After Neoliberalism

8
10/01/14 Versión para impresión - MVD CMS www.uruguaypiensa.org.uy/imprimir_284_1.html 1/8 VERSIÓN PARA IMPRESIÓN 13/04/12 After Neoliberalism: Empire, Social Democracy, or Socialism? Since the early 1980s, the leading capitalist states in North America and Western Europe have pursued neoliberal policies and institutional changes. Since the early 1980s, the leading capitalist states in North America and Western Europe have pursued neoliberal policies and institutional changes. The peripheral and semiperipheral states in Latin America, Africa, Asia, and Eastern Europe, under the pressure of the leading capitalist states (primarily the United States) and international monetary institutions (IMF and the World Bank), have adopted ''structural adjustments,'' ''shock therapies,'' or ''economic reforms,'' to restructure their economies in accordance with the requirements of neoliberal economics. A neoliberal regime typically includes monetarist policies to lower inflation and maintain fiscal balance (often achieved by reducing public expenditures and raising the interest rate), ''flexible'' labor markets (meaning removing labor market regulations and cutting social welfare), trade and financial liberalization, and privatization. These policies are an attack by the global ruling elites (primarily finance capital of the leading capitalist states) on the working people of the world. Under neoliberal capitalism, decades of social progress and developmental efforts have been reversed. Global inequality in income and wealth has reached unprecedented levels. In much of the world, working people have suffered pauperization. Entire countries have been reduced to misery. According to United Nations Human Development Report, the world s richest 1 percent receive as much income as the poorest 57 percent. The income gap between the richest 20 percent and the poorest 20 percent in the world rose from 30:1 in 1960, to 60:1 in 1990, and to 74:1 in 1999, and is projected to reach 100:1 in 2015. In 1999 2000, 2.8 billion people lived on less than $2 a day, 840 million were undernourished, 2.4 billion did not have access to any form of improved sanitation services, and one in every six children in the world of primary school age were not in school. About 50 percent of the global nonagricultural labor force is estimated to be either unemployed or underemployed.1 In many countries, working people have suffered an absolute decline in living standards. In the United States, the real weekly earnings of production and nonsupervisory workers (in 1992 dollars) fell from $315 in 1973 to $264 in 1989. After a decade of economic expansion, it reached $271 in 1999, which remained lower than the average real wage in 1962. In Latin America, a continent that has suffered from neoliberal restructuring since the 1970s, about 200 million people, or 46 percent of the population, live in poverty. Between 1980 and the early 1990s (1991 1994), real wages fell by 14 percent in Argentina, 21 percent in Uruguay, 53 percent in Venezuela, 68 percent in Ecuador, and 73 percent in Bolivia.2 The advocates of neoliberalism promised that the neoliberal ''reforms'' or ''structural adjustments'' would usher in an era of unprecedented economic growth, technological progress, rising living standards, and material prosperity. In fact, the world economy has slowed towards stagnation in the neoliberal era. The average annual growth rate of world GDP declined from 4.9 percent between 1950 and 1973, to 3.0 percent between 1973 and 1992, and to 2.7 percent between 1990 and 2001. Between 1980 and 1998, half of all the ''developing countries''

Transcript of After Neoliberalism

Page 1: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 1/8

VERSIÓN PARA IMPRESIÓN 13/04/12

After Neoliberalism: Empire, SocialDemocracy, or Socialism?Since the early 1980s, the leading capitalist states in North America and Western Europe have pursuedneoliberal policies and institutional changes.

Since the early 1980s, the leading capitalist states in North America and Western Europe have pursuedneoliberal policies and institutional changes. The peripheral and semiperipheral states in Latin America, Africa,Asia, and Eastern Europe, under the pressure of the leading capitalist states (primarily the United States) andinternational monetary institutions (IMF and the World Bank), have adopted ''structural adjustments,'' ''shocktherapies,'' or ''economic reforms,'' to restructure their economies in accordance with the requirements ofneoliberal economics.

A neoliberal regime typically includes monetarist policies to lower inflation and maintain fiscal balance (oftenachieved by reducing public expenditures and raising the interest rate), ''flexible'' labor markets (meaningremoving labor market regulations and cutting social welfare), trade and financial liberalization, and privatization.These policies are an attack by the global ruling elites (primarily finance capital of the leading capitalist states)on the working people of the world. Under neoliberal capitalism, decades of social progress and developmentalefforts have been reversed. Global inequality in income and wealth has reached unprecedented levels. In muchof the world, working people have suffered pauperization. Entire countries have been reduced to misery.

According to United Nations Human Development Report, the world s richest 1 percent receive as much incomeas the poorest 57 percent. The income gap between the richest 20 percent and the poorest 20 percent in theworld rose from 30:1 in 1960, to 60:1 in 1990, and to 74:1 in 1999, and is projected to reach 100:1 in 2015. In1999 2000, 2.8 billion people lived on less than $2 a day, 840 million were undernourished, 2.4 billion did nothave access to any form of improved sanitation services, and one in every six children in the world of primaryschool age were not in school. About 50 percent of the global nonagricultural labor force is estimated to be eitherunemployed or underemployed.1

In many countries, working people have suffered an absolute decline in living standards. In the United States,the real weekly earnings of production and nonsupervisory workers (in 1992 dollars) fell from $315 in 1973 to$264 in 1989. After a decade of economic expansion, it reached $271 in 1999, which remained lower than theaverage real wage in 1962. In Latin America, a continent that has suffered from neoliberal restructuring since the1970s, about 200 million people, or 46 percent of the population, live in poverty. Between 1980 and the early1990s (1991 1994), real wages fell by 14 percent in Argentina, 21 percent in Uruguay, 53 percent in Venezuela,68 percent in Ecuador, and 73 percent in Bolivia.2

The advocates of neoliberalism promised that the neoliberal ''reforms'' or ''structural adjustments'' would usherin an era of unprecedented economic growth, technological progress, rising living standards, and materialprosperity. In fact, the world economy has slowed towards stagnation in the neoliberal era. The average annualgrowth rate of world GDP declined from 4.9 percent between 1950 and 1973, to 3.0 percent between 1973 and1992, and to 2.7 percent between 1990 and 2001. Between 1980 and 1998, half of all the ''developing countries''

Page 2: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 2/8

(including the so-called ''transition economies'') suffered from falling real per capita GDP.3

The global economy has been kept afloat by the debt-financed U.S. economy. Between 1995 and 2002, the U.S.economy accounted for 96 percent of the cumulative growth in world GDP.4 The U.S. expansion has beenfinanced by reducing domestic savings, raising the private sector debts to historically unprecedented levels, andrunning large and ever-rising current account deficits. The process is unsustainable. The enormous imbalanceshave to be corrected one way or the other. If the United States cannot continue to generate ever-rising currentaccount deficits and none of the other large economies are capable of functioning effectively as the autonomousdriving force, the neoliberal global economy will be under powerful downward pressures and exposed to thethreat of increasingly frequent and violent financial crises.

The social and economic disasters brought about by neoliberalism have already led to pervasive and growingpopular resistance. The further deterioration of global economic conditions might well push hundreds of millionsof people beyond the threshold of tolerance. A global rebellion against neoliberalism and capitalism cannot beruled out. Those who consider themselves to be on the left, progressives or revolutionaries, should be ready,first of all intellectually, for such a development.

Neoliberalism and Global Stagnation

Neoliberalism is not able to provide an institutional framework for sustained global capital accumulation.Neoliberalism undermines and dismantles the institutions set up to stabilize the capitalist economy andalleviate capitalist social contradictions. The capitalist global economy is therefore left exposed to increasinglyfrequent and violent financial crises. As the editors of Monthly Review put it: ''Globalization under neoliberalregimes has meant in many ways the globalization of stagnation tendencies and financial crisis.''5

Global effective demand is the sum of global private consumption, global private investment, and globalgovernment expenditures. Under neoliberalism, global inequality has reached unprecedented levels andworking people in many parts of the world have suffered from absolute pauperization. It follows that thepurchasing power of the great majority of the world population has fallen or grown more slowly than world output.

Private investment in the face of global overcapacity stagnates, and private capital turns to speculation infinancial instruments. As a result of financial liberalization, cross-border speculative capital flows have greatlyincreased, raising the danger of capital flight and financial crisis. Against such dangers, some central banks areforced to maintain high interest rates, in effect paying a risk premium to global finance capital. The average ratioof real interest rate to GDP growth rate in the seven leading capitalist economies was 0.97 between 1881 and1913, 2.40 between 1919 and 1939, 0.36 between 1946 and 1958, 0.55 between 1959 and 1971, 0.47 between1972 and 1984, and 2.34 between 1985 and 1997. It is worth noting that the real interest rate has been higherthan the economic growth rate only in two periods, the interwar depression years and the neoliberal era. A ratiogreater than one implies an inversion of the roles of productive and speculative investment, and is a signal ofsystemic crisis.6

Under neoliberalism, governments have mostly pursued tight fiscal and monetary policies, restraining publicspending. With liberalized financial markets, governments that run fiscal deficits are likely to be ''punished'' byprivate investors who may respond with capital flight and attacks on the currency. Therefore, governments(especially the governments of peripheral and semiperipheral countries) are under strong pressures to maintainfiscal balance by cutting expenditures. All neoliberal regimes seek to limit government expenditure. Tosummarize, in the neoliberal era, all three components of global effective demand are subject to strongdownward pressures and have tended to either contract or stagnate.

The nineteenth century Marxists regarded the contradiction between socialized production and the capitalistsystem of private appropriation as the basic contradiction of capitalism. One may argue that the increasingsocialization of production has found its expressions in the rising importance of fixed capital and the increasinglycomplex and interrelated financial structures. Since Keynes, many economists have understood that investmentin fixed capital is subject to fundamental uncertainty and is often beyond the reach of rational calculation. Thegrowing complexity of financial structures has greatly increased the chance that sudden movements in investorsconfidence and psychological conditions may lead to drastic and substantial fluctuations of investment andthrough investment, the economy. To prevent capitalist economies from falling into deep recessions ordepressions, it is necessary to have a ''big government'' that can function effectively as the macroeconomicstabilizer.7

Neoliberalism, by pursuing financial liberalization and attacking the public sector, has significantly underminedand in some cases totally dismantled its stabilizing functions. The neoliberal era has seen increasingly frequent

Page 3: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 3/8

and violent financial crises. The Mexican crisis in 1995 was followed by the Asian Crisis in 1997, the Russianand the Brazilian crises in 1998, and the Argentine crisis in 2001. The role of the global macroeconomicstabilizer has been played throughout by the U.S. Treasury and by U.S. imports of goods and servicesincreasingly in excess of U.S. exports; can this continue?

The U.S Financial Bubble and Imbalances

Without a large economy capable of generating some autonomous demand, the global economy might havealready entered into a downward spiral. The U.S. economic boom in the second half of the 1990s and its largeand growing trade deficit have functioned as counteracting forces against the generally contractionarytendencies of neoliberalism.

The U.S. economic boom was led by debt-financed private sector consumption and by a burst of corporateinvestment in ''high tech.'' The private sector financial balance (incomes less expenditures) moved from thehistorically normal range of 3 4 percent of GDP to unprecedented negative territory, reaching negative 5.5 percentby the third quarter of 2000. Household and corporate sector debts as a percentage of GDP were at historicalpeaks. Households were willing and able to borrow at such a rate because of the great asset price bubble.Measured by indicators such as Tobin s ''Q'' (the ratio of market value of assets to replacement cost of capital) orby reference to price-earning ratios, the U.S. stock market bubble that reached its greatest expansion in 2000 isthe most extreme in U.S. economic history.8

When the stock market bubble burst, corporate sector spending slowed significantly (particularly in ''high tech'').To avoid a deep recession, the U.S. general government fiscal balance has moved from a surplus of 1.4 percentof GDP to a deficit of 4.6 percent of GDP between 2000 and 2003, or a swing of 6 percent of GDP, and the U.S.Federal Reserve has lowered the short-term interest rate from 6.5 percent to 1.25 percent. Despite the dramaticloosening of fiscal and monetary policy, U.S. growth has been sluggish and employment stagnant. Thesepolicies have in effect helped to sustain the bubble. Household sector debt expansion has been sustained, thestock market bubble has not been fully deflated, and a housing market bubble is in turn approaching its peak.

The U.S. current account deficit, largely the result of a steadily increasing deficit in its international trade in goodsand services, reached 5 percent of GDP in late 2002. For the capitalist world s hegemonic power to run a currentaccount deficit on such a large scale is without historical precedent. By contrast, on the eve of the First WorldWar, Britain ran current account surpluses close to 4 percent of GDP.

The U.S. current account deficits are matched by reciprocal capital inflows from the rest of the world. For the ever-rising U.S. current account deficits to continue, the rest of the world must be willing to hold an increasingly biggerproportion of their financial reserves in dollar-denominated assets. Stephen Roach, the chief economist ofMorgan Stanley, points out:

Currently, about 75 percent of the world s total foreign exchange reserves are held in the form of dollar-denominated assets more than twice America s 32 percent share of world GDP (at market exchange rates). Atthe same time, foreign investors hold about 45 percent of the outstanding volume of US Treasury indebtedness,35 percent of US corporate debt, and 12 percent of US equities. All of these ratios are at or near record highs.Never before has the world put more stock in America both as an engine of growth and as a store of financialvalue. The problem is that the math gets exceedingly tenuous if it is projected into the future.9

Projections of current account deficits at current rates need not go far into the future to become ''tenuous.''According to one study by the Levy Economics Institute, under plausible assumptions, and supposing the U.S.economy to grow at a rate sufficient to lower the unemployment rate, the U.S. net foreign liability would reachmore than 60 percent of GDP and the current account deficits could reach 8.5 9.5 percent of GDP before 2010.

Alternative Scenarios of Global Economic Crisis

There are four possible ways for the unsustainable growth in the U.S. current account deficit to be reversed. First,if the rest of the world grows more rapidly, indeed far more rapidly, than the current growth rate of the U.S.economy, there will be increased demand for U.S. goods and services, allowing U.S. exports to grow morerapidly to close the gap with the imports. Second, the U.S. current account deficit could be corrected bycontracting U.S. domestic demand. Third, the explosive growth in the current account deficit may be correctedthrough adjustments in ''relative prices'' i.e., devaluation of the U.S. dollar. Finally, the exercise of political andmilitary power might affect the components of the growth in the current account deficit in a manner favorable forthe United States.

There is no prospect in the next several years of the first possibility, i.e., growth in the rest of the world at a

Page 4: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 4/8

significantly faster pace than current growth in the United States. The burden shall fall on the second and thirdoptions which, while achievable, pose immense risks.

Limiting domestic U.S. growth, and therefore imports and the trade deficit, by raising domestic interest rates iscertainly within the theoretical ability of U.S. policy makers. Indeed this would be the ''orthodox'' IMF medicineadministered to any other state on the planet were it to find itself in anything like the U.S. current accountdifficulties. But the United States is not like any other state on the planet, it is the hegemon. No institution existsto force such medicine upon it. And for the U.S. ruling elite, this course is not politically possible, at least at thisstage of the electoral cycle. But of even greater concern are the dangers posed by the vast unprecedentedaccumulation of U.S. consumer and mortgage debt. Absent a surge in domestic growth, which would itselfaggravate the current account difficulty, rising interest rates risk a wave of personal bankruptcies of GreatDepression proportions.

The remaining option is dollar devaluation, and it is clear that a gradual and controlled devaluation is the policypreferred by the U.S. Treasury, and already being put into effect. The depreciation of the dollar makes U.S. goodscheaper and foreign goods more expensive for U.S. households and corporations. It helps to stimulate exportsand dampen imports. However, dollar depreciation reduces U.S. demand for foreign goods and exportsdeflationary pressures to the rest of the world.

The Asian economies (Japan, China, and Southeast Asia) together run current account surpluses of $230 240billion a year, or nearly half of the U.S. current account deficits. But the Asian economies have either pegged theircurrencies to the U.S. dollar or have intervened heavily to prevent currency appreciation. This leaves the burdenof adjustment almost entirely on Europe.

The European economy has not been able to generate any expansion in domestic demand, and its growth hasrelied exclusively on exports. Europe s largest economy, the German economy, is in recession and such signsof growth as exist elsewhere are weak. Dollar depreciation therefore is particularly threatening for the Europeaneconomies. Further, the Euro-area governments are constrained by the so-called ''Stability and Growth Pact''which requires fiscal deficits no greater than 3 percent of GDP.

Financial circles have urged the European governments to pursue ''structural reforms,'' bringing labor andproduct market policies to U.S. standards. ''Structural reforms'' will supposedly unleash productivity growth that''in the long run,'' will create conditions for vigorous demand expansion. From the point of view of financialcapitalists, for vigorous accumulation to take place there has to be a dramatic improvement in profitability andcapitalist confidence. For the capitalists to be confident, ''structural reforms'' have to take place to break theresistance of the working class. At this moment, it is not at all clear that the European capitalist class candecisively defeat the resistance of the working class. But if the so-called ''structural reforms'' are indeed carriedout, their negative effects on domestic demand (through further attacks on working people s living standards)may very well overwhelm whatever ''positive'' effects they may have on the ''long run'' accumulation.

With the European economy stagnating, it is inconceivable that it can absorb enough U.S. exports to correct theU.S. current account deficit. A correction that depends entirely on dollar depreciation would require a catastrophicdecline in the dollar s value. By some estimates, the dollar may need to fall by 30 50 percent. Such a declinewould be politically, economically, and psychologically unacceptable.10

If the U.S. dollar is not going to depreciate against any other currency, why does the current account deficit haveto be corrected? If the rest of the world s central banks keep intervening, flooding the world with their owncurrencies (euros, Japanese yens, and the Chinese renminbi) to prevent dollar depreciation, why cannot theUnited States run an ever-larger current account deficit for an indefinite period of time? It cannot go on indefinitelybecause the rising U.S. current account deficits absorb a growing proportion of the global saving. A theoreticallimit will be reached when the entire world s saving is exhausted to finance the U.S. current account deficit. Butthe practical limit will be reached long before the theoretical limit. This course would raise U.S. and Japanesegovernment debt to astronomical levels. These gigantic government debts would exist along with enormoushousehold and corporate debts in the United States and Europe.11

How can these debts be financed? There are two possibilities. First, a global depression and widespreadhousehold and corporate bankruptcies may destroy much of the private debts. This is the historical solution thathas obtained in all prior systemic crises of capitalism. In theory, as debt is devalued the conditions for a newcycle of capitalist accumulation on an even higher level gradually come to exist. But in the last such globaldepression such spontaneous recovery was inadequate, for reasons inherent in monopoly capital that are evenstronger today. This option therefore supposes an extended period of depression. Whatever the outcome on thishypothesis one thing is certain, neoliberalism would be dead for a very long time, if not forever.

Page 5: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 5/8

Secondly, the enormous private and public sector debts could be inflated away, that is, financed by printingmoney. Given the magnitude of the enormous debts to be inflated away, the inflation strategy may send theglobal economy into vicious cycles of hyperinflation and skyrocketing interest rates. If there is any one optionruled out by all of the various global ruling classes, it is this.

Towards an Imperial Solution?

Is there a solution to the crisis within the existing exploitative, oppressive framework? The U.S. economy is indeep crisis, and given the role it plays in the world economy much depends upon it. But U.S. imperialismcontinues to control the world s most powerful, unchallenged military forces. Can the U.S. ruling elite use itsforces to build an exploitative empire, establish unprecedented political and military dominance over the world,and in the process manage its economic crisis? In fact, current U.S. policy is an attempt to do just that.

To contain the explosion in the U.S. current account deficit, imports need to be reduced. One way is to reducesuch key imports as motor vehicles and electronic goods by increasing their cost in U.S. dollars through arevaluation of the yen and the renminbi. This can only be achieved by political pressure, and it is being applied.Other substantial imports, such as clothing and footwear, cannot be reduced in quantity since U.S. producers nolonger exist to supply the amount needed. Here costs can be contained by the relentless imposition of a ''race tothe bottom'' the continual transfer of production to ever poorer and more desperate countries. Here some militaryforce works wonders in enforcing neoliberal immiseration; consider the results of U.S. intervention in Nicaraguaand Africa. But the key import is mineral fuels, and here the long-term cost can only be contained by U.S. controlof the physical resources. The hand on the spigot that regulates production (and therefore price) must becontrolled by the United States. This is one aspect of the economic benefits of U.S. global political power soughtthrough military strength.

The other aspect of any strategy to contain the unsustainable growth in the current account deficit needs to be anexpansion of U.S. exports. Yet with the U.S. manufacturing base in terminal decline, only the prospect ofmonopoly prices for ''intellectual property'' offers hope. Here too the imposition of monopoly prices for thelicenses, genetically modified seeds, pharmaceuticals, songs and movies, is a matter purely of political powerbased on military strength.

But how can this imperialist project be financed? The costs of U.S. military expansion are likely to aggravaterather than alleviate the U.S. economic crisis. Stephen Roach of Morgan Stanley asks the question: ''Can asaving-short US economy continue to finance an ever-widening expansion of its military superiority?'' His answeris: ''The confluence of history, geopolitics, and economics leaves me more convinced than ever that a US-centricworld is on an unsustainable path.''12

Could the U.S. military expansion be financed by the expansion itself? Andy Xie of Morgan Stanley estimated thatthe direct and indirect effects of the U.S. occupation of Iraq could save the United States $40 billion a year inexpenditures on oil imports.13 Assuming these ''benefits'' are fully realized, that is only a fraction of the U.S.current account deficits.

But faced with the increasingly pervasive popular resistance in Iraq, the United States has not yet been able torealize any of these projected ''benefits.'' Months after the so-called ''major combat operations'' ended anddespite the fact that the United States has committed half of its entire regular army in Iraq, the United States islosing its grip on Iraq, unable to control the roads and borders, the water, and the electricity supply.

Out of the U.S. Army s thirty-three combat brigades, sixteen are now in Iraq, two are in Afghanistan, two are inSouth Korea, and one is in Kosovo. Of the twelve brigades in the United States, three are in modernizationtraining, three are in reserve for possible war in Korea, and two are going to relieve the troops in Afghanistan.There are only four brigades left to relieve the sixteen brigades in Iraq. In effect, the United States has exhaustedits entire regular army just to occupy such totally impoverished third world countries as Afghanistan and Iraq.

Whatever the economic ''costs'' or ''benefits,'' U.S. imperialism is losing the political and ideological battle.According to the latest survey of the Pew Global Attitudes Project (based in Washington), ''America s imagearound the world has taken a sharp turn for the worse.''14 The project of a U.S. global neoliberal empire basedon force has already failed. Not because of internal limits in the working of capitalism alone, but because theattempt to avoid the economic crisis that neoliberal policies produce through global military dominance hasalready come up against its limits in popular resistance in Iraq. The crisis of neoliberalism shall follow.

Towards Social Democracy?

What will the post-neoliberal world look like? One possibility is a return to social democratic capitalism. Between

Page 6: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 6/8

1950 and 1973, with social democratic institutions such as big government, Keynesianism, class compromise,redistribution of income and wealth, and regulation of capital, world capitalism experienced the great ''goldenage.'' For a quarter of a century, the leading capitalist countries enjoyed rapid economic growth, lowunemployment, rising living standards, and social stability. Peripheral and semiperipheral states were able tomake some progress in national development through ''import-substitution'' or ''socialist'' industrialization. Coulda return to social democracy bring about a return of the great golden age?

The inherent contradictions of capitalism did not stop developing under social democratic capitalism. Withincertain limits, the social democratic institutions helped to alleviate the class conflicts and maintain a relativelyhigh level of aggregate demand. Under certain historical conditions, these institutions were consistent with highand stable profit rates and facilitated rapid capital accumulation. However, as these institutions existed andoperated, they tended to create new conditions that increasingly undermined worldwide accumulation. Thechanging balance of power between capital and labor, and between the core and the periphery resulted in theworldwide decline of profitability and contributed to the accumulation crisis in the 1960s and the 1970s.15 It wasexactly in response to the crisis of social democratic capitalism that the global ruling elites started to pursueneoliberalism as the ''solution'' to the crisis.

Suppose the current crisis is to be resolved on a social democratic basis. National regulations of trade andcapital flows are reintroduced, labor and financial markets are reregulated, income and wealth are significantlyredistributed in egalitarian ways, and the public sector is again to play a significant role in the economy. Willthese changes be sufficient to bring about a new golden age? Without changing the fundamental institutions ofcapitalism, what is to prevent the inherent contradictions of capitalism from developing? What is to prevent the''new'' social democratic capitalism from entering into a new accumulation crisis?

The establishment of social democratic capitalism could not take place without at least a partial political victoryof the working classes. But if that turns out to be the case, the working classes in different parts of the world willdemand not only restoring their historical social and economic rights and consolidating their existing rights, butalso greatly expanding these rights. How can these new social reforms be financed? If they have to be financedby additional taxes on capitalist profits, can the revival of social democracy survive the revival of the workingclasses bargaining power? The growth rates of the post-Second World War golden age were an exception to thestagnation that characterizes global capitalism in its monopoly phase. Absent such growth rates, no socialdemocratic capitalism is possible.

There are other problems that a revived social democratic capitalism would not be able to address. Can socialdemocratic capitalism provide the necessary institutional framework for dealing with the global environmentalcrisis? Environmental investment and regulations increase the overall costs of capitalist production (this is not tobe confused with the fact that environmental businesses may create profit opportunities for some individualcapitalists). There is the question whether after taking full account of environmental costs, the remaining profitswould be sufficient to induce an adequate level of accumulation. But more likely, in a capitalist world economywith nation states, the competition between different capitalist states will prevent them from taking full account ofenvironmental costs. In that case, social democratic capitalism will simply be an ''alternative'' way towards globalecological catastrophe.

Reevaluating Socialism

Marx said that the historical justification of capitalism was to develop the forces of production. Capitalism hasclearly succeeded in the development of the forces of production. It has also succeeded in bringing aboutmaterial prosperity for the top 15 20 percent of the world population. However, it has decisively failed to meet thebasic physical and emotional needs of the great majority of human beings that live in the periphery and thesemiperiphery. In fact, Immanuel Wallerstein questioned whether there has been any improvement of quality oflife for the poorer majority of the world population since the beginning of the capitalist world economy.16

During the twentieth century, human beings twice went through the horrific catastrophes of imperialist wars thatarose out of the fundamental contradictions of capitalism. The past quarter of a century was another dark age inhuman history. Under neoliberalism, inequality, oppression, and exploitation have reached new extremes. In themeantime, under capitalism humanity is rapidly approaching a global ecological catastrophe.

In the light of the enormous social and economic disasters brought about by neoliberalism, it is necessary toreevaluate the historical experience of socialism. Ten to fifteen years ago, the experience of state socialism inthe former Soviet Union, Eastern Europe, China, and Cuba was generally considered to be a great failure. Inaddition to their undemocratic features, the state socialist societies were believed to have failed because theywere not able to match capitalism in terms of efficiency and technical innovation. For a while, many have

Page 7: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 7/8

attempted to design new, ''viable'' models of socialism. Many of these models intend to be as efficient ascapitalism by incorporating such capitalist features as markets, competition, and private incentives.

Now few would doubt that the majority of the Soviet and Eastern European people lived much better lives understate socialism than under the present ''free'' and ''democratic'' capitalism. Even in China, where the economyhas been the most dynamic in the world, capitalist reforms since the early 1990s have substantially reduced theliving standards of the peasants and the urban working class, so that in many respects (health care, education,job security, and workplace conditions), a significant portion of the Chinese working people now have lowerliving standards than during the Maoist era.

The historical achievements of state socialism should not be under-estimated. The accomplishment of fullemployment and job security (freedom from the fear of unemployment) for all capable adults, men and women,was of enormous importance. It is well known that state socialist countries had been more successful inmeeting people s basic needs (nutrition, health care, education, housing, and pensions) and improving womens conditions than capitalist countries with similar levels of economic development. Soviet, Eastern European,and Cuban socialism had succeeded in meeting virtually all basic social needs, an achievement that most of theadvanced capitalist countries cannot claim.

What will be the relevance of socialism for today s struggle against neoliberalism? As the crisis of neoliberalismdeepens, in many peripheral and semiperipheral states (such as in Latin America), the situation has developedto the point that without a complete break with international finance capital, the imperialist states, and theinternational institutions that represent their interests, there are simply no resources left (after paying asignificant portion of the national output each year to international finance capital) for even simple reproduction ofthe society, not to say to address grave social problems. In this situation, the only sensible solution that is in theinterest of the majority of the people is to make a complete break with the existing international capitalist order.The national economy needs to be restructured so that resources are redirected towards production for basicneeds rather than organizing the national economy around exports to the core countries, under conditions ofunequal exchange, in order to import luxury consumer goods for the privileged elites and the means ofproduction that are used to reproduce the existing pattern of the international division of labor, generating ''tradesurpluses'' to serve debt payments and finance capital flight. But these arrangements will inevitably haveconflicts with the interests of the big financial and industrial capitalists. At some point, nationalization of themajor means of production and the development of a comprehensive economic plan will have to be pursued forthe economic and social transformation to be sustained.

In the former Soviet Union, Eastern Europe, and China the corrupt capitalist privatization processes areextremely unpopular. Should new social revolutions take place, one can expect the renationalization of all theillegally privatized assets to be among the top popular demands. The renationalized assets then would form thebasis of a new socialist economy. The revival of socialism in the periphery and the semiperiphery may set inmotion a new wave of world socialist revolutions.

Can the next round of socialist revolutions do better than the twentieth century revolutions? In what way cansocialism prove itself to be better than capitalism? Summarizing the historical lessons of Soviet socialism,David Kotz argues that, in purely economic terms, centrally planned state socialism was a viable system. TheSoviet system disintegrated because a procapitalist political alliance (including the majority of the bureaucraticelite) arose and gained power. Kotz suggests that for a future socialism to be viable, it must have a democraticstate and other institutions that prevent the development of a privileged and dominant elite.17

Provided that a future socialist society will be based on political democracy, how will a future socialist economybe organized and structured? In addition to many existing theoretical contributions on the subject, future socialistmovements will certainly be able to develop a great variety of new institutions, new practices in actual historicalstruggles. Ultimately, the future socialist economy has to be organized in such a way that it is capable ofaddressing the historical contradictions to which capitalism has failed to provide a solution.

Given the historical record of state socialism, one can have great confidence that an economic system based onprimarily public ownership of the means of production and democratic planning (democratic control over theallocation of the social surplus) will have a great chance to succeed in meeting the basic needs of all membersof society. If this can be achieved, then at the very least, socialism will bring about a better material life for thepoorest 60 70 percent of the population in the world, whose basic needs have never been met under capitalism.

Socialism offers the best hope for humanity to avoid global ecological catastrophe and to build harmoniousrelationships between human beings and our environment. In this respect, the record of state socialism was notfavorable. But the record needs to be understood in its historical context. In addition to the bureaucratic,

Page 8: After Neoliberalism

10/01/14 Versión para impresión - MVD CMS

www.uruguaypiensa.org.uy/imprimir_284_1.html 8/8

undemocratic nature of state socialist planning, state socialist societies were forced to engage in military andeconomic competition against hostile capitalist powers. Given the context, they were forced to sacrificeeverything in order to ''develop the forces of production.''

The hope is that the future socialist society will have better, generally benign external environments (if there isnot going to be a world socialist government). In that case, there will not be external pressures to force futuresocialism to develop the forces of production rapidly and in an unbalanced fashion. Given the arrangements ofpolitical democracy and socialist planning, people in these societies will be able to debate and decide, basedon their own preferences, how much surplus they would like to generate as well as determine how the surplusshould be allocated. The need to have a sustainable environment, through democratic processes, will beunderstood by the general public, and will be reflected in the planning, balanced against other needs anddesires, including the desire for material comfort. Unless one believes that people will always be capitalistminded, always wanting more regardless of how that affects future generations, then it seems that sustainingthe environment in which human beings live would certainly become one of the paramount objectives of futuresocialist planning.

Monthly Review, January 2004

Notes

1. 1. United Nations, Human Development Report (Oxford University Press, 2000 and 2002);James Petras and Henry Veltmeyer, Globalization Unmasked (London and New York: Zed Books, 2001),p. 24; Food and Agricultural Organization of the United Nations,The State of Food Insecurity in the World,2003 (Rome, FOA, 2003).

2. 2. See Dollars & Sense, Real World Macro (18th edition, Cambridge, Mass.: Dollars & Sense,2001), Appendix 3; Duncan Green, Silent Revolution (London: Cassell, 1995), p. 91 and Appendix A.

3. 3. Editors, Monthly Review, ''The New Face of Capitalism,'' Monthly Review, April 2002, 1 14.4. 4. Stephen Roach, ''Global: Do Imbalances Matter?,'' Morgan Stanley Global Economic Forum,

www.morganstanley.com/GEFdata/digests/latest-digest.html, September 2, 2003.5. 5. Editors, Monthly Review, ''The New Face...''6. 6.

MAS INFORMACION EN:http://www.uruguaypiensa.org.uy/hnnoticiaj1.aspx?284,106