Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.
The profound dislocation of the ‘Anglo-Saxon’ financial regime and economic order stems from the growth of huge global imbalances, notably China’s mountainous surplus and the corresponding US deficit. If China’s workers and farmers had been better paid, and had access to better education and welfare, then they would have supplied an extra dimension of demand to both the internal market and to China’s purchases from other countries. US exporters would have benefited from stronger Asian markets.
Instead the US was hit by a wall of money that lowered the cost of capital and prompted US policy makers to encourage consumers and financial institutions to take on more and more debt, until households, banks and corporations were in debt to the tune of 350 per cent of US GDP. Just as low rewards in China contributed to the global imbalances, so the viciously skewed distribution of income and wealth in the United States rendered this credit expansion perilous. The danger was greatly exacerbated by deregulation and the growth of the banks’ off-balance-sheet ‘shadow banking system’. These off-balance-sheet entities – so-called SIVs (structured investment vehicles) and conduits – enabled the banks to breach the capital ratios that supposedly prevent excessive lending.
The classic solution to such a credit crisis is a state take-over of the banks that fully expropriates the shareholders and allows the government to dictate the bank’s lending. Half-measures such as those undertaken by Hank Paulson in the US and the UK government are just a palliative.
The Norwegian government showed in 1988-92 that radical measures of expropriation and the installation of a new management are needed if finance is to be restored to a healthy footing. Once this has been done – a process that takes years rather than months – then a choice presents itself. Either the government then sells the nationalised banks back to the private sector, or the state retains control. The Norwegian government finessed this choice by first privatising the banks and then using some of the proceeds to establish a public social fund. The latter, now known as the Norwegian State Pension Funds, was also made a beneficiary of the country’s oil revenues and is now worth around $230 billion.
Such social funds have a very significant role to play in transformations that explore the limits of capitalism. Existing state social funds, including public sector pension funds, still exist within a capitalist context but enable public authorities to begin to channel resources to social need and embed finance and corporate governance in a new framework of accountability. The Norwegian state fund, or the Californian Public Employees Retirement Fund, with their ‘socially responsible’ investment policies, are still quite limited examples of what this might mean.
The state socialism of the 20th century, whether in its communist or social democratic variants, gave governments too much to do. Public enterprise suffered from bureaucracy and sometimes encouraged employee egoism rather than serving the general interest. While there is certainly still a vital role for public enterprise in guaranteeing the supply of water or energy, or in communications (such as the BBC and the Post Office), there are also many economic activities that are best left to small businesses or co-ops (such as restaurants and clubs), or to mutuals, or to corporations that have been democratised and ‘socialised’ through the influence of social investors (publicly-controlled social funds).
The socialisation of corporations will take time and experimentation. Social investors first need to accumulate real resources, enabling them to acquire a steadily growing stake in the large corporations. Corporations that have received bailout money should issue shares in return, which could be distributed to a regional network of social funds or future funds. In the US in the 1940s the Reconstruction Finance Corporation built huge factories to make aircraft, tanks and lorries, which it then leased to Lockheed and Boeing in return for a share stake. (These public holdings in the country’s large manufacturing giants were sold off in 1946, after a red-baiting witch hunt claimed that the management of the RFC was in the hands of communists and fellow-travellers.)
Resources for a regional social fund network could also be raised through some combination of a Tobin-style global financial transaction tax (FTT) or a Meidner-style share levy. (The ‘Tobin tax’, advocated by American Keynesian economist James Tobin, was intended to discourage currency speculation by taxing international money exchange. And Rudolf Meidner, architect of the Swedish welfare state, urged the setting up ‘wage-earner funds’, which would be the recipients of a share levy and would use their ownership of corporate securities to promote a new regime of corporate governance.)
Regional social funds in receipt of share issues from the corporations would not sell the shares but hold them as sources of dividend income. While share prices can fluctuate wildly, dividends are less volatile. If each year’s share levy were set at, say, 10 per cent of profits, then it would divert a steadily growing share of dividend income to the social funds. The levy would not subtract from cash flow or the resources available for investment.
The funds could use their growing stake in corporate ownership to promote a limited but important set of objectives, including employee rights, sustainable production methods and appropriate levels of executive compensation. The funds would respond to steps that might be taken in a very unequal and crisis-prone world to stabilise markets and help build a framework for sustainable growth.
These measures press at the limits of capitalism but certainly fall short of socialism. They could be started on a national scale but could be extended on a regional, continental and global scale. For example, I outlined the case for a global pension of $1 a day financed by a share levy and FTT in New Left Review 47 (Sept/Oct 2007).
Direct measures to tackle the credit crunch would also need a ‘bail out from below’ to tackle the types of poverty that generated the global imbalances in the first place. The Chinese government has announced a massive fiscal stimulus and programme of public works. But will this really improve the ‘people’s livelihood’ and lift all Chinese citizens out of poverty? Likewise, in the US, the president-elect and leaders of the Democratic majority have talked of helping homeowners struggling with mortgage payments or already suffering foreclosure. While the banks have been offered more than $700 billion, no commensurate scheme has yet been proposed for those most sorely afflicted by the crisis.
What is needed is a package of immediate and transitional measures. The latter should operate at the global as well as national level and should urgently include steps to close down the tax havens and establish a new framework of public financial regulation, including a public derivatives registration board.
One of the reasons why we are not ready for purely socialist solutions is that too few any longer believe that there is an alternative to capitalism. But the credit crunch itself lends credibility and urgency to a raft of transformative proposals and experiences that put capitalism into question and build a logic of economic citizenship, collective deliberation and social learning.
n Further reading: ‘The subprime crisis’, New Left Review 50 (March/April)
What if it's not us who are sick, asks Rod Tweedy, but a system at odds with who we are as social beings?
Survivors of the fire are still relying on thousands of community volunteers, writes Dan Renwick - but the failed council is plotting a comeback
The people could reach a democratic and non-violent solution if they were freed from US meddling, argues Boaventura de Sousa Santos
A decade after the start of the crash, economic power is in our hands – we must take it, writes Ann Pettifor
Nick Dowson looks at the new wave of co-ops and community groups where people are building their own truly affordable homes
Hsiao-Hung Pai meets people affected by the fire, and finds sadness and suffering mixed with a continuing wariness of the official investigations
Chris Williamson MP, winner of the election's tightest marginal, Derby North, and recently reappointed shadow minister for fire services, talks to Ashish Ghadiali about Jeremy Corbyn, the housing crisis and winning from the left
The Corbyn-supporting group is preparing for another election at any moment, writes Adam Peggs – and now has the potential to create powerful training initiatives, union links and party reform efforts
The new municipalism is part of a proud radical history
Molly Conisbee reflects on the history of citizens taking collective control of local services
With the rise of Corbyn, is there still a place for the Green Party?
Former Green principal speaker Derek Wall says the party may struggle in the battle for votes, but can still be important in the battle of ideas
Fearless Cities: the new urban movements
A wave of new municipalist movements has been experimenting with how to take – and transform – power in cities large and small. Bertie Russell and Oscar Reyes report on the growing success of radical urban politics around the world
A musical fightback against school arts cuts
Elliot Clay on why his new musical turns the spotlight on the damage austerity has done to arts education, through the story of one school band's battle
Neoliberalism: the break-up tour
Sarah Woods and Andrew Simms ask why, given the trail of destruction it has left, we are still dancing to the neoliberal tune
Cat Smith MP: ‘Jeremy Corbyn has authenticity. You can’t fake that’
Cat Smith, shadow minister for voter engagement and youth affairs and one of the original parliamentary backers of Corbyn’s leadership, speaks to Ashish Ghadiali
To stop the BBC interviewing climate deniers, we need to make climate change less boring
To stop cranks like Lord Lawson getting airtime, we need to provoke more interesting debates around climate change than whether it's real or not, writes Leo Barasi
Tory Glastonbury? Money can’t buy you cultural relevance
Adam Peggs on why the left has more fun
Essay: After neoliberalism, what next?
There are economically-viable, socially-desirable alternatives to the failed neoliberal economic model, writes Jayati Ghosh
With the new nuclear ban treaty, it’s time to scrap Trident – and spend the money on our NHS
As a doctor, I want to see money spent on healthcare not warfare, writes David McCoy - Britain should join the growing international movement for disarmament
Inglorious Empire: What the British Did to India
Inglorious Empire: What the British Did to India, by Shashi Tharoor, reviewed by Ian Sinclair
A Death Retold in Truth and Rumour
A Death Retold in Truth and Rumour: Kenya, Britain and the Julie Ward Murder, by Grace A Musila, reviewed by Allen Oarbrook
‘We remembered that convictions can inspire and motivate people’: interview with Lisa Nandy MP
The general election changed the rules, but there are still tricky issues for Labour to face, Lisa Nandy tells Ashish Ghadiali
Everything you know about Ebola is wrong
Vicky Crowcroft reviews Ebola: How a People’s Science Helped End an Epidemic, by Paul Richards
Job vacancy: Red Pepper is looking for an online editor
Closing date for applications: 1 September.
Theresa May’s new porn law is ridiculous – but dangerous
The law is almost impossible to enforce, argues Lily Sheehan, but it could still set a bad precedent
Interview: Queer British Art
James O'Nions talks to author Alex Pilcher about the Tate’s Queer British Art exhibition and her book A Queer Little History of Art
Cable the enabler: new Lib Dem leader shows a party in crisis
Vince Cable's stale politics and collusion with the Conservatives belong in the dustbin of history, writes Adam Peggs
Anti-Corbyn groupthink and the media: how pundits called the election so wrong
Reporting based on the current consensus will always vastly underestimate the possibility of change, argues James Fox
Michael Cashman: Commander of the Blairite Empire
Lord Cashman, a candidate in Labour’s internal elections, claims to stand for Labour’s grassroots members. He is a phony, writes Cathy Cole
Contribute to Conter – the new cross-party platform linking Scottish socialists
Jonathan Rimmer, editor of Conter, says it’s time for a new non-sectarian space for Scottish anti-capitalists and invites you to take part
Editorial: Empire will eat itself
Ashish Ghadiali introduces the June/July issue of Red Pepper
Eddie Chambers: Black artists and the DIY aesthetic
Eddie Chambers, artist and art historian, speaks to Ashish Ghadiali about the cultural strategies that he, as founder of the Black Art Group, helped to define in the 1980s
Despite Erdogan, Turkey is still alive
With this year's referendum consolidating President Erdogan’s autocracy in Turkey, Nazim A argues that the way forward for democrats lies in a more radical approach
Red Pepper Race Section: open editorial meeting – 11 August in Leeds
The next open editorial meeting of the Red Pepper Race Section will take place between 3.30-5.30pm, Friday 11th August in Leeds.
Mogg-mentum? Thatcherite die-hard Jacob Rees-Mogg is no man of the people
Adam Peggs says Rees-Mogg is no joke – he is a living embodiment of Britain's repulsive ruling elite
Power to the renters: Turning the tide on our broken housing system
Heather Kennedy, from the Renters Power Project, argues it’s time to reject Thatcher’s dream of a 'property-owning democracy' and build renters' power instead
Your vote can help Corbyn supporters win these vital Labour Party positions
Left candidate Seema Chandwani speaks to Red Pepper ahead of ballot papers going out to all members for a crucial Labour committee
Join the Rolling Resistance to the frackers
Al Wilson invites you to take part in a month of anti-fracking action in Lancashire with Reclaim the Power
The Grenfell public inquiry must listen to the residents who have been ignored for so long
Councils handed housing over to obscure, unaccountable organisations, writes Anna Minton – now we must hear the voices they silenced