Krugman’s “great illusion”

Pratyush Chandra

Economist Paul Krugman in his latest column in NY Times (Aug 15, 2008) entitled “The Great Illusion” expresses his concern at the possibility that “the second great age of globalization may share the fate of the first”. And it is the recent Russia-Georgia conflict that makes him say so. To be more explicit he goes on to explain that “our grandfathers lived in a world of largely self-sufficient, inward-looking national economies — but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.”

Krugman’s above statement clearly shows his lack of any historical sense. When was that “world of large-scale international trade and investment” free of (militarist) nationalism – a mechanism to protect that “large-scaleness”? And much of the “nationalism” which destroyed that world was in fact a revolt against that “large-scale” militarism. Yes, it destroyed the Pax Britannica – it was a war against the war monopoly.

On the one hand, Krugman seems to tell that national self-sufficiency at least with regard to “the current food crisis” is at last clearly shown to be not “an outmoded concept”. But he is in fact accusing nationalism of “many governments” for “leaving food-importing countries in dire straits”. He further finds that there is a rise of “militarism and imperialism” as “it does mark the end of the Pax Americana — the era in which the United States more or less maintained a monopoly on the use of military force. And that raises some real questions about the future of globalization”. Obviously, for him, “Russian energy” and Chinese big economy are the real threats as they have the capacity to manipulate world polities and economies to submission.

Then what is the Pax Americana? Is it not militarism, imperialism and manipulation, that we witnessed throughout the 1990s and afterwards? When did war-mongering and militarist build-up end during the “Pax Americana”? Increasing manipulative capacities of other countries and their political economy at the most demonstrate a globalization of “militarism and imperialism”.

Krugman rightly questions those analysts who “tell us not to worry: global economic integration itself protects us against war, they argue, because successful trading economies won’t risk their prosperity by engaging in military adventurism”. He thinks “the foundations of the second global economy” are solid than those of the first only “in some ways”, “[f]or example, war among the nations of Western Europe really does seem inconceivable now, not so much because of economic ties as because of shared democratic values”. So euro-centric Krugman, like Stiglitz, ultimately thinks the West not to be adventurist because of its democracy, but ah! “much of the world, however, including nations that play a key role in the global economy, doesn’t share those values”. So does he think the Pax Americana to which the West has submitted is about peace and democracy, which is now being threatened by the despotic Orient?

Krugman rightly concludes that “the belief that economic rationality always prevents war is an equally great illusion”. But like any other ordinary bourgeois he thinks economic rationality can prevent war when coupled with “democratic” values of the West. Obviously he can’t see the fact that economic rationality is about competition, representative democracy is about competition, and a war is competition par excellence. They are all ultimately the same – diverse moments in the life of “social capital”(1). Krugman refuses to recognize that capital whether protected by democratic regimes or not is at constant war against labour – which needs to be divided and controlled if it is to be exploited – and Western xenophobic megalomaniac nationalisms have always been nurtured for this reason. Where is the country in the West free from state-sponsored Ku-klux-klanesque policies and activism against migrants and “the other”? The neo-capitalist regimes have learned their lessons properly – obviously at the cost of threatening the established monopolies. It is not an end of globalization, as Krugman prognosticates, but a new stage – and a more barbaric stage – of capitalist globalization.


(1) “Here social capital is not just the total capital of society: it is not the simple sum of individual capitals. It is the whole process of socialization of capitalist production: it is capital itself that becomes uncovered, at a certain level of its development, as social power”. (Mario Tronti (1971), “Social Capital“)

Neoliberal Globalization Is Not the Problem

Rick Wolff

Capitalism is. The leftists who target neoliberal globalization denounce privatization, free markets, unfettered mobility of capital, and government deregulations of industry. They propose instead that national or supra-national governments control and regulate market transactions and especially capital movements, increase taxes on profits and wealth, and even own and operate industry. “All in the interests of the people,” they say, democratically.

Yet Marx’s critique of capitalism never focused on government regulations, interventions, and state-owned industries. They were never his solutions for the costs, injustices, and wastes of capitalism. Instead, Marx targeted and stressed capitalism’s “class structure” of production. By this he meant how productive enterprises were internally organized: tiny groups of people (boards of directors) who appropriated a portion — the “surplus” — from what the laborers produced and the enterprise sold. Marx defined such surplus appropriation as “exploitation.” And, as Marx said, capitalist exploitation can exist whether those appropriators are corporate boards of directors (private capitalism) or state officials (state capitalism).

Marx opposed capitalism’s exploitative class structure of production on political, ethical, and economic grounds. He preferred a communist alternative where productive workers functioned as their own board of directors, collectively appropriating and distributing the surpluses they produced. Equality and democracy, he argued, required the abolition of exploitation as a necessary condition of their realization.

Capitalism as a system has always and everywhere gone through phases, repeated swings between two alternative forms. Private capitalism is the neoliberal, “laissez-faire” form: government intervention in economic affairs is minimized, and individuals and businesses interact largely through voluntary market exchanges. The other form is state-interventionist, “social democratic,” welfare-state capitalism: government manages the economy by regulating what the private capitalists can do or by sometimes even taking over their enterprises to turn business decisions into government decisions.

Every few decades, in every capitalist country, whichever of these two forms has been in place runs into serious economic difficulty. Workers lose jobs, incomes decline, enterprises fail, and so on. The cry arises that “something must be done.” Those feeling the least pain and making good money prefer to let the existing form of capitalism correct itself. Those hurting the most and losing money demand more drastic change. When this second group prevails politically, the existing form of capitalism is ended and the other installed. A few decades later the same drama is played out in reverse.

When a booming private capitalism in the US hit a stone wall in 1929, the country shifted over into welfare-state capitalism. When the 1960s and 1970s produced crises in that welfare-state capitalism, the country shifted over to private capitalism (neo-liberalism). Now, after thirty years of globalized private capitalism yield proliferating difficulties, too many leftists have joined the chorus that sees the only solution in yet another swing back to welfare-state capitalism. The legacy of Coolidge and Hoover was overthrown by FDR’s chorus. The legacy of the New Deal was overthrown by Ronald Reagan’s chorus. The Reagan-Bush legacy may now be overthrown by Clinton, Obama, et al. Such phased reversals between capitalism’s two forms occur nearly everywhere, varying only with each country’s particular conditions and history.

As forms, private and state capitalism are oscillating phases of the capitalist system. When one phase cannot solve its problems, the solution has been a shift to the other phase. Thus, crises of capitalism have so far avoided provoking the alternative solution of a transition out of capitalism. Yet that transition was precisely Marx’s goal. He aimed to persuade workers that oscillations between state and private capitalism were not the best solutions to capitalism’s failings, at least not for workers.

Many leftists today catalog the awful results of 25 years of neoliberal dominance: economic and social crises punctuating ever deeper inequalities of wealth, income, and power across and within most nations. They cite the burst investment bubbles, unsustainable debt explosions, collapsed credit markets, threats of recession, crumbling social services, unsafe commodity production, and so forth. They propose “solutions”: governments — national or maybe now supranational — must be recalled by a democratic upsurge to their proper role. Governments should limit, control, regulate, or replace private capitalist enterprises in the interests of the people.

This way of thinking repeats the left’s mistakes in the 1930s. Then, when private capitalism had imploded into the Great Depression, deteriorating conditions turned most Americans against the likes of Republican Herbert Hoover and toward Democratic FDR. A new era of government economic intervention took the name, Keynesian economics. However, New Deal Keynesianism always left in place the private boards of directors of the capitalist corporations that dominated the US economy. Those boards remained as the receivers of the surplus produced by their workers — the corporations’ “profits.” They used those profits to grow the corporations, to make still more profits, to pay higher salaries to top officers, to influence politics, and so on.

Welfare-state capitalism in the US imposed taxes, regulations, and limits on — and mass employment alternatives to — those private corporations. But by leaving their boards of directors in place as the receivers and dispensers of corporate profits, the welfare state signed its own death warrant. The boards of directors had the desire and the means to undo the welfare state. It took them a while to change public opinion and build a rich and powerful movement led by business to achieve their goals. In the Reagan administration and since, enabled by a crisis of the welfare state in the 1960s and 1970s, they succeeded in switching the US and beyond back to a phase of private capitalism we call “neoliberal globalization.”

Understandably, many people cannot see beyond capitalism’s two phases or the debates, struggles, and transitions between them. But leftists who see no further — who criticize neoliberal globalization and advocate a warmed-over welfare-state Keynesianism — have abandoned Marx’s critical anti-capitalist project. They have become just another chorus for yet another oscillation back to the welfare state form of capitalism.
The working classes need and deserve better than that, now more than ever.

Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006). He contributes regularly for Monthly Review.

Joseph Stiglitz’s “Another World”

Pratyush Chandra

Joseph Stiglitz is counted as one of a few dissenting economists in mainstream academia, and for some time now his dissent has been attracting quite a number of activists. He is officially invited by the “Another World is Possible” people to their meetings. Naturally he will think himself authorised to tell people how another world is possible, and what will be that world. He precisely does this job in his March column, “The EU’s Global Mission” distributed through Project-Syndicate:

“Another world is possible. But it is up to Europe to take the lead in achieving it.”

So the revolutionary project already has a vanguard, the only job left for the foot soldiers is to convince him/her/it to lead. How insightful! Any pessimism in this regard is ill-founded as

“the European project has been an enormous success, not only for Europe, but also for the world.”

Of course, like our Indian monkey-god Hanuman, Europe lacks ready self-confidence and needs a bear bard for encouragement. Stiglitz’s article does that job. Questioning the economistic common sense, he tells Europeans not to feel unconfident before the warlords in the US, as their competitors’ supremacy is baseless and phoney –

“…while GDP per capita has been rising in the US, most Americans are worse off today than they were five years ago. An economy that, year after year, leaves most of its citizens worse off is not a success.”

Moreover, the European Union’s mission is distinct, which are not laws, regulation, or phoney prosperity, but “long-lasting peace”, “greater understanding, underpinned by the myriad interactions that inevitably flow from commerce”. And “The EU has realized that dream” – “neighbors live together more peacefully”, “people move more freely and with greater security”. Stringent immigrant laws for and policing of the people from the South (this identity is very broad since it includes Black and Arab French, Muslim Europeans…) etc are perhaps aberrations, or may be the Southerners are racially ‘uncountable’ “within a new European identity that is not bound to national citizenship”.

Furthermore, Europe has mastered the competitive art of giving, and has surpassed the US –

“Europe has led the way, providing more assistance to developing countries than anyone else (and at a markedly higher fraction of its GDP than the US).”

Do we need to tell our Nobel laureate the economics of Aid, even AIDS?

Stiglitz too feels (not unlike Bush) that the world has changed during the past six years. However, he finds “democratic multilateralism” being challenged, human rights abrogated. Obviously he ignores all the contributions in grounding Bushism that earlier US governments made, especially Clinton’s, of which Stiglitz himself was a part. What if NATO was not less active earlier, Iraq too was continuously bombarded…

Stiglitz feels the need for multipolarity, and that Europe

“must become one of the central pillars of such a world by projecting what has come to be called “soft power” – the power and influence of ideas and example. Indeed, Europe’s success is due in part to its promotion of a set of values that, while quintessentially European, are at the same time global.”

Does it really matter if this whole discourse of “a set of [quintessentially European, but universal] values” seems hardly any different from Bush’s? Moreover, what are these values? First is “Democracy” – not just elections, “but also active and meaningful participation in decision making, which requires an engaged civil society, strong freedom of information norms, and a vibrant and diversified media that are not controlled by the state or a few oligarchs.”

Which formally democratic country officially denies these, and how many countries, including the EU members, provide safeguards against corporate-state monopoly over information and media? Further, the whole logic of the European monetary integration was to insulate strategic financial and economic institutions from any “active and meaningful” democratic influence, as it was considered external and an economic nuisance.

“The second value is social justice”, which is just individualism, however realized “only if we live in harmony with each other”. Does Bush deny this? The issue is rather who will establish the rules for that “harmony”.

What else?

In Stiglitz’s dream, the White Man’s burden definitely changes shoulders, but it remains the white man’s burden all the same –

“For the sake of all of us, Europe must continue to speak out – even more forcibly than it has in the past.”

Back to the old world – while the “world” remains the same – a white man’s world.