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)
Campaign groups highlight UK complicity in Saudi Arabia's human rights abuses.
Three founders of Momentum talk to Ashish Ghadiali about the two years that have transformed their lives and the fortunes of the British left.
Andrew Smith from Campaign Against the Arms Trade gives the run-down on one of the UK's most profitable - and most deadly - industries.
The real story behind the fire in Grande Synthe’s Linière refugee camp, Dunkirk. From 'Bordered Lives – How Europe fails refugees and migrants' by Hsiao-Hung Pai
Javier Pérez De La Cruz writes about the working class Berlin neighbourhood wrung dry by gentrifiers.
Across the world, thousands of protesters are taking on the planet’s biggest fossil fuel companies. We should support them – and if we can, we should join them. By Kara Moses
Students are suffering the effects of financial instability, stress, and slashed mental health services. Mark Crawford reports.
They're not defending free speech - they're just seeking to shore up their own power, writes Ilyas Nagdee
How can the heavily-armed Israeli state claim to be victimised by one teenage activist? By Richard Seymour.
Governments are manufacturing a new 'enemy within', write Yasser Louati and Malia Bouattia
Jeremy Hunt is poised to flog the last of the NHS
Peter Roderick sounds the alarm on an 'attack on the fundamental principles of the NHS'.
Viva Siva, 1923-2018
A. Sivanandan, who died this week, was a hugely important figure in the politics of race and class. As part of our tributes, Red Pepper is republishing this 2009 profile of him by Arun Kundnani
Sivanandan: When memory forgets a giant
Daniel Renwick calls for the whole movement to discover and remember the vital work of A. Sivanandan, who died this week
A master-work of graphic satire
American Jewish cartoonist Eli Valley’s comic commentary on America, the US Jewish diaspora and Israel is nothing if not near the knuckle, Richard Kuper writes
Meet the frontline activists facing down the global mining industry
Activists are defending land, life and water from the global mining industry. Tatiana Garavito, Sebastian Ordoñez and Hannibal Rhoades investigate.
Transition or succession? Zimbabwe’s future looks uncertain
The fall of Mugabe doesn't necessarily spell freedom for the people of Zimbabwe, writes Farai Maguwu
Don’t let Corbyn’s opponents sneak onto the Labour NEC
Labour’s powerful governing body is being targeted by forces that still want to strangle Jeremy Corbyn’s leadership, writes Alex Nunns
Labour Party laws are being used to quash dissent
Richard Kuper writes that Labour's authorities are more concerned with suppressing pro-Palestine activism than with actually tackling antisemitism