number of the interviewees including Randall Wray from the U. of Missouri (a department that tolerates dissidents opposed to neoclassical bunkum), New Yorker Magazine contributor John Cassidy, British journalist Paul Mason, and our boy genius Nathan Tankus from Naked Capitalism and PEN-L.

Screen Shot 2016-03-11 at 3.43.58 PM

We learn that Minsky decided to study economics in the 1930s because the pat answers being presented by academic experts and media pundits was so out of whack with the reality. As it turns out, it was the Great Recession and the Occupy Wall Street movement (events that can be understood as a somewhat less cataclysmic repeat of the 1930s) that inspired Nathan to study economics. How do I know? He told me so.

Using puppets, animation and Terry Jones’s inspired narration, the film makes economic history not only understandable but hugely entertaining. For example, in reviewing past bubble-bursting affairs, it starts with the Tulip Mania in Holland of 1637 in which the lovely but ultimately common bulb was sold as if it were gold until one morning sellers showed up at a marketplace to discover that all the buyers were gone. Terry Jones illustrates this with an animated caricature of a Rembrandt portrait of a Dutch burgher singing “I kiss thee tulips with my two lips”.

Towards the end of the film, there is a well-deserved assault on the economics profession from people like Nathan who are trying to use the discipline as a tool for social change. We hear from students in the postgraduate economic society at the University of Manchester who like him are organizing extracurricular activities to examine about the true cause of economic instability, a phenomenon that their own instructors have ignored. One student points out that economics department get funding based on the studies they produce for mainstream outlets that are inherently neoclassical. So there is an economic incentive to falsify economics.

This is an amazing film that I can’t recommend highly enough. That being said, I did have a problem with a segment that seems to express a bias of the men who made it, namely that financial crises arise out of some deeply rooted flaw in human psychology that fosters a get rich quick behavior. Indeed, the film begins with an explanation for the subprime crisis that veers a bit too much in the direction of poor people getting mortgages they really didn’t qualify for.

We hear from scientists involved with studying rhesus monkey behavior on an island near Puerto Rico. They trained them to gamble by choosing one of two options: the safe choice offered them at least a little food for sure, while a risky choice generally offered them a bigger amount of food but only a fifty-fifty shot of getting it. One of the scientists argues that given 35 million years of evolution, such behavior is very difficult to eradicate.

This is a little too close to Jared Diamond’s sociobiology for comfort. I don’t think that evolution has anything to do with this. Generally speaking, pre-capitalist society, especially among hunting and gathering peoples, is marked by an aversion to risk. People hunted collectively in order to provide food that would keep them fed for a given period without any desire to accumulate after the fashion of a banker buying collateralized mortgage obligations in 2006.

Whenever I hear about monkeys or chimps having anything in common with us, I am reminded of a silly business in Diamond’s “The Third Chimpanzee”. This exercise in sociobiology (an updated version of the 19th century social Darwinism) includes a chapter titled “The Golden Age That Never Was” where he argues that since monkeys and apes have an evolutionary imperative to pass on their genes, art must be a clever stratagem by men to lure women into bed. This led Tom Wilkie to drolly observe in the May 22, 1991 Independent that this lesson must have been lost on Tchaikovsky, Andy Warhol and other homosexual artists.

“Boom Bust Boom” opened today at the Village East in New York City. Don’t miss it. It is more fun than a barrel of monkeys.

February 18, 2016

Do capitalists create use-values?

Filed under: economics — louisproyect @ 4:41 pm

I received this in an email yesterday:


            I have only read the Communist Manifesto and chapter 1 of Capital, so my analysis may be misrepresentative of Marxist thought and the capitalist system as a whole; I, therefore, would like a little help from someone that is much more well-read than myself.

            My question is one that I have scoured the internet and my own reason for, with little success in the achievement of a coherent answer. This question being, does the capitalist not provide an essential service, in his planning of the production, the careful delegating of responsibilities to certain individuals, and the act of selling the commodities, to the workers he employs? In more technical terms, is he not creating a use-value to the workers by these actions, for, if he were not present, this would have to be done by the workers themselves, assuming the constancy of all other aspects of the capitalist mode of production?

            Could this use-value, created through the service of the capitalist, be the true source of surplus value, and therefore of profit? The immensity sometimes seen present in the profit would be due to the immensity of the use-value created, for he is creating a rather massive use-value when he sells the commodities produced by every single worker in a massive factory.

            I have heard it said (bear in mind, on Reddit, so it may be misrepresentative) that Marx ignored the fact that the capitalist himself does labor. How true is this?

            As an end statement, I would like to state that I have nothing less than a truly open mind, and ask these questions only after much reasoning being done on my own part.

Thank you!

My reply:

There is little doubt that the capitalist provides an essential service in supervising production. All you need to do is read a biography of Stephen Jobs to figure this out. However, there is ample evidence that workers do not need a capitalist to organize production. The Mondragon company in Spain has a vast economic empire including the manufacture of pressure cookers, bicycles, and building supplies but it is a worker-owned cooperative, not a private corporation. Furthermore, the USSR had a number of very innovative production units without the need for a capitalist to supervise production such as in aerospace, munitions, and heavy industry. The Soviet economy collapsed, however, because it was distorted by bureaucratic control over the firms that had many problems such as hoarding, etc. You can find out about these problems by reading Alec Nove, especially his “The Economics of Feasible Socialism”, portions of which can be read on Google Books.

More problematic is the question you raise: “In more technical terms, is he not creating a use-value to the workers by these actions, for, if he were not present, this would have to be done by the workers themselves, assuming the constancy of all other aspects of the capitalist mode of production?”

This is not what Marx had in mind when he coined the term “use-value”. For Marx, it was associated with the commodity, which is something that originated as raw materials in nature such as cotton, wood, iron, etc. and that labor transforms into something useful such as a shirt, a chair or the hull of a ship. Under capitalism, the commodity also has exchange-value, which is its capability to produce profits and cash for the capitalist who hires the worker.

You might find something I wrote about value theory worth reading: https://louisproyect.org/2014/07/08/questions-about-socialism-and-value-theory/

Looking a bit further into these questions, I have the same problem again with this:

Could this use-value, created through the service of the capitalist, be the true source of surplus value, and therefore of profit? The immensity sometimes seen present in the profit would be due to the immensity of the use-value created, for he is creating a rather massive use-value when he sells the commodities produced by every single worker in a massive factory.

Well, this is essentially the analysis put forward by Mises and Hayek, the Austrian economists who influenced Milton Friedman, Alan Greenspan and that pervades the Republican Party think tanks such as the Cato Institute, the Heritage Foundation, et al. Just to repeat myself on the “use-value” question, this is not how Marx used the term. That being said, Marx did recognize the vast productive power of the modern capitalist system. As you have read “The Communist Manifesto”, this should be obvious to you from this:

The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.

So in essence Marx did not ever question the vastly productive capacities of the capitalist system, nor did any of those who came after him. Furthermore, if capitalism could simply continue to provide jobs for the billions of people living on earth with a wage sufficient to maintain a reasonably comfortable lifestyle, there will never be a socialist revolution even if most workers are alienated by the monotony of factory life and the general social decay associated with commodification—something I am reminded of when I walk into a subway station and see ads covering every inch of the station as well as the trains that enter them.

People rise up against capitalism when it is stagnant, not when it is thriving. For example, Greece, Spain, Portugal and Scotland are now to one degree or another witnessing the growth of parties on the far left because of unemployment. The capitalists tell the people that before returning to normal they will have to endure austerity for some undefined period. This is pretty much what they were told in the 1930s as well. When you are like the Koch brothers, there is no hurry for the business cycle to trend upwards. When you have $100 million a year to piss away, time is not of the essence.

Given such business slumps, the workers tend to get angry–so much so that they join parties committed to ending capitalist rule. To keep them at bay, the capitalists try to solve their problems by grabbing land and resources in other countries where cheap foreign labor in places like China or Vietnam can help keep the homeland at peace through cheap commodities sold at Walmart. Competition over empire-building risks war as the ruling classes collide with each other over turf just like the mafia cartel wars in Mexico. This is essentially what caused WWI, WWII and colonial wars too numerous to mention.

Finally, even if the capitalist system retains some of the dynamism you speak of, there is the environmental crisis that ultimately will threaten the survival of civilization. To maintain profits, the capitalist class will drill for oil in places that pose vast risks such as the Gulf of Mexico. When oil and coal are used to keep the factories going, greenhouse gases cause climate change sufficient to flood much of New York City or London by the end of the 21st century. The capitalists are not too worried about this since they are not in it for the long haul. The Koch brothers are happy with the way things are and shrug off such dangers if not funding professors and journalists willing to lie on their behalf.

To conclude, your concern about “use values”, however understood, is misplaced when the survival of the human race is at stake. Better to tamp down the “dynamism” of the capitalist system in the interests of peace, clean air and a general state of contentment with the world around us.


January 24, 2016

Once again on the formal/real subsumption question

Filed under: economics,transition debate — louisproyect @ 8:29 pm

Screen Shot 2016-01-24 at 3.20.57 PM

Definitely not found in a medieval guild

In my post on “Anglocentrism and the real subsumption of labor”, I mistakenly attributed Marx’s discussion of formal and real subsumption to the Grundrisse. It actually is contained in “The Results of the Direct Production Process”, which is part of a third draft of Capital that Marx wrote between the summer of 1863 and the summer of 1864, and is based on a plan Marx made for the work in December 1862. After reading it, I find myself troubled by how it fits into Marx’s more general analysis of the exploitation of labor in light of his statement:

Just as the production of absolute surplus value can be regarded as the material expression of the formal subsumption of labour under capital, so the production of relative surplus value can be regarded as that of the real subsumption of labour under capital.

Returning once again to Charles Post’s reference to Marx’s definitions of the two forms of subsumption, you find what is commonly understood as “handicrafts”, the most elementary form of labor exploitation that emerged out of the bowels of feudalism:

As long as capital’s subsumption of labor was formal and the actual labor-process was in the hands of skilled artisanal wage earners—legal-juridical forces was necessary to ensure the sale of labor-power and capital’s ability to command production. [emphasis added]

Skilled artisanal wage earners is obviously the words that would describe men and women who worked in “cottage industries” spinning wool and making garments out of the raw materials supplied by an early capitalist, one that Marx considered rooted in usury. The next step would be gathering all of these artisans under the same roof and paying them a wage to make garments with both machinery and raw materials supplied by the capitalist. With their skills, they conceivably could go into business for themselves as many surely did.

In “The Results of the Direct Production Process”, Marx describes the world in which “formal subsumption” operated:

Finally, the relation of capitalist and wage labourer can replace the master of the guild type and his journeymen and apprentices, a transition accomplished in part by urban manufacture at its very beginnings. The medieval guild relation, which developed in analogous form in narrow circles in Athens and Rome as well, and was of such decisive importance in Europe for the formation of capitalists on the one hand, and of a free estate of workers on the other, is a limited, not yet adequate, form of the relation of capital and wage labour. There exists here on the one hand the relation of buyer and seller. Wages are paid, and master, journeyman, and apprentice confront each other as free persons. The technological basis of this relation is the handicraft workshop, in which the more or less skilled manipulation of the instrument of labour is the decisive factor of production.

In between such a relatively primitive form of class relations and that of “real subsumption”, there is a huge gap:

We already noted when considering machinery, how its introduction into one branch brings about its introduction into others, and at the same time into other varieties of the same branch. Mechanical spinning, for example, leads to mechanical weaving; mechanical spinning in the cotton industry leads to mechanical spinning in wool, linen., silk, etc. The wider employment of machinery in coal mines, cotton manufactures, etc., made necessary the introduction of the large-scale method of production into machine manufacture itself. Leaving aside the growth in the means of transport required by this mode of production on a large scale, it is on the other hand only the introduction of machinery into machine manufacture itself — particularly the cyclical prime motor — which has made possible the introduction of steamships and railways, and revolutionised the whole of shipbuilding. Large-scale industry throws as large a mass of human beings into the branches not yet subjected to it, or creates in these branches as large a relative surplus population, as is required for the conversion of handicrafts or of the small, formally capitalist business into a large-scale industry.

So, on one hand you have formal subsumption with its quaint guilds and skilled artisans turning out garments by the dozens each day like something you would see in London circa 1450. On the other, with real subsumption you have the “wider employment of machinery” that makes possible the production of thousands of garments each day in an age when the same advances are yielding the modern steamship and railway lines that can transport them to markets.

If you want to produce 12 shirts a day in the world of formal subsumption, the recourse is to lengthen the workday. This is called the creation of absolute surplus value. If you want to double production in the world of real subsumption, you introduce mechanical looms and a division of unskilled labor that makes the process even more efficient, such as having some men or women assigned to dying and others to operating the machines and still others to putting the finished product into boxes.

After having read “The Results of the Direct Production Process” the other day, something nagged at me. I hadn’t read Capital in over forty-five years but the chapter on the creation of absolute surplus value, where the term formal subsumption appears nowhere, seemed to have little to do with the guilds of the late middle ages and much more to do with what William Blake called the “satanic mills”. Sure enough, a rereading this morning confirmed my suspicions. There’s a section in chapter ten titled “Day and Night Work. The Relay System” that hardly sounds like what was going on in Tudor England.

The Relay System was the term Marx used to describe keeping factories going 24 hours a day: “To appropriate labour during all the 24 hours of the day is, therefore, the inherent tendency of capitalist production. But as it is physically impossible to exploit the same individual labour-power constantly during the night as well as the day, to overcome this physical hindrance, an alternation becomes necessary between the workpeople whose powers are exhausted by day, and those who are used up by night.” That doesn’t sound like any medieval guild I’ve heard of. In fact, it sounds much more like Chinese factories today.

Nor does it sound like the small-scale operations of handicrafts or early manufacturing:

Mr. J. Ellis, one of the firm of Messrs. John Brown & Co., steel and iron works, employing about 3,000 men and boys, part of whose operations, namely, iron and heavier steel work, goes on night and day by relays, states “that in the heavier steel work one or two boys are employed to a score or two men.”

As it turns out, Wikipedia has an entry on this guy’s business, which was founded in 1844. By 1859 it was producing rails for the rapidly expanding railway industry that Marx referred to as an exemplar of real subsumption. Like most leading edge factories in the steel business, John Brown and Co. used the Bessemer process. Does the Bessemer process sound like it belongs to the world of formal subsumption with its handicrafts and skilled artisans? I don’t think so.

In fact Marx refers to the Bessemer process in V. 3 of Capital as a key breakthrough in the productivity of labor:

The chief means of reducing the time of production is higher labour productivity, which is commonly called industrial progress. If this does not involve a simultaneous considerable increase in the outlay of total capital resulting from the installation of expensive machinery, etc., and thus a reduction of the rate of profit, which is calculated on the total capital, this rate must rise. And this is decidedly true in the case of many of the latest improvements in metallurgy and in the chemical industry. The recently discovered methods of producing iron and steel, such as the processes of Bessemer, Siemens, Gilchrist-Thomas, etc., cut to a minimum at relatively small costs the formerly arduous processes.

I think that Marx probably understood that there is no Chinese wall between the creation of absolute and relative surplus value as he pointed out in chapter 16 of V. 1 of Capital that is titled “Absolute and Relative Surplus-Value”:

From one standpoint, any distinction between absolute and relative surplus-value appears illusory. Relative surplus-value is absolute, since it compels the absolute prolongation of the working-day beyond the labour-time necessary to the existence of the labourer himself. Absolute surplus-value is relative, since it makes necessary such a development of the productiveness of labour, as will allow of the necessary labour-time being confined to a portion of the working-day. But if we keep in mind the behaviour of surplus-value, this appearance of identity vanishes. Once the capitalist mode of production is established and become general, the difference between absolute and relative surplus-value makes itself felt, whenever there is a question of raising the rate of surplus-value. Assuming that labour-power is paid for at its value, we are confronted by this alternative: given the productiveness of labour and its normal intensity, the rate of surplus-value can be raised only by the actual prolongation of the working-day; on the other hand, given the length of the working-day, that rise can be effected only by a change in the relative magnitudes of the components of the working-day, viz., necessary labour and surplus-labour; a change which, if the wages are not to fall below the value of labour-power, presupposes a change either in the productiveness or in the intensity of the labour.

In plain language, Marx is saying that if profits are declining in a highly mechanized factory, the capitalist will use “extra-economic” coercion to make sure that the workers conform to the treadmill norms of the above mentioned Relay System:

Right now, in Shanghai, China, a factory owned by the Taiwanese Pegatron Group is pushing out millions of units of the iPhone 6s for Apple. There, its young production workers toil six days a week in 12-hour shifts. Each day they are paid for 10 and half hours of work, not counting 15 minutes of unpaid meetings. The mandatory overtime shift runs from 5:30 pm until 8:00 pm. Most workers will not eat dinner before doing overtime because the 30-break given for a meal is not enough time.

Before overtime pay, workers making the iPhone earn only the local minimum wage of $318 per month, or about $1.85 per hour. This is not a living wage. Even if the factory did not mandate overtime as it does, workers would still depend on their 60-hour workweeks to get by.

After their long shifts, workers take a 30-minute shuttle bus back to their dorms where up to 14 people are crammed into a room. Mold grows pervasively along the walls. Bed bugs have spread throughout the dorm, and many workers are covered in red bug bites.

The problem with the Political Marxists is that they are essentially “stagists” without even realizing it, all the more ironic since Post and Brenner are members of an organization that is led by veterans of either the SWP or the IS, two groups that were the best representatives of American Trotskyism. This whole idea of consigning formal subsumption and the creation of absolute surplus value to a virtual pre-capitalist stage as Brenner does in his 1977 NLR article is wrong. Capitalism began at the point when commodity production began to become universal. Workers across the planet were involved with the emerging system, from slaves in Mississippi to textile workers in Liverpool. If they have trouble understanding that, Marx did not:

Direct slavery is as much the pivot upon which our present-day industrialism turns as are machinery, credit, etc. Without slavery there would be no cotton, without cotton there would be no modern industry. It is slavery which has given value to the colonies, it is the colonies which have created world trade, and world trade is the necessary condition for large-scale machine industry. Consequently, prior to the slave trade, the colonies sent very few products to the Old World, and did not noticeably change the face of the world. Slavery is therefore an economic category of paramount importance. Without slavery, North America, the most progressive nation, would he transformed into a patriarchal country. Only wipe North America off the map and you will get anarchy, the complete decay of trade and modern civilisation. But to do away with slavery would be to wipe America off the map.

Letter from Marx to Pavel Vasilyevich Annenkov, 1846



January 16, 2016

Flint, Michigan and the Second Contradiction of Capitalism

Filed under: Ecology,economics,water — louisproyect @ 7:18 pm

In recent days Flint, Michigan has been in the news because the city’s water has not only become undrinkable but also hazardous for use in bathing or dishwashing. To save money, the cash-strapped city discontinued using nearby Detroit’s water supply in April 2014 that fed from Lake Huron and switched to the Flint River. Flint, like most of Michigan’s rust belt including Detroit, has lost tax revenue because the auto industry and most manufacturing began to go belly up in the 1970s.

Not long after the city began drawing water from the Flint River, residents began to complain about the foul smell and taste of the water. Scientists conducted a test and discovered that there were levels of lead that were dangerous to one’s health. The lead was not found in the Flint River itself but leached from the lead in pipelines that had corroded under the impact of the river’s excessively chloridated water, about 8 times as much as that found in Detroit’s and likely the result of road salts flowing into the river as well as the chlorine used for purification. To complicate matters, by interacting with the pipelines the chlorine had dissipated as part of a chemical reaction and lost its ability to suppress bacteria. Flint has had a spike in Legionnaire’s Disease, with ten fatalities since the switch. Undoubtedly there is a connection to this epidemic and water contamination.

Thus, the water had a double whammy of lead and toxic organisms.

As of last month, more than 43 people had elevated levels of lead in their bloodstream. Lead poisoning is a serious business. Not only is it painful, it can also lead to permanent brain damage—and ultimately to death. In the 1970s there were frequent reports about young children getting lead poisoning by eating paint chips in slum housing to slake their hunger.

City residents have been living under a Greek-style austerity regime ever since December 2011 presided over by “emergency managers” appointed by Republican Governor Rick Snyder. In 2014, the switch to Flint River was mandated by Darnell Early, an African-American and long-time Democrat. After leaving Flint in such dire straits, Early went on to his next job running Detroit’s school system. The city’s teachers have staged a series of “sickouts” to protest cutbacks in health coverage.

As another sign of Democratic Party dereliction of duty, the local EPA chief Susan Hedman learned about the contamination threat in February 2015 but failed to put it on the front burner until November. A Huffington Post article dated January 12th provides telling detail on the EPA’s role in the disaster. It appears that after an EPA whistle-blower named Miguel Del Toral released a report on the hazardous state of Flint’s water to a city resident, Hedman sought damage control rather than an emergency response. A phalanx of local officialdom assured the world that everything was okay:

City and state officials downplayed Del Toral’s report, and the EPA said it was only a draft that wasn’t supposed to be released. Brad Wurfel, a spokesman for the Michigan Department of Environmental Quality, told a local reporter in July that “anyone who is concerned about lead in the drinking water in Flint can relax.” In August, department officials met with Flint residents — including Walters — and told them that Del Toral had been “handled” and that his report wouldn’t be finalized.

Although I’ve never been to Flint, I probably know more about the city than most people having read Sol Dollinger’s “Not Automatic” and having interviewed him about doing political work in the city alongside his wife Genora in the 1940s and 50s.

Sol’s book was a chronicle of the Flint sit-down strike of 1937 in which Genora played a key role as organizer of the women’s auxiliary that fought the cops in a famous pitched battle outside the GM plant gates. As she recounted in an oral history session with Susan Rosenthal in 1995, Flint was as poverty-stricken in 1937 as it is today:

Conditions in Flint before the strike were very, very depressing for working people. We had a large influx of workers come into the city from the deep South. They came north to find jobs, because there was no work back home. They came with their furniture strapped on old jalopies and they’d move into the cheapest housing that they could find. Usually these were just little one- or two-room structures with no inside plumbing and no inside heating arrangements. They just had kerosene heaters to heat their wash water, their bath water, and their homes. You could smell kerosene all over their clothing. They were very poor.

Another important source of knowledge about Flint comes from Michael Moore’s “Roger and Me”, his first film and by far his best. It begins by recounting his father’s job on the assembly line making a good union wage that was made possible by the 1937 strike that the film includes footage from. Whether or not Moore also credited FDR’s New Deal as well, I cannot remember at this point but there is little doubt that as Moore became more of an establishment figure that is certainly how he saw the “good years” of the 1950s—a product of workers struggles and FDR’s taking on the fat cats. What is missing in Moore’s analysis and that of the Democratic Party left that remains nostalgic for the New Deal is an understanding of how capitalism works.

Flint collapsed not because GM boss Roger Smith was a bad guy or because Ronald Reagan became president but because the auto industry became unprofitable. Capital flows where profits can be made. To think that Detroit, Flint, Cleveland, Pittsburgh or any other of these rust belt cities can return to the “good old days” is utopian capitalism, to coin a phrase.

This is not to say that we should not single out Republicans for being evil bastards. This Rick Snyder, who gained his wealth as a venture capitalist, is about as bad as they come. He supports open shop legislation, which would have the effect of undermining what’s left of the organized labor movement in Michigan. He is also hostile to abortion rights and blocked same-sex couples from sharing health benefits as do married couples enjoy (a right that “radicals” opposed to gay marriage fail to appreciate.) His last “accomplishment” was banning Syrian refugees from Michigan.

Although he never wrote about Flint specifically, I could not help but think of James O’Connor as I read about the water crisis over the past few days. Now 85, O’Connor has dropped out of sight over the past fifteen years at least, attributable to advancing years and a host of health problems as I understand it. That is too bad because he certainly would have a lot to say about what is going on the USA today, just as much as David Harvey, Naomi Klein, or any other critic of the capitalist system if not more so.

I got to know O’Connor a bit in the late 90s when he was a subscriber to PEN-L. We exchanged friendly emails from time to time that led to him inviting me to write an article about David Harvey for the journal “Capitalism, Nature and Socialism” at the time. Probably a mistake for him to extend the invitation and me for accepting it since I find writing on the Internet much less problematic.

In any case, despite my angry response to him nixing the article, I remain influenced by his writings and urge younger comrades not familiar with his work to look into them since they remain as relevant as ever, especially his theory of the “second contradiction of capitalism” that can be read in “Natural Causes: Essays in Ecological Socialism” online.

O’Connor describes what is happening around the country with alacrity:

Examples of capitalist accumulation impairing or destroying capital’s own conditions, hence threatening its own profits and capacity to produce and accumulate more capital, are many and varied. The warming of the atmosphere will inevitably destroy people, places, and profits, not to speak of other species life. Acid rain destroys forests and lakes and buildings and profits alike. Salinization of water tables, toxic wastes, and soil erosion impair nature and profitability. The pesticide treadmill destroys profits as well as nature. Urban capital running on an ((urban renewal treadmill” impairs its own conditions, hence profits, for example, in the form of congestion costs and high rents.’ The decrepit state of the physical infrastructure in the United States may also be mentioned in this connection.

The first contradiction is generated by the tendency for capitalism to expand. The system cannot exist in stasis such as precapitalist modes of productions such as feudalism. A capitalist system that is based on what Marx calls “simple reproduction” and what many greens call “maintenance” is an impossibility. Unless there is a steady and increasing flow of profits into the system, it will die. Profit is the source of new investment which in turn fuels technological innovation and, consequently, ever-increasing replacement of living labor by machinery. Profit is also generated through layoffs, speedup and other more draconian measures.

However, according to O’Connor, as capital’s power over labor increases, there will be a contradictory tendency for profit in the capitalist system as a whole to decrease. This first contradiction of capital then can be defined as what obtains “when individual capitals attempt to defend or restore profits by increasing labor productivity, speeding up work, cutting wages, and using other time-honored ways of getting more production from fewer workers.” The unintended result is that the worker’s loss in wages reduces the final demand for consumer commodities as is obviously borne out by the closing of Wal-Mart stores all around the world this week.

This first contradiction of capital is widespread throughout the United States and the other capitalist countries today. No amount of capitalist maneuvering can mitigate the effects of this downward spiral. Attempts at global management of the problem are doomed to fail since the nation-state remains the instrument of capitalist rule today, no matter how many articles appear in postmodernist venues about “globalization”.

The second contradiction of capital arises out of the problems the system confronts in trying to maintain what Marx called the “conditions of production”. The “conditions of production” require three elements: human labor power which Marx called the “personal conditions of production”, environment which he termed “natural or external conditions of productions” and urban infrastructure, the “general, communal conditions of production”.

All three of these “conditions of productions” are being undermined by the capitalist system itself. The form this takes is conceived in an amorphous and fragmented manner as the environmental crisis, the urban crisis, the education crisis, etc. When these problems become generalized, they threaten the viability of capitalism since they continue to raise the cost of clean air and water, raw materials, infrastructure, etc.

During the early and middle stages of capitalism, the satisfaction of the “conditions of production” were hardly an issue since there was apparently an inexhaustible source of natural resources and the necessary space to build factories, etc. As capitalism reaches its latter phase in the twentieth century, the problems deepen until they reach crisis proportions. At this point, capitalist politicians and ideologues start raising a public debate about the urban and environmental crisis (which are actually interconnected).

What they don’t realize is that these problems are rooted in the capitalist system itself and are constituted as what O’Connor calls the “second contradiction”. He says, “Put simply, the second contradiction states that when individual capitals attempt to defend or restore profits by cutting or externalizing costs, the unintended effect is to reduce the ‘productivity’ of the conditions of production and hence to raise average costs.”

Pesticides in agriculture at first lower, then ultimately increase costs as pests become more chemical-resistant and as the chemicals poison the soil. In Sweden permanent-yield monoforests were expected to keep costs down, but the loss of biodiversity has reduced the productivity of forest ecosystems and the size of the trees themselves. A final example is nuclear power that was supposed to reduce energy costs but had the opposite effect.

If capitalism were a rational system, it would restructure the conditions of production in such a way as to increase their productivity. The means of doing this is the state itself. The state would, for example, ban cars in urban areas, develop non-toxic pest controls and launch public health programs based on preventative medicine.

Efforts such as these would have to be heavily capitalized. However, competition between rival capitalisms, engendered through the pressures of the “first contradiction” (in other words, the need to expand profits while the buying power of a weakened working-class declines), destroys the possibility for such public investment. As such possibilities decline, the public infrastructure and the natural environment continue to degrade. Each successive stage of degradation in turn raises the cost of production.

What Engels observed in the “Great Towns of England” was an acute crisis based on the Second Contradiction of capitalism. Places like Manchester were becoming uninhabitable due to the necessity of capital to maximize profits without being ready to make the commitment to defend the conditions of the reproduction of capital itself: clean water, fresh air, public health, education, etc.

England, Germany, the United States and Japan of course made great headway in the twentieth century in resolving these types of contradictions at the expense of the colonized world. While the air and water of Manchester may have became *relatively cleaner*, the air and water of Calcutta worsened as the satanic mills of England migrated overseas.

And just as conditions in Flint in 1937, based on the First Contradiction of Capitalism, created the sit-down strike, so will the Second Contradiction lead to protests today. When the stakes were a living wage in 1937; the stakes of living—period—are even greater today:

September 29, 2015

Will the Asian Infrastructure Investment Bank be any different than the World Bank?

Filed under: Argentina,China,economics,imperialism/globalization,Latin America — louisproyect @ 10:33 pm

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The day before yesterday an article appeared on the Guardian website that had the aura of a Chinese government press release:

As world leaders met quietly behind the scenes, others lined up to express support for the new development push that aimed to eliminate both poverty and hunger over the next 15 years. They replace a soon-to-expire set of development goals whose limited success was largely due to China’s surge out of poverty over the past decade and a half.

China’s president vowed to help other countries make the same transformation. Xi said China would commit an initial $2bn to establish an assistance fund to meet the post-2015 goals in areas such as education, healthcare and economic development. He said China would seek to increase the fund to $12bn by 2030.

And Xi said China would write off intergovernmental interest-free loans owed to China by the least-developed, small island nations and most heavily debt-burdened countries due this year.

He said China “will continue to increase investment in the least developed countries,” and support global institutions, including the Beijing-backed Asian Infrastructure Investment Bank that is due to launch by the end of the year and is seen as a Chinese alternative to the more western-oriented financial institutions of the World Bank.

After having read and reviewed Patrick Bond and Ana Garcia’s “BRICS: the anti-capitalist critique”, I am more skeptical than ever about Chinese altruism especially the role of the Asian Infrastructure Investment Bank referred to in the last paragraph above.

I was also puzzled by the provenance of the article since it was included with others in the category “Sustainable Global Development” that was support4ed by the Bill and Melinda Gates Foundation, which is described as follows:

This website is funded by support provided, in part, by the Bill and Melinda Gates Foundation. Content is editorially independent and its purpose is to focus on global development, with particular reference to the millennium development goals and their transition into the sustainable development goals from 2015.

All our journalism follows GNM’s published editorial code. The Guardian is committed to open journalism, recognising that the best understanding of the world is achieved when we collaborate, share knowledge, encourage debate, welcome challenge and harness the expertise of specialists and their communities.

I confess that I have as much confidence in this foundation’s commitment to sustainable development as I do in the Windows Operation System, especially for their promotion of the Green Revolution, an application of chemicals to food production that has led to all sorts of problems as I indicated here: https://louisproyect.org/2009/09/20/food-imperialism-norman-borlaug-and-the-green-revolution/

In an article for Huffington Post, Richard Javad Heydarian, the author of the forthcoming “Asia’s New Battlefield: US, China and the Struggle for Western Pacific State”, casts a skeptical gaze over the Chinese gifts to the developing world, reporting on the Philippines’s encounter with the China EximBank, an entity that the new bank will likely mimic:

Under the Arroyo administration (2001-2010), the Philippines’ National Broadband Network (NBN) signed a $329.5 million contract with China’s ZTE Corp. to upgrade its facilities and communications network. It also signed the $431 million Northrail infrastructure contract, which was awarded to China National Machinery and Industry Corp. (Sinomach) and largely financed by the China EximBank.

The NBN-ZTE venture, however, would be mired in a massive corruption scandal, after investigations revealed huge kickbacks, cost inflations, and irregularities in the contract. Failing to meet laws requiring competitive bidding, the Philippines’ Supreme Court, meanwhile, struck down the Northrail project.

The common perception in the Philippines is that the ZTE and Northrail contracts were some sort of bribe to pressure/persuade the Arroyo administration to compromise on South China Sea and sign up to the controversial and secretive Joint Maritime Seismic Undertaking (JMSU) agreement in 2005, which was deemed unconstitutional and in violation of Philippine national patrimony and requirements for transparency and consultations with other branches of the government, particularly the legislature.

During his recent visit to Tokyo, Philippine President Beningo Aquino also complained about the alleged decision of the China EximBank to prematurely demand drawdowns from its Northrail project loan at the risk of default. In short, Aquino suggested that China wanted to punish his government for standing up to China by using its loan payment card.

In a CounterPunch article dated March 6, 2015, Ecuadorian journalist Raul Zibechi considered the possibility that Chinese investments in Latin America could have a different character than what the Chase Manhattan Bank and Citibank offered. Initially China was focused on mineral extraction and agricultural commodities such as soybeans but in the more recent period, it has invested in areas that depart from the traditional colonizing relationship between the core and the periphery. They include arms manufacturing in Latin America, which offers the possibility of ancillary benefits to the non-military sector just as was the case with radar after WWII, and infrastructure. He points to the construction of two hydroelectric dams in the Santa Cruz province. One is named the Kirchner after the late President and the other is called the Cepernic after the late governor of the province. Another ostensibly worthwhile project is the upgrade of railway equipment, including cars to renovate dilapidated trains. So how can you be like the old-time Anglo-American imperialists when you are building dams and modernizing the railway system in Argentina? How dare you stand in the way of progress?

If the goal is “sustainable development”, it is doubtful that there is much difference between the World Bank when it comes to hydroelectric dams. The Dialogo Chino website that is dedicated to tracking the impact of Chinese investment in Latin America referred to these dams as “mired in environmental conflict” in a February 13, 2015 article.

Experts claim the maximum level of the Kirchner dam, at the same average level of the Argentino Lake, is unsuitable, increasing the level of the lake and causing tides that will erode the front of the Perito Moreno glacier and stop the traditional blocks of ice breaking off, a phenomenon that attracts thousands of tourists.

The controversy is not without precedent. Across the border in Chile, also in Patagonia, the HidroAysén project would have resulted in the construction of five hydroelectric power plants, two on the River Baker and three on the River Pascua. However, fierce criticism from environmental groups and indigenous communities resulted in a council of ministers rejecting the project last year.

“The dam will be fed from the lake, whose level will rise and fall to meet Buenos Aires’ energy requirements and consumption. The glacier will not be immune to variations and their erosive effects,” argues Gerardo Bartolomé, the engineer at the head of an online petition aiming to ensure the correct environmental studies are carried out for the dams.

Similarly, Juan Pablo Milana, a glaciologist and researcher at the National Scientific and Technical Research Council (CONICET), believes the dams will cause irreversible damage to the Spegazzini and Upsala glaciers.

“The glaciers are already subject to the forces of nature and introducing further changes is complicated. Increasing the level of the Argentino Lake will create a flotation effect. Lower water pressure at the base of the glacier will not only cause detachment of ice but will also change the way it breaks off,” explains Milana.

It seems that the Chinese engineers overseeing the project worked on the Three Gorges Dam so you can get an idea of how much thought has gone into the environmental impact in Argentina.

Finally on the question of Argentina’s rail system. Pardon me for sounding like an unrepentant Marxist but when I hear about improvements to a transportation system that is primarily intended to haul commodities from the interior of a country to its seaports, I reach for my revolver.

This is an article I wrote on the construction of railroads in Argentina in the 19th century as part of a series on the financial crisis in the country back in 2002. Somehow I doubt that China’s intentions are any nobler than Great Britain’s.

The Collapse of Argentina, part one: Railway Imperialism

As the Argentine economic collapse began to deepen, I decided to search for radical or Marxist literature on the country written in English to help me understand the situation better. This proved futile (although I continue to be open to recommendations). Nestor Gorojovsky, an Argentine revolutionary who I have been in touch with on the Internet or by phone for at least five years now, could recommend nothing. (His own efforts at a Marxist overview of Argentine history can be found at: http://www.marxmail.org/archives/january99/argentina.htm.) Not even after posting an inquiry to the H-LatinAmerica list, whose subscribers are exclusively academic specialists, were any recommendations forthcoming.

Taking the bull by the horns, I plan now to fill this gap beginning now with a series of posts based on scholarly material from Columbia University’s library. Although I do plan to review literature on Argentina written in Spanish, most of the source material for my posts will be in English, a language that I am more comfortable with when it comes to higher-level analysis.

My own involvement with Argentina dates back to the mid 1970s when I was drawn into a faction fight within the world Trotskyist movement over political perspectives in Argentina. The two main antagonists in the debate were the late Joe Hansen, Trotsky’s bodyguard at Coyoacan and a leader of the Socialist Workers Party, and the late Ernest Mandel, the renowned Belgian economist who was on the executive committee of the International Secretariat. The Americans and their mostly English-speaking followers (I use the word advisedly) backed a Trotskyist group in Argentina that appeared to be implementing their own orthodox approach.

Led by the late Nahuel Moreno, this group participated in trade union struggles, the student movement and opposed the ultraleftist guerrilla formations that were kidnapping North American executives or hijacking trucks in order to dispense meat and other goods in poor neighborhoods like Marxist Robin Hoods. It was one of these groups that the Mandel faction backed. Although they paid lip service to Trotsky, these Argentine guerrillas organized as the PRT/Combatiente were more interested in applying Regis Debray’s foquismo theory to the urban sector.

My role in all this was to battle the Mandel supporters in Houston, Texas who held a near majority in the branch and whose affinity for guerrilla warfare was open to question. Most were disaffected from the SWP leadership, whose alleged “petty-bourgeois” orientation to the student movement was supposedly leading the party to ruin. A couple of years later, the SWP leadership would go completely overboard in a kind of ‘workerist’ orientation to the trade unions, thus robbing the dissidents of their raison d’etre. By the time this turn had taken place, the SWP and the Fourth International had parted ways. As a local leader of the anti-Mandel faction, I had the opportunity to spend long hours in discussion with Argentine co-thinkers who visited Houston to give reports for our faction. Security was extremely tight in those days and I had to check my 1968 Dodge Dart for bombs before driving any of them to a public engagement.

During that intense struggle, I gained a deep appreciation for the Argentine people, their culture and their revolutionary will. Although I grieve to see their personal suffering today, I am inspired to see them acting collectively for a better country and world. One hopes that their heroic example can begin to erode the “TINA” mood that has affected wide sections of the left since 1990.

In this first post, I want to address the question of Argentina’s “golden age”, a notion that you can find in many left publications or on the Internet. In this version of Argentine history, the country is seen as an exception to the rest of Latin America where conventional notions of “imperialism” and “dependency” might not apply.

For example, British state capitalist theoretician Chris Harman writes:

Argentina is an industrial country, with a higher proportion of its workforce in industry than in Britain. It’s also a country where working people have, within living memory, experienced living standards close to west European levels. It was known as the ‘granary of the world’ at the beginning of the 20th century, with an economy very much like that of Australia, New Zealand or Canada, centred the massive production of foodstuffs on giant capitalist farms for the world market. Relatively high wages made it a magnet for millions of immigrants from Italy and Spain who brought traditions of industrial militancy with them.

Brad DeLong, an economist who held a post in the Clinton administration and who is a ubiquitous figure on leftwing electronic mailing lists, wrote the following on Progressive Economists Network (PEN-L):

As I said quite a while ago, Argentina was a first world country–like Canada, Australia, or New Zealand–up until the 1950s. Arguments that development possibilities were constrained by relative backwardness may work elsewhere: they don’t make *any* sense for Argentina.

If views like these are meant to support a kind of Argentine exception to the Leninist concept of imperialism or its subsequent elaborations such as the Baran-Sweezy theory of monopoly capitalism, they are mistaken. They would fail to see Argentina’s role in the world capitalist system, which–despite favorable moments–has been that of victim of imperialism. Comparisons with the USA, Canada, etc. are specious, even if in a given year income or other statistics were comparable. The *structural* questions are far more important for understanding Argentina. Despite the presence of European immigrants, industrialization, national independence, the lack of feudal-like latifundias, etc., Argentina had much more in common with direct colonies in the 19th century like India.

Specifically, one of the main factors that led to Argentine dependency was its reliance on British capital and expertise for the construction of railways in the 19th century. Just as was the case in India, these steam-driven showplaces of modernization did nothing but drain the country of capital and force it into a secondary role in the world economy.

If one is a Marx “literalist,” there can obviously be a lot of confusion about the introduction of railways into Argentina or India, especially when Marx wrote:

I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminished expense the cotton and other raw materials for their manufactures. But when you have once introduced machinery into locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railways system will therefore become, in India, truly the forerunner of modern industry.” (“The Future Results of British Rule in India,” NY Daily Tribune, Aug. 8, 1853)

In contrast to these early hopeful writings, before Marxism had developed an understanding of the negative role of imperialism, the historical record demonstrates that foreign owned railways did not lead dependent countries to become anything like the those of the investors, engineers and builders from the core. Rather than serving as a catalyst for Argentine industry, they did nothing except enrich British finance capital, the nefarious Barings Bank in particular. For a scholarly treatment of this subject, we can turn to Alejandro Bendaña’s 1979 PhD dissertation “British Capital and Argentine Dependence 1816-1914”. (Bendaña was a senior level Sandinista official who served as ‘responsable’ with Tecnica, the volunteer organization I was involved with in the 1980s. He continues to participate in the radical movement, nowadays with the Center for International Studies in Managua and the Jubilee Campaign against 3rd world debt.)

The most important sector of the Argentine ruling class in the 19th century was the ‘estancieros’, or ranchers. From 1820 onwards, they began to develop an alliance with British capital, which was seen as strategic for the goal of exploiting the country’s land-based riches. Arising from within its ranks, Juan Manuel de Rosas emerged as the primary spokesman for this class. British merchants played an important role in guaranteeing the Argentine rancher access to world markets. Smiling benignly on this interdependence, the British consul wrote:

the manufactures of Great Britain are becoming articles of prime necessity. The gaucho is everywhere clothed in them. Take his whole equipment – examine everything about him – and what is there not of raw hide that is not British? If his wife has a gown, ten to one that it is made at Manchester; the camp-kettle in which he cooks his food, the earthenware he eats from, the knife, his poncho, spurs, bit, all are imported from England. . . Who enables him to purchase these articles? Who buys his master’s hides, and enables that master to employ and pay him? Who but the foreign trader. Stop the trade with foreign nations, and how long would it be before the gaucho would be reduced to the state of the Indian of the Pampas, fed on his beef and horse-flesh, and clothed in the skins of wild beasts? (Bendaña, p. 34)

However, one important piece was missing from this jigsaw puzzle. Unless a modern railway system was introduced into the country, Argentine goods would be not as competitive with those of countries which could deliver beef, hides, and etc. to seaports in a much shorter time over rail rather than horse-back. Furthermore, unless workers and managers could make reasonably quick trips over rail between cities and rural points of production, the entire system would lack the kind of internal cohesion that other capitalist countries enjoyed. From the standpoint of classical economics, one would think that it would be to the mutual benefit of English and Argentine capitalist classes to develop a kind of partnership. Instead, what transpired has much more in common with the con games of the 1990s in which Wall Street banks got rich at the expense of the Argentine people. Except, in the 19th century, it was Barings Bank rather than Goldman-Sachs that was doing the robbing.

To look after its interests in this vastly ambitious railroad-building enterprise, the Argentine government named North American William Wheelwright as its agent. They were overly optimistic. After making the rounds in British banking houses, Wheelwright said in 1863 that a deal could be done only on the following basis:

–The land grant must be doubled (land adjacent to the tracks given free to the railroad company.)

–45 percent of the railroad revenue would be counted as working expenses.

–The profit ceiling would be raised to 15 percent, more than triple the norm.

–Most importantly, the expropriation clause would be eliminated.

Although the Argentine ruling class and its British partners were committed to liberalism in the economic sphere (the model for 1980s-90s neoliberalism), this loan-sharking deal had nothing to do with free market principles. Such concessions could only reflect the internal weaknesses of a bourgeoisie that relied on cattle ranching, as opposed to the British ruling class that had accumulated vast amounts of capital through manufacturing, and then finance.

When the shares for Central Rail, the new British-owned railroad, sold sluggishly, the bankers demanded further concessions. No longer would working expenses be limited to 45 percent, they would be *whatever the company accountants said they were*. So, not only do you get concessions forced down the throat of the Argentine government, you get an 1860s version of the kind of accounting that Arthur Anderson did on behalf of the Enron crooks.

To make sure that all the Central shares got sold, the British investors demanded that the Argentine government buy 2000 shares, which is a little bit like asking someone being hijacked to drive the truck. An Argentine Minister glumly commented:

We are faced with having to lower our heads for all these demands and any other ones that may be put before us given our nation’s need for the railway’s benefits and our own incapacity to secure these by any other means. (Bendaña, p. 93)

Finally, in the May of 1870, 17 years after the original conception and 7 years after work began, the first locomotive arrived in Córdoba. Over the course of the 1870s, the Argentine state provided nearly 40 percent of the guaranteed profits for the new railroad. In a nutshell, the wealth of the country was being drained to make sure that British investors enjoyed super-profits. Furthermore, the British enterprise was tax-exempt. This turned out to be a bonanza for the Central Argentine Land Company that came into existence in 1871. Unlike the railroad, commercial exploitation within land claim areas were far less risky and had no particular claim to the kind of tax-exempt status enjoyed by large-scale capital projects. Once again, the weak Argentine bourgeoisie had been given an offer that it couldn’t refuse.

With British technological superiority, one might at least hope that the new railway would provide adequate service. As it turned out, the Argentine people had ended up with a Yugo rather than a Rolls-Royce. Public complaints about service and rates grew legion.

Central was just the first in a series of white elephants. Next came the Northern, the Eastern, and the Great Western Railways, all financed by the British and all imposing larcenous penalties on the people of Argentina. A government audit revealed that the East Argentine railroad was marked by an excess of employees (exclusively English at high salaries), overly generous salaries for company directors, inadequate rolling stock, dubious accounting procedures, and bloated operating costs.

When such exploitation operates in open view, one might ask why the Argentine capitalists did not rebel. After all, if one is committed to national development, then one must allow oneself the ultimate weapon against foreign exploiters: expropriation. Unfortunately, except for the urban middle-class, such calls were not made. As is the case today, the dominant fraction of the national bourgeoisie lost its nerve. And like today, the ideological excuse for inaction was a commitment to the “free market.” The estancieros regarded their own economic well-being as synonymous with the extension of railway lines made possible by foreign investment.

When the harsh reality of British theft collided with the delusional schemas of the local bourgeoisie, voices of dissent began to be heard in parliament. Why couldn’t the nation redeem itself through seizure of properties that were based on criminality to begin with? Even the conservative “La Nación” asked in 1872:

Can and should the state build all railways itself and expropriate existing ones? We do not believe that the benefits of state railways should necessarily carry us to the latter consequence . . . Although the country cannot afford expropriation now or for many years to come, there may come a day when revenue and necessity may, possessed of means and facing a need for new lines, expropriation might become convenient. (Bendaña, p. 152)

Skilled as they were in keeping the natives at bay, the British turned to one defense after another. They bribed ministers, congressmen and railroad bureau officials to vote against nationalist legislation or to look the other way when laws were being broken. When this proved insufficient, the British were not above gunboat diplomacy. In late 1875, the British bank in Rosario suddenly demanded immediate repayment of railroad notes as part of a maneuver to destroy local financial competitors. When the nationalist-minded local governor in Santa Fe sided with his countrymen, the British sent their navy to blockade the city. Buenos Aires caved in to the show of force and the British won their demands without a shot being fired. Bendaña cites H. S. Ferns’s “Britain and Argentina in the Nineteenth Century”:

“prosperity had created a nation of boosters, and the porteños (Buenos Aires elites) looked at the Governor of Santa Fe as Pierpont Morgan might have regarded William Jennings Bryan.” (p. 258)

By 1913, Great Britain owned 95.8 percent of all private railways in Argentina. That amounted to 60.2 percent of total British investment in the country. The economic consequences on the nation were enormous. Arturo Castaño, a legislative deputy and rail expert, warned:

“the more the railways extend themselves, the greater will be the economic disruptions, and the greater will be the migration to the cities from the provinces. A third of our national production is absorbed by the railways, without the Executive being able to intervene in rate-making due to an administrative system which favors the companies.”

Indeed, when foreign capitalists absorb a THIRD of national production, the question of imperialism has to be addressed.

The railway era lasted about a century. The first 3 decades, from 1830 to 1860, were a time of rapid expansion in the imperial centers. The spread of railways into Asia, Africa and Latin America did not produce concomitant benefits. Although Cecil Rhodes characterized railroads as “philanthropy plus 5 percent,” the profits were always far higher and the progress realized in countries such as Argentina was far less than advertised.

In my next post, I will take up the question of Juan Perón and his legacy.

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