I began thinking about socialism a few days ago when I read a blog entry that suggested the nationalization of banks. Now, socialism has more commonly been identified as an evil, especially by politicians in the United States, and perhaps they had a point. Nazism was essentially "national state socialism", a type of government that curtailed the freedoms, including economic freedoms, of all the citizens of Germany and the countries that were under its control The Union of Soviet Socialist Republics used the word "socialist" in its name, and it too restricted radically the freedoms of its citizenry. So too does China, which describes itself as a socialist state, and in which all of the major industries are controlled by the state.
The idea of socialism is, in fact, a broad set of economic theories that advocate state ownership and ownership of the means of production. And, looking at the majority of Western societies, particularly those in Europe, there is a tendency towards a form of democratic socialism in part of the economy, where certain industries, particularly the health care industries, are nationalized and controlled by the state, which is in essence seen as the representative of the people.
I just read an interview with Noam Chomsky, a professor at MIT and also a prolific writer about economics and its use in the power structure of the world. I have read a number of books by Chomsky, most that deal frankly with the economic inequalities that exist in the world, and in particular exposing many of the hypocrisies that modern Western states propagate. Chomsky describes himself as a libertarian socialist, and gives accolades to such individuals as Juan Evo Morales Ayma, who rose to power through non-violent means through democratic elections.
What intrigues me is how Chomsky says that the U.S. economy was never really a free market economy, and how deregulation, which has played a major role in the current financial crisis, has actually made it worse. As someone who has an avid interest in history, it is interesting to note that the rapid growth of the United States' economy in the latter half of the nineteenth and early twentieth centuries was during a period when the US economy was at its most protectionist. The railroads that opened up the West to settlers in the latter half of the 19th century were, in fact, funded by the government. It is the government, Chomsky argues, that has actually aided growth of the economy during certain periods. Following World War II, for example, the government funded housing and schooling for war veterans. Corporations have from time to time needed "bail-outs", such as a the savings and loans in the 1980s and the auto makers and banks today.
Take the Great Depression and World War II, for example. It was the war and its increasing demand for manufactured goods, and not Roosevelt's policies, that actually brought the US out of the Great Depression. And a lot of people have been comparing this current downturn to the Great Depression of the 1930s. It is like it in a lot of ways, as it was brought on by speculation in the real estate market, with people borrowing in order to create wealth, which essentially just existed on paper.
But the way in which Western societies are dealing with this debt is exactly the opposite of what, for example, the World Bank dictates upon those who make use of it. Those countries who go through the World Bank and International Monetary Fund to get out of national financial emergencies must follow austerity measures that curtail investment in social structures.
But Chomsky says it better:
It is striking that the ways that Western countries are approaching the crisis [entirely contradict] the model that they enforce on the Third World when there is a crisis. So when Indonesia has a crisis, [or] Argentina and everyone else, they are supposed to raise interest rates very high and privatize the economy, and cut down on public spending, measures like that. In the West, it is the exact opposite: lower interest rates to zero, move towards nationalization if necessary, pour money into the economy, have huge debts. That is exactly the opposite of how the Third World is supposed to pay off its debts. That this seems to pass without comment is remarkable.
The question that few people are asking is whether piling on more debt, which is what the government is doing, will help solve a problem essentially caused by too much bad debt. Naked Capitalism tells how Sweden solved a banking crisis during the recession 1992, when a number of its banks were on the verge of collapse. Sweden closed the insolvent banks and put aside their assets, essentially quarantining them so that they could not negatively affect the rest of the economy. This resulted in a devaluation of Swedish currency, which stimulated the economy by making Swedish exports cheaper on the international market.
But this is not the path taken by the biggest economies in the world during this current crisis. Instead, they are borrowing to help "save" the banks from their mistakes, and the bail-outs have not ended with them. If this means the American people will now "own" banks, and perhaps other industries, for a time, and then be able to sell the nationalized shares in bailed out industries for a profit at some future point in time, it is not such a bad prospect. Perhaps we will see a democratization of the economy, with citizens having more economic say in the direction large businesses will go.
Chomsky has been talking about this inequality for years, as real wages for workers have stagnated. It is no secret that the wealthiest have benefitted most from the past three decades of economic expansion in the US.
So... how does one create wealth in such a chaotic and panicked atmosphere? The only answer I can give to you is... very carefully. And perhaps we shouldn't get so fussed about things, as after all, these are just economic cycles, as recovery follows recession and what goes down must come up.
