When written in Chinese, the word "crisis" is composed of two characters - one represents danger and one represents opportunity.
We live in interesting times. Times of crisis. Yet within that crisis lies opportunity.
In his book, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century, Mark Blyth explains to readers that times of economic crisis are in fact times of opportunity.
Opportunity to change the economics ideas that are the blueprint for the construction of economic institutions. The destruction of the old order requires the a new order be built. The old order is destroyed by uncertainty, not risk.
We live in uncertain times, the old economic ideas that said that pumping $700 billion into banks to recapitalize them would end the crash. It did not. The old ideas have thus been broken. In an economy ordered by risk, the cost of given actions are calculable within a margin of error. In an economy dominated by uncertainty, the result of any action is essentially unknown. We live in an economy dominated by uncertainty, the last time this was true was during the 1970s, and resulted in the rise of neoliberalism. The period of uncertainty during the 1930s resulted in the regulation of the economy by the national state, and the collapse of the network of international trade.
In looking to where we head now, I'd like to point to 5 hypotheses put forward by Blyth:
1. In periods of economic crisis, ideas (not institutions) reduce uncertainty.
2. Following uncertainty reduction, ideas make collective action and coalition building possible.
3. In the struggle over existing institutions, ideas are weapons.
4. Following the delegitimation of existing institutions, new ideas act as institutional blueprints.
5. Following the delegitimation of existing institutions, ideas make institutional stability possible.
These five simple statements say so damn much. This is what is happening today. We are in the midst of a process of change which will structure the way that the economy functions for the rest of all our natural lives.
They tell us a great truth. Economic crises are both moments of great danger and great opportunity.
The danger is that this entire process of institutional change pulls back the curtains on the mechanisms of power in capitalist societies that are rarely subject to change. Crisis necessitates change, though.
You have to be willing to accept that nationalization rather than being verboten may be the answer. You have to recognize that markets are not self-regulating, they require state intervention in order to ensure that they don't destroy the means by which societies provide for their material needs. It means accepting the proposition that the concentration of wealth is detrimental to the economic health of societies, and arguing for income redistribution as a means to attack wealth inequality in the long term. It means recognizing that decision making rules that constitute the electorate as a function of ((individual * wealth) +(individual * wealth)) rather than individual + individual are fundamentally flawed and in contradiction to democratic principles.
This is a tall order. I really doubt that either of the current US presidential candidates can pull it off. Historical sequence matters, and the consequences of sequencing are drastic.
Consider the Great Depression in the United States and the 1928 election.
Al Smith vs Herbert Hoover. The parallels are striking. Al Smith was a "historic" candidate, the first Catholic who might become president of the United States. Herbert Hoover was a "moderate" Republican often at odds with his own party. Both believed that the use of popular government as a means to battle the excesses of big business was nothing less than communism.
Smith would later become a bitter rival of FDR, supporting an attempted military coup attempt against him in the 1930s and the presidential candidacies of Republican candidates in 1936 and 1940.
Now consider a counterfactual. What if Smith had won in 1928? The ability of the party of the center left to move to the left evaporates. The inability to move left within the existing party system means no Democratic New Deal, reform must occur outside of the system rather than within it. Social liberalism must yield to one of two worlds: 1) Social Democracy, 2) Non-democratic social orders whether fascist or communist.
Social Democracy arising from outside of the system means that conservative reactionaries are able to attack policies promoted by the working class to protect themselves as communist revolution against the "natural" order. If in opposition action by the Left is crushed following the example of the Asturian revolt of 1934 in Spain. If in power, the presence of party originating from outside of the system leads economic elites to conservative revolution to restore the order they prefer, i.e. conservative military uprising. Civil war. Death, destruction, etc.
All this because there was no way to make the needed change in the system, requiring a change of the system.
If Obama wins this election and is "Smith-like", the change of the system must occur, because change in the system has been excluded as a possibility.
As for the possibility of reactionary revolution in America, consider that this possibility is more plausible now than it was at any time in the 1930s. Because in the 1930s, military power was the preserve of the state. When the coup leaders approached Gen. Smedley Butler, he turned the tables on them.
If latter day coupsters approach Blackwater's Erik Prince, will we be so lucky?
Another world is possible. Hidden in this crisis is the chance for real change, the kind that can set the economy back to benefiting the people.
In the end. Either the people will control capital, or capital will control the people. That may sound vaguely communistic, but that's not it at all. We are not mere cogs in a machinery of history driven by impersonal economic forces.
Economics is not antecedent to politics. Politics is antecedent to economics. The masses may be master to the machinery of the modern economy, or they may be subject to it.
All economies require the redistribution of wealth and the subordination of the individual to social production. The question is whether these processes will be subjected democratic control, or whether they will be a means by which economic elites control the masses.
Polanyi was correct in his insight that markets are not self-regulating in 1944. Central to Polanyi's understanding of the way that the world works was the idea that traditionally economies have simply been the means by which societies provide the material means of their existence. They are not the directing force in social life. They are embedded in a system of values that places primacy on providing the means for men to live in dignity.
But in modern societies, the rise of market fundamentalism leads to the pursuit of profits becoming the guiding force in social life. All things must be subordinated to the logic of the market. Even things like healthcare, which is driven by forces fundamentally alien to the logic of the market. In time, the devaluation of all that is human through the conversion of man and nature alike into nothing more sacred than a sack of potatoes, prompts backlash.
Men and women are not object to be worked upon by economic forces. The proponents of the ideology of market fundamentalism insist that the economics is the product of the natural, divine, order, while politics and demands for economic redistribution and the deeper demand to be treated as people not objects is regarded as profane vanity.
Liberalism as a social order in which the belief that the market can be left to regulate itself denigrates human dignity by allowing people to be turned into the vessels of labor that may be bought and sold with no more thought than that involved in the sale of a sack of potatoes at the same time that it proclaims to be acting to be the defender of liberty. The denigration of human dignity through the commodification of man, leads the working class to look for something that can give them meaning.
Man demands meaning is his life. If denied that he will seek to create. As the destruction of the old social order which provided meaning and order to the individual is undertaken, ironically in the belief that the individual is being "liberated", man is set "free" adrift in a social order in which his relation to other people is mediated by one drive, the pursuit of profit. People become a means by which the individual seeks his own gain, they are turned into objects.
Man rebels against the drive of the market to render him a commodity by embracing any ideology which places him within a value system- in which he has value. The door to dictatorship is thus opened.
The alternative to dictatorship as a means to reinstall a social order is social democracy. The decision by society to become the conscious master of the market, so that the market is constrained within a system of social values valuing people over profits, requires that the view that the market reflects a divine order beyond the understanding of fallen man be condemned.
Democratic societies must make the conscious decision to become master to the market. Change must occur. The question is whether this occurs in the system or requires a change of the system.
In the current economic crisis this means that the market must be returned to the limited realm it was permitted following the Great Depression.
The drive for profit in the market is a means to the end of society providing its material means of existence, not an end unto itself.
And by allowing the market to become an end unto itself, we have imperiled the means by which our society provides the material means of out existence. Quell ironie!
Now comes the time to put the market back into its cage.
Another world is possible.
Today news has emerged that the GM and Chrysler are in talks concerning a possible merger. The total collapse of the US auto industry is looming over the American economy.
One option is for the companies to be allowed to merge, and hope for the best. Of course if they both fail, the likely result is that the companies will be snapped up by foreign firms.
There is another way.
The time has come for the US government to nationalize GM, Ford, and Chrysler, and use financial control to ram through the retooling towards more fuel efficient vehicles. And it's not just autos, nationalization can an should remain an option for any company that is simply "too important to fail."
This economic crisis brings the opportunity to change the variety of capitalism that exists in the United States.... for the better.
In simple money terms, the capital cost to purchase and merge the Big Three into a competitive US owned auto firm is small.
GM has a market capitalization of $2.77 Billion.
Ford? $4.5 Billion.
Chrysler was sold to Cerebrus by Daimler for $6 billion in May 2007. At that time GM shares were selling for $30, and Ford for around $8. So if we assume that Chrysler is only worth 20-25% of its 2006 sale price because it has experienced a similar fall, then Chrysler is probably only worth around $1.2-$1.5 billion now.
So the outright purchase of the US auto industry would cost around $9-$10 billion. It's true that this would also involve assuming around the risk that the companies would continue losing $40-$50 billion annually until the company can be turned around.
Remember, however that we are in the midst of a Trillion dollar war largely being fought for oil. With forceful administration. (Step 1. Replace top management, and limit executive compensation , including stop options and other benefits, to 10 times average pay.) With forceful administration, fuel consumption could be slashed in a matter of a view years. Total US fleet replacement occurs on average every 7 years, which means that in 7 years the fuel efficiency of this years product should basically match that of the fleet as a whole. 100% independence from foreign oil in less than a decade is a possibility. With plug in hybrids like the Volt, a 5 year timeframe even seems to be a possibility.
In the long term, I think that the government should maintain a 1/3rd stake in the company. With another third being allocated to labor, and the final third allowed to float in the open market. Let creative destruction occur on a limited scale, so as to avoid total meltdown.
I think that the government can turn these companies around in the long term, and I think that a government equity stake could be used to a lot of good. Until very recently GM issued 25 cent quarterly dividends. Less recently the divided was 50 cents.
So let's look at the numbers for GM alone.
A 1/3rd government stake in GM would be around 187 million shares. That would generate $187 million annually with a 25 cent dividend, $374 million if 50 cents. And a move to focus less on allowing management to hold on to earnings under the pretense that they reinvesting them for a longer term return could raise that to a multiple.
On a large scale involving multiple companies across industrial sectors, this could become an important source of government revenue. And if based around a dividend structure, it would be fairly stable.
If we are going be asked to give billions of dollars to companies, shouldn't we ask for an equity stake in the companies, and a share of the profits when they come.
Taxation has been only but one of the methods of wealth extraction used to finance the state, historically.
Income taxation as a means of wealth taxation raises more hackles than wealth extracted through direct ownership of the means of production. We are staring down an economic crisis that is going to require massive government spending in order to avoid a deflationary spiral.
The irony of the situation is that in asking for free money, Wall Street is calling for a redistribution of wealth.... from the majority that has a limited ownership stake in the market to the minority that holds the majority of market.
Although we face economic crisis, we are presented with a great opportunity. The opportunity to democratize the market, and to install a system of capitalism that benefits the majority rather than preserving the privilege of the wealthy minority.
Imagine a world in which increases in the stock market lead to tax rebates as dividends from government ownership stakes are used to replace revenue from income taxes.
Imagine a world in economic growth leads to reductions in economic inequality, rather than perpetuating the expansion of the divide between rich and poor.
Another world is possible.
We are not objects worked upon by historical forces, we are subjects with the capacity to choose.