Pressing the limits

Robin Blackburn says that publicly controlled social funds could play a central role in a transition from a very unequal and crisis-prone world

January 3, 2009
6 min read

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)


✹ Try our new pay-as-you-feel subscription — you choose how much to pay.

The Migrant Connections Festival: solidarity needs meaningful relationships
On March 4 & 5 Bethnal Green will host a migrant-led festival fostering community and solidarity for people of all backgrounds, writes Sohail Jannesari

Reclaiming Holloway Homes
The government is closing old, inner-city jails. Rebecca Roberts looks at what happens next

Intensification of state violence in the Kurdish provinces of Turkey
Oppression increases in the run up to Turkey’s constitutional referendum, writes Mehmet Ugur from Academics for Peace

Pass the domestic violence bill
Emma Snaith reports on the significance of the new anti-domestic violence bill

Report from the second Citizen’s Assembly of Podemos
Sol Trumbo Vila says the mandate from the Podemos Assembly is to go forwards in unity and with humility

Protect our public lands
Last summer Indigenous people travelled thousands of miles around the USA to tell their stories and build a movement. Julie Maldonado reports

From the frontlines
Red Pepper’s new race editor, Ashish Ghadiali, introduces a new space for black and minority progressive voices

How can we make the left sexy?
Jenny Nelson reports on a session at The World Transformed

In pictures: designing for change
Sana Iqbal, the designer behind the identity of The World Transformed festival and the accompanying cover of Red Pepper, talks about the importance of good design

Angry about the #MuslimBan? Here are 5 things to do
As well as protesting against Trump we have a lot of work to get on with here in the UK. Here's a list started by Platform

Who owns our land?
Guy Shrubsole gives some tips for finding out

Don’t delay – ditch coal
Take action this month with the Coal Action Network. By Anne Harris

Utopia: Work less play more
A shorter working week would benefit everyone, writes Madeleine Ellis-Petersen

Mum’s Colombian mine protest comes to London
Anne Harris reports on one woman’s fight against a multinational coal giant

Bike courier Maggie Dewhurst takes on the gig economy… and wins
We spoke to Mags about why she’s ‘biting the hand that feeds her’

Utopia: Daring to dream
Imagining a better world is the first step towards creating one. Ruth Potts introduces our special utopian issue

A better Brexit
The left should not tail-end the establishment Bremoaners, argues Michael Calderbank

News from movements around the world
Compiled by James O’Nions

Podemos: In the Name of the People
'The emergence as a potential party of government is testament both to the richness of Spanish radical culture and the inventiveness of activists such as Errejón' - Jacob Mukherjee reviews Errejón and Mouffe's latest release

Survival Shake! – creative ways to resist the system
Social justice campaigner Sakina Sheikh describes a project to embolden young people through the arts

‘We don’t want to be an afterthought’: inside Momentum Kids
If Momentum is going to meet the challenge of being fully inclusive, a space must be provided for parents, mothers, carers, grandparents and children, write Jessie Hoskin and Natasha Josette

The Kurdish revolution – a report from Rojava
Peter Loo is supporting revolutionary social change in Northern Syria.

How to make your own media
Lorna Stephenson and Adam Cantwell-Corn on running a local media co-op

Book Review: The EU: an Obituary
Tim Holmes takes a look at John Gillingham's polemical history of the EU

Book Review: The End of Jewish Modernity
Author Daniel Lazar reviews Enzo Traverso's The End of Jewish Modernity

Lesbians and Gays Support the Migrants
Ida-Sofie Picard introduces Lesbians and Gays Support the Migrants – as told to Jenny Nelson

Book review: Angry White People: Coming Face to Face With the British Far-Right
Hilary Aked gets close up with the British far right in Hsiao-Hung Pai's latest release

University should not be a debt factory
Sheldon Ridley spoke to students taking part in their first national demonstration.

Book Review: The Day the Music Died – a Memoir
Sheila Rowbotham reviews the memoirs of BBC director and producer, Tony Garnett.

Power Games: A Political History
Malcolm Maclean reviews Jules Boykoff's Power Games: A Political History


1