The 'free' market has failed, now for the alternative

Unfortunately the title of this post is not really true, the first part anyway. The 'free' market has succeeded. It has succeded in transferring huge amounts of wealth from ordinary working people to the very richest people on the planet. And it has done this by reducing wages and destroying pensions, social healthcare and social security. Because that transfer of wealth always was the aim of 'free' market neoliberalism - making the 99% (workers) poorer and 1% (capitalists) richer. 

Of course, most people don't like to think in terms of 'capitalist and worker', that, after all, is old hat isn't it? Well, no its not, its just that in the 30 year period after the Second World War, with strong trade unions, social security and decent pensions, the ongoing struggle between worker and capitalist was offset by rising prosperity. With hindsight we can now see that period for what it was - an anomaly. We are now back to capitalism as usual, capitalism as it has been for most of its 200 year history, with sluggish growth and poor welfare provision for the victims of capitalism - the poor and the unemployed. The fact that it took an economic crash to return us to 'normality' should really be no surprise to anyone (though when it happens it always is). The history of capitalism is a succession of economic crises, of which this one is only the latest and possibly the greatest. The capitalist media has worked hard to persuade us that the distinction between capitalist and worker no longer has any relevance, that we are all in it together, but that has been exposed as a fiction by recent events.

The lesson we should learn from the latest crisis is that only the nation state can prevent complete economic chaos and disaster. Without state intervention in the economies of Europe and the USA the crisis would have been very much worse. Neoliberals like to label the state as the enemy of freedom, enterprise and innovation, but without it we would all probably be living in shanty towns and could possibly have slid into barbarism. The reality is that the democratic nation state can be our friend and it is the only existing institution which can turn things around in times of crisis. That is why we must not turn our back on state intervention in the economy, and nationalisation of the railways and the utilities. People of my generation look back on the nationalised utilities with affection. They weren't perfect but they weren't the preserve of foreign corporations with footloose 'investors' who care nothing about energy and water provision in the UK.

It doesn't have to be like this. There is a sound economic alternative, but there is a problem because if we continue to elect political parties which follow neoliberal policies the misery will continue. For example, as Larry Elliot in the Guardian showed today new jobs have been created in the UK during the crisis but the bad news is that these are low-paid part time jobs, replacing the better jobs which have been lost. Here is a telling quote:

"The UK is turning into an old-style third world country with low pay growth for most workers below managerial level, widening pay differentials and poor levels of capital investment"

Of the mainstream political parties in the UK all but one adhere to the tenets of 'free' market neoliberalism, despite the fact that it is clearly unpopular with the electorate, as the by-elections last Thursday showed. The Coalition parties got hammered with the Liberal Democrats polling only 415 votes in Rotherham and coming eighth. UKIP did well, but they are a single-issue party trading on the unpopularity of the EU. If people understood better UKIP's other policies they would soon be exposed. Labour, who most voters are looking to as an alternative to the Coalition are neoliberal-lite at best and are unlikely to reverse many of the damaging changes made by the Coalition. The only party which has an alternative economic policy is the Green Party, as we showed in our manifesto, which is still as relevant now as it was in 2010 .

'Free' market neoliberalism has failed those who it was meant to fail, the ordinary people of  Europe and the USA, the 99%. The alternative is now needed more urgently than ever. But you can only get that alternative by voting for a political party which has an alternative. If you want to find out more take a look at our vision. Never has voting for an alternative been more important. Come and join us in turning things around.

We must Occupy the economy

The roller coaster ride of the world economic crisis continues. Elections in Greece and France have shifted the political ground slightly to the left, with a Socialist majority in France, and the spectacular result obtained by SYRIZA in coming second in Greece with about 27% of the vote. But the Eurozone crisis stumbles on and the 'free' market fundamentalists, the architects of the broken economic system, are still in the driving seat. Banks are bust and, under the current system, there is nothing to look forward to apart from years of economic stagnation at best. Meanwhile in the UK, millions are being pushed below the breadline by the governments cuts in benefits, tax credits, and increases in rents.

In 1966, the Marxist economist Paul Sweezy wrote a book, with Paul Baran, called Monopoly Capital, in which he said that the natural tendency of monopoly capitalism was economic stagnation, as capitalists struggled to use the surpluses of capital accumulation, and that they could only achieve this by increases in spend on marketing and defence spending, and increasing debt. Was Sweezy right? Its certainly true that US defence spending in WWII ended the Great Depression, and that a mountain of debt has been used to keep capitalism going in the past 30 years or so.

So what do we do? The market fundamentalists have no answer. They are like the mad person who repeats the same actions over again in Einsteins famous quote:

"Insanity is doing the same thing, over and over again, but expecting different results"

Einstein: described the madness of market fundamentalists

 
So we need an economic alternative. But what is that alternative? Neoliberalism, over the past 30 years has put commercial interests above democratic sovereignty. This has happened globally through organisations like the WTO and the European Union. We need to reverse this process and re-assert democratic control of our economy. This economic change must put governments in charge, actively planning and managing economic development, allow local decision making and create a mixed economy based on  genuine sustainable development to deal with ecological crises and halt endless growth. In the longer term the only answer to the domination of private commercial interests is to put the economy in the hands of the 99%. How can we do all that?

Firstly, we need to nationalise the bust banks that are hoovering up resources which need to be spent on creating jobs. Its a scandal that the UK's bust banks have been bailed out but are still in private hands. This must end, some banks must fold, and we need banks to be broken up to provide finance to small businesses, and local and regional banks which can focus on reviving local economies;

Secondly, we need to take the creation of credit out of private hands and put it under democratic control. Debt creation is too great a power to be left in the hands of private enterprise - this is what caused the current crash;

Thirdly, we need to take control of the big utilities such the energy and water companies, and sectors which rely on massive public subsidy to continue such as the railways;

Fourth, we must institute a programme of investment in our economy to create jobs through green quantitative easing and a Green New Deal;

Finally, and most importantly, we must break the power of the corporations by mutualising the economy, providing the finance to set up co-operatives and giving employees the power to buy-out the companies they work for and control them. This latter measure is crucial in putting economic power into the hands of ordinary people. We need to create a new culture of doing business in which people work together to create successful mutuals which are focused on local communities. Co-operatives have a better success rate than companies and they don't outsource downsize, or export jobs overseas.

Its a little known fact but there was an expansion of mutuals in the USA during the last Great Depression and there are many successful co-operatives both in the USA and here. It is a sector that is already growing. 130 million (yes that is million) people in the USA are now involved in mutuals and if you want to find out more detail read this previous post. You should also take a look at Gar Alperovitz's excellent book 'America beyond Capitalism' which gives practical examples of how the 99% in America are taking control of their economy from the bottom up by creating co-operatives. This is economic democracy in action and something we should celebrate.

Think it can't happen? Well, we have to make it happen. Its likely that the failure of the global banking system is going to mean that states are going to have to take a much bigger role in managing the economy now that the failures of the market have been exposed, and that people are going to be much more willing to trust democratic control and planning after they have experienced the privations of neoliberal austerity. If we want to really cure the malaise of neoliberalism and avoid the stagnation of monopoly capitalism we need to participate in the most important occupation of all, we need to Occupy the economy.

Zombie capitalism

Ever since the crash of 2008, when Lehman Bros. bank went under, politicians in the EU and USA have been battling to restore the status quo, which is often described as 'business as usual'. But it wasn't the collapse of Lehman's which brought the capitalist economy to its knees, it was the accumulation of a huge bubble of toxic debt in the world banking system. Rather than a crash, it has been more of a slow motion collapse, as the house of cards comes down.

The banking bailouts which followed, where governments injected capital into a bust banking system, was supposed to solve the problem, but it hasn't and it never could have done because the debt is still there, it hasn't just disappeared. In the shorter term the debt problem has become a sovereign debt crisis which is threatening to break up the Eurozone. European banks have been propped up by short term loans from the ECB, and this still hasn't solved the problem, but what if it can't, what if there is simply too much debt for the system to pay off?

I have blogged before about how I suspected that there were lots of insolvent banks which were hiding their insolvency with the collusion of governments. For any other kind of business this activity would be illegal, but as we have seen, there is one law for the banks and another for everyone else. Now the Telegraph has revealed the state of hidden debts in the UK banking system. The article, by Liam Halligan, shows that UK banks are sitting on £40 billion of undeclared losses, and that is just what we now know about.

Britain's banking black hole

My guess is that taxpayers patience is exhausted. Are we really going to be expected to bailout a bust system yet again? Not a chance in my view. The reality is that there can be no return to 'business as usual'. Neoliberal capitalism, through privatisation and deregulation, has broken the world economic system. The emperor has no clothes. There isn't going to be a recovery, not in the short to medium term, probably not ever. In a recent post I explained why I thought capitalism had reached the end of the road. In essence falling profits have lead to a class-war attack on the 99%, cannibalisation of the public sector, mass unemployment and an unsustainable property and financial bubble. Now there is nowhere left to go. We urgently need a radical alternative economic strategy which has to involve the state taking responsibility for control of the economy, nationalisation of the banks, a Green New Deal, and a move to a low carbon economy. The alternative could just be a collapse into the kind of barbarism we saw in the 1930s. Oh, and don't forget the fact that we have to deal with climate change, and we saw a graphic illustration of that in the UK this weekend.

How to beat capitalism

Historically socialists have followed the' Marxist' model. By that I mean capture the power of the state and use it to control the means of production. By doing this you can put power into the hands of the people and liberate them from exploitation by the capitalist class. There are basically two ways of doing this: Communism, and democratic socialism. Both have so far failed. Communism, in the Soviet Union, liberated workers and greatly improved the condition of women, but failed to find a successful alternative economic model and degenerated into a dictatorship rather than a 'dictatorship of the proletariat'. Democratic socialism, whereby socialist parties have come to power through elections, has simply failed to control capitalism, again largely because the parties failed to pursue an alternative economic model and were content to 'manage' capitalism through social democracy. I know some people will argue those parties weren't socialist but that's another argument too complex to go into in this post.

There is a pattern here. The key thing is the economy and the creation of money. Having a capitalist economy and a socialist - or social democratic - government doesn't do much for most of the population apart from ameliorating the worst excesses of capitalism. It is certainly preferable to right-wing 'free' market alternatives but it doesn't solve the underlying problem. For a long time, capitalist entities like the big corporations have been more powerful than governments. Many corporations have turnovers which are larger than the GDPs of well-developed nations. Now, through global entities like the World Trade Organisation (WTO) - in which secretive panels of 'experts' are able to overturn national legislation, they have formally elevated commercial interests - the right to make money - above democracy, above all our democratic rights.

What the credit crunch has shown us is the true power of these capitalist entities. The mask has slipped. The 'free' market model has come unstuck through de-regulation, and selfishness and greed - the twin engines of capitalism. We, the poor, the unemployed, the disabled, the low paid, and the working and middle classes, have been forced to bail out capitalism. The losses have been nationalised and the gains are still in the pockets of the people who brought the system down. That is socialism for the rich and the market for the rest of us.

In his book, The Great Transformation, written in 1944, the socialist economic historian Karl Polanyi explained how economies work. He said that they are 'embedded' in society. By this, he meant that they are inseparable from the way we live. They are what we do. This may sound obvious but classical economists, such as Ricardo, have tried to separate the economy from society as if it exists separately in its own right. This is crucial because it allows conventional economists to ignore social and environmental concerns. They just don't figure on the balance sheet. Economists routinely ignore human suffering and environmental degradation caused by capitalism. This helps to give capitalism economic validity because it becomes simply about making money - forget about people and the environment. This is why economists are able to make ludicrous statements like - "It benefits all of us if production is moved to countries where labour costs are lower" - really? Does it? Who does it benefit? Not the people who have lost their jobs and the communities that are devastated. Of course, there have been dissident economists like Marx and E F Schumacher who wrote 'Small is Beautiful - a study of economics as if people mattered'. But Schumacher and Marx have been completely ignored by capitalist academia and media.

Karl Polayni: realised that society and economy are indivisible

Democratic socialists have made a similar error to the economists because they have assumed that politics is also separate from the economy. If you have political power you can change things. But as we have seen that is not true, not unless you change the fundamental basis of the economy. What socialists and progressives need if they are really going to change society is economic power. Capitalism can only be beaten economically. Therefore we need an alternative economic model and we need to start to build that model now. But what is an alternative economy? It is one where the means of production are owned and controlled by the people, and the creation of money is under democratic control.

For the means of production, there are basically two options: Nationalise industries or put them directly into the hands of workers to run and control themselves. Total nationalisation and state control, as in the Soviet Union hasn't worked well because people are not empowered and often they have little incentive to produce anything. They end up still as workers controlled by bosses. The real alternative is economic democracy. This is something that can be achieved through co-operatives. By co-operatives, I mean businesses owned and controlled by the people who work in them. Not possible? Think again. There are already many such successful businesses around. One example is the Unicorn Grocery, a worker-owned co-operative in Chorlton, which is thriving. There are many other examples.

Some cynics will no doubt say that this can only happen on a small scale but I don't believe it. There is nothing to stop larger scale businesses from being run in this way. The co-operatives in Mondragon in Spain provide us with an example of large-scale worker-owned and controlled businesses. Even models like John Lewis and Gore-Tex, which are not wholly worker-owned co-operatives in the sense that the Unicorn Grocery is, offer us a better alternative than voracious capitalists such as Tesco.

The beauty of the co-operative model is that we don't need a revolution or a socialist government to get started. There is nothing to stop people from starting co-operatives now. I have given examples in other posts such as the workers in Argentina who took over factories and started running them as going concerns during the economic crisis there.

In addition to this, we have to put the creation of money, and the control of its supply under democratic control. We need to ensure that only the state, through state-owned banks, rather than private sector banks, can create money. Alongside this, we also need to ensure that there are smaller local and regional banks. We also need a decentralised energy production system where locally owned companies generate energy from renewables and a centrally controlled energy distribution system.

None of this means that we shouldn't bother with socialist or political parties or be trying to get progressive governments elected. Changing our economic model isn't going to happen overnight. We need the support of governments who are friendly and can help with investment. In the shorter term nationalisation of the banks, railways, water, power generators, education, and health is essential for moving us away from a capitalist economy. It's a long haul but this is the only way forward. You cannot beat capitalism politically - it has to be done economically. Socialists and progressives need to start thinking seriously about building a new economy and making it happen - now.

Nationalisation? Yes Please!

A shocking thing happened in the UK recently - a bank - Northern Rock - was nationalised! It wasn't the fact that the bank should have gone bust that shocked the reactionary press, and politicians, nor the fact that undeserving shareholders will probably given a payout (and I am one though I've never bought a share in my life - I was given the shares when Northern Rock de-mutualised). It was the fact that the government took ownership that really rocked the boat.

Even though the government had no choice but to nationalise Northern Rock in order to protect British taxpayers, after a catastrophic private sector failure, taking such a step was seen as heresy, a blow against the sacred tenets of the free market.

But the sun is still shining, and as far as I know the earth is still on its axis. The simple truth is that after ten years of New Labour's slavish obedience to the market Britain is more divided and unequal than ever, The only time in our history when the gap between rich and poor has narrowed was the 30 year period following the second world war. The we had strong trade unions and public control of utilities, coal, steel and the railways. All of the latter were nationalised, not out of ideology, but because they were strategic industries which had failed under private sector ownership. While the private owners starved these industries of investment, the workers were sweated in near slave conditions. The owners wrung every last drop of sweat and profit out of them before they were nationalised - oh and then they got a handsome payout for their troubles. Ever since then the Tories have lied about nationalisation, and the Labour Party have spinelessly failed to refute their arguments.

We need more nationalisation not less. We need the utilities to be nationalised and taken out of hands of foreign owners and shareholders who don't care if we have secure energy supplies and clean water. We need to nationalise the railways and end the obscenity of private sector profits being paid out of taxpayers money, and Richard Branson trousering £24 million which could be spent usefully on reducing extortionate fares. We need the post office retained in the public sector, as a public service, not postal competition which relies on imported labour being paid minimum wages. The sooner this happens the better, and the sooner Britain will be back on the way to becoming a more equal and equitable society.