In an interview this morning on CNBC Joe Stiglitz the Nobel Award Winning Economist of Colombia University said the greatest threat to the world economy was not the current crisis in the US, but the mishandling of that crisis. He said that the heads of financial institutions had made a serious mistake in udnerstanding risk, and had made it twice. First, they had assumed in giving out millions of sub-prime mortgages that they would not all default at the same time. Yet when house prices drop they drop for everyone, and as the sub-prime mortgages were predicated on continually rising house prices this was clearly an unreasonable assumption. But they had compounded the mistake by essentially repeating it. They attempted to take out insurance against any losses on the bonds and CDO's and other SIV's (Special Investment Vehicles) used to spread the risk of these sub-primes by bundling them and selling them in a merry-go-round of financial institutions, through the Monoline insurers. Again insurance is fine provided that not everyone wants to claim at the same time, but in a situation where large numbers at least of these sub-primes were going to default at the same time, causing in turn the SIV's to turn bad then everyone would be making losses at the same time, and calling on the insurance they had taken out.
Its been known that there was a potential problem with these Monolines since last year, but it was the particular problems of one company AMBAC which brought it to the fore last week. Now - again shattering the myth of neo-liberalism - the bosses Nanny state comes to their rescue with yet another bail out proposal, to add to the billions pumped into the economy as cheap financing for the capitalists, the astronomical sums pumped into Northern Rock, the interest rate cuts, the Keynesian Demand Management proposal from the supposedly neo-liberal, laissez-fair Bush regime for a $200 billion fiscal stimulus, and so on. Even then according to Stiglitz the huge sums pumped into the US Economy over the last 20 years mean that any fiscal stimulus would have to be much bigger than that already proposed. In reply to a question from Brian Shachtman of US CNBC Stiglitz said that any package would need to be around $600 billion equal to what has been taken out by homeowners Equity releases, and that Bush's proposals for tax cuts for the rich had been part of the problem, any stimulus needed to go into increased Unemployment Benefits and other payments to the poor.
Capitalism certainly is a chaotic system, though not perhaps as chaotic as it used to be as the Capitalists have been forced to adopt socialistic measures to sustain it. Major capitalist enterprises now operate on the basis of long-term Business plans. Their decisions are determined in advance on the basis of such plans, market research etc. and the use of advertising and marketing to shape the market. But they are only able to operate on this basis because their state has also adopted long-term planning methods which give these firms some environment of certainty and stability in which they can formulate their plans. The firms which dominate the economy are large monopolistic enterprises of the type a socialist economy would develop, inextricably tied to and controlled through the Stock exchanges which operate like a massive State Clearing House for the Capitalist class, moving Capital at an instant to where the highest profit can be made through the adjustment of the Capital Value of firms shares. But it remains capitalism even if it is now effectively State Capitalism.
In this piece Capitalism is Crazy the AWL argue that Capitalism defeated Stalinism but has not defeated Socialism. That is partly true. Certainly Stalinism in Eastern Europe collapsed. But the Chinese Stalinists, the Cuban Stalinists, the Vietnamese Stalinists learned lessons from that. The Chinese Stalinists witnessed the disenfranchisement of Soviet and east European citizens with their increasingly poor living standards, and taking a leaf out of lenin's books introduced a New Economic Policy on steroids, and again taking a leaf out of lenin's book invited foreign Capitalists in to exploit Chinese workers in return for modern technology and techniques. Yet the Stalinists retain control over the economy. In China 70% of Capital and Labour is still employed in the State Owned Enterprises, many private enterprises have the state as partner, and the State retains control over all the financial levers. In Russia Putin as a Stalinist leader in all but name despite the fact that he is opposed in elections by another faction of Stalinists in the ofical Communist Party. The same Stalinist state officials are in place, and the new Capitalist class represented by the oligarchs has been firmly slapped down. In Russia too the majority of the means of production remained in the hands of the State, and now that State enriched by oil and gas revenues, and increasingly by the foreign earnings of other Russian State industries is reigning control of privatised companies back under its control. Price controls have been imposed on other private companies, and so on.
In the Critique of the Gotha Programme Marx says that "Right can never be higher than the economic structure of society". Feudal society could not grant bourgeois Rights, and Capitalism cannot grant the Rights appropriate to a socialist society. Part of the problem for the Stalinist states was that they were in such terribly backward economies to begin with. No amount of democratic planning, or even the brains of the best economists could have overcome the backwardness of Russia compared to the surrounding Capitalist powers. As Trotsky put it in the 1920's a Lion can easily beat a pack of hounds, but if the hounds catch the lion when it is only a cub its a different matter. Add to that the enormous destruction inflicted on the Soviet Economy during the Civil War and WWII - in WWII alone the USSR lost 25% of its most productive agricultural and industrial areas, and 30 million people, compared to the US which lost just 300,000 soldiers, and had no damage to its productive capacity whatsoever - then the fact that the USSR could go from being a medieval society to the World's second super power in just 30 years is truly remarkable, and an indidcation of the strength of nationalised and planned economy even udner adverse conditions. But one of the major problems of the USSR and other Stalinist states was that they needed in order to retain the notion that they were workers states still in some way udner the control of workers to establish some of the attributes of Socialism. Yet this was providing "Rights" which economically they were not capable of providing. They were huge Social Welfare schemes with Health Services and education Services better than in the US, but without the productive capacity to fund them, they were hugely subsidised Public Transport systems, and huge Make Work schemes with workers in their millions kept on at work in enterprises that had nothing for them to do.
The advantage for the Eastern European Stalinists of the Yeltsin bouregois counter-revolution was that it swept away this charade.
The implication of the AWL's article is that Socialism will provide a much less riskier, much more sane and productive society than Capitalism. Well we hope so, but as Marx points out we have no way of knowing that Socialism or at least the higher stages of Communism are even possible. As marxists we are not crystal ball gazers we analyse society and see where logically it goes next. Much more than that we cannot say, and a Marxist should leave the moral judgement of what will turn out to be better up to the moral philosophers. We certainly know that companies that have been established under workers ownership as Co-operatives have advantages over privately owned companies, we know that the set of ideas that naturally spring up on the back of such co-operation offer the hope of a better society, but whether such a system can be developed throughout the economy as a whole let alone throughout the world as a whole we have yet to see, and yet to see what the implications of that will be. Certainly the spreading of such a system by the workers own hands through an organic process holds out better hope than the kind of model of socialist transformation the AWL clings to of a top-down revolution to seize state power by an elite revolutionary Party.
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