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)

Harris exaggerates when he writes of a new global civil society, ‘vast, inchoate, constantly changing and creative’. The organisations he mentioned are mostly admirable but, far from being vast, they are – in global terms – tiny, fragmented and often without any real purchase on the accumulation process. While there are a handful of such humanitarian ‘multinationals’ and monitors there are around 40,000 multinational corporations with many millions of employees, billions of semi-captive customers and command of the lion’s share of the world’s resources.

I heartily agree on the need for innovation and for thinking outside the space of the state. The confusion of ‘nationalisation’ with public ownership and the insistent portrayal of the welfare state as a vehicle of national impulses must change.

But the national phase did embody some achievements – the NHS, the US social security programme, pensions in a number of countries. These must be defended from the marketisers and privatisers – as well as being supplemented by new global programmes.

A significant omission from Nigel Harris’s manifesto is any mention of the need to build a new global system of social protection, to finance this by obliging the multinational corporations and banks to contribute as they once contributed to national welfare states and to begin to socialise and democratise the accumulation process.

The improvements in longevity Harris mentions will lead to a steadily ageing population over coming decades. At present there are 560 million older people in the world (over 60 in poor countries or over 65 in richer countries) and the over-80s are the world’s most rapidly expanding age cohort. By 2050 there will be two billion older people and, if nothing is done, the great majority will be immersed in great poverty. At present four fifths of the planet’s adults have no pension coverage at all and little prospect of ever receiving any.

In February 2007, Global Action on Aging organised a briefing session at the UN building in New York for the Economic and Social Commission, at which the idea was floated of a global pension of a dollar a day. In July the commission published a report showing that even at such a modest level a global pension would have a major impact in reducing world poverty. South Africa, since the downfall of apartheid, has shown the way, becoming one of the few developing states with a universal pension scheme. Indeed the pension has played a vital role in a country where – because of the ravages of Aids – grandparents have often had to step into the parenting role.

While many might agree that a global pension of a dollar a day would be desirable, how could it be financed? The first pensions in advanced countries were set at at a time when those they catered for comprised only 5 per cent or less of the population. Today they are nearly ten 10 per cent and they are on course to become 20 or 25 per cent. The governments in today’s poor countries have many calls on their resources and few sources of income.

I have suggested that a very mild tax on global corporations – set at a level of no more than 2 per cent of global profits or 0.5 per cent of global share transfers – could come up with the $205 billion needed to finance the global pension. In a previous issue of Red Pepper (‘Sharing the burden’, March 2007). I discussed potential new taxes. The most suitable would be a requirement on corporations to issue new shares equivalent to 2 per cent of their profits each year. But an acceptable substitute would be a 0.5 per cent tax on the buying and selling of shares.

It might be thought that any idea of global taxes is hopelessly utopian. But 120 years ago national tax regimes were very modest and no country had a state pension. Today taxes take 40 per cent or more of GDP and there are a multitude of social programmes that would have been seen as utopian by the Victorians. Is one dollar a day for the elderly really such an outrageous demand?

Notwithstanding tax havens, governments still raise serious sums from corporate taxation. They know that they could raise more by tackling the havens and the OECD has cautiously begun to tighten regulation. But it is not easy to agree on who should benefit. A global profits tax paid to a global fund network for a universal old age pension would surely be a deserving candidate as beneficiary. The money or securities could be distributed to roughly a thousand regional funds throughout the world. The pensions would be paid directly in cash to those who qualified. It would not be appropriate to explain this further here but I go into further details in ‘A global pension plan’ (New Left Review, Sept/Oct 2007).

The global pension could be paid directly to many of the world’s poorest by a network of regional funds. These would assist poorer communities to manage funds efficiently with a mixture of expert and local recruitment. South Africa has pioneered some of the necessary apparatus with mobile ATM machines activated by a finger print device.

The regional fund network would have its own staff and be accountable to local communities. The regional fund would not be able to vary the size of the pension, but would receive needed resources commensurate with their demographic profile and would have some scope for investing revenue from their holdings of securities. They would also be able to vote the shares they held at company AGMs. The role of the local funds could be compared to Fairtrade schemes, which often use the extra revenue from a premium price to build locally-controlled social funds.

Of course this is just an example designed to show how global civil society might be empowered to really take on the corporations that run the world. The strategies we need should propose specific measures for redistributing and socialising capital or they will flounder and fail.

Robin Blackburn is author of Age Shock: How Finance is Failing Us, (Verso, £19.99). He has set out ‘A global pension plan‘ in New Left Review (No 47, Sept/Oct 2007)

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