Friday, April 24, 2009

A Brief History of Socialism

I heard a report the other day that there are some lunatic elements of the Republican National Committee – they can no longer be called the “lunatic fringe” because they are not on the fringe of the Republican Party -- who are insisting that the Democratic Party now be referred to as the "Democrat Socialist Party." Right-wing talk radio routinely describes President Obama as a “socialist”, or worse. Clearly, "socialist" is the epithet of choice of the Republican Party.

However, talk about "socialism" seems to be all the rage these days on both sides of the political spectrum. Vermont Senator Bernie Sanders, a self-proclaimed "socialist", recently argued in an op-ed piece in the Boston Globe that socialism is really a good thing, pointing to his favorable impressions of Finland, which Senator Sanders described as a "socialist country." Similarly, the liberal-leaning Daily Show recently did a satirical piece in which one of the comic reporters traveled to Sweden, another alleged "socialist country", in order to reveal the "nightmare" of socialism, including "horrific" things such as universal health care, free college tuition, and guaranteed 30-day paid vacations (as well as ubiquitous well-endowed blonde women).

Obviously, a lot of this is not to be taken seriously. Nevertheless, socialism is very much in the news, and the point that is most striking to me is that most people on both the right and the left seem to be absolutely clueless as to what socialism is. So, pedant that I am, I have decided to take it upon myself to set forth a little history of socialism, hopefully, with the objective of making it clear just how nonsensical this Republican name-calling about “socialism” really is.

Socialism is an economic system in which what Karl Marx called the "means of production" -- i.e., factories, farms, offices, all of the things that are needed to make an economy work -- are not owned privately but are instead owned by the State (or some other type of collective). True socialism is by and large an economic system that died with the Twentieth Century. Except for the geriatric Fidel Castro, the lunatic Kim Jong Il, and the demagogic Hugo Chavez, there is no one in the world today who continues to espouse socialism. The highly-capitalistic country of Sweden is most definitely not a socialist country. Nor is Finland, contrary to what Bernie Sanders thinks.

In order to understand what socialism really is, and how it came to be so thoroughly discredited, I offer this brief journey into the past.

Socialism first appeared in the early Nineteenth Century in experimental communities such as the commune established by British industrialist Robert Owen in New Harmony, Indiana. Early socialism was driven by ethical and moralistic objections to private property, a belief frequently derived from various forms of evangelical Christianity. The guiding principle of early socialism was the abolition of private property and the equal sharing of all goods and services among all members of the community. This form of socialism was also closely connected with philosophical anarchism, as expressed in the writings of the French anarchist philosopher Pierre-Joseph Proudhon. Proudhon theorized that private property was a form of legalized theft carried out by the State. Thus, Proudhon postulated that if the State were eliminated, private property would also necessarily be eliminated and socialism would be established by default.

Socialist theory underwent a radical transformation in 1848 when two young radical German philosophers, Karl Marx and Friedrich Engels, published The Communist Manifesto. Marx and Engels derided earlier versions of socialism as "utopian socialism", and instead advanced a theory of what they called "scientific socialism." Marx and Engels posited the claim that all of history could be understood in terms of "class struggles." They viewed the growth of capitalism as, in many respects, a positive historical development in that it fostered technological innovation and economic growth. More importantly, however, they argued that capitalism dramatically simplified the class struggle, by dividing society into only two classes: the bourgeoisie that owned the means of production, and the proletariat that toiled in order to generate profits for the bourgeoisie. What was needed to establish socialism and eliminate the inequities of capitalism (which were undoubtedly quite real in the mid Nineteenth Century) was for the proletariat to rise up in a revolution and seize control of the means of production. For Marx and Engels, unlike Proudhon and other anarchist socialists, the State in itself was not the villain. Marx and Engels contended that the State was merely the political arm of the ruling class, through which the ruling class exercised its control over everyone else. Thus, Marx and Engels argued that an organized revolutionary proletariat could seize control of the State, and then use the State to take over ownership of the means of production and bring about a socialist society.

Marx and Engels were driven out of Germany as a result of the unsuccessful revolutions of 1848 and they fled to England where, ironically and perhaps hypocritically, Engels' wealthy family owned numerous factories. Marx, the intellectual powerhouse of the duo, supported by the largesse of the Engels family, thereupon embarked upon a comprehensive academic study of capitalism carried out during long hours in the British Museum, ultimately producing his magnum opus, Capital. Drawing on the works of English economists such as Adam Smith, David Ricardo, and John Stuart Mill, and supported by a detailed study of the financial records of English factories, Marx concluded that capitalism had an inherent tendency toward shrinking overall levels of profit (something originally suggested by Ricardo), leading to monopolization. More importantly for Marx, this meant that capitalist society would become increasingly polarized between a shrinking but wealthier bourgeoisie, who owned the means of production, and a growing and more impoverished proletariat, who labored to generate profits for the bourgeoisie. Marx concluded that this meant that a revolution by the proletariat was not just desirable, but historically inevitable, and that once the proletariat seized control of the State, it would be able to create a socialist society in which the State, as the political arm of the proletariat, would now own the means of production.

Although not consistent on the point, Marx tended to believe that it was most likely that this socialist revolution would first come about in the most highly-developed capitalist country, England, where the evolution of capitalism was most advanced and where the proletariat was best organized. Thus, while in England, Marx involved himself with the International Workingman's Association, known as the "First International", seeking to ingratiate himself with English trade unionists. Marx found the experience frustrating, as the English trade unionists were generally more interested in organizing for the purposes of improving their wages and working conditions than staging a political revolution in order to seize control of the means of production. On the other hand, Marx found himself even more frustrated with the advocates of violent revolution in the International, who continued to adhere to the romanticism of anarchistic "utopian socialism" and who rejected what they perceived to be the authoritarianism of Marx's "scientific socialism". Marx's great adversary was the Russian anarchist Mikhail Bakunin; Bakunin and his followers, particularly a violent fellow named Nechayev, were the models for the nihilistic radicals depicted in Dostoyevsky’s novel The Possessed. Internecine disputes among these various factions ultimately brought about the end of the First International. Marx died without seeing either the end of capitalism or a socialist revolution.

Later socialist theorists continued to be attracted to the logical rigor of Marx's scientific socialism. However, by the end of the Nineteenth Century it was becoming obvious that Marx's prediction of the inevitable collapse of capitalism and its replacement by socialism was not coming to fruition. On the contrary, the capitalist economies in England, France, and Germany, as well as new, rapidly developing capitalist economies in the United States and Japan, while given to periodic economic ups and downs, generally appeared quite healthy.

At the turn of the century, the British historian/economist J.A. Hobson wrote a book entitled Imperialism, and although Hobson himself was not particularly committed to socialism, Hobson's book would radically alter socialist theory for most of the Twentieth Century. Hobson theorized that the advanced capitalist economies of Europe did not experience shrinking levels of profit because as advanced capitalist economies effectively became internally sated with capital, the phenomenon that Marx believed would cause the demise of capitalism, financiers were nevertheless able to invest their capital outside of their own countries, thereby creating new markets and access to new supplies of resources and labor that enabled them to generate ever-increasing levels of profits. Hobson viewed this phenomenon as the "economic taproot" of imperialism, the process by which the European powers, as well as non-European powers Japan and the United States, had effectively gained control of the entire world by the end of the Nineteenth Century.

For many European socialists, such as Sidney and Beatrice Webb and the other English Fabian Socialists, and Eduard Bernstein and other leaders of the German Social Democratic Party, Hobson's theory meant that Marx's prediction that socialism would come about as a result of a violent revolution following the inevitable collapse of capitalism, had become outmoded. Instead, they argued, rising profits in the advanced capitalist countries meant that labor unions could now successfully bargain for higher wages and improved living conditions for the working class. Labor unions, in turn, could finance political parties, such as the British Labour Party and the German Social Democratic Party, that could attain political power through democratic processes and establish socialism gradually and peacefully. The name “Fabian Society” was derived from the Roman general Fabius Maximus, known as “Cunctator” or “Delayer”, because of his strategy of gradually delaying the advances of the Carthaginians. The Fabian Society advocated a similar gradualist approach to the overthrow of capitalism. H.G. Wells, a follower of the Fabian Socialists, wrote a science fiction novel entitled Things To Come about a future utopian society in which the economy would be organized "scientifically" according to socialist principles, superseding the "barbaric" capitalist system.

Hobson's theory, however, caused socialists in other parts of the world to reach other conclusions. A Russian radical lawyer/activist/intellectual, Vladimir Ulyanov, known as "Lenin", wrote his own book entitled Imperialsm, subtitled "The Highest Stage of Capitalism." Lenin essentially copied Hobson's analysis of the economic bases of imperialism. However, Lenin argued that far from invalidating Marx's prediction of violent proletarian revolution, the phenomenon of imperialism simply meant that the class struggle had now become globalized. The bourgeoisie of the advanced capitalist countries now exploited the proletariat of the less-advanced countries, such as Russia (Mao Zedong would later expand Lenin’s analysis to include pre-capitalist workers, such as rural Chinese peasants). Thus, Lenin rejected the notion of the possibility of democratic socialism and indeed, argued that groups such as the British Fabians and the German Social Democrats showed that workers in the advanced capitalist countries had been co-opted by the bourgeoisie and were now enemies of the true proletarians in exploited countries like Russia. Lenin argued that these exploited workers in the poorest parts of the world would rebel and fulfill Marx’s prediction of a socialist revolution.

Thus, the beginning of the Twentieth Century saw the great fissure between the democratic socialists and the authoritarian socialists (who generally became known as "communists"). Nevertheless, both of these groups continued to adhere to the basic goal of bringing about socialism, namely, the creation of a non-capitalist economic system in which the State would own the means of production.

A non-socialist analysis of advanced capitalist economies was put forward in the 1920's by the English economist John Maynard Keynes. Keynes was most assuredly not a socialist. Keynes detested Marx, whom he considered to be a windbag whose economic theories had long been discredited. On a personal level, Keynes was an elitist and something of an anti-Semite, and, apropos of nothing, he was gay. Keynes argued that any inefficiencies in the functioning of capitalism were not due to any inherent tendency towards declining profits but rather were attributable to fluctuations in the economy's aggregate demand for goods and services, a problem that Keynes believed could be rectified by government fiscal policy, i.e., taxing and spending.

Keynes' ideas got their first practical application in the United States during the Great Depression, which was in fact brought about as a result of a massive shortfall in global demand, just as Keynes had predicted. Although FDR did not care for Keynes and found his writings incomprehensible, the New Deal was essentially the implementation of Keynesian theory, as the New Deal spent large amounts of government funds on infrastructure (the WPA and similar programs), social welfare programs (Social Security), and with the American entry into World War II, the creation of a massive military establishment. FDR was initially driven to establish these programs by two persons who were social workers and not economists by trade, Frances Perkins and Harry Hopkins, but the New Dealer who was most responsible for designing the postwar economic order at the Bretton Woods conference was a confirmed Keynesian, Harry Dexter White (Keynes himself was the British representative at Bretton Woods).

Thus, at the end of World War II, the United States stood as the dominant power in the world and while it had an enormous activist government, the US was most definitely a capitalist and not a socialist country. The American government did not own the means of production, which remained in private hands, but instead the government used its wealth to continue to pay for social welfare programs (Social Security and later Medicare), to fund and expand infrastructure development (the interstate highway system), and again, to maintain a massive, and growing, military establishment (Eisenhower's "military-industrial complex"). Noam Chomsky and others have derided the American economic system as "military Keynesianism", but this is only partially correct. Large-scale government spending on "entitlements" (Social Security and Medicare) is also an indispenable component of the system.

Things were somewhat different, however, in much of the rest of the world. Authoritarian socialism had taken control in Russia and China. As European colonial empires disbanded, newly-independent countries dabbled in various forms of socialism. Notwithstanding the best efforts of the American military to stop them, Ho Chi Minh and his followers brought authoritarian socialism to the former colonies of French Indochina. Nehru, an admirer of the ideals of the Fabian Socialists, sought to establish democratic socialism in India. The founder of Pakistan, Muhammad Ali Jinnah, had also joined the Fabian Society while studying to become a barrister in England. More authoritarian variants of socialism came about in Africa and the Middle East.

Meanwhile in Western Europe, democratic socialist parties achieved electoral success. The Swedish Social Democratic Party first gained power in 1917, and it has dominated Swedish politics ever since. The British Labour Party led by Clement Atlee came to power in 1945. Similar democratic socialist parties came to power at various times throughout Western Europe.

The agenda of the European democratic socialists was two-fold. First, they sought to establish comprehensive government-funded social welfare programs, well beyond the scope of the New Deal. This included government-funded programs such as free universal health care and free higher education. Second, the democratic socialists sought to implement a gradual program of nationalization of various industries. Thus, in varying degrees, the advancement of true socialism – i.e., government ownership of the means of production – remained a goal of many of the European democratic socialists.

The global economy underwent a radical transformation in the 1970s as many pillars of the Bretton Woods system collapsed. The economies of the United States and Western Europe went through prolonged periods of stagnation. Inflation soared to record levels. Precisely why this all happened is a subject beyond the scope of this posting, and probably well beyond the expertise of this blogger. Robert Samuelson has recently written a book entitled The Great Inflation analyzing both the causes and effects of the rocky economic events of the 1970s.

While it is undoubtedly a gross oversimplification of the facts, it is my view that the root causes of the economic dislocations of the 1970s can be traced to the ongoing progress of economic globalization. The processes that Hobson had written about at the beginning of the Twentieth Century were still very much at work. Although the system of European-dominated colonialism and imperialism that had prompted Hobson to write his book had largely ended after World War II, economic globalization continued apace. Indeed, it is my view that colonialism and imperialism are merely manifestations of what Marx would call the political “superstructure”, but the “substructure” is economic globalization itself, namely, the movement of capital from the advanced capitalist countries to various other parts of the world. By the 1970s, this movement of capital, which had been going on since the mid Nineteenth Century (and actually a lot earlier than that) was bearing fruit, as many less developed countries in the so-called “Third World” were ready to make the leap into the modern capitalist system.

Globalization proved to be lethal to socialism. In less developed countries, the prospect of rapid capitalist development, in sharp contrast to the stagnant condition of most socialist economies, caused governments throughout the Third World to abandon their socialist experiments. Virtually overnight, China changed from a society in which Mao had imposed socialism in its most rigid, doctrinaire form into a society that pursued unregulated free market capitalism to a degree unknown virtually anywhere else in the world, including the United States. Vietnam, having successfully defeated the military of the United States in its misguided crusade to prevent Third World “dominoes” from falling to communism, promptly abandoned socialism and followed the Chinese model of pursuing free-market capitalism with a vengeance. India jettisoned Nehru’s dream of a democratic socialist society and also embarked on an aggressive transition to capitalism. Most dramatically, the Soviet Union – Lenin’s prototype for the fulfillment of Marx’s vision of a future socialist society – collapsed and adopted “shock therapy” as a means of making a speedy transition to capitalism. I have always felt that perhaps the most insightful observation about the fall of communism was a quip by the “Saturday Night Live” comedian A. Whitney Brown: “Who would have thought that communism would be a failure for the simple reason that there’s no money in it.”

Although the issue is not free from controversy, it is my view that capitalist globalization has been highly beneficial to these countries. While income disparities have grown enormously, overall standards of living have improved even more dramatically. China will soon have the second largest economy in the world. India’s dominance of the IT industry is legendary. Millions of Chinese and Indians, as well as Vietnamese, Brazilians, Malaysians, Koreans, etc., are now enjoying middle-class lifestyles approximating those that Americans, Europeans, and Japanese have long taken for granted.

Interestingly, it could be argued that while socialism may be an inefficient system for promoting economic growth, it is valuable in creating the preconditions for such development. Socialist societies generally do a good job of providing certain public services that are not delivered very effectively through the free market, such as public health care and education. Communist China, while having an economy that was, to put it bluntly, in the toilet, nevertheless provided health care to large numbers of citizens more effectively that did most non-socialist Third World countries. A relatively healthy populace is essential for economic development, since chronically-ill workers are not efficient workers, so the Chinese system of public health care, a legacy of socialism, ironically proved to be highly beneficial to the development of Chinese capitalism. Similarly, socialist India had developed a very impressive system of public education, particularly at the level of higher education; again, this system of education far surpassed those that existed in non-socialist countries. The Indian educational system was critical to the fabulous success India achieved in the IT field. The lesson of this, as I discuss in more detail below, is that economic development cannot be achieved through the free market alone, and inevitably requires the involvement of an activist, well-funded public sector.

At any rate, the rapid progress of globalization in the 1980s proved to be equally toxic to democratic socialism as it had been practiced in Western Europe. State-owned industries proved to be clunky and inefficient, and were incapable of competing with rapidly-growing private firms in China, South Korea, India, and Brazil. A crash program of privatization swept throughout Europe. Today, state-owned industries have almost entirely disappeared – including in the countries of Scandinavia, which many people continue to label, mistakenly, as “socialist.” Nokia, one of the world’s largest manufacturers of cell phones, is a privately-owned Finnish company. Sweden is the home of numerous privately-owned, successful companies. Actually, the Swedish Social Democratic Party, the most experienced and in many ways the most canny of the European “socialist” political parties, was never very enamored of state ownership of major industries, and the Swedish economy has always been dominated by private “capitalist” firms. Notably, Sweden and the other Scandinavian countries have also sharply reduced corporate tax rates in recent years, seeking to promote private savings and investment. Take that, Senator Sanders!

While privatization and the dismantling of state-owned enterprises proceeded apace throughout Europe in the 1980s, a more virulent form of conservatism came to power in the United Kingdom and the United States under the leadership of Margaret Thatcher and Ronald Reagan. While Thatcher pursued privatization eagerly – since State ownership of industries had never happened in the U.S., there wasn’t much for Reagan to privatize – Thatcher and Reagan went further and argued that all forms of government involvement in the economy should be abolished, including governmental regulation of businesses such as the financial industry and government operation of social welfare programs.

Thatcher and Reagan were largely unsuccessful in carrying out this agenda, but they caused a great deal of damage in their attempt to do so. They implemented a broad program of deregulation, some of it justified but most of it not. As we have seen in the past few months, the consequences of deregulation have been a financial meltdown and the worst economic crisis since the Great Depression. The lesson that has been taught in the past year with brutal effectiveness, is that the answer to regulations that are misguided or outmoded is not the elimination of regulations altogether; it is the implementation of better regulations.

The attempt by Reagan and Thatcher to eliminate government social programs was also a noteworthy failure, but again, much damage was done in their attempt to carry out their goal of eliminating all government involvement in the economy. Reagan implemented a series of sweeping tax cuts for the wealthiest members of American society. The idea was that this would “starve” the government so that, to use the metaphor of manic tax-cutting enthusiast Grover Norquist, government would become so small that you could drown it in a bathtub. It didn’t work out that way. While taxes got cut, government spending did not. Reagan and his acolytes learned the unsurprising lesson that cutting unpopular taxes is easy, but cutting popular government programs is hard. As a result of Reagan’s program, the U.S. government deficit exploded. The trend was briefly reversed under Clinton but returned with a vengeance under Bush II. Republicans cut taxes even more excessively than they had under Reagan. Not only did the Republicans fail to reduce government spending, but they actually increased it substantially, through programs such as new Medicare prescription drug benefits and through pursuit of two costly wars (as well as expanded military spending on unnecessary new weapons systems such as “star wars”).

As a result of this new “conservative” agenda, the U.S. became little more than a consumer nation, financed on foreign credit. In the short-run, this situation caused globalization to proceed even faster, leading to breathtaking levels of economic growth in China and the other new capitalist economies. America bought massive quantities of Chinese goods, paying for them, in large part, with money borrowed from China. This system was obviously unsustainable and not surprisingly, it crashed last fall.

Meanwhile, in the former democratic socialist countries of Europe, government funded social programs survived privatization and the demise of socialism, just as they did in the U.S. However, while the U.S. chose the path of cutting taxes and funding the government on credit, European countries paid for their social programs – which were far more generous than those in the U.S. – through taxation. However, the form of taxation that supports these programs is often overlooked and misunderstood. The right-wing meme is that the countries of Western Europe finance extensive government social programs through “Robin Hood economics”, i.e., by heavily taxing the rich and redistributing the money through government programs. That is not really the case. While many countries in Europe do have higher marginal income tax rates than the U.S., it also bears emphasis that European countries (as well as Canada) raise a much smaller percentage of their overall tax revenues through income taxes than the U.S. does. Rather, these countries raise a very large proportion of their tax revenues through consumption-based taxes, primarily the VAT. What these countries effectively do is to limit private consumption through the VAT, and redirect the money into public sector investments through government programs. As noted above, many of these countries, including the supposedly “socialist” Scandinavian countries, have also used these consumption taxes to make it possible to reduce corporate taxes, thereby promoting private sector as well as public sector investment.

As the United States and the rest of the world attempt to dig out of the rubble of last year’s financial crash, there is general worldwide consensus on a few points. A significant boost in government spending is necessary to bolster global demand in order to stave off deflation and avert the danger of depression. Increased spending on public sector infrastructure is essential in countries where it has been ignored in recent years, primarily, the United States and China. One legacy of the Republican orgy of tax cuts for the rich has been inattention to adequate spending on public sector infrastructure, a lapse that must be corrected. And most importantly, another failure of Republican anti-government policies must be corrected: updated, intelligent regulation of the financial system is a must.

One thing, however, that is not even on anyone’s radar screen is the revival of “socialism”, namely, the creation of an economic system based on government ownership of the means of production. Again, except for some isolated nuts in North Korea and Venezuela, every country in the world is now in agreement that the economy functions best through privately-owned enterprises. The only other place where socialism exists today is in the fevered imagination of the leadership of the Republican Party. In the sane parts of the world, socialism is history.

One final thought: The most important global development for the next decade will be the transition away from the inherently unstable economic system in which the United States has acted as the world’s consumer. Here, Senator Sanders is right, though perhaps not for the reasons he has argued – we can learn a lot from the countries of Scandinavia. We need a consumption-based tax in the U.S. and a concentration on developing a system that promotes both private and public investment in order to achieve long-term economic growth.

As I have promised in the past,, that is the subject for a future blog.