Capitalism in Crisis

Here we are in the middle of a crisis. We have millions of people without work, millions of people losing their homes, an economy that doesn’t work for the vast majority. The United States government is one of the major customers for goods and services in America. Sequestration is simply a cutback in government spending. It doesn’t take rocket science to understand that if the government, as the largest single buyer of goods and services, cuts back on the goods and services it buys, that means companies across America will sell less, and they’ll have less need of workers, and they will lay off workers. So, this is an act that worsens an unemployment that is already severe.

If you put that together with the tax increase on January 1st—and let me say a word about that. We heard a lot of public debate about taxing rich people, not taxing rich people, Republicans and Democrats, but the tax on the wealthy is small compared to the tax on the middle and lower incomes that went up on January 1st. When we raised the payroll tax here in America from 4.2 to 6.2 percent, we raised over $125 billion—huge amount of money, much more than was raised by taxing the rich—and we savaged the middle- and lower-income groups in America, those that in the presidential election both candidates had sworn to save and support. We attacked them, thereby limiting their capacity to buy goods and services because we taxed them more.

You put together the taxing of the middle and lower incomes with the cutbacks of government spending, and you’re going to do what every European country that has imposed austerity has already discovered: You’re making the problem worse. So with all the homilies that Mr. Boehner can put out there about how spending is a problem, this abstract idea doesn’t change the fact you’re making the economic conditions of the mass of people worse by these austerity steps, not better. And that ought to be put as the fire burning at the feet of politicians, so they stop talking these abstractions and deal with the reality of what they’re doing.

And I think it has to go far beyond simply reversing this austerity program, which, again, just for a word about history, back in the 1930s, the last time we had a breakdown of our capitalist system like this, we didn’t have austerity, we didn’t have cutbacks. We had the opposite. Roosevelt, in the middle of the ’30s, created the Social Security system, went to everybody over 65 and said, “I’m going to give you a check for the rest of your life.” He created the unemployment compensation system, giving all the unemployed for the first time checks every week for a year or two. And he created a public employment program and hired millions of workers. It’s the opposite of austerity. So any politician who says, “We must do this, because there’s no option,” has forgotten even the American history of not that long ago.

So, the first thing I would do is go in that direction—not austerity, but its opposite. But I want to go further, because I think our problem is deeper. This crisis wasn’t supposed to happen. When it happened, it wasn’t supposed to last a long time. All of that has been proven false. The problems run deep. And I think what we have to do, and what that book tries to do, is to talk about reorganizing our economy so that for the first time we can say we’re not only going to get out of this crisis, we’re taking the kinds of steps that can prevent us from having them over and over again as our unstable business-cycle-ridden economy keeps imposing on us. So, for me, it’s the more profound change that we finally have to face, painful as it is. After 50 years of a country unwilling to face these questions, I think we need basic change. And that’s what I spend most of my time stressing.

not that Roosevelt did everything correctly, and not that he’s a genius or any of that, but to take some lessons from those people in our country before who took steps that were successful. Roosevelt didn’t plan on doing this when he first took office. He had pressure from below. The CIO, the biggest union-organizing drive in American history, never had anything that successful before.

And with the socialist and communist parties, who were strong at that time, working with them, they organized millions of Americans into unions who had never joined a union before, and they pushed from below in a very powerful way. And they changed Mr. Roosevelt, showing that politicians, if subject to pressure from below, can change—same lesson that Cyprus has just taught us yet again. So, my response is: Learn from that. Roosevelt went on the radio to the American people and said, basically, “If the private sector either cannot or will not provide work for the millions of Americans that need and want to work, then it’s my job as president to do it.” And he did it.

And I think Mr. Obama could and should overcome whatever has made him hesitate. We in this country not only don’t have a federal employment program, the Republicans and Democrats haven’t even put it on the floor to debate it as an important issue, even though it comes out of our own history. So I would say, put us—put our people to work. They want to work. The Federal Reserve says 20 percent of our tools, equipment, factory and office space is sitting idle, unused. So we have the people who want to work; we have the tools, equipment and raw materials for them to work with. And lord knows we need the wealth they could produce. Put them to work, and make it a national issue that that happen.

Roosevelt went to the wealthy, and he went to the corporations, and he said to them, “You must give me the money to take care of the mass of people, because if you don’t, we’re going to have a catastrophe in this country. We’re going to have a social revolution.” My argument is, let’s go back to the same tax rates that Roosevelt imposed, or at least in that neighborhood, which is much higher on wealthy people and much higher on corporations than we have today. That’s what he did. That’s how he funded it.

And in case our politicians are worried, let’s remind them: Mr. Roosevelt, who took those daring steps, was re-elected to be president four consecutive times, the most popular president in American history. It’s not a dead-end political decision. It’s the best decision a president could make to leave his legacy in history, that, we are told, our presidents care so much about.

In 2008, our banks failed—all of them—the way the Cyprus banks failed and for very similar reasons. They took in a lot of depositors’ money, and they made risky bets they shouldn’t have made, and they failed, and so they didn’t have the money to honor their obligations, and they turned to the government for a bailout. And when the government hesitated, because it’s public money to bail out a privately failed bank, they were told, in another kind of blackmail, “We’re too big to fail. If you don’t bail us out, we will collapse and take the entire economy with us.” And that was a persuasive argument. Particularly after they allowed Lehman Brothers to fail and that nearly did take the economy with it, that was a convincing argument.

You would have thought they had then learned the lesson about the problem of a too-big-to-fail financial institution. If you thought that, you would have been wrong, because the same banks that were too big to fail in 2008 are, all of them, bigger today. So we didn’t learn the lesson. We didn’t break up the banks. We didn’t limit, control their growth. They’re bigger now than they were then. And in a sense, maybe shame on them the first time, but having allowed this to happen, it’s shame on us.

Number two, we seem to need, as a nation, to believe that we have the power to control, limit or regulate, whether it’s the Glass-Steagall Act that came out of our disaster of the 1930s or the Dodd-Frank Act, which came out of the disaster that started in 2008. We seem to want to believe we can leave in place private banks, no matter how big they are, and hedge them about with regulations. The proof of the Whale trades in London, the proof of everything we know, is that these banks have the money, the staff, the resources to work their way around the regulations at least as fast as we impose them on them. That’s what these hearings fundamentally show. They can make trades that are too risky. They can lose wild amounts of money. They can turn to the government and demand to be helped and bailed out each time. And they get it. We are telling them, in a classic example, “Look, do whatever you want. You don’t have any risk of fundamental failure and punishment.” Regulation doesn’t work, because we believe in place an entity, a large corporation, with the money and the incentives to get around it.

When I say that the big corporations, particularly the banks, have the resources and the incentives, I’m being polite. Yeah, part of the resources are going into literally making sure that the political regulator is a good friend and understands the complexities. In simple English, they are buying their way into the situation we watch, which is: “We will pretend to be regretful. You will pretend to be protecting the public. You will make regulations that we help you write so that we can get around them.” It is something that ought not to be allowed to continue, because we’re living the economic crisis that comes from that way of doing business.

We have banks that are literally telling us, because we know from our controls that they are trying, even, to regenerate it. They’re trying to get people to borrow more money again. We’re not changing the wage structure of America, which means that Americans are required to go into debt to supplement their wages. You know, the irony is, we are trying, in the language of some of these folks, to kickstart our economy, to get it going again. But the problem is, our economy was a train heading into a stone wall in the first years of this century, and if we get our economy going again, without fundamental changes, what we’re doing is putting that same train back on the track heading towards the same wall. Cyprus shows us what’s happening.

But we don’t have to take just small countries. Take Great Britain, our classic ally. Their economy is now in the second or, in some people’s minds, the third recession within the crisis since 2007. They are following an austerity problem—process exactly like that supported by Mr. Boehner, and the economic downturn in Great Britain is catastrophic for that society. And so, we have this image of a future for us, if we don’t make fundamental change, but everyone wants to put it away and pretend that we can let it go by itself or a few regulations will solve the problem. They haven’t. They’re not doing it now elsewhere. That’s not a strategy we should pursue in this country, either.

A Cure for Capitalism. What I mean is a change in the enterprises that produce the goods and services we all depend on and provide the jobs we all need and want. I think those have to be, in a fundamental way, democratized. So let me begin in that way.

We live in a country that says it goes to war around the world to bring democracy and that its central, most important political value is democracy. If you believe that—and I am a fervent supporter of democracy, and obviously you are—you’ve named your program that way—then we ought to have democracy in the place where we as adults spend most of our time. Five out of seven days we go to work. We walk into a place where we use our brains and our muscles eight or more hours, five out of seven days. If democracy is an important value, it ought to be right there, first and foremost. But we don’t. We basically have a situation where, for most of us, we go to work in a place where the decisions that are made are made by a tiny group of people. The major shareholders who own the block of shares in our system select a board of directors, 15 to 20 people, and they make the basic decisions: what to produce, how to produce it, where to produce it, and what to do with the profits. The rest of us must live with the results of that decision.

So if that tiny group of people make a decision to close the factory in Cincinnati or the office in Atlanta and move to Shanghai, the chips fall where they may. If they decide to use a toxic technology that’s not good for the air and water but is good for the profits, they do, we live with the results. And when they decide to take the profits of their business and to give enormous pay packages to a handful of top executives and big dividend payouts to their shareholders, which of course they do, since they’re in a position to do it, and the rest of us suddenly have to take out absurd debts to get our kids through college, then that’s the inequality of income and wealth that we have in America.

So, I look at this decision-making apparatus, I say, “Why are we surprised that they make the decisions the way we do—they do?” We all live with the results, and we have no say in how those decisions are made. It’s not democratic. That’s the first thing. But the second thing is, we’re now in five years of economic crisis that indicate that way of organizing the decisions doesn’t work for the mass of people. It works for them. The stock market’s back. The profits of big corporations are back—surprise, surprise—given who makes the decisions. But we are left.

And so, for me, the solution is, let’s face this. Let’s build an option, a real choice for Americans, between working in a non-democratic, top-down-organized capitalist enterprise or in what, for lack of a better term, we can call “cooperatives,” workplaces that are organized democratically. I think we’ll have less inequality of income, we will have less pollution of our environment, and we’ll have less loss of jobs out of the country, if those decisions were made by the people, as they should have been from the beginning, who will not make the kinds of decisions that got us into the mess of economic crisis that we’re in now.

the model of Mondragon is so interesting, not only because it’s a real co-op, where the workers make the decisions—what to produce, how, where, what to do with the profits. And just to mention one of their achievements, they have a rule that the highest-paid worker cannot get more than a maximum of eight times the lowest. In our society, it’s typical in our large corporations that the CEO gets 300 to 400 times what the lowest worker. So, for those of us that are interested in a less unequal society than what we have here in America, the lesson is, if you cooperatize your enterprise, that’s a sure route to get there. And we haven’t found any other route that is just as effective.

So, the importance of Mondragon is, they start in the middle of the 1950s with a Catholic priest, Father Arizmendi—I always have to remember it—with six workers in the north of Spain, desperately trying to overcome the unemployment there. And here we are over a half a century later. Having to compete with countless capitalist enterprises, they won that competition. Trying to grow, they have a growth record that would be the envy of any capitalist corporation. They went from six workers in 1956 to 120,000 workers today in Spain.

And they are making everything. They make dishwashers. They make clothes washers. They raise rabbits on farms. They do high-tech research, together with General Motors and Microsoft as some of their partners there. They do an immense array. They’re really a family of 200 to 300 co-ops that are united within the Mondragon cooperative corporation. So they’ve shown the ability to grow. They’ve shown the ability to adapt. They’ve shown their competitive power. They’ve shown all the different ways that a corporation can develop without a top-down hierarchical, undemocratic structure. So we don’t have to choose between effectiveness, growth, job, security, and a cooperative structure. The cooperative structure can be a way to get there.

Here in the United States, we have lots of such co-ops developing. There’s one even named after Father Arizmendi in California in the Bay Area. There are six Arizmendi bakeries and coffee shops that were set up on that model. They started with one; they’re now six. Hint: They’ve grown. And you can do this. And all over the United States, there are these efforts, often done by people who want a different kind of life. They want to be in charge of their own job. They want to have a sense of control and a sense that they’re not just a drone doing the work, but they’re part of the folks who design and direct. It brings out new capacities. It makes you more happier to go to work. It’s a more satisfying job life than you would otherwise have. So I think it recommends itself on all kinds of levels.

One other example, we can learn something from a country called Italy that we admire for its cuisine and its lovely countryside. They have a law there, passed in 1985, called the Marcora Law after the name of the legislator. Here’s what it does. It offers a choice to unemployed workers. You can take a dole every week, an unemployment check, the way we do in this country, or you have an option, an option B that we don’t have. If you get at least nine other workers to make the—unemployed workers, like yourself, to make the following choice, here’s what you can get. As a lump sum, you can get your entire unemployment program of two years of checks in your hands right at the beginning; you have to have nine other workers or more, and you have to use that money as the start-up capital for a cooperative enterprise. The idea of the Italian government was, if we give workers this to set up a job and an enterprise, they will be much more committed to it than they would if they didn’t have that role.

But they know those workers have an incentive, because if they don’t make that work, they can’t go back and collect unemployment. That’s what they got. The government doesn’t spend much more money than it would have anyway, but it creates jobs, and it creates workers committed, because it’s their enterprise, to make that work as their personal solution and as a way not only for them to survive, but for the whole of the Italian society for the first time to see what it’s like to have an enterprise where you run the affair.

You know, here in America, we want to believe in freedom of choice. Let’s give our people freedom of choice. They can have the choice to go work in a top-down, capitalist enterprise—what we’re used to—but if we develop the alternative, really a program of co-ops around the country, then American young people and older people could say, “What would it be like to work there? Let’s see what that’s like.” And then we would have the choice we do not have in this country now.

If you want to refer to things as nanny states, then the place you go in Europe is not the southern tier—Portugal, Spain and Italy; the place you go are Germany and Scandinavia, because they provide more social services to their people than anybody else. And guess what: Not only are they not in trouble economically, they are the winners of the current situation. The unemployment rate in Germany is now below 5 percent. Ours is pushing between 7 and 8 percent. So, please, get your facts right, Mr. O’Reilly. The nanny state, you call it, the program of countries like Germany and Scandinavia, who tax their people heavily, by all means, but who provide them with social services that would be the envy of the United States—a national health program that takes care of you, whether you’re employed or not, and gives you proper healthcare. In France, for example, the law says when you go to work, you get five weeks’ paid vacation. That’s not an option; that’s the law. You get support when you’re a new parent for your child care and so forth. They provide services. And they are successful in Germany and Scandinavia, much more than we are in the United States and much more than those countries in the south.

So they’re not broken, the south, because they’re nanny states, since the nanny states, par excellence, are doing better than everyone. The actual truth of Mr. O’Reilly is the opposite of what he says. The more you do nanny state, the better off you are during a crisis and to minimize the cost of the crisis. That’s what the European economic situation actually teaches. He’s just making it up as he goes along to conform to an ideological position that is harder and harder for folks like him to sustain, so he has to reach further and further into fantasy.

I think that there’s a set of fundamental reorganizations. When you have a private banking system in the United States, the way we did up until, say, the 1970s and ’80s, you had it in a position relative to the economy that made a certain sense. But over the last 30 and 40 years, for a whole host of reasons, we have made debt a central part of the economy. Today it is not unusual for a person who goes into a grocery store to get a bottle of water to use a credit card, basically to make a loan in order to buy that bottle of water. Everything that consumers do is now mediated by debt. Everything corporations do, and as we look around the world, the governments are in debt. Debt is everywhere. It has become the water we swim in, the air we breathe. That puts the banks in an unbelievably powerful position, because they’re the repository of the means to borrow. If we’re going to make an economy dependent on debt, we can’t leave the power to control in the private hands of banks. Either we don’t become a debt-ridden country, or we make borrowing and lending a social program. We can’t allow private banking. It doesn’t work. It needs to be changed.

I’m a product of the elite top of the American university system. I went to Harvard as an undergraduate. Then I went to Stanford in California to get my master’s degree. And then I went to Yale to get my Ph.D. So, by the normal standards of this profession, I’m the elite product of these institutions.

I was always struck that as I went through these schools, studying history, politics, economics, sociology—the things that intrigued me—I was never required to read one word of Karl Marx. And I remember telling that to my father, who looked in stunned disbelief at the very possibility that an educated person going to such august universities would not be required to at least read people who are critical of the society, simply as a notion of proper education. So with a father like that, it wasn’t so surprising that I went and found ways that individuals who were on the faculty sometime could, out of the classroom, teach me, take me through the great classics of critical literature, whether it was Marx and Engels themselves or Antonio Gramsci or George Lukács or all of the other—Rosa Luxemburg, the great thinkers of the critical perspective. So, I got excited about learning that on my own.

Then I discovered that these people are full of interesting insights about our society, and I should have been asked to read them. And the more I read it, the more I realized that I wanted to be an economist, but one who had a toolbox not only with the conventional stuff that I was learning in my university classes, but also with the nonconventional stuff. And, you know, over the last 40 years in America, it’s a sort of a sad comment, but if you’re interested in Marxism, then people look at you as if you either are a Marxist, or worse, some sort of caricature of a Marxist. So I always have said I use Marxist theory, I find it very insightful, I think it’s a shame that other people don’t have it, and I think it’s made me a better economist when it comes to writing and teaching than I would have been without that. And I think that would be the same for my colleagues, and that it’s a deficiency of theirs that the education didn’t do it.

I use a metaphor to get it across. If you wanted to understand the family down the street that had mommy and poppy and two children, and you wanted to really understand that family, and you knew that one child thought it was the greatest family the world had ever seen and the other child thought it was a psychologically dysfunctional group of people, what would you do? Would you talk to only one child, or would you talk to two? Clearly, you’d make up your own mind. You’d draw your own conclusions. But why in the world wouldn’t you speak to both of them, if you wanted to understand the family? Capitalism, our system, is the same. It has the people who celebrate and love it—and I, by all means, think you ought to read what they have to say. But you also have a large group of people who are very critical, and it is self-destructive of your own understanding not to expose yourself to what they have to say.

I would even go so far as to say one of the reasons this crisis we’re in now is as bad as it is and is lasting as long as it does, despite everyone’s prediction we wouldn’t have this again, is precisely because the people in charge of doing something about it, Republicans and Democrats alike, have no clue about the long, critical literature. Had they studied it, they would have been aware of the flaws and the faults in the system, would have been thinking about how to fix and improve upon them. We’d be in better shape to manage the crisis of capitalism if we hadn’t blinded ourself to the whole critical tradition, the chief of which is Marxian theory.

for 40 years, up until around 2010, the media dealt with me as if I were a strange, odd, marginal character. I would be invited to interviews, and the host or hostess would say, “Today we have one of those,” with big eyes. And the next thing would be: “Aren’t I a wonderfully liberal, open-minded host or hostess to have one of those on my program.” By that time, the audience had effectively been inoculated against whatever I would say.

All of that changed in the last two years. Suddenly, I am on the radio, on television. My work gets published left and right. My story hasn’t changed that much, but the audience, the American people, have changed. And whatever people say and think about the tea party and all that that represents on the right-wing end of the spectrum, I can tell you from my personal life that the openness, the interest, the sympathy for what I have to say—not always agreement with me, by all means—but the openness is extraordinary and bespeaks big changes happening below the radar in the consciousness of the American people and gives me lots of hope and lots of optimism about what’s possible here.

The wealth is concentrated more. That’s bad. But the awareness, the resentment, the notion this is not tolerable, that’s also developing at the other end of the spectrum. That’s where my hope is coming from. I see people willing to talk about it, willing to face it, willing to question our economic system, interested in critical perspectives because they’re puzzling it out themselves. That’s where my hope comes from.

The biggest mistake, in my judgement, was thinking you could have a new world by simply changing who owns the means of production, from private to public, and how you distribute goods, from markets to planning. Whatever the virtues and defects, that doesn’t change life on the ground, the change in the daily work activity of people. That’s why I focus so much on changing the enterprise, because in the Soviet Union the joke was, the day after the revolution, we still went to work at 8:00, worked our tails off, produced a profit, a “surplus,” they called it, which was taken by a bunch of bureaucrats, whereas before it was taken by a bunch of board of directors. Where are we in the story? We’re still the drudges doing the work.

So, for me, the democratization of enterprise, creating co-ops, is a way to make the revolution in the daily—anchor it in the daily life. Give the workers themselves the control over what they produce, and make the government dependent on them, so we don’t have them dependent on the government, which in a sense is the basic critique of what happened in Russia and China. So I think you use Marxian analysis to critique even those experiments using Marxism that you think went astray.

— source democracynow.org

Richard Wolff, emeritus professor of economics at University of Massachusetts, Amherst, and visiting professor at New School University. He hosts a weekly program on WBAI 99.5-FM called Economic Update every Saturday at 12 p.m. ET. He is the author of several books, including, most recently, Democracy at Work: A Cure for Capitalism.