Socialism Where Least Expected

The great global crisis that began in the United States with the burst of the real estate bubble has required the state to nationalize large financial enterprises and socialize losses. This amounts to a kind of top-down, rescue socialism. We cannot be sure if these measures will suffice to cure capitalism of its excesses, but it does seem like a new world order is taking shape, one where socialism complements capitalism. When the Soviet Union collapsed, taking with it a model of state socialism that had nourished the hopes of many during the twentieth century, a Russian sociologist and friend of mine made the following comment, which I will always remember: “The Cold War was a tango between two dancers. One of them has fallen. When do you think the other’s time will come?” It was not clear if he was referring to Russia and the United States or to the systems that each represented: communism and liberalism or, if you prefer, communism and capitalism. Confronted with this quandary, I responded with another question, perhaps tinged with sarcasm: “In your opinion, was it communism that ruined Russia or Russia that ruined communism?” To this day, neither my friend nor anyone else has offered satisfactory answers to these questions. Nonetheless, 18 years after the end of the Cold War, the U.S. economy is experiencing a crisis whose severity has put in jeopardy the entire global capitalist system.

The world has not seen a similar collapse since the Great Depression of the 1930s. Just as during that era, confidence in the munificence of capitalism is losing ground day by day. It remains to be seen whether the root of the crisis lies in the mismanagement of the economy by the heretofore hegemonic power (in other words, whether the crisis owes to a peculiarity of what the Europeans call America’s “savage capitalism”) or whether the problem is inherent in capitalism itself, beyond any national idiosyncrasies. In any case, it is little use speculating about the origins of the outbreak when it has already reached epidemic proportions. Just as in the 1930s, today there are voices clamoring for swift and energetic state intervention. But the analogy ends there.

In contrast to the 1930s, when communism was still in its adolescence (it had already shown signs of brutality but not of inefficiency), today no one is seriously proposing alternatives to the reigning economic system. Since Margaret Thatcher and Ronald Reagan proselytized the virtues of economic liberalism, a philosophy which Thatcher synthesized in the acronym TINA (“There is no alternative”) and which was internalized in the subsequent two decades by elites in the East and the West and both Northern and Southern Hemispheres, no other economic model has proven viable.

There have been, without a doubt, reactions against the excesses of neo-liberalism in those Southern countries that experienced severe crises, as well as experiments with state policies quite distinct from those once extolled by advocates of the “Washington Consensus.” Nonetheless, in my opinion, these oppositional policies are, in fact, parasitic, i.e. dependant on the smooth functioning of global capitalism in the great centers of economic growth. These experiments – whether called socialist, populist or nationalist – have depended on markets for their natural resources, particularly energy and commodities.(1) There is no geo-strategic equivalence between the nationalizing and redistributive polices of those countries that export oil, gas or soy, for example, and the inverse historical movement, i.e. the transition from a state socialist model to a capitalist market model that has been underway in the People’s Republic of China since the rule of Deng Xiao Ping.(2)

But now the kind of crisis that once affected only peripheral countries, the so-called “emerging markets,” has turned its fury on the very center of the system. In order to rescue this system, the principal managers of global capitalism – political leaders, central bank officials, treasurers and large investors – are recurring to any and all state instruments at their disposal. In short, capitalism’s own elites want the state to take responsibility for unpayable debts, bankrupt banks, depreciated titles and devalued capital goods that the free market itself cannot absorb without risking paralysis. Put simply, they want to socialize their losses.

Many years ago, the celebrated Canadian-American economist John Kenneth Galbraith, declared, with customary flair: “In America, the only respectable type of socialism is socialism for the rich.” Just a few years after his death, this prophetic declaration is being fulfilled. It would seem that the 21st century socialism in the North is not Bolivarian but Washingtonian: It is not an egalitarian socialism but rather a kind of financial, rescue socialism. This brand of socialism does not go about shirtless and in workboots; it wears Hermenegildo Zegna suits and Salvatore Ferragamo shoes.

Right now, the United States is presenting the world a drama in several acts, the first of which has just opened. What makes this drama especially compelling is that the financial crisis coincides with imminent elections for the nation’s highest office.

In one of the latest episodes of political theater, we saw the defeated-looking president Bush meet with his two potential successors, congressional leaders from both parties and an entourage of state officials, all of them reciting grave warnings, brows furrowed, about the pressing need to act during a state of emergency. The names of these officials have become global public knowledge, as if they were Hollywood stars or soccer players: Besides Mr. Bush, whose name is already slipping irretrievably into the past, the protagonists include Hank Paulsen, Ben Bernanke, Nancy Pelosi, Harry Reid and, of course, candidates Barak Obama and John McCain. At this stage of the game, their message is plain and simple: “We need to immediately approve a rescue plan so the state can buy, with taxpayer money, the bad titles and stocks that are currently paralyzing credit and, in turn, all of economic activity.” Those of my readers who are fans of Argentine history will remember the words of the Argentine 19th century statesman Domingo F. Sarmiento: “When it comes to governing, things need to get done, whether it be well or poorly.” Those who are fans of political theory will remember arguments in favor of a states of emergency expounded by advocates from Thomas Hobbes to Carl Schmitt.

Nonetheless, rescue socialism, i.e. the respectable intervention in the marketplace by the respected Treasury Secretary and ex-CEO of Goldman Sachs, Henry Paulsen, with the aid of Chairman of the Federal Reserve Ben Bernanke, a respected former economist from Princeton and expert in, of all things, the Great Depression of the 1930s, met with stiff resistance in the House of Representatives, where the rescue plan was initially vetoed by a thin margin. This rejection came not from what passes in the U.S. as the “left,” i.e. the liberal wing of the Democratic party, but from the right wing of the Republican party, i.e. the ruling party. The message was as clear as it was extreme: “Let’s let the market take responsibility for its own errors. The state must remain strictly out of the equation.”

This argument repeats nearly verbatim recommendations given by another treasury secretary. Andrew Mellon, in response to the bank crisis of 1929-1932, offered this advice: “ Liquidate, liquidate.” In other words, “May those who deserve to go broke, go broke.” What happened next is a piece of history: the six-year Great Depression, which ended only when World War II set back in motion America’s industrial machinery. Eventually, someone convinced the resistant representatives that a serious leak threatens to sink the whole ship and that those who do not learn from history are doomed to repeat it. A modified rescue package passed a new vote and was approved on October 3, 2008. We will come to remember this date as the birthday of rescue socialism.

So, where do things stand now? The new American-style socialism is the work of a pragmatic, capitalist elite. Suspicion and resistance spring from several sources: popular segments who still adhere to extreme market fundamentalism, as well as broader segments who see their retirement assets dwindling and their jobs threatened, who have less and less buying power, who fear getting sick because they are uninsured and who hold out little hope of progress for their children and grandchildren. As the crisis evolves, it is possible that resistance to “Wall Street greed” will migrate from its right-wing populist base and re-center itself in more progressive circles. But this is not yet certain.

Complicating the current economic crisis is a simultaneous crisis of leadership. After certain concessions, a bipartisan coalition of party elites initiated a rescue plan, with hopes of gaining a little breathing room until after the elections. Only after these elections, whose results will be of paramount importance, will we be able to gauge the longer term prospects of the global system, its reform and the geostrategic recomposition of the planet. It is important now, however, to begin to survey those prospects and to ask ourselves what role the Southern countries will play after this crisis is over. This will be the material for a subsequent article. On that note, I will make one last observation.

The new rescue socialism that Americans have discovered shows a peculiar contradiction. After spending a quarter century trying to dismantle state machinery and vilify state intervention in the economy, big capitalism – in response to a huge financial stumble and the first great crisis of globalization – has turned to the state for salvation. But it finds a state with precious little management capacity. During Bush’s presidency, the U.S. has proven dreadfully ineffective at fighting wars (the occupation of Iraq and the war in Afghanistan offer resounding proof), at mobilizing in the wake of natural disasters (the destruction of New Orleans by Hurricane Katrina), at rationally limiting spending, at providing healthcare and at many other undertakings. After the desperate measures represented by the current rescue package, the firm hand of a true reformist, someone along the lines of a Franklin Delano Roosevelt, will be needed to rebuild the state.

At this stage in history, we know that socialism is not a viable global alternative to capitalism, but it seems increasingly evident that socialism does provide a necessary complement. While capitalism may be the locomotive of growth and prosperity, it falls to socialism to provide the tracks on which this engine runs. A bullet train without tracks is bound to derail. In 1990, a financial crisis – similar to that afflicting the U.S. right now – occurred in Sweden, a corner of the world with little geopolitical repercussion. But the example remains relevant. In the case of Sweden, the state came to the rescue, with swift and effective “socialist”-type interventions. For many years now, Sweden has complemented its vigorous capitalist economy with socialist measures. Has the time come to reconsider the Scandinavian model? With that possibility in mind, I have begun to study Swedish. Jag talar och skriver liten svenska.(3) However, deep cultural differences remain. In a pinch, the Swedes had the government take over the banks. In a pinch, the Americans would rather let the banks take over the government.

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Notes: (1)It is interesting to note how those in the “rebel,” petro-state capitals – whether Moscow, Tehran or Caracas – who rail out most vehemently against Western capitalism reduce their rhetoric every time the price of oil, or commodities in general, drops. At the same time, it must be noted that the Southern countries continue to finance the deficit in the Northern countries by investing their accumulated export reserves rather than applying them to their own markets. The surplus funds are deposited in the U.S. and the European Union. (2) The best study on the characteristics and evolution of Chinese capitalism, particularly the continued role of the state, is Yansheng Huang’s Capitalism with Chinese Characteristics: Entrepreneurship and the State, Cambridge University Press, 2008.
(3) Translation: I speak and write a bit of Swedish.

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