The End of American Capitalism? was the portentous headline in the October 10 Washington Post. It’s part of an apocalyptic story line about the coming of socialism that is prominent these days in the media and on the McCain campaign trail. The accompanying article by Anthony Faiola went on to say, “Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system.”
He has, I suggest, little to fear. The American version of the “free market” is a hyperbolic conception readily abandoned in times of crisis throughout our history. As Steve Lohr pointed out in the New York Times four days later, “the federal government has occasionally taken stakes in railways, coal mines and steel mills, and has even taken a controlling interest in banks when it was deemed to be in the national interest…typically [returning them] to private hands.” That obvious historical fact, though, did not prevent Paul Rubin, an Emory University economics professor, from waxing hysterical in the Wall Street Journal on October 21 over the fearsome prospect of a “New New Deal” that “may soon put our economy on track for a catastrophe.”
If American-style “capitalism” were indeed the real thing, Faiola’s question might be worthy of causing Rubin and other economists palpitations. But the United States is a lonely outlier in the capitalist world, throughout which “free” markets have long been constrained and regulated. Sometimes this has been pushed by organized capitalists at the top–it was not steelworkers who advocated the seizure of the American steel mills in 1952, or left-wing intellectuals who advocated creating the Federal Reserve, or Bernie Sanders who insisted on giving Henry Paulson dictatorial powers over the financial sector–and sometimes the push has come through the demands of organized workers and farmers at the bottom. As Karl Polanyi pointed out in his classic The Great Transformation, it took a great deal of centralized planning and legislative control to create the early “laissez-faire” economies, and the masses of people have never gone for long without demanding that the destructive human results of these economies be brought under at least some control. Such interventions have, on the whole, raised the indexes of well-being and even of democracy in the advanced industrial economies, indexes on which the United States is regularly far from the top. Yet they have yielded little reason for the remaining socialists among us to believe that capitalism is anywhere near disappearing.
This is because the free market, to the extent that it has ever existed for any serious period, is nothing but a favored instrument of capitalism, not the thing itself. Real capitalism is a particular process of material accumulation, an engine of growth and a regime of governance and institutions devoted to keeping that engine running. In a capitalist society this accumulation takes place primarily through the actions of private enterprises, underwritten by laws and customs that make accumulation the primary goal of society. That is only half the story, though. The other half is that a successful capitalist regime creates a surplus in the form of profit, and this surplus, though it is created by workers, is totally appropriated by owners and either saved or expended according to their desires. Some of that surplus is clawed back from them by the government in the form of taxes, but a good deal of those tax revenues further the activities of private enterprise and the owners in the form of necessary improvements to infrastructure, subsidies to troubled but valued enterprises, and funding for armies and police forces to protect their property. So capitalism goes about its business, creating a surplus that enriches the coffers of those who accumulate wealth while providing enough of a living to those who work for the accumulators to keep them from throwing sand in the engine’s gears. When either half of that bargain fails, state intervention is the inevitable result.
But this is not socialism, and it is certainly not democratic socialism. Only if the great surplus of accumulated wealth were disposed of democratically for “the general welfare”–reinvested or distributed as income or services–would we be living in a socialist society. In a capitalist society, on the other hand, expenditures on what might be thought of as public purposes are definitely the tail wagged by the dog. There are different kinds of capitalism, of course: the state capitalisms of East Asia, in which the state not only regulates but often organizes enterprises and prescribes their economic behavior; or the social welfare states of Western Europe, in which the political power of organized workers has forced a greater proportion of surplus to be used for redistributive social welfare purposes than is the case in the more privatized and less class-conscious United States. In all of these (with the exception of East Asian capitalism), the primary goal of government is to keep private enterprise moving, so that strong government regulation comes into being only at the crash landings, rarely at the takeoffs. And in its strongest (and uncorrupted) form, regulation lasts only as long as is necessary to get a stalled machine moving again.
The financial panic and worldwide government responses to it have, for the moment, obscured this basic dynamic. To put it simply, banks are not producers of a surplus–or often of anything at all. To a certain extent investment banks lubricate the wheels of industry by making loans, but they provide only a minor proportion of the funds needed for reinvestment and further accumulation (and this is often only a small portion of their business). The instruments of financial speculation mostly function as gigantic casinos, enriching some and impoverishing others but not making anything useful happen, and causing a great deal of damage to the general welfare in the process. Therefore, even for the cowboy capitalists of the Bush administration, it’s relatively easy to contemplate re-regulating banks at a critical moment such as this one.
So what can we contemplate that would not be just a bailout–necessary as that may be for loosening the strings of credit for people whose daily behavior makes the business section of the New York Times look like the crime blotter of a small-city newspaper–but an approach to a new, more democratic social order? In The Communist Manifesto Marx offered a ten-point program; being a lot less confident than he was about the details of what is to be done, I will content myself with three main points.
The first thing to do is to implement precisely what Paul Rubin fears: a new New Deal to halt the human catastrophe of onrushing (not creeping) laissez-faire-ism. Neither the poor and powerless nor the rich and powerful can think coherently about next steps or rational policies when they stand on the brink of personal or institutional apocalypse; basic security must precede the use of reason.
Beyond that, the sine qua non for any social order that puts human needs first is a genuinely progressive tax structure, one that taxes not only incomes but, more crucially and decisively, accumulated wealth. This is not about “spreading the wealth around,” though there’s nothing wrong with that as an ultimate goal, but rather about controlling wealth’s spiraling and unmitigated power over the lives of everyone who doesn’t have it.
Finally, “control” here means using the power of democratically elected and constituted governments, central or local or even within workplaces and industries, to confront the sometimes horrendous spillover costs of production that orthodox economists, in their disdain for human life, consider mere “externalities”–like the wastelands created by uncontrolled pollution. One might begin this process almost anywhere. But to take just one example, given the outlines of a frightening future of climate change that everyone (even the ideological naysayers) knows awaits us, we would certainly want to consider taking democratic control of the American auto industry in order to rationalize its structure, improve its abysmal performance, give workers more input into the decisions that affect their lives and lessen its ecologically destructive demands on scarce resources. The same considerations apply to the management of energy policy, which is too critical to be left to industry representatives, lobbyists and, say, the power brokers of Alaska. The “people,” through their representatives, might do a poor job of this, but it couldn’t be worse than what’s been done for almost a century by the out-of-control producers of carbon emissions.
For anything like this to come about, so many changes in the climate of opinion and the opinion-forming institutions that help produce it would have to take place that it may be utopian even to make such a suggestion. But that is precisely the kind of change we would need if we wanted to say we were living in a truly noncapitalist–that is, democratic socialist–society.